Garbage IN / Garbage
OUT
John Mackenzie
jrmfl@adelphia.net
Aug 30, 2004
NASCAR Dads
"In order to make sure
jobs stay here in Ohio and America, we're going to make sure
countries treat us the way we treat them."
-President George Bush campaigning in Troy, Ohio
Oh my... heaven forbid countries
remotely begin to treat us in the same manner in which we've
treated them. The prospects in that realm of blowback remain
very serious. Granted, the President was referring to Trade Policy
and not Foreign Policy. Although peering through the Foreign
Policy looking glass, things do not appear any better:
Within Military Order #1, the President granted himself the POWER,
in clear violation of international law, to detain indefinitely
any Non-US citizen anywhere in the world.
Lovely, no wonder our new buddy Moammar Kadafi announced he would
give up his efforts to develop weapons of mass destruction. He
was, after all running the largest underground Chemical / Biological
facility on the planet. Still no word on what precisely the "Inspectors"
have found.
Some would suggest this is the moral equivalent of negotiating
with dictators and yet, the majority of planet's inhabitants
outside our borders seem to believe it's something altogether
grotesque and malignant. 90+ % of those polled around the globe
do not care for George Bush and his policies and believe that
his audacious remark above is akin to the self declared "God's
Cop" in a now borderless world.
This is how our leadership is perceived.
Was The Hague to issue a similar decree Henry Kissinger
might want to consider relocating to some distant galaxy (and
btw, why is the proper spelling of Kissinger in my spellchecker?).
Back in Lima, Ohio... the President's (aka the PEZ, due to his
nature of dispensing with reality, the truth and the facts) remarks
were not well aligned with sanity or reality:
"This economy of ours has recovered from recession, corporate
scandal and attacks, and yet there are parts of your state that
are running behind the national economy."
"I understand that, I understand that, which means you better
get somebody in office who has a plan to continue economic growth."
"We're no going to play politics with your wallet, we said
if we're going to provide tax relief, everybody who pays gets
relief."
The globalization panacea, again, rears its Hydra's Head:
"One reason the farm economy around the country is strong
is because we're selling soybeans to China, we're selling corn
around the world. We've opened up markets. We can compete with
anybody, any time, any place as long as the rules are fair."
Good lord, what a crock of crap, contrary to the PEZ, let's look
at reality:
- The "Economy" has
not recovered, the Financial Hedge Fund Economy has merely been
allowed to speculate wantonly within its own Capital Stocks.
An "Economy" based upon the packaging of DEBT (CREDIT),
charging exorbitant fee's to do so and then Securitizing it for
sale (Packaging), followed by all sorts of kinky Derivative Machinations
to "Insure" these WMD's against "Disaster."
.
- Corporate Scandals are on
the rise and are not declining.
.
- "Attacks" that appear
to have been preventable by your Administration.
.
- "Economic Growth"
is another fantasyland ride. We should be far more concerned
with preserving what we have and becoming far less dependent
on others for about everything we consume. 70+% of our crude
oil are imported. We are quickly absorbing far too much of the
rest of the world's Savings in order to maintain Consumption.
.
- The tax break you're yammering
on about yes, 80+% went to those making more than your current
salary as the PEZ. May I suggest this is a gross income redistribution
dislocation, even for a Keynesian Socialist. Another utter fraud.
.
- "We can compete with
anybody, any time, any place as long as the rules are fair."
Since when is life fair? Protectionism worked for this nation
throughout its history. In fact its most prosperous years were
under "Protectionist Policies," but alas that was BEFORE
we debased our internal productive capacity and abandoned saving
for the future.
I'm not a NASCAR Dad, I do
enjoy watching Speed-Vision for Formula One and Super Bikes,
and I've yet to vote in a Presidential Election. My reasoning
is thus; America is one giant Cluster____ of Corporate Multinational
Kleptocrats that front "choice" as Democracy. Golly
gee, no thank you, when given the lesser of two Evils representing
the same figurehead, unrepresentative of the AVERAGE AMERICAN
yeah, I'll pass.
And the Alternative...
Must admit, I did look at John Kerry, another front man for the
machine; that quite frankly, could turn the lights out in Washington
DC and still run like the Energizer Bunny... I believe that's
called Fascism, but I could be wrong.
"I will NEVER privatize Social Security. I will NOT cut
Social Security Benefits. And I will NOT raise the Retirement
Age."
John Kerry, Democratic PEZidential Candidate
Oh my. I simply can't trust a guy who says "NEVER"
with respect to the future. It's a rule I have, kinda like the
person who says, "Trust me..."
So there you have it NASCAR Dads, get out and Vote! Just say
NO to Usama and remember that the PEZ will have your back at
all times as long as everybody plays fair in the global sandbox.
I'll stick to my perch on the porch waiting for enough of the
rest of us Indians to figure out what the ____'s up.
Bubbles Bull Horn,
Then and Now
In contrasting Bubbles diametrically opposed mumblings, we'll
begin with a review of his "Outlook
for the Federal Budget and Implications for Fiscal Policy."
====
Testimony of Chairman Alan Greenspan
Outlook for the federal budget and implications for fiscal
policy
Before the Committee on the Budget, U.S. Senate
January 25, 2001
I am pleased to appear here today to discuss some of the important
issues surrounding the outlook for the federal budget and the
attendant implications for the formulation of fiscal policy.
In doing so, I want to emphasize that I speak for myself
and not necessarily for the Federal Reserve.
The challenges you face both in shaping a budget for the coming
year and in designing a longer-run strategy for fiscal policy
were brought into sharp focus by the release last week of the
Clinton Administration's final budget projections, which
showed further upward revisions of on-budget surpluses for the
next decade. The Congressional Budget Office also is
expected to again raise its projections when it issues its report
next week.
The key factor driving the cumulative upward revisions
in the budget picture in recent years has been the extraordinary
pickup in the growth of labor productivity experienced in this
country since the mid-1990s. Between the early 1970s
and 1995, output per hour in the non-farm business sector rose
about 1-1/2 percent per year, on average. Since 1995, however,
productivity growth has accelerated markedly, about doubling
the earlier pace, even after taking account of the impetus from
cyclical forces. Though hardly definitive, the apparent sustained
strength in measured productivity in the face of a pronounced
slowing in the growth of aggregate demand during the second half
of last year was an important test of the extent of the improvement
in structural productivity. These most recent indications have
added to the accumulating evidence that the apparent increases
in the growth of output per hour are more than transitory.
It is these observations that appear to be causing economists,
including those who contributed to the OMB and the CBO budget
projections, to raise their forecasts of the economy's long-term
growth rates and budget surpluses. This increased optimism receives
support from the forward-looking indicators of technical innovation
and structural productivity growth, which have shown few signs
of weakening despite the marked curtailment in recent months
of capital investment plans for equipment and software.
To be sure, these impressive upward revisions to the growth
of structural productivity and economic potential are based on
inferences drawn from economic relationships that are different
from anything we have considered in recent decades. The
resulting budget projections, therefore, are necessarily subject
to a relatively wide range of error. Reflecting the uncertainties
of forecasting well into the future, neither the OMB nor the
CBO projects productivity to continue to improve at the stepped-up
pace of the past few years. Both expect productivity growth rates
through the next decade to average roughly 2-1/4 to 2-1/2 percent
per year--far above the average pace from the early 1970s to
the mid-1990s, but still below that of the past five years.
Had the innovations of recent decades, especially in information
technologies, not come to fruition, productivity growth during
the past five to seven years, arguably, would have continued
to languish at the rate of the preceding twenty years. The sharp
increase in prospective long-term rates of return on high-tech
investments would not have emerged as it did in the early 1990s,
and the associated surge in stock prices would surely have been
largely absent. The accompanying wealth effect, so evidently
critical to the growth of economic activity since the mid 1990s,
would never have materialized.
In contrast, the experience of the past five to seven years has
been truly without recent precedent. The doubling of the
growth rate of output per hour has caused individuals' real taxable
income to grow nearly 2-1/2 times as fast as it did over the
preceding ten years and resulted in the substantial surplus of
receipts over outlays that we are now experiencing. Not only
did taxable income rise with the faster growth of GDP, but the
associated large increase in asset prices and capital gains created
additional tax liabilities not directly related to income from
current production.
The most recent projections from the OMB indicate that, if current
policies remain in place, the total unified surplus will reach
$800 billion in fiscal year 2011, including an on-budget surplus
of $500 billion. The CBO reportedly will be showing even
larger surpluses. Moreover, the admittedly quite uncertain long-term
budget exercises released by the CBO last October maintain an
implicit on-budget surplus under baseline assumptions well past
2030 despite the budgetary pressures from the aging of the baby-boom
generation, especially on the major health programs.
The most recent projections, granted their tentativeness, nonetheless
make clear that the highly desirable goal of paying off the federal
debt is in reach before the end of the decade. This is in marked
contrast to the perspective of a year ago when the elimination
of the debt did not appear likely until the next decade.
But continuing to run surpluses beyond the point at which
we reach zero or near-zero federal debt brings to center stage
the critical longer-term fiscal policy issue of whether the federal
government should accumulate large quantities of private (more
technically nonfederal) assets. At zero debt, the continuing
unified budget surpluses currently projected imply a major accumulation
of private assets by the federal government. This development
should factor materially into the policies you and the Administration
choose to pursue.
I believe, as I have noted in the past, that the federal
government should eschew private asset accumulation because it
would be exceptionally difficult to insulate the government's
investment decisions from political pressures. Thus,
over time, having the federal government hold significant amounts
of private assets would risk sub-optimal performance by our capital
markets, diminished economic efficiency, and lower overall standards
of living than would be achieved otherwise.
Short of an extraordinarily rapid and highly undesirable short-term
dissipation of unified surpluses or a transferring of assets
to individual privatized accounts, it appears difficult to avoid
at least some accumulation of private assets by the government.
Private asset accumulation may be forced upon us well short of
reaching zero debt. Obviously, savings bonds and state and local
government series bonds are not readily redeemable before maturity.
But the more important issue is the potentially rising
cost of retiring marketable Treasury debt. While shorter-term
marketable securities could be allowed to run off as they mature,
longer-term issues would have to be retired before maturity through
debt buybacks. The magnitudes are large: As of January 1, for
example, there was in excess of three quarters of a trillion
dollars in outstanding non-marketable securities, such as savings
bonds and state and local series issues, and marketable securities
(excluding those held by the Federal Reserve) that do not mature
and could not be called before 2011. Some holders of long-term
Treasury securities may be reluctant to give them up, especially
those who highly value the risk-free status of those issues.
Inducing such holders, including foreign holders, to willingly
offer to sell their securities prior to maturity could require
paying premiums that far exceed any realistic value of retiring
the debt before maturity.
Decisions about what type of private assets to acquire and to
which federal accounts they should be directed must be made well
before the policy is actually implemented, which could occur
in as little as five to seven years from now. These choices have
important implications for the balance of saving and, hence,
investment in our economy. For example, transferring government
saving to individual private accounts as a means of avoiding
the accumulation of private assets in the government accounts
could significantly affect how social security will be funded
in the future.
Short of some privatization, it would be preferable in my judgment
to allocate the required private assets to the social security
trust funds, rather than to on-budget accounts. To be
sure, such trust fund investments are subject to the same concerns
about political pressures as on-budget investments would be.
The expectation that the retirement of the baby-boom generation
will eventually require a drawdown of these fund balances does,
however, provide some mitigation of these concerns.
Returning to the broader picture, I continue to believe,
as I have testified previously, that all else being equal, a
declining level of federal debt is desirable because it holds
down long-term real interest rates, thereby lowering the cost
of capital and elevating private investment. The rapid
capital deepening that has occurred in the U.S. economy in recent
years is a testament to these benefits. But the sequence of upward
revisions to the budget surplus projections for several years
now has reshaped the choices and opportunities before us. Indeed,
in almost any credible baseline scenario, short of a major and
prolonged economic contraction, the full benefits of debt reduction
are now achieved before the end of this decade--a prospect that
did not seem likely only a year or even six months ago.
The most recent data significantly raise the probability that
sufficient resources will be available to undertake both debt
reduction and surplus-lowering policy initiatives. Accordingly,
the tradeoff faced earlier appears no longer an issue. The emerging
key fiscal policy need is to address the implications of maintaining
surpluses beyond the point at which publicly held debt is effectively
eliminated.
The time has come, in my judgment, to consider a budgetary strategy
that is consistent with a preemptive smoothing of the glide path
to zero federal debt or, more realistically, to the level of
federal debt that is an effective irreducible minimum. Certainly,
we should make sure that social security surpluses are large
enough to meet our long-term needs and seriously consider explicit
mechanisms that will help ensure that outcome. Special care must
be taken not to conclude that wraps on fiscal discipline are
no longer necessary. At the same time, we must avoid a situation
in which we come upon the level of irreducible debt so abruptly
that the only alternative to the accumulation of private assets
would be a sharp reduction in taxes and/or an increase in expenditures,
because these actions might occur at a time when sizable
economic stimulus would be inappropriate. In other words,
budget policy should strive to limit potential disruptions by
making the on-budget surplus economically inconsequential when
the debt is effectively paid off.
In general, as I have testified previously, if long-term
fiscal stability is the criterion, it is far better, in my judgment,
that the surpluses be lowered by tax reductions than by spending
increases. The flurry of increases in outlays that occurred
near the conclusion of last fall's budget deliberations is troubling
because it makes the previous year's lack of discipline less
likely to have been an aberration.
To be sure, with the burgeoning federal surpluses, fiscal
policy has not yet been unduly compromised by such actions. But
history illustrates the difficulty of keeping spending in check,
especially in programs that are open-ended commitments, which
too often have led to much larger outlays than initially envisioned.
It is important to recognize that government expenditures are
claims against real resources and that, while those claims may
be unlimited, our capacity to meet them is ultimately constrained
by the growth in productivity. Moreover, the greater the
drain of resources from the private sector, arguably, the lower
the growth potential of the economy. In contrast to most spending
programs, tax reductions have downside limits. They cannot be
open-ended.
Lately there has been much discussion of cutting taxes to confront
the evident pronounced weakening in recent economic performance.
Such tax initiatives, however, historically have proved difficult
to implement in the time frame in which recessions have developed
and ended. For example, although President Ford proposed in January
of 1975 that withholding rates be reduced, this easiest of tax
changes was not implemented until May, when the recession was
officially over and the recovery was gathering force. Of course,
had that recession lingered through the rest of 1975 and beyond,
the tax cuts would certainly have been helpful. In today's
context, where tax reduction appears required in any event over
the next several years to assist in forestalling the accumulation
of private assets, starting that process sooner rather than later
likely would help smooth the transition to longer-term fiscal
balance. And should current economic weakness spread
beyond what now appears likely, having a tax cut in place may,
in fact, do noticeable good.
As for tax policy over the longer run, most economists believe
that it should be directed at setting rates at the levels required
to meet spending commitments, while doing so in a manner that
minimizes distortions, increases efficiency, and enhances incentives
for saving, investment, and work.
In recognition of the uncertainties in the economic and budget
outlook, it is important that any long-term tax plan, or spending
initiative for that matter, be phased in. Conceivably, it could
include provisions that, in some way, would limit surplus-reducing
actions if specified targets for the budget surplus and federal
debt were not satisfied. Only if the probability was very
low that prospective tax cuts or new outlay initiatives would
send the on-budget accounts into deficit, would unconditional
initiatives appear prudent.
The reason for caution, of course, rests on the tentativeness
of our projections. What if, for example, the forces driving
the surge in tax revenues in recent years begin to dissipate
or reverse in ways that we do not now foresee? Indeed, we still
do not have a full understanding of the exceptional strength
in individual income tax receipts during the latter 1990s.
To the extent that some of the surprise has been indirectly associated
with the surge in asset values in the 1990s, the softness in
equity prices over the past year has highlighted some of the
risks going forward.
Indeed, the current economic weakness may reveal a less
favorable relationship between tax receipts, income, and asset
prices than has been assumed in recent projections. Until
we receive full detail on the distribution by income of individual
tax liabilities for 1999, 2000, and perhaps 2001, we are making
little more than informed guesses of certain key relationships
between income and tax receipts.
To be sure, unless later sources do reveal major changes in tax
liability determination, receipts should be reasonably well-maintained
in the near term, as the effects of earlier gains in asset values
continue to feed through with a lag into tax liabilities. But
the longer-run effects of movements in asset values are much
more difficult to assess, and those uncertainties would intensify
should equity prices remain significantly off their peaks. Of
course, the uncertainties in the receipts outlook do seem less
troubling in view of the cushion provided by the recent sizable
upward revisions to the ten-year surplus projections. But the
risk of adverse movements in receipts is still real, and the
probability of dropping back into deficit as a consequence of
imprudent fiscal policies is not negligible.
In the end, the outlook for federal budget surpluses rests fundamentally
on expectations of longer-term trends in productivity, fashioned
by judgments about the technologies that underlie these trends.
Economists have long noted that the diffusion of technology
starts slowly, accelerates, and then slows with maturity. But
knowing where we now stand in that sequence is difficult--if
not impossible--in real time. As the CBO and the OMB acknowledge,
they have been cautious in their interpretation of recent productivity
developments and in their assumptions going forward. That seems
appropriate given the uncertainties that surround even these
relatively moderate estimates for productivity growth. Faced
with these uncertainties, it is crucial that we develop budgetary
strategies that deal with any disappointments that could occur.
That said, as I have argued for some time, there is a distinct
possibility that much of the development and diffusion of new
technologies in the current wave of innovation still lies ahead,
and we cannot rule out productivity growth rates greater than
is assumed in the official budget projections. Obviously, if
that turns out to be the case, the existing level of tax rates
would have to be reduced to remain consistent with currently
projected budget outlays.
The changes in the budget outlook over the past several
years are truly remarkable. Little more than a decade ago, the
Congress established budget controls that were considered successful
because they were instrumental in squeezing the burgeoning budget
deficit to tolerable dimensions. Nevertheless, despite the sharp
curtailment of defense expenditures under way during those years,
few believed that a surplus was anywhere on the horizon. And
the notion that the rapidly mounting federal debt could be paid
off would not have been taken seriously.
But let me end on a cautionary note. With today's euphoria surrounding
the surpluses, it is not difficult to imagine the hard-earned
fiscal restraint developed in recent years rapidly dissipating.
We need to resist those policies that could readily resurrect
the deficits of the past and the fiscal imbalances that followed
in their wake.
====
If you're
like me, you just read a lot of "promise" followed
by many carefully leveraged "cautionary notes" and
are scratching your head wondering just how this "assessment"
foundered.
At the time it was perceived to be an endorsement of the Bush
$1.6 trillion, 10-year tax cut plan, eschewing his proponent
favor for using budget surpluses to pay down the national debt
first. Instead, Bubbles made it appear much more likely that
we would pay off the National Debt much sooner than expected.
Of course, let us not forget the "touting" of the Fed's
Monetary "Powers" and as such, Interest Rates would
be a far more effective vehicle for "Jumpstarting"
the Economy and that avoiding a potential threat of Recession.
Well, reality set in about twelve days short of three years later,
albeit in a carefully worded two-liner:
====
January 13, 2004
Alan Greenspan
Says That the 2001 Tax Cut Was a Mistake
People like
me who have enormous respect for the intelligence and judgment
of Alan Greenspan have long been puzzled at his approval of the
Bush administration's 2001 tax cut. It never fit our picture
of who the man was and what he thought. Now, thanks to Paul O'Neill's
reports of his discussions with Greenspan, we have a satisfactory
answer:
Alan Greenspan said at the time that the 2001 tax cut was a mistake:
p. 162: May 22 [2001]... Greenspan arrived at the Treasury for
breakfast with O'Neill. Their secret trigger pact had come up
one vote short.... "We did what we could on conditionality,"
O'Neill said with momentary resignation.... "The first big
battle is over, really. I think we fought well, we made our points
vigorously." Greenspan said that wasn't enough. "Without
the triggers, that tax cut is irresponsible fiscal policy,"
he said in his deepest funereal tone. "Eventually, I think
that will be the consensus view."
====
Friday's rather
disturbing news from Bubbles, the Maestro of Malfeasance may
have sent a few Sun City pilgrims to the local emergency room:
====
Remarks by Chairman
Alan Greenspan
At a symposium
sponsored by the Federal Reserve Bank of Kansas City,
Jackson Hole, Wyoming
August 27, 2004
I am pleased to be here this morning to discuss the economic
implications of population aging and to provide a general overview
of some of the issues that will be covered in much greater detail
over the next two days.
The so-called elderly dependency ratio--the ratio of older
adults to younger adults--has been rising in the industrialized
world for at least 150 years. The pace of increase slowed greatly
with the birth of the baby-boom generation after World War II.
But elderly dependency will almost certainly rise more rapidly
as that generation reaches retirement age.
The changes projected for the United States are not as dramatic
as those projected for other areas--particularly Europe and Japan--but
they nonetheless present substantial challenges. The growth
rate of the working-age population in the United States is anticipated
to slow from about 1 percent per year today to about 1/4 percent
per year by 2035. At the same time, the percentage of
the population that is over 65 is poised to rise markedly--from
about 12 percent today to perhaps 20 percent by 2035.
These anticipated changes in the age structure of the population
and workforces of developed countries are largely a consequence
of the decline in fertility that occurred after the birth of
the baby-boom generation. The fertility rate in the United
States, after peaking in 1957 at about 3-1/2 births over a woman's
lifetime, fell to less than 2 by the early 1970s and then rose
to about 2.1 by 1990. Since then, the fertility rate has remained
close to 2.1, the so-called replacement rate--that is, the level
of the fertility rate required to hold the population constant
in the absence of immigration or changes in longevity.
Fertility rates in Europe, on the whole, and in Japan have fallen
far short of the replacement rate. The decrease in the number
of children per family since the end of the baby boom, coupled
with increases in life expectancy, has inevitably led to a projected
increase in the ratio of elderly to working-age population throughout
the developed world.
The populations in most developing countries likewise are expected
to have a rising median age but to remain significantly younger
and doubtless will grow faster than the populations of the developed
countries over the foreseeable future. Eventually, declines
in fertility rates and increases in longevity may lead to similar
issues with aging populations in what is currently the developing
world but likely only well after the demographic transition in
the United States and other developed nations.
The aging of
the population in the United States will significantly affect
our fiscal situation. Most observers expect Social Security,
under existing law, to be in chronic deficit over the long haul;
however, the program is largely defined benefit, and so the scale
of the necessary adjustments is limited. The shortfalls in the
Medicare program, however, will almost surely be much larger
and much more difficult to eliminate. Medicare faces financial
pressure not only from the changing composition of the population
but also from continually increased per recipient demand for
medical services. The combination of rapidly advancing
medical technologies and our current system of subsidized third-party
payments suggests continued rapid growth in demand, though future
Medicare costs are admittedly very difficult to forecast.
Although the sustainability of fiscal initiatives is generally
evaluated for convenience in financial terms, sustainability
rests, at root, on the level of real resources available to an
economy. The resources available to fund the sum of future
retirement benefits and the real incomes of the employed will
depend, of course, on the growth rate of labor employed plus
the growth rate of the productivity of that labor.
The growth rate of the U.S. working-age population is expected
to decline substantially over the next two decades and to remain
low thereafter. But the fraction of that population that is employed
will almost surely be affected by changes in the economic returns
to working and, especially for older workers, improvements in
health.
Americans are not only living longer but also generally living
healthier. Rates of disability for those over 65 years of age
have been declining even as the average age of the above-65 population
is increasing. This decline in disability rates reflects both
improvements in health and changes in technology that accommodate
the physical impairments associated with aging. In addition,
work is becoming less physically strenuous but more demanding
intellectually, continuing a century-long trend toward a more-conceptual
and less-physical economic output. For example, in 1900, agricultural
and manual laborers composed about three-quarters of the workforce.
By 1950, those types of workers accounted for one-half of the
workforce, and though still critical to a significant part of
our economic value-added, today compose only about one-quarter
of our workforce.
To date, however, despite the improving feasibility of
work at older ages, Americans have been retiring at younger ages.
But rising pressures on retirement incomes and a growing scarcity
of experienced labor could eventually reverse that trend.
Of course, immigration, if we choose to expand it, could also
lessen the decline of labor force growth in the United States.
As the influx of foreign workers that occurred in response to
the tight labor markets of the 1990s demonstrated, U.S. immigration
does respond to evolving economic conditions. But to fully offset
the effects of the decline in fertility, immigration would have
to be much larger than almost all current projections assume.
It is
thus heightened growth of output per worker that offers the greatest
potential for boosting U.S. gross domestic product to a level
that would enable future retirees to maintain their expected
standard of living without unduly burdening future workers. Productivity gains
in the United States have been exceptional in recent years. But,
for a country already on the cutting edge of technology to maintain
this pace for a protracted period into the future would be without
modern precedent. One policy that could enhance the odds of sustaining
high levels of productivity growth is to engage in a long overdue
upgrading of primary and secondary school education in the United
States.
We obviously cannot attribute recent productivity trends
to a high level of national saving. Rather, the effectiveness
with which we have invested both domestic saving and funds attracted
from abroad is the apparent source of our decade-long rise in
productivity growth. As I have noted previously, the
bipartisan policies of recent decades directed at deregulation
and increasing globalization and the innovation that those policies
have spurred have markedly improved our ability to channel saving
to its most productive uses, and as a byproduct increased the
flexibility and the resiliency of the U.S. economy.
It is, of course, difficult to separate rates of return based
on the innovations embedded in new equipment from the enhanced
returns made available by productive ideas of how to rearrange
existing facilities. From an accounting perspective, efficiency
gains, broadly defined as multifactor productivity, have accounted
for roughly half the growth in labor productivity in recent years.
Capital deepening accounts for most of the remainder.
All else being equal, domestic investment would raise future
labor productivity and thereby help provide for our aging population.
But the incremental benefit of additional investment may itself
be affected by aging. With slowed labor force growth, the
amount of new equipment that can be used productively could be
more limited, and the return to capital investment could decline
as a consequence. Yet it is possible that the return
to certain types of capital--particularly those embodying new
labor-saving technologies--could increase.
Although domestic investment has accounted for only half our
recent productivity gains, its contribution has historically
been much larger. Should the pace of efficiency gains slow, it
would fall to the level of investment to again become the major
contributor to productivity gains. Investment, however, cannot
occur without saving. But maintaining even a lower rate
of capital investment growth will likely require an increased
rate of domestic saving because it is difficult to imagine that
we can continue indefinitely to borrow saving from abroad at
a rate equivalent to 5 percent of U.S. gross domestic product.
A key component of domestic saving in the United States in future
decades will be the path of the personal saving rate.
That rate will depend on a number of factors, especially the
behavior of the members of the baby-boom cohort during their
retirement years. Over the post-World War II period, the elderly
in the United States, contrary to conventional wisdom, seem to
have drawn down their accumulated wealth only modestly. Apparently
retirees spend at a lesser rate and save more than is implicit
in the notion that savings are built up during the working years
to meet retirement needs. Perhaps, people mis-estimate longevity
or desire a large cushion of precautionary savings. Moreover,
often people bequeath a significant proportion of their savings
to their children or others rather than spend it during retirement.
If the baby-boom generation continues this pattern, achieving
a higher private domestic saving rate is not out of reach. Even
so, critical to national saving will be the level of government,
specifically federal government, saving.
A doubling
of the over-65 population by 2035 will substantially augment
unified budget deficits and, accordingly, reduce federal saving
unless actions are taken. But how these deficit trends are addressed
can have profound economic effects. For example, aside from suppressing
economic growth and the tax base, financing expected future shortfalls
in entitlement trust funds solely through increased payroll taxes
would likely exacerbate the problem of reductions in labor supply
by diminishing the returns to work. By contrast, policies
promoting longer working life could ameliorate some of the potential
demographic stresses.
Changes to the age for receiving full retirement benefits or
initiatives to slow the growth of Medicare spending could affect
retirement decisions, the size of the labor force, and saving
behavior. In choosing among the various tax and spending
options, policymakers will need to pay careful attention to the
likely economic effects.
The relative
aging of the population is bound to bring with it many changes
to the economy of the United States--some foreseeable, many probably
not. Inevitably it will again require making difficult
policy choices to balance competing claims. The decade-long
acceleration in productivity and economic growth has seemingly
muted the necessity of making such choices. But, as I noted earlier,
history discourages the notion that the pace of growth will continue
to increase. Though the challenges of prospective increasingly
stark choices for the United States seem great, the necessary
adjustments will likely be smaller than those required in most
other developed countries. But how and when we adjust will also
matter.
Early initiatives to address the economic effects of baby-boom
retirements could smooth the transition to a new balance between
workers and retirees. As a nation, we owe it to our retirees
to promise only the benefits that can be delivered. If
we have promised more than our economy has the ability to deliver
to retirees without unduly diminishing real income gains of workers,
as I fear we may have, we must recalibrate our public programs
so that pending retirees have time to adjust through other channels.
If we delay, the adjustments could be abrupt and painful. Because
curbing benefits once bestowed has proved so difficult in the
past, fiscal policymakers must be especially vigilant to create
new benefits only when their sustainability under the most adverse
projections is virtually ensured.
Responding
to the pending dramatic rise in dependency ratios will be exceptionally
challenging for the policymakers in developed countries. While
I do not underestimate the difficulties that we face in the United
States, I believe that, given the political will, we are better
positioned than most others to make the necessary adjustments.
Aside from the comparatively lesser depth of required adjustment,
our open labor markets should respond more easily to the changing
needs and abilities of our population; our capital markets should
allow for the creation and rapid adoption of new labor-saving
technologies, and our open society should be receptive to immigrants.
These supports should help us adjust to the inexorabilities of
an aging population. Nonetheless, tough policy choices lie ahead.
====
Wake up America,
your country needs you.
So much for all the "Surplus" blather back in January
of 2001.
I'd like to pose some simple questions to the Maestro. Questions,
I believe the average thinking American is going to want to have
clear and concise answers upon which to base
their "Savings" decisions.
Question 1
While Budget Surpluses were claimed during 1998/99 why has the
Total Federal Debt risen dramatically in each concurrent year
and is now bumping its head at its most recent "adjustment"
to $7.384 trillion?
Question 2
How is it that in March of 2000, the Administration clearly stated
they were running Budget Deficits after claiming MASSIVE Cash
Surpluses in "Custodial" Trust Accounts?
Question 3
Precisely how does the Government intend to repay the Trillions
they have already "Borrowed" from these Trusts.
Question 4
How will the "$44 Trillion Abyss" Professor Larry
Kotlikoff refers to America's under-funded entitlement liabilities
be funded?
Question 5
What, specifically is our Governments Plan for reducing spending
to bring financial solvency back within its reach?
Question 6
If the National Debt Ceiling is to be raised yet again from the
existing $7.384 trillion is the Social Security "Trust"
Funds going to Finance the increased Government spending?
Question 7
Would you like to re-purchase all of the Treasury Bills, Notes
and Bonds within the Social Security Trust Fund?
Personally, I'd like the Federal Reserve step up and swap any
trusts holding United States Treasury Issuances of any Duration
for the Gold sitting in the Fed's vaults. Feel free to have congress
enact legislation which restores THEIR ability to COIN MONEY
and REGULATE the value thereof, but give us our damn gold back
before all those "Promises" the Fed's Treasury sold
to Social Security, Medicare/Medicaid and the rest of the globe
turn to dust.
Who knows perhaps Congress might restore GOLD to its true "Free
Market" VALUE, but after you end up with all that confetti.
I'm tired of being on the receiving end of this Wilson Era Socialism.
It's old, tired and a bunch of non-sense.
Aug 29, 2004
John Mackenzie
jrmfl@adelphia.net
John Mackenzie manages
private capital and hosts a gold
forum/investors exchange on Yahoo! groups.
321gold
Inc
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