Dr. Debt Ceiling: -or- how I stopped worrying and learned to understand the Tea Party

Kabuki-debt-ceiling-theater aside, Democrats and Republicans have long ago drawn their swords from the sheath regarding limited government vs. state, spending vs. tax, etc.. Each side betting no one will cross swords. Meanwhile each side compromising their way to spending the country into oblivion.

Then came along the Tea Party that bellied up to the bar and called the bet. Oh yes! The Tea Party decided to cross swords with the both of them! Now its “on”.

Politicos and Rent Seekers: Manipulating Variables

What if rent seeking agents, over time, have discovered that consolidating gives them a higher probability of manipulating variables. However, consolidating under one special interest umbrella might be considered or challenged as collusion. A political party, meanwhile, identifies the consolidation strategy of rent seekers attempting to manipulate variables and purposely allows the political party to be a stealth collusion vehicle.

Suppose a political party seeking control actively recruits a massive coalition of special interest groups aka rent seekers. Each group has its own interest and those interests are quite diverse. The cohesive theme of the political party is not some common thread of ideology, the theme becomes a common thread of "funding".

How does a rent seeker find funding and/or special conditions? Funding and/or conditions are secured through politicos operating through the mechanism of government. Hence a particular political party deploys a strategy of purposely attracting diverse rent seekers then acts as the consolidation agent offering funding through politicos operating through the mechanism of government. That the political party seeking control is not acting on ideology to consolidate support, rather the political party becomes a stealth mechanism of collusion leading to funding to consolidate support.

Considering the above proposition, then funding and/or special conditions must flow from the particular politicos of the political party through the mechanism of government to the special interests. Any threat to the stealth collusion, meaning any disruption of funding, reduction in funding, and changes in special conditions must be averted. If a threat appears to the stealth collusion, the political party loses control and the rent seekers lose the ability to manipulate variables.

Lets assume for a moment that such a political party acts as a stealth collusion mechanism for rent seekers. Further assume that the political party wins election and gains the objective it seeks of control. The next step would be for the politicos of said political party to immediately and generously bestow funds and/or special conditions to the coalition of rent seekers. One would then assume a massive spike in government spending with such spending falling resoundingly with the rent seekers.

However, the model of stealth collusion of a political party purposely consolidating rent seekers with the aim of manipulating variables requires constant and consistent funding. Further, the rent seekers can not sustain "growth" unless additional spending is funneled in their direction. Hence a spike in government spending as political pay back for supporting the political party must be followed by additional spending to satisfy the rent seekers and the rent seekers' particular constituency.

The model of stealth collusion of a political party purposely consolidating rent seekers quickly becomes unstable as other people [politicos] spending other peoples' money [taxpayer] on a recipient class [rent seeker] soon becomes an un-financeable proposition (run out of other peoples' money). When the spending run-up becomes clear to James and Jane Goodfellow and government finances become increasingly precarious, then popular support swings to a funding cut back. However, when funding cut back proposals emerge and before such funding is cut back the rent seekers, acting in their own self interest, spend money and manpower in organized protests against funding reductions.

The eventual funding cut back then causes the political party, sponsoring the stealth collusion, to pick winners and losers among the consolidated rent seekers. The picking of winners and losers not only causes decent among all rent seekers making up the cabal, but dissention occurs between the final chosen winning and losing rent seekers.

One must consider if the above theoretical example does or does not seem familiar to current affairs.

A 6 pm Friday Wake Up Call? Better Cancel Those Weekend Golf Plans!

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Social Security: can one lose a lost horizon?

Certain politicos are currently shaping a political argument that Social Security is an item that should be excluded regarding any debt reduction/debt ceiling negotiations. That Social Security’s mere existence is of benefit to the “greater good“.

‘Senate Majority Leader Harry Reid, D-Nev., attacked the bill as a "radical plan to kill Medicare and Social Security," and said House Republicans needed to know it was dead‘. (1)

Don’t reduce benefits but reduce benefits?


The fall back position of those advocating no reductions in Social Security benefits is that any changes to Social Security, if they must occur, the changes should come in the form of raising the retirement age qualification [which in fact is a reduction in benefits]. (2)

The history of don’t reduce benefits but reduce benefits.


When Social Security was first proposed by Franklin Roosevelt the plan would be completely voluntary. The plan is no longer voluntary and hence the voluntary benefit became a coercive state mandated benefit. However, one would only be taxed at 1% of the first $1,400 of income. Sorry, today the tax is 7.65% of the first $90,000.

Then again, your contribution would be tax deductible and hence some other tax relief would be gained. Sorry the contributions are by and large no longer tax deductible.
At least their would be a Trust Fund and the Social Security contribution would be sequestered and not part of the general operating fund. Under the Lyndon Johnson Administration the Trust Fund corpus was moved to the general fund and subsequently spent.

Well, at least the future income derived from Social Security would not be taxed. Ops! Under the Clinton Administration the retirement income proceeds of Social Security became taxable of which 85% can be included as income based on the total income of the recipient.


Who created a plan that doesn’t reduce benefits but reduces benefits?


Was Social Security just so much pie-in-the-sky dreamed up by the public who wanted a secure retirement? That in the end the public outcry for retirement security was just so much populist blather? Sorry, no. The public demanded no such plan. Really? Oh yes, almost every state-run retirement plan in the world is a concoction of politicos and by no means a grass root phenomena. That’s right, state run retirement plans are the brain child of politicos. (3)


Why were we not warned of a plan that doesn’t reduce benefits but reduces benefits?


Due warning was given. How so? W.R. Williamson, Travelers Insurance Company actuary testified before the House Ways and Means committee in 1935 explaining how the plan would incur deficits. That a major burden of deficits would be passed onto [in his 1935 actuarial estimate] to those in 1965 or 1980. (4) (5)



Can one lose something that was lost in the first place? Can one consider value lost where no value exists?


Exactly who values Social Security the most? If Social Security checks can not be sent out 08/02/2011 without raising the debt ceiling exactly where is the value to James and Jane Goodfellow? Is the value increasing debt? Increasing debt can be considered “value”? (6)

Arguably the “value” of Social Security is an illusionary political value of, by, and for the politico. How so? By convincing James and Jane Goodfellow that value exists, and that somehow, someway a concrete, sustainable, and asset based value is being taken away [that indeed represents value] politicos merely extend and pretend the illusion of Social Security.

Notes:


(1) Boehner pulls out of White House debt talks. msnbc.com, 07/22/2011, http://www.msnbc.msn.com/id/43851666/ns/politics-capitol_hill/

(2) The red-hot debate over raising the retirement age, cnnmoney.com, 08/02/2010
http://money.cnn.com/2010/08/02/news/economy/social_security_retirement/index.htm

(3) Carolyn L. Weaver, The Crisis in Social Security: Economic and Political Origins, (Durham, NC.: Duke Press Policy Studies, 1982), p.33.

(4) Statement of W.R. Williamson, Assistant Actuary, Travelers Insurance C0., Hartford, Conn., House Ways and Means Committee, January 1935, pp.1013, 1014.

(5) Statement of W.R. Williamson, Assistant Actuary, Travelers Insurance C0., Hartford, Conn., House Ways and Means Committee, January 1935, p. 1014.

(6) Obama: Debt Ceiling Impasse Threatens Social Security, Veterans, Medicaid Checks. ABC news, 07/12/2011,
http://blogs.abcnews.com/politicalpunch/2011/07/obama-debt-ceiling-impasse-threatens-social-security-veterans-medicaid-checks-.html



　





　

Vernon Smith Regarding Experimental Economics

Some federal workers more likely to die than lose jobs - USA Today

"Federal employees' job security is so great that workers in many agencies are more likely to die of natural causes than get laid off or fired, a USA TODAY analysis finds.

Death — rather than poor performance, misconduct or layoffs — is the primary threat to job security at the Environmental Protection Agency, the Small Business Administration, the Department of Housing and Urban Development, the Office of Management and Budget and a dozen other federal operations.

The federal government fired 0.55% of its workers in the budget year that ended Sept. 30 — 11,668 employees in its 2.1 million workforce. Research shows that the private sector fires about 3% of workers annually for poor performance, says John Palguta, former research chief at the federal Merit Systems Protection Board, which handles federal firing disputes.


The 1,800-employee Federal Communications Commission and the 1,200-employee Federal Trade Commission didn't lay off or fire a single employee last year. The SBA had no layoffs, six firings and 17 deaths in its 4,000-employee workforce." (1)

Link to the entire USA Today article appears below:

http://www.usatoday.com/news/washington/2011-07-18-fderal-job-security_n.htm

Notes:

(1) Some federal workers more likely to die than lose jobs, Dennis Cauchon, USA Today, 07/19/2011

“Cutting Spending in the Tax Code” and “Tax Expenditures”.

Milton Friedman’s fourth category of spending is basically: other people [politicos through the mechanism of government] spending other peoples’ money [taxpayers] on other people [recipient class]. An implicit and explicit assumption is that “other peoples’ money” was produced privately, temporarily owned privately, then transferred to state from private hands via tax. That is, the public sector only exists due to a transfer payment [tax] from the private sector.




What if a certain subset of politicos have an alternate view of “other peoples’ money”, in that, the money was never owned privately? Making this change in assumptions, the fourth category of spending becomes: other people [politicos] spending the state’s money [state owned] on other people [recipient class].


How could the money be viewed as never being owned privately? One must consider the following politico talking points: “cutting spending in the tax code” and “tax expenditures”. These talking points have been used extensively in the recent overall debt ceiling debate/spending debate. The two talking points are referring to tax deductions/tax preference items of one sort or another, which in essence are being referred to as a form of “spending/expenditures”.


Cutting spending in the tax code aka tax expenditures comes from the point of view that leaving certain sums of money in private hands, via the tax code, is an “expenditure” of the state’s money. The implicit assumption is that the money was the state’s money to begin with and the state is spending its money upon a recipient. Stated alternatively, the state is giving back something it had ownership of in the beginning.


Consider this point: “cutting spending in the tax code” and “tax expenditures”, viewed as the state spending its money upon a recipient, would then mean all monies were the state’s to begin with and whatever the state deems necessary for the recipient to posses is then determined by the tax code. That is to say, the money remaining for James and Jane Goodfellow is not determined as a transfer from the private sector to the public sector, rather the Goodfellow’ allowable remainder money is a transfer from the public sector [ownership sector] to the private sector [recipient sector].