Monday, December 08, 2008
Fred Thompson on the economy
I'm not sure that I have ever seen a politician of national stature sustain pure, unadulterated sarcasm for more than eight minutes. Until now.
Of course, it is always possible that he is not joking....
MORE: I do not agree with everything he is saying, nor with everything he is meaning. However, I do agree with this: the generation born between 1945 and 1970 has borrowed too much, spent too much, and saved too little, all the while expecting to work for actual money something under half its time on this pale blue ball. The resulting pile of debt incurred, and still to be incurred, will reduce standards of living for decades to come. Our generation must make amends, and there is an obvious way to do it. We should immediately raise the age for first eligibility for Social Security and Medicare according to a sliding scale. For each year a person is under age 62, the ages of first eligibility and full eligibility should be extended by three months. So, for example, if you are 50 today you would not become eligible for any benefits until age 65, and for full benefits until age 69. If you are only 38, your ages of eligibility would be 68 and 72, respectively. I would push the scale back to people who are as young as 32; for those that age and younger, the ages of Social Security eligibility would be 70 and 74.
This change would have a host of advantages. First, it would drastically reduce the government's liability for future Social Security and Medicare payments (somebody out there ought to do the math to come up with the actual amount, but it is bound to be huge). With a stroke of a pen, we would effectively fund the massive borrowings necessary to protect our incomes today off of the pensions of the people responsible for these debts, rather than with future taxes or inflation borne by innocent people who are younger than us. Second, it avoids the philosophical fight between the statists who want to preserve Social Security as a government program and the conservatives, if there are any left, who want to substitute private savings. Third, it aligns Social Security with the reality of easier jobs and longer lifespans. Social Security was never meant to subsidize "golden years"; it was meant to protect people who were essentially unable to do work from poverty. Well, far fewer jobs are physically demanding, and the vast majority of people are actually capable of economically productive work long after age 62 (or 66). Finally, it creates an enormous new incentive to save; if you want to retire before your declining body and faculties mandate it, save your goddamn money!
I'm all for having "golden years," but most of our generation has been enjoying their golden years a little bit at a time, borrowing to sustain consumption today against an all too uncertain future. Well, that game is over. We can either pay the debt back ourselves or demand that our children do it. If you say that we ought to bear that burden, then we had better plan on working a lot longer than we might have expected as recently as, say, August. The federal government should help us adjust our expectations by acting now to push out the dates for Social Security and Medicare eligibility.
16 Comments:
By 
K. Pablo, at
Mon Dec 08, 09:33:00 PM:
I imagine Mark Twain was a lot like that..
By 
, at
Mon Dec 08, 11:31:00 PM:
yeah, right. The day the AARP's massive lobbying apparatus ever lets something like that pass is the day pigs make it to the moon.
By Purple Avenger, at
Mon Dec 08, 11:49:00 PM:
IMO, the world is on the cusp of an era of "game changing" technology advances involving materials science that has the potential to alter industry the same way the advent of the steam engine ushered in the industrial revolution.
As bleak as things look today, I believe we will innovate and build our way out of this mess over the next 20-30 years.
By , at
Tue Dec 09, 12:14:00 AM:
Standing ovation, TigerHawk.
I haven't even watched the video yet, but I agree wholeheartedly with what you wrote. I'm 50, and I have no expectation or desire for retirement. I'll work till they carry me out. And I'm no workaholic, either. I'm lazy as hell when it comes to housecleaning, to name one example.
But I've never accepted the idea that I'm supposed to just sit on my ass once I reach the magical age of 65. Hell, I do enough of that already. I'd be bored out of my skull.
As for Social Security, I agree with a talk radio host I heard years ago: I'd be willing to forfeit any benefits I've accrued so far if they would let me stop paying into it and keep my money to save and invest as I see fit.
By , at
Tue Dec 09, 12:16:00 AM:
TH's suggestion regarding pushing back the SS age progressively with age is a good one, especially because younger people aren't even assuming there will be any SS no matter what age they reach.
As for Fred, his implication that government is the bad actor when free market forces encouraged people people to value (*^% loans at par is more than a little ridiculous to me. The CRA made some loans everyone knew were bad, but mortgage brokers and irresponsible creditors, debtors and investors made the bubble happen and promulgated the toxic sludge that tipped the dominoes last year. How about market reform (leverage limit, systemic risk evaluation in balance sheet review and such) rather than pedantic, insipid sarcasm?
By somercet, at
Tue Dec 09, 03:38:00 AM:
The idea of labeling the private market "the bad actor" is ridiculous. Rep Barney Frank (D-MA) is on video tape saying he was willing to roll the dice again even by 2006.
The private market behaved badly, I agree, but they had prime bad examples in Fannie Mae and (around 2003) Freddie Mac, who issued almost half the bad mortgages.
In the end, people, corporations and the GSEs alike were betting on the market continuing to rise, and were making bets that they would be smart enough to leave the bubble before it popped.
I don't pretend the free market didn't help create a bubble. I blame the government for A, assuming the risk via the GSEs, B, forcing risk upon even good banks with the CRA (making the bubble worse) and C, not behaving as the disinterested, honest broker that is its right and proper role.
By TigerHawk, at
Tue Dec 09, 06:37:00 AM:
Bubbles and the implosion of bubbles have happened ever since money was anything other than specie. Governments do not stop them from happening in advance because no politician wants to stop a party while it is going on. Bull markets, especially crazy ones, are just too much fun. Regulation does a lot of things, good and bad, but stopping bubbles is not one of those things.
No, human imagination untempered by generational memory causes bubbles. The memory of this last bubble will prevent another one for a long time, until all the people who lived through it are dead or so old that they are shouted down.
I believe that the housing bubble which triggered all of this is the consequence of (i) a complex global monetary dynamic and (ii) at least two generations of human experience. With regard to the latter, sure, along the way there were government policies that promoted the overborrowing, the overpricing, and the overbuilding, but those conservatives who would blame the CRA and so forth need then to explain parallel bubbles in big foreign markets with no CRA. Then look at the Japanese. They did not have a real estate bubble this time, because they lived their theirs 20 years ago, and the memory of its bursting is still too raw.
By , at
Tue Dec 09, 07:07:00 AM:
While I don't disagree with much of what he says, I find his good-old-boy delivery annoying and kind of arrogant sounding. "Awww,shucks, folks...let me drop a little knowledge on you lesser knowin' folks. Here's what's happening in simple terms you ol' retards can understand."
Maybe I'm being a bit harsh on ol' Fred.
By , at
Tue Dec 09, 09:27:00 AM:
TH I did not see the video yet, but this is an excellent topic to tackle. I love your idea and I think a study was done that said even if we raise the minimum age to 65 and full benefits at 67 we get out of this long-term fiscal mess (it may have been 65 and 68?)
The more important point is that when Social Security was first enacted a person who made it to 65 was only drawing benefits for an average of 3 more years. Today that number probably reaches almost 20 years (remember life expectance is almost 80 years and these people have to pull up the average for all those who past before them.) These trends in longer living are not going away either and so your plan of taking it into the 70's is also a great way to transform our liabilities over night.
One person brought up the power of AARP, unfortunately they are right. However, at what point do we as American's pull ourselves out of our own mess? By implementing your plan even soon to be retirees are not overly inconvenienced.
By davod, at
Tue Dec 09, 09:35:00 AM:
"The CRA made some loans everyone knew were bad, but mortgage brokers and irresponsible creditors, debtors and investors made the bubble happen and promulgated the toxic sludge that tipped the dominoes last year."
Bullshit. The CRA, and the changes which forced companies to make bad loans was the start and finish of this. What do you think the mortgange comopanies were going to do, eat the loss, pass it on to the consumer at large, or find a way to sell the bad mortgage.
Additionally, the Congress opened up the finance laws to allow these events to occur (Under Bill Clinton's reign, I believe). Apart from the Fannie Mae cooking the books so the executives (Democrat high brows all) I have not seen any evidence of illigality.
By Mrs. Davis, at
Tue Dec 09, 10:08:00 AM:
The CRA, and the changes which forced companies to make bad loans was the start and finish of this.
Wow. That explains the incredible leverage of the GSE's, the stupid investors buying risky mortgage backed securities, the rating agencies saying the risky securities were AAA, the Credit Default Swaps that protected everybody from everything, the Federal Reserve over-expanding the money supply from 1997, the real-estate appraisers signing off on appraisals they knew were nonsense, the stupid buyers who got no down, interest only mortgages they knew they couldn't afford when the teaser came off. All that from the CRA.
By , at
Tue Dec 09, 10:55:00 AM:
I have no trouble seeing Mark Twain as a video blogger. It just amazes me how the center of gravity of journalism, and its role as a check on claims and policies of our democratic government has shifted from the bricks and mortar purveyors of "news" toward this amorphous network of ideas. What a great way to start the day. Thanks TH. And Fred.
By davod, at
Tue Dec 09, 02:05:00 PM:
By Elise, at
Tue Dec 09, 02:47:00 PM:
I think your idea about pushing back the age of Social Security eligibility is an excellent one. And I'm old enough to qualify for AARP and I'd push them to support it.
I'm more concerned about Medicare. (Yes, it's me, the health insurance worrier again.) I don't have any problem in theory with pushing back the Medicare age but I do wonder how hard it's going to be for people over 65 to get health insurance. Getting it through work sounds fine but since having older employees reportedly increases insurance costs, I suspect there's already a tendency to shed older employees when health insurance becomes a major expenditure.
Still apart from that caveat, very, very clever idea. And I like that Fred Thompson video very much. I can't help but think that the next four years would be a lot more fun if he was President.
By , at
Tue Dec 09, 06:05:00 PM:
Mrs Davis, once again you are dead on. Davod it took a ton of people to commit some really bad sins and make some really bad bets for our financial system to be in the state it is. The CRA was definitely a player in this mess, but if you knew what was happening on the inside of people who knew better and still made horrible bets, the CRA had nothing to do with them.
There is an excellent article written by Michael Lewis on some of the Wall Street insiders and what they knew and how they gamed the system. I have included the link it is a fascinating read:
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true
By , at
Tue Dec 09, 09:31:00 PM:
@ Davod: So, your argument is "there were these loans that were so bad banks had to be compelled to make them, and they were promptly resold because they were bad"? Any investor who purchased such loans, willingly or sight-unseen, deserved what they got. Nowhere in the CRA did it command that investors value said loans at par, but it was exactly that which allowed for mass balance sheet erosion and financial distress.
All of your arguments concerning the terrible nature of these loans only more loudly beg the question: so why did investors willingly buy them?
