Exjackly

When I started writing this blog, I had every intention of writing about my current financial situation and how I was bettering it.  I still get to write some of those posts, but not as many as I would if I was laser focused on just my own financial well-being.

Instead, I have seen this take a wider view and, dare I say it, even some political overtones.  While it has not been intentional, it is a logical progression.  There has always been an interest in economics and how wider forces can impact me.  So I started looking at those forces in an effort to find ways to suggest to you, my readers, ways to take advantage.

In my efforts to make sense of these larger forces, there has been a need to explain the lessons learned about them.  This has resulted in some more interesting posts like: How To Live on Minimum Wage, Wal-Mart is Bad for US(A), and Leasing a New Car Makes No Sense.  Others have proven to be less popular, but helped me understand more: What is Financial Independence?, The Scale of the Federal Deficit, and How to Snowball Debt.

The surprise has been that by looking into some larger scale items like the national debt and Social Security, my interest in politics has grown.  It certainly is not because of politicians or their attempts to protect us from us.  It is because of how tightly integrated politics is to economics which strongly influences what happens to me and you as individuals.

It should not have been such a surprise.  Politics is about deciding what needs to be done as a country.  Getting things done is about using resources (money).  Those resources have to come from somewhere.  That somewhere is the economy.

I guess it was because in my mind the economy was like a wild elephant and the government a ranger.  The government could poke and prod the economy and tell it where to go, but you never knew if the economy would cooperate or if it would try to trample the ranger.

The more I learn, the more the analogy changes.  It still seems like the economy is a elephant, but is a trained one.  The government has carrots and treats and a small slender prod to get it to do tricks.  Usually, it behaves well.  Rarely it gets upset or sulky and bad things can happen until the circus gets shut down.

It seems to be a valid analogy.  The bigger government is, the more the economy is like a performing elephant.  The smaller government is, the more of a wild elephant.  Despite the apparent dangers, the more I learn, the more I think we ought to be looking for a wild, untamed economy.

Give me your thoughts - pro and con.  I'll start you off with just a few of the multitude of items that can be expanded on:

Pro

• A smaller government means it needs less money out of my pocket to operate
• A wilder economy means that only the best companies will be able to survive the harsher cycles

Con

• A larger government is better able to address the thousands of dangers that face us from carcinogens to global warming and recessions
• A tame economy means fewer layoffs and more stable employment

Agree?  Disagree?  Want to add to the list? Add your comments.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Please bear with me on this post. I know it is a long one. I thought about splitting it apart, but it makes a lot more sense to me as a whole, since partial implementation of these ideas are much less effective than all of them. Have ideas to add or want to discuss (even flame) mine? Add a comment.

Social Security Problems

Social Security and Medicare are two of the looming issues that will dominate and determine the economic future of our country. As they exist right now, they are welfare programs that will suck up more and more of this country's economic output every year until they are curbed or our country goes bankrupt. The most difficult part is that there are industrial (pharmaceutical) and demographic (AARP) forces that are going to push for them to be expanded and not moderated.

Since those groups are both well organized and well funded, a political solution that is good for the long term health of the economy is going to be difficult, happen slowly and not be sufficient unless there is a crisis which forces expedient change. There are only two alternatives: a) find a multi-billionaire who believes in the cause and/or b) start spreading the word about responsible changes and see if there is enough support for a grassroots campaign.

Anybody who looks into the budget and projections for Social Security will agree it needs to be massively overhauled. This huge program gives to every retiree - whether they need it or not. As the retirees grow - in numbers and percentage of the population - the impact of this program is going to grow significantly.

The problem is that this generosity has to come from somewhere. In this case, it is from the paychecks of millions of Americans. With so many of other people's wallets to draw from, politicians have had no problem making promises of future benefits. To meet those promises, more and more money is going to need to be borrowed and taxed from generations down the line.

This is going to bankrupt individuals if taxes are raised to meet the promises. It is going to bankrupt the government if they are not. This means the system as it exists today is severely broken and needs to be fixed.

While the system is severely broken right now, it is not the concept that is flawed, but rather the implementation. Here are some suggestions for how to go about fixing it.

• Do Not Change Benefits for Current Retirees
  
• Include Social Security in the Federal Budget
• Tax ALL Earned Income Equally For Social Security
  
• Not Everybody Should Be Eligible
• Provide Equal Benefits For All
• Really Balance the Federal Budget Every Year
  

Do Not Change Benefits For Current Retirees

It is critical that the changes to be made to Social Security do not impact current retirees. It would be unfair and disastrous to weaken or remove a major portion of somebody's income for retirement. It would be especially cruel for the government to renege on that promise at a point when many people would find it difficult or impossible to replace that lost income.

Included in this are those who are very close to retirement too. At least the 55+ year olds who would hve very little time to make changes to their financial plans for retirement if changes to Social Security are enacted swiftly.

For those of us who are further out from retirement, the amount of change that is reasonable will grow the more time we each have to deal with the issue. A phased approach is appropriate where the full changes should impact those who are currently in the 40-45 year old range. 20 years is a good amount of time for individuals to adapt to the new program.

Include Social Security in the Federal Budget

The accounting trickery that is used to keep Social Security and Medicare 'off the books' of the annual budget needs to stop. Social Security is not independent. The program will not be shut down just because the 'Trust Fund' becomes empty. Plus, the collected funds are 'borrowed' for use in the current budget anyways.

It is time to stop pretending. Include it. Incorporate the Social Security tax into the income tax. Do the same with the Medicare tax. By consolidating, it becomes clearer how everything is really being paid for and how much we, as a nation, are overspending.

Only then, when the budget and projections are accurate will we really see how bad the issues are. Only then, will we be able to make the hard decisions for sustainability. Only then will meaningful changes be possible.

Tax ALL Earned Income Equally For Social Security

As it is currently implemented, the Social Security tax is among the most regressive taxes in this country? It gets paid on an individual's first earned dollars, but not on their last. The poor pay a higher percentage of their total compensation to Social Security than do anybody else.

The quickest and easiest way to restore some of the equality to this tax would be make it apply equally to all earned income. This would generate additional income to meet the Social Security obligations without increasing the burden on those least able to afford it.

Not Everybody Should Be Eligible

The final step in 'fixing' Social Security is to limit who can collect. This ties in with allowing people to opt out of the retirement portion, but it also covers limiting benefits for people who otherwise would seek them.

Rather than handing it out to everybody who has paid in, benefits should go to those who are not able to provide for themselves. Those who lack assets and who are not earning a living income otherwise. Individuals like Warren Buffet and Bill Gates and Steve Jobs should not receive Social Security. My suggestion? Pick a point that is at 125% to 150% of the poverty level. Set Social Security at that level and phase out benefits at a 1/3 or 1/4 rate (Receive $3 or $4 in income, Social Security drops by $1. ). That way we have defined the minimum somebody will receive.

The actual amount of benefits can be adjusted based on the number of years in the workforce and the age benefits are first taken at, just like now.

If the desire is to limit the beneficiaries even more, there is another step that could be taken. Allow individuals to voluntarily remove themselves from Social Security. Let them have a reduction is Social Security taxes in exchange for not being eligible for retirement benefits. Thus, if I claim exemption for one year, I pay less taxes, but for Social Security calculations, it is just like I was unemployed for the entire year.

Now, before you say it - yes, some people would be in trouble from that. They would claim exemption, not save the money, and be destitute at retirement. This is America however, and along with the Freedom that we enjoy comes the responsibility to accept the consequences of our own actions. If I am able bodied, choose to opt out of Social Security, and don't save - why should I be rewarded?

Provide Equal Benefits For All

For everybody who qualifies for Social Security, the benefits should be the same. Not based on how much has been paid into the system. The changes to the system that I am proposing is to turn it into a safety net and nothing more than a safety net. As such, the idea is to ensure that anybody receiving benefits is able to live at a certain level of lifestyle. That level is consistent, no matter who you are.

If we accept that somebody who has been a contributing member of society for 45 years deserves not to fall between the cracks, does it really matter what they did or how much they made? Does a former janitor deserve less of a safety net than a former stock broker? If they did not save or could not save, should one receive more benefits than the other? If so, which one and why?

Lives well lived are equal in my book. Lets reward them the same.

Really Balance The Federal Budget

Yes, this ties in to Social Security - especially if it is incorporated into the budget like it should be. This ties in because Social Security expenditures are driven higher and higher because of inflation. Inflation is tied in to the federal debt and deficit numbers. Thus, if we balance the budget, Social Security will grow at a slower rate as inflation will also be held down.

Think of it this way: The economy has a certain amount of goods and services for sale. All of these are for sale regardless of how many or how few dollars there are out there. If there are a lot of dollars, people will be willing to pay more for those goods and services. They are willing to pay less if there are fewer dollars out there.

Every time the government spends a dollar it does not have, it creates a dollar. The mechanism of creation can vary, but in effect the federal deficit is a measure of extra dollars created from nothing to buy goods and services.

If the budget is balanced, even if the debt stays the same, we will have a positive effect. The economy will keep growing with more goods and services available. More goods and services, against the same amount of 'extra' dollars means each dollar is worth more.

Now, the federal government is not the only place that can 'create' dollars. Consumer borrowing plays a large role too. The federal government is the largest single entity and has enough power that its debt does influence the inflation rate.

Conclusion

Social Security needs to be modified for long term sustainability. However, the system should not be scrapped in its entirety. With a significant overhaul, it can become a positive program that does what it should and not more. With those changes, it will no longer threaten to damage or destroy our economy or personal lives.

Lets make difficult choices, but with an eye to our long term future. Do not pander to organized political interests. Instead, lets do what is best for ourselves and our country in the long run. Lets reduce the cost of Social Security and make it a safety net instead of a benefit for all. Lets give back our futures to each other and not to a Nanny Nation who knows how to plan for our retirement better than we can do on our own.

If you enjoyed this post, make sure you subscribe to my RSS feed!

A lot of my fun reading is centered around sci-fi and fantasy books.  I like to visualize new and different places and those books let me do it.  As a bonus, wrapping my thoughts around a different kind of world is fun too.  The idea that magic or science can give a completely different way to interact with the world than I experience daily is an enjoyable mind-bender.

I do stray from that realm regularly, although not always satisfactorily.  I have read a number of classics that were less than stellar in my opinion.  Textbooks that confuse the issue as much as advance my knowledge.   Even newspapers and a few magazines (I love National Geographic).

Admittedly, not a high amount of non-fiction.  Today, I am reading a non-fiction, autobiographical book that I am glad I made an exception for.

Alan Greenspan, The Age of Turbulence, Adventures In a New World is a worthwhile read.

The first half of the book he traces his own history, providing context behind his education up to and including his time as the Fed Chairman.  The second half has less history and more of his thoughts on macroeconomics.  Both parts are a worthwhile read.  I have to admit that I've got even more respect and awe for the man than I did before I read the book (and like many people, I thought he was a smart, astute, and tough individual to begin with).

What else can I say?  I strongly recommend this book, and encourage you to get it and to feel free to take notes in the margins.  There is a lot of good information in there that is worth learning.

If you enjoyed this post, make sure you subscribe to my RSS feed!

I must admit that this article by George Soros, originally published in the Atlantic Monthly, now republished online by Free Republic, is thought provoking. The Capitalist Threat discusses the danger that unregulated Capitalism could offer to our society. Even though I do not agree with all of his statements, nor do I accept all the conclusions he makes, I still see potential risks to America from many sources.

Wealth Accumulation

Out of the article, there is one I want to expound upon: "...perfection is unattainable. Wealth does accumulate in the hands of its owners, and if there is no mechanism for redistribution, the inequities can become intolerable."

If you think about it, this makes a lot of sense. As so many financially successful people demonstrate, having money makes it easier to accumulate more money. It does not guarantee it, but it certainly helps. Usually, this is not a problem because we only live for so many years, and those talented enough to amass huge fortunes fade into history as their heirs prove less adept or less willing to work to accumulate additional wealth. The powerful names of yesteryear including Rockefeller and Vanderbilt still exist and have money, but they are not among the richest in the world anymore.

Despite the increasing heights of some individual fortunes, individual wealth does not threaten to undermine our way of life. Many of the wealthiest individuals are also great philanthropists, including Bill Gates and Warren Buffet. This even helps to hasten the cycle of wealth redistribution back to the general population from the wealthiest individuals. That cycle remains alive and well and even provides examples that are worth emulating and striving for, even by those who will never accumulate such large fortunes. (more...)

If you enjoyed this post, make sure you subscribe to my RSS feed!