Morning Ed: Anglosphere {2016.03.17.Th}

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Will Truman

Will Truman is the Editor-in-Chief of Ordinary Times. He is also on Twitter.

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  1. Avatar Damon
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    says:

    Free movement: Well, they are all historically colonies aren’t they? Makes sense. Not for us though. We’re the rebels.

    Canada: Everyone likes americans. They just don’t like america’s foreign policy or our leaders.

    Retirement: Money quote: “It is no different than fire insurance.” LOL no it’s not. SS is a transfer mechanism. There is no investment of the payments. It functions just like a ponzi scheme.

    Leaving the us: You want “depression and rain”, go to Seattle. All the comforts of a foreign land, you’ll be with all your liberal / leftish friends, and still in the us.Report

    • Avatar Joe Sal in reply to Damon
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      says:

      “don’t like america’s foreign policy or our leaders.”
      ha, we could say the same?Report

    • Avatar Morat20 in reply to Damon
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      says:

      It functions just like a ponzi scheme.

      That’s one of those phrases, like “taxation is theft”, that pretty much signals the end of productive conversation.Report

      • Avatar Damon in reply to Morat20
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        says:

        Ponzi Scheme: “a fraudulent investment operation that pays quick returns to initial contributors using money from subsequent contributors rather than profit”

        SS is often portrayed as an investment, even with a “lock box”, neither of which it is. Earlier “investors” receive payments from later “investors”. The only part of that description is the “quick” because you have to wait for retirement. The system is only sustainable as long as there are more workers paying into the system than retirees taking out. This pretty accurately describes a ponzi scheme. It’s not perfect, but it’s “good enough for gov’t work.”

        Oh, and taxation IS theft. Guess the convo is over then.Report

        • Avatar Chip Daniels in reply to Damon
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          says:

          The system is only sustainable as long as there are more workers paying into the system than retirees taking out.

          Completely different than fire insurance.Report

        • Avatar Francis in reply to Damon
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          says:

          To be accurate, SS is an inter-generational transfer scheme that (a) owns 3 trillion dollars worth of T bills, the safest security anywhere on the planet and (b) can be sustained indefinitely with relatively minor adjustments to inflows and outflows.

          It is most closely comparable to an annuity, but is far safer.

          No, it is nothing like a ponzi scheme.Report

          • Avatar Damon in reply to Francis
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            says:

            Yes, those “minor adjustments” are generally called “default” in the non gov’t world. SS doesn’t “own” anything. It’s assets are another gov’t branch’s liabilities. Given the history of SS to “default”, ie change the rules and payments in the middle of the game, it’s untrustworthy and certainly not as reliable as a annuity that’s actually invested in real assets and has a real return.Report

            • Avatar Troublesome Frog in reply to Damon
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              says:

              SS doesn’t “own” anything. It’s assets are another gov’t branch’s liabilities.

              All assets are just somebody else’s liabilities. For a sufficiently broad definition of “ourselves” all debt is just money we owe ourselves. That doesn’t make the concept of assets and liabilities meaningless. As long as the people paying the money are different from the people receiving the money, it’s a very real concept, even if you draw a circle around those two sets of people and pretend that they’re one unit.Report

              • Avatar Damon in reply to Troublesome Frog
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                says:

                ” As long as the people paying the money are different from the people receiving the money”

                But it’s not. It’s the same entity. The federal gov’t.Report

              • Avatar Francis in reply to Damon
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                says:

                Can’t have it both ways. If SS is the federal government, then SS can be fully funded so long as the taxing power exists. (If you don’t want to raise taxes, the spread between future expected inflows and outflows can be covered relatively easily through cuts in defense spending or reductions in Medicare payments to doctors, hospitals and drug companies.) If SS is not the federal government, then it owns a $3 trillion portfolio of very safe debt.Report

              • Avatar Damon in reply to Francis
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                says:

                SS is not “funded”. Since it’s a transfer process, there is no funding. It’s not like it’s an investment.Report

              • Avatar Troublesome Frog in reply to Damon
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                says:

                The fact that the Federal Government collects the money and pays it out doesn’t change the fact that the payers are current taxpayers and the recipients are current beneficiaries. There may be some overlap in those classes, but they’re largely separate.

                You’re simply choosing to draw a circle around an arbitrary portion of the flow and call the debt instrument meaningless. If I draw a circle around the entire planet, it doesn’t invalidate the concept of debt simply because I’ve framed it as just “humans owing themselves money.”

                Let’s think of it this way: Suddenly we “privatize” Social Security and turn it into a pension plan that holds 100% US government debt. They payers of the debt and the recipients of the pension’s payments are ultimately the same as they were before, but it’s under new private management. Does the change in ownership of the pension plan suddenly make those bonds into real assets?Report

              • Avatar Damon in reply to Troublesome Frog
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                says:

                Actually privatizing SS would have a big impact. You’d actually have “investments” that would, at least, have the possibility of appreciation. Holding short term treasury debt is almost akin to holding cash, especially given the current interest rate environment. If you held only that as a private account you’d have less money than when you started.

                “The fact that the Federal Government collects the money and pays it out doesn’t change the fact that the payers are current taxpayers and the recipients are current beneficiaries. There may be some overlap in those classes, but they’re largely separate.” I’m not talking about the recipients or payers. I’m talking about the gov’t. It makes no sense to draw the lines smaller than “the federal gov’t”. That’s foolish.Report

              • Avatar Troublesome Frog in reply to Damon
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                says:

                Actually privatizing SS would have a big impact. You’d actually have “investments” that would, at least, have the possibility of appreciation.

                That’s not the question I asked. I asked whether a government IOU becomes an asset if the account it’s held in is private, not what the yield of alternative assets was.

                It makes no sense to draw the lines smaller than “the federal gov’t”. That’s foolish.

                You’re saying that, but there’s no real explanation as to why. The answer to that may be clearer if you can explain your model for my original question: What’s the difference between a public pension plan full of government IOUs and a private pension plan full of the same government IOUs? It seems to me that they’re both either nonsense or they’re both fine, but it seems like you think there’s an important difference.

                Ultimately, I see the question of Social Security to be a simple one of how big the benefits are. The idea of people who are young enough to work taking care of people who are too old to work is not a new one. The only real question is whether we’re rich enough that the way we do it can go from the old solution of grandma living in a spare room and eating meals with the family to the modern one of grandma living on her own. Questions of whether government debt is ‘real’ seem like a silly definitional game unless it turns out that the tab for social security payments is actually being picked up by current social security recipients.Report

          • Avatar j r in reply to Francis
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            says:

            To be accurate, SS is an inter-generational transfer scheme that (a) owns 3 trillion dollars worth of T bills, the safest security anywhere on the planet and (b) can be sustained indefinitely with relatively minor adjustments to inflows and outflows.

            That’s actually not particularly accurate. The SSA doesn’t own t-bills, which would be a bit silly and a huge asset-liability mismatch. The SSA owns IOUs from the U.S. government, which from an accounting perspective is a fiction. Opinions will vary on how closely this resembles a Ponzi Scheme.

            On the positive side, U.S. government IOUs, whether they be Treasury securities or Federal Reserve notes, do tend to have a long term value pretty close to par. On the negative side, who’s to say how long that will continue to be the case.Report

            • Avatar Morat20 in reply to j r
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              says:

              More interestingly, that solution wasn’t pulled from a hat or picked on a whim.

              Prior to the Boomers, you didn’t need to carry a balance. SS has always been basically a straight up transfer from young to old, a retirement subsidy. (Put into place to solve, among other things, the problems of elder poverty). Now everyone accepts it because paying into it under the understanding that your turn as retiree will come keeps support high. It’s also pretty much immune to things like “hitting retirement in a recession and your 401k dying, if you even have one).

              With the Boomers, though, the government was faced with a rather vexing problem: How do you save trillions of dollars over a thirty year period, then pay it back out over ten or twenty, without distorting the economy or the market?

              Well, you….raise taxes on the Boomers and cut capital gains and upper bracket taxes. Those worthies get a 30 year tax break (the proceeds from which, of course, those worthies would be free to use as they see fit and of course would see returns far better than the government’s T-bills — free market, right?). Total tax receipts and spending remains stable. You funnel in that extra money straight into the General Fund because the idea is to not rock the boat.

              Then when the Boomers retire and SSA needs to redeem the T-bills, you raise taxes back.. It was effectively a generational loan, and again you’d have a relatively level situation — the extra money flowing in would roughly balance with the extra money flowing out.

              Nice and neat.

              With one predictable flaw, of course. From the perspective of one group, the ideal situation would be…to keep the new low rates forever. I mean, let’s face it — what if you could take out a loan and then convince the bank not to want it’s money back?

              Then again, I’m not sure what choice they had back then. It’s not like you could toss it into the market, and if you didn’t keep the reciepts steady you’d end up with a decades-long push on the market as money. Worst case, you’d have the government building up a huge cash balance. Cash that wasn’t flowing around doing anything useful.

              And given this deal was in 83, with stagflation not exactly a distant memory, the concept of accidental economic distortion was on people’s minds.

              (Which made me always wonder about privatizing SS. Wouldn’t that be an extremely large amount of money to dump on the market? I’d think there’d be some serious potential problems there. We’ve got bubble problems as is…)Report

              • Avatar Jaybird in reply to Morat20
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                says:

                I keep wondering what’s going to happen when we have more Baby Boomers beginning to empty their 401ks than Millennials/Xers filling their own.

                That’s a lot of downward pressure.Report

              • Avatar j r in reply to Jaybird
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                says:

                That may be a problem for the 401k industry, but I don’t see how it’s a real problem for the larger economy or even the equities market.

                If boomers start selling stocks, what will they do with the money? Some of it will go to taxes. Some of it will go into bonds and other fixed income securities. And some of it will finance consumption. All of those things should fuel future economic growth, which in turn should fuel the profitability of U.S. firms. So long as U.S. firms have profitable activities into which to direct investment, investors will show up looking for return.

                If the only thing driving the price of U.S. equities is the belief that some sucker will come along and pay more, then we have a much bigger problem than Baby Boomers retiring.Report

              • Avatar Jaybird in reply to j r
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                says:

                It’s certainly not the only thing, no, but it is a decrease in demand. A decrease in demand will put downward pressure on stocks. If it’s not met by an equal amount of upward pressure in demand, the prices will go down. This will, I assume, increase the whole “maybe we need to cash out of our 401k” thought process which will, again, put downward pressure on demand.

                I’m not saying that the entire stock market runs on the “even bigger sucker” theory but merely that retiring boomers turns the market from a seller’s market into a buyer’s market.

                But maybe you’re right.

                Maybe there is nothing to worry about.Report

              • Avatar j r in reply to Jaybird
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                says:

                A decrease in demand will put downward pressure on stocks. If it’s not met by an equal amount of upward pressure in demand, the prices will go down.

                I’m not an asset manager or a financial economist, so take what I say with a grain of salt, but I don’t think that is right. The simplest stock pricing models aren’t based on some estimate of future demand; they’re based on the fundamentals of the company. You look at the balance sheet and the other financials, decide what the company is worth right now and how much it might be worth at some point in the future, and you divide that number by the number of outstanding shares. If the value is higher than the price, you buy. If not, you sell. Over the long-run, the demand for an asset is derived from its expected return and not vice versa.

                In the short run things are different. There is a certain correlation in asset prices, so yes, if investors start selling en masse then there is most likely going to be a fall in asset prices. But we’re not talking about a massive selloff. We’re talking about a gradual shift in the composition of Baby Boomers’ assets.Report

              • Avatar Morat20 in reply to Jaybird
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                says:

                I wonder about that myself. But I don’t think enough people really use 401ks…

                Even if it’s a problem, it probably would just be with the boomers.

                Unless the millennials can’t ever afford to save, given they’re all stuck paying for college. (Fun fact: My kid decided to spend his first two years at a community college, which is very reasonably priced and not in any way an outlier. He’s spending, a semester, somewhere between 4 and 5 times what I was back in the 90s. Same college, in fact. I spent a year there between my “blowing a full ride because I’m was an 18 year old moron” and my “got my crap together and got serious about education” period).

                Which, by what I recall, puts a semester at community college NOW at roughly what a semester at Texas A&M or UT cost in the 90s. (Not counting room and meal plans. Classes and fees only).

                That seems…wrong.Report

              • Avatar j r in reply to Morat20
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                says:

                Then when the Boomers retire and SSA needs to redeem the T-bills, you raise taxes back..

                This is inaccurate. The SSA doesn’t own any “T-bills.” There is nothing to redeem in the ordinary sense of the word. What the Social Security Trust Fund has is the promise that when the bill comes due, the U.S. government will find a way to pay it.Report

              • Avatar Morat20 in reply to j r
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                says:

                Promises written down on paper that looks identical to T-bills except being bearer restricted.

                I know people like to think it’s just an IOU scratched out on a sticky note, but I wouldn’t want to be invested in T-bills if those morons actually get to treat it like that.

                “It’s just an IOU” ranks up there with “Ponzi scheme” as “There’s no point in talking about it” because saying it means you’re interested in slogans rather than discussion, at best.Report

              • Avatar j r in reply to Morat20
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                says:

                Promises written down on paper that looks identical to T-bills except being bearer restricted.

                The difference is more fundamental than that. A bond is a promise to pay a debt and the benefit of a marketable bond is that it can be priced on a market. What the SSA holds is nonmarketable. It’s less a promise to pay a debt than a promise to borrow more once the bill comes due. That distinction doesn’t make those securities worthless, but it certainly matters.

                I purposefully avoid talking about IOUs and Ponzi Schemes, because it takes away from the underlying economic realities.
                And the underlying economic reality is this: the United States has a significant long term fiscal sustainability problem and Social Security and, to an even greater extent, Medicare and Medicaid are implicated. There are lots of different solutions to these problems, but they all have one thing in common. They all require a write-down in the NPV of future benefits and the realization that we are not as wealthy as we had previously assumed.Report

              • Avatar Damon in reply to j r
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                says:

                “a write-down in the NPV of future benefits”

                Yeah, also called a default.Report

  2. Avatar North
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    says:

    Yeah they’ve been chitchatting about a free movement zone for ages, like since WWII at least.Report

  3. Avatar Michael Cain
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    says:

    When you look at the bottom chart, it’s clear that the Utah metro areas have a larger middle class because they have a significantly smaller upper class. Compare the SLC metro area to similar western metros like Denver, or Portland, or Seattle, all of which have comparable (or slightly smaller) lower-class percentages, and all three have much larger upper-class percentages. I expect the Wasatch Front to continue to get richer, and the middle-class percentage will shrink as the upper-class grows.Report

    • Avatar Saul Degraw in reply to Michael Cain
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      says:

      Is this because the middle class in those areas is getting wealthier or because they are being pushed out the exurbs and rural areas?

      This is a hot topic in income inequality. A lot of libertarians seem to be arguing that the middle class is disappearing because they are getting wealthier. The left on the other hand feels like the middle class is disappearing because they are growing poorer.

      I wonder if this is something where both things can be true, depending on profession, etc. Professors used to be middle class but now live closer to poverty or in poverty because of adjunctification. Same with no-profit workers, journalists, social workers, legal aid lawyers, etc. I also think that the boomers took a lot of the low hanging inner suburban and early gentrification property and are sitting on it. This forces Gen X and Millennials into renting longer or going further out.Report

      • Avatar Michael Cain in reply to Saul Degraw
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        says:

        I agree that there are a number of factors.

        I confined myself to western metro areas in order to more-or-less control for some of those. The MSAs are defined by counties, and all four include much of their “exurb” areas. All four have significant constraints on their ability to grow geographically (Denver-Aurora-Lakewood’s constraints include some cultural effects — while Aurora could conceivably grow for hundreds of miles to the east, almost no one who moves to the Front Range wants to live too far from the mountains). All four have experienced rapid growth — the Wasatch Front has lagged behind but is now catching up. The only one of the four states that I have real experience with is Colorado, but suspect that the others are similar and work to encourage creation of jobs that require more education and pay better. I know we’ve got Oregon and Washington residents among the regulars here — feel free to enlighten me. How much effort do Oregon and Washington make to attract minimum-wage jobs? How much effort to discourage them?

        My expectation is that over the next 25 years, the Utah MSAs will get richer, and see the middle class shrink as people move up.Report

      • Avatar Alan Scott in reply to Saul Degraw
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        says:

        Saul Degraw: Professors used to be middle class but now live closer to poverty or in poverty because of adjunctification.

        Um, no. Professors used to be well paid members of the middle class, and are now less well paid members of the middle class. Poverty is still several steps below that. Ditto most of the rest of your list. Now, unemployee people who want to be professors or journalist etc. might be in poverty, but that’s equally true of unemployed people who want to be engineers or business executives or professional athletes.Report

        • Avatar Kim in reply to Alan Scott
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          says:

          Dude, I was paid more than the professors that hired me, half the time.
          And I wasn’t being paid that much, trust me.Report

        • Avatar Kazzy in reply to Alan Scott
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          says:

          Do we have income data on those groups? I bet we do!Report

        • Avatar KatherineMW in reply to Alan Scott
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          says:

          Full-time, tenured profs do well. Associate profs and adjuncts (who rarely have full-time work) tend to be very low-paid, and downright poor.

          But that’s not the primary reason for the decline of the middle class, I think, so much as the destruction of unions in most of the private sector, and the transition from a manufacturing economy to a service economy. The single most common occupation in Canada is “retail salesperson”, and they’re not paid well, nor is it (for most people) a particularly enjoyable or fulfilling job. The reduction in the number of full-time jobs and the increase in short-term and temporary jobs (which account for about half of Canada’s working population) – which is also related to the decline of unions – has also has a major effect.Report

  4. Avatar veronica d
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    says:

    Canada: Setting aside the issues of French speaking Canadians (of which I do not know enough to comment), it really doesn’t feel like we’re a separate “people,” at least no more separate than the cultural differences found within the USA. Likewise, I give a lot of credit to the Canadians for understanding that USians are a variety of “peoples” who are also a “people,” and it’s really freaking complicated. But they are right there, and they (most of them) speak our language, so they watch our shows and listen to our bands — and we listen to their bands, like I don’t always know a band is Canadian until someone tells me. And then it’s, “Oh, cool. Yeah they have a lot of awesome bands up there.”

    So anyway, it’s just nothing like the UK/France divide. Which is kind of nice, actually. I like liking people. Yay Canada! You folks are really quite lovely.Report

  5. Avatar LeeEsq
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    says:

    My favorite United States-Canada story was that the during the early 20th century, American officials didn’t exactly understand the political relationship between Canada, Australia, New Zealand, and the United Kingdom. When the United Kingdom entered World War II, the State Department had to contact their Canadian equivalents to ask if this meant Canada was at war to.Report

  6. Avatar dragonfrog
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    says:

    Some observations on the John A. MacDonald statue business:

    1) Holy crap Conrad Black is a pompous ass. It had been some time since I had read any of his bloviations.

    2) Saying Canada’s historical and ongoing treatment of Aboriginal people is a “blood libel”? Seriously? This soon after the Truth and Reconciliation Commission he’s comparing white Canadians to medieval Jews? If that’s representative of his connection to reality here on Earth, maybe we could tie a rope to his ankle and use him as a space elevator.

    3) Hearing lessons on the proper degree of pride we ought to take in which aspects of Canadian history from Baron Black of Crossharbour is pretty fishing rich.Report

    • Avatar dragonfrog in reply to dragonfrog
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      says:

      His later paragraph or two where he gets closest to the meat of the TRC findings, merely to wave them away like a complaint from a perfectionist restaurant diner, are nauseating – I felt physically ill to my stomach reading them.Report

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