Another example of well-functioning goverment

Often when spring comes, many of the pipes on sidewalks for water-shut-off start rising up, providing an annoyance to runners and walkers.

At 8:49 this morning I sent the following message through the Duluth water and gas service website.

Spring has sprung, the ground heaves, and the water-turn-off pipes rise to trip the unwary walker.
Please add my address to your long list of tasks.

At 14:20 I sent the following message.

Thanks for the fast service on tamping down the water-shut-off pipe.  Another fine example of good government service.

If we really stop to think about it, there is a long list of government services at all levels that are provided efficiently and courtesy: Post Office, fire departments, Social Security, snowplowing, parks, and on and on.

I think the government bashing is mostly from those who don't want to pay taxes for any of the many services they receive.  They would rather provide these services themselves and make a profit from them.  How well, does the private sector perform?  Just consider all the problems you have with the device that you are using to read this.  How many help desks have provided prompt and correct answers?  Yes, you can find many corporations that provide quality products and services, but it often depends on management.  Good management is found in the public and private sectors.  Bad management is found in the public and private sectors.

Much alarm about nothing

One of the current online ads is one about you can get over $4,000 more in Social Security every month.  Sounds like an offer you can’t refuse!

Supposedly Congress has removed a Social Security Benefit and Obama has approved it.  It will be removed on May 16, 2016.

The advertisers make it look like this benefit was removed by a clause snuck in by some anti-Social Security member of Congress.

Actually, it is a loophole that allowed a spouse to defer his or her Social Security while the other collected his or her Social Security.  At some later date the deferrer could have a much higher Social Security benefit.

To get $4,000/month more, the person would have had to have a rather high income.  I can’t imagine the average worker getting such a benefit.

But these are probably just the people the ads target.  Either these “marks” will have to pay an upfront fee or buy a book to find out that they cannot get such a benefit.

I tried checking the Social Security website for “2016 changes”.  I got eight hits, but that’s all I could see.  No text, no further links.  I sent an email, but my guess is that it will be a long time before I get an answer:  too many people are asking the same question and overloading the system.

Fortunately, Vanguard published an article written by Jacklin Youssef that explains the changes.  See https://personal.vanguard.com/us/insights/article/youssef-social-security-022016.

Essentially, by using your spouse’s Social Security benefits and deferring your own until age 70, you can collect 34% more per month.  Let’s see, to get $4,000/month more in Social Security, you would have to have deferred a benefit of $11,764.71/month

So, you retire at 67 but defer your benefit until age 70.  You would pass up $423,529 dollars to get that extra benefit.  It would be over 100 months until you recouped the $423,529 you passed up.  You would be over 78 when you broke even on your delay.  Are you sure you will live to 78?

It’s late and I don’t want to figure out the interest you would have earned if you had saved that $11,764.71 a month.

However, how many people do you know that receive $11,764.71/month in Social Security?  These are not the people who are going to respond to these ads.  They probably already have financial smarts or advisors to get the best deal for themselves.

P.S. If you see an ad about this change, I had nothing to do with selecting the ad.  It's done automagically based on the content of an entry.

Corporations and governments: can’t have one without the other

Considering some of the shouting, one might think that politics has divided into two camps: government is bad and corporations are for the common good, or corporations are greedy and government is for the common good.

As too often is the case, the truth lies somewhere in the middle.

First, let’s look at the similarities.

Corporations and governments are organized by people for a large number of reasons.  The people who organize these entities do so to provide goods and services, to make money, to be famous, or to push certain views, both altruistic and selfish.  Neither type of organization is any better than the people who run the organization.  Success depends more on the leadership and the resources available than on the form.  Success also depends on the circumstances of the time.  If a large segment of the population is not interested in an idea, it will take a lot of effort to promote the idea, whether a new product or a new law.  On the other hand, if a very large segment of the population is interested in an idea, somebody in corporations or government will be working overtime to fulfill the population’s wishes.

The big difference is that the corporations are run by the few and governments are run by the many, if the many show up and vote.

As many misinterpret Adam Smith’s “invisible hand”, many misinterpret Milton Friedman’s the only purpose of a corporation is to “increase profits”.

“[t]here is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."  - Milton Friedman, “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, September 13, 1970

Many interpret this as the only purpose of a corporation is to increase shareholder value.  Unfortunately, they ignore “rules of the game” and “without deception or fraud”.  But what is shareholder value?  Is it a continued gain in stock price?  Is it a continuous stream of increasing dividends?  Or could it be the long-term provision of a good or service?  For example, do investors want to create a product that could take years to bring to market?  Do investors want to insure that medical services can be provided to a community for decades rather than maximize profits for the short-term and destroy the community long-term?

Many point to the problems of MNSure and ObamaCare as examples of government inefficiency.  But guess who provided the computers and software for these health insurance programs?  Private companies!

And private companies have not been known for efficient, trouble-free rollouts of new products.  How many auto recalls are there every year?  Has every computer program or system you purchased or downloaded been free of bugs?  It seems every time I get a notice of an app update, the description includes “bug fixes”.

In the “bad old days” of mainframes, it was really a major milestone when a computer ran a whole day without a crash.  Now things are much better.  My laptop, which is more powerful than any mainframe I worked on, might go a whole week without some kind of frustrating error, including freezes.

MNSure and Obamacare are massive systems requiring massive co-ordination of many pieces.  As we don’t give up on our computers, we shouldn’t give up on massive projects that don’t work perfectly on the first day.

"I'm as confident of this as I would be that when the first cars didn't work well, it wasn't time to return to horses and buggies; it was time to improve the cars. This is the new technology; there are kinks to it and it's going to take some time to work them out.”
Joel Ario, quoted in “Contractor’s report slams MNsure weaknesses, readiness”, Elizabeth Stawicki, MPRNews, 2014-06-18

Are you collecting Social Security?  Is your check posted to your bank account on the promised day every month?  But it was not always so.  Like getting computers to not crash, the rollout of Social Security was not without glitches or without critics who claimed dire consequences.  Like “nationalization of wheat fields would soon follow” and Americans would be reduced to passive servility.  It would take forty years of tinkering to have ninety percent of Americans covered by Social Security.

See “What about Social Security’s rollout?” Bruce J. Schulman, 2013-10-29, Reuters

An interesting contrast to the call for less regulation and taxes is the call by some of the same people for government subsidy.  How many stadiums for billionaires have been built without government subsidies?  How many companies have chased after the best subsidies and tax breaks to determine the location of a new office or factory?  Are these the same people who say government shouldn’t be picking winners and losers?

Consider the big howl from Congress when Solyndra collapsed.  But nothing was said about the success of Tesla.  Both received start-up subsidies from the Federal government.  Tesla paid its loans back!  Also among those who received subsidies were Compaq, Intel, and Apple.  Now Apple is the largest company in the world in capitalization!  And looking for ways to avoid paying back its benefactor through taxes.

For a lot more on how government has fostered many other successful innovations, see “The Innovative State: Governments Should Make Markets, Not Just Fix Them”, Mariana Mazzucato, Foreign Affairs, January/February 2015.

- Mel wishes a few far-sighted Republicans and Democrats would start a Pragmatic Party.

This was also published in the Duluth Reader, 2015-03-26 at 2015/03/26/5005_corporations_and_governments_cant_have_one_without

Let's compromise!

I'll compromise with the House Republicans.  They increase my Social Security by 50% and cut their salaries by 50%.

Intergenerational payments are not a zero sum game

Many complain that Social Security is taking from the young to pay for the old.  That is, this transfer is a zero sum game where the winnings of one are equal to the losses of others.

But consider that we play another zero sum game.  Think about those who complain about paying for schools because they don't have children or grandchildren in school.

Now if the older people are paying taxes to support public schools and the younger people are paying taxes for seniors' Social Security payments, isn't the combined system a win-win situation?

And there is more to support this win-win situation.

If older people don't pay for children's education where are the doctors going to come from?  Police and fire?  Government?  Inventors of devices and medicines to prolong life?  Sports figures to entertain?

If younger people don't pay for older peoples' retirement and health, might the older people stay working longer, leaving fewer jobs for younger people?

And the list goes on.  Older people paid for the infra-structure that younger people use today.  Would we have highways, communication systems, buildings, and much else that was paid for in full by people now dead?

Default Social Security but not China?

A company was founded that used bonds for its financing rather than stocks.  It issued bonds for various lengths of time: short term to smooth cash flow, medium term for starting new projects, and long term for capital improvements such as office buildings and factories.

When it began hiring a large number of people, it started a retirement and disability insurance fund for its employees.  It paid half of the premiums and collected the other half from the employees.  All the premiums purchased short-term bonds of the company.  Essentially, the company used the premiums to smooth its cash flow.

This went on for several decades.  Some employees never collected because they died before retirement.  Others collected for a few decades after retirement.  Few complained about the arrangement.

Then the company hired a new CEO.  He looked at the retirement fund and decided that instead of paying interest on the bonds of the fund, he could use that money to increase his own salary.  He also found a loophole in the decades-old contracts that allowed him to not pay the principle on the bonds.  He could apply it to his own salary.

There was a big hue and cry from current retirees about having their retirement checks reduced, but the votes of the bonds were controlled by the company, not the retirees.

Meanwhile,the holders of the higher interest bonds, the big banks and the foreign governments, including China, were assured that the company would meet its regular interest payments and pay the bonds in full on maturity.

Acronym of the day: GOP

In his online essay "The United States of Inequality", Bill Moyers gives another meaning of GOP - Guardians of Privilege.

In the same essay, he also castigates the Democrats for being willing to make cuts to Social Security.  He puts a wry emphasis on "Security".

Less tax for little work

I've started doing our income taxes for the year and had a pleasant surprise.  If I calculate the tax in a straightforward way, we will owe a few hundred dollars.  If I calculate the tax with the worksheet for capital gains and dividends, we will get a refund of a few hundred dollars!

This is surprising because our income consists of Social Security, IRA withdrawals, two teensy-weensy pensions, and capital gains and dividends.  Capital gains and dividends are less than a quarter of our total income.  Social Security is about half, but it isn't all taxable.

An interesting thought: Social Security is considered an entitlement, but the capital gains and dividends are considered our due.

We worked for decades paying Social Security withholding; we buy and sell stocks with a click of the mouse.  The capital gains are a form of gambling and really don't contribute to the economy other than providing liquidity for the market and fees for the brokerages.  The dividends are based on the profits created by thousands and thousands of workers providing goods and services.  And again, we didn't provide the capital for these companies; we bought it from someone else.  For providing market liquidity, we supposedly are "makers".  As Social Security recipients we are "takers".

Quote of the Day - Entitlements

"Social Security and Medicare aren't entitlements. They're subsidies to companies that do not sufficiently cover the health care and retirement needs of their employees."
- Gary Peterson, Letter, Star Tribune, 2012-11-24

But companies often more than sufficiently cover the health care and retirement needs of their executives.  See "Let's Look at Entitlements".

Let's Look at Entitlements

Political reporting is full of stories about the need to rein in entitlements, mostly meaning Social Security and Medicare.  Remember these are insurance programs for which people pay premiums.

Consider auto insurance.  Suppose you buy a car and buy collision insurance for it.  The day after you pay your annual premium of, say $1,000, you are involved in a crash that totals your car.  Is the insurance reimbursement an entitlement?  Of course it is.  Is it an unjustified entitlement.  Well, if you've been paying car insurance payments for years and never had a claim, you might think so.  It's your premiums that are giving the owner who had made only one payment the reimbursement.

The question with Social Security and Medicare is if enough premiums are being paid in to cover the payouts, not whether those who paid in are entitled to the benefits or not.  One can question the level of payouts but not the fact that payouts are made.

In both the auto insurance and Social Security cases, the recipients are not determining the benefits.  It is either the insurance companies or the Federal Government.

However, there are other benefits that are being determined by the recipients, not some "disinterested" second party.

Consider CEO salaries.  It is not an independent group of shareholders that are determining the ever increasing CEO salaries.  It is a board often picked by the CEO!

Consider board member salaries and fees.  Who determines that board members will get $100,000 plus for five or six board meetings a year plus expenses?  The board members!  Who determines the stock benefits given to executives and board members to "align their interests with those of the shareholders"?  It's certainly not the shareholders.

Consider the "golden parachutes" given to fired executives.  Do you think a laid-off worker would receive a few million dollars and lifetime high-value health insurance?  If the worker receives any benefits at all, they are often considered entitlements, especially if part of a union contract.  Why don't more supporters of "capitalism" recognize the golden parachutes as undeserved "entitlements"?

Consider that corporations depend on employees  and customers to succeed.  Employees are often treated as costs rather than investments.  Customers are often treated as annoyances rather than supporters and free advertisers.  And too often, executive pay is inversely related to customer satisfaction.  See "Executive Pay and Customer Satisfaction".  That certainly smacks of entitlement on the part of the executives.

Consider that the owners of professional sport teams strong-arm cities and states to provide a larger portion of their increasingly expensive stadiums.  They argue that the newer, bigger stadium will be an investment in the local economy.  I wonder how many of these owners are willing to pay for all the schools, roads, sewers, and so on that modern communities need and provide.  Oh, the stadium will pay for those.  That sounds like a multi-million dollar entitlement to me.

My guess is that the "entitlement" of Social Security puts more money into a local economy than all the corporate entitlements.  My guess is that the "entitlement" of Medicare gives a lot of support to the local health care facilities than all the corporate entitlements, plus the employees of those facilities spend a lot of their wages in the local economy.

In short, an entitlement is something others receive, we only receive what is due us.

A "real" Republican stands up

David Stockman was director of the Office of Management and Budget during Ronald Reagan's first term.  He wrote a sharp criticism of current Republican thinking in "Paul Ryan's Fairy-Tale Budget Plan", New York Times, 2012-08-13.

Among other things Stockman points out that for all the budget cutting in "entitlements", Ryan wants to fund the "warfare state" with a budget twice what Eisenhower thought was sufficient to contain the Soviet threat, adjusted for inflation.  Stockman writes that we have no real credible threat from any "advanced industrial state" and that Iran is benighted but irrelevant.

You might not agree with everything Stockman wrote, but you'll find his thinking is more in tune with reality than what currently passes for conservatism, that is, conserve the entitlements of large corporations and their "right" to raid the Treasury and the pockets of savers.

Entitlement is not a dirty word

Many are calling for a cutback in "entitlements" as a means of "cutting spending"; spending being another "dirty word".  The subtext of the use of "entitlement" is that the recipients are not deserving of the payments from Social Security, Medicare, or pensions for government employees.

My wife and I each get a small monthly pension payment from a company that we both had worked for long ago.  This pension was paid for by the company.  It was one of the terms of our employment.  Is this an entitlement that we don't deserve?  Should the company take the funds in the pension trust to spend elsewhere to balance its budget?

A fired CEO is granted a life-time pension far greater than many people even dream of for a regular income.  Isn't this an entitlement?  Maybe it's a bribe not to sue the company for wrongful termination.  We don't hear many who complain about Social Security being an entitlement complaining about how shareholder value is being decreased by these give-aways.

Many shareholders expect regular dividends from companies whose shares they own.  Isn't this an entitlement?  Shouldn't companies paying large dividends cut this spending so they can invest and create more jobs?

Social Security is a contract between the worker and the Federal government.  The worker (and employer) make payments to the Social Security Trust Fund based on the worker's wages.  The worker has been promised benefits in relation to the amount of payments made.  The employer is relieved of having a pension fund or can at least have a bit smaller pension fund.  Isn't Social Security an entitlement just like company pensions, CEO pensions, and dividends?  Why is one entitlement bad and why are the others good?

I think there are two reasons.

First, Social Security is bad because it is a government program; government programs are bad because government can't do anything right (except give subsidies to favored companies).  My wife just said, "Bail out bankers who plundered customer resources".  Aren't the super-big bonuses an entitlement?

Second, Social Security funds are placed in interest-bearing government securities.    These securities are part of the government debt and debt is bad.  Somehow, it is not bad for large corporations to hold these securities and be paid interest.

One can make all kinds of arguments about how much or how little is paid from Social Security and under what conditions.  But as long as people expect Social Security checks on retirement AND pay the payroll tax, we should consider Social Security not an entitlement, but a contract.

Of course I should get more from Social Security than I put in

Many who dislike the idea of Social Security are complaining that recipients are receiving more than they put in. Of course I should get more from Social Security than I put in.

Of course, it is debatable how much more I should get.

OK, why should I get more? Isn't that a bit greedy?

No more greedy than anybody who buys government bonds. They expect payment of interest as well as principal. Since by law Social Security funds are supposed to go into government bonds, then there should be more money available in Social Security than was originally put in.

Social Security is an insurance program, but the reverse of health, house, or auto insurance. In the latter case, the fortunate never get any of their money back. In the case of Social Security or any other pension plan, the fortunate get more than their share back. The less fortunate died before collecting all that they put in.

The real argument should be what should have been paid all along. Some of the past increases bore no reality to the cost of living of many retirees. This is a discussion that would take hundreds of paragraphs more.

P.S. My father's father died before he collected his first Social Security check.  My mother died at 65, and, as far as I know, never collected Social Security.

Social Security: Raiding the tip jar

Deficit hawks often lump Social Security as one of the drains on the budget; according to them it should be reined in to reduce the deficit.

But this is like a restaurant owner lumping the contents of the tip jar in with his overall income and then considering paying the contents to his employee as an expense.  If he reduces the expense of the tip jar, then he can improve his balance sheet.  He completely ignores that the tip jar is funded by customers with the intent that the contents go to the employees.

Similarly, Social Security is funded by the payroll tax.  Current revenues, by law, go into government securities.  This practice gives rise to the notion that the government is raiding Social Security.  You wouldn't want the money kept in a bank that might fold, would you?  And you would like to see the money earn interest, wouldn't you?

So, the anti-Social Security folks raise a hue and cry about Social Security contributing to the national debt.  Reduce Social Security payments and we can reduce the national debt.

I wouldn't want to be wait staff in a restaurant run by these people.

Social Security checks didn't stay the same; they went down

This week we received our Social Security Benefit statements for 2011.  As predicted the "monthly amount" stayed the same, but the deductions went up!

Medicare medical insurance went up $74 per month and the Medicare prescription drug plan went up $4.60.  So, we'll each have $78.60 less every month to spend in the local economy.

We do have other sources of income, but we have saved those to use for big ticket items, like property tax.  For us, this decrease is an inconvenience; for others it can be a major blow.

I sent the above to Sens. Amy Klobuchar and Al Franken and to Rep.-elect Chip Cravaack.

Paying another generation's way goes both ways

"Making the young pay for health care", Michael Gerson, Washington Post, 2009-11-03, claims that the young are footing the bill for the health care of the old.

I would not call this a conservative argument against health care, but a simplistic view of transactions. It reduces all transactions to a willing buyer and a willing seller with no side effects (externalities). Very few transactions fit this description.

Most transactions have ripple effects that move through a community and even through an entire society. If I trade a vehicle in for a newer vehicle, an unknown seller now has a buyer for an unwanted car and an unknown buyer has a vehicle that he or she can afford. If I buy a new vehicle, I have indirectly created jobs for those who build vehicles.

Michael Gerson implies that the young are getting a raw deal because they are paying for the health care of older people who get sick more often. But he ignores many major benefits the young get from older people. Who paid for the roads, the bridges, the public buildings, the schools, and on and on that the young enjoy today? It would be impossible for the young to pay for these because they didn't have the money to do so or weren't even born yet.

How often have you heard a senior grouse about paying taxes for schools because he or she doesn't have children in school? But if seniors and other adults don't pay for schools, how are young people going to get an education to become doctors, engineers, lawyers, and on and on to provide services for older people?

So many transactions are of the "pass it on" variety. Many people don't expect tit for tat for small courtesies. Rather than accepting payment for helping a stranger, they request that the helped person pass it on by helping somebody else another time.

This is the actual situation of inter-generational payments. The old pay for the education of the young; the young pay for the health care of the old.

Besides, taking care of the elderly sets an example for future generations when the young become the elderly. Child to parent: I'm going to treat you just like you treated Grandma.