Surfin w/ Jeff

is Social Security a Ponzi scheme? Yes it is, in its own way, but that doesn’t quite cover it. In reality, Social Security is much worse than a Ponzi scheme. The analogy to a Ponzi scheme is accurate and necessary, because it captures the basic economic unsustainability of the program. A Ponzi scheme is unsustainable because the returns it promises are backed, not by any underlying productive investment, but solely by the scheme’s ability to recruit an ever increasing number of new suckers to contribute to it. Some have objected that Social Security is not a Ponzi scheme because it has the power to coercively recruit new contributors. But even that does not guarantee that the mathematics will work out. From its very inception, the number of contributors forced to pay into Social Security has been declining relatively to the number of beneficiaries. The numbers are well-known, and Charles Krauthammer rehearses them succinctly: “When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5; today, three; in 20 years, there will be but two.” Krauthammer describes the results. To keep the scheme going, the amount that has to be wrung out of each new victim keeps increasing: “in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time; in 1950, 2 percent; today, 11 percent; in 20 years, 17 percent.” Correspondingly, what each new contributor gets back from the program keeps decreasing. As Andrew Biggs observes, this is another thing that Social Security has in common with a Ponzi scheme. [L]ike a Ponzi scheme, Social Security paid early participants incredible returns on their money, because they contributed to the system for only a few years but received a full retirement’s worth of benefits. A person who retired in 1950 received around a 20 percent annual return on the taxes he paid (which happens to be exactly the same return that [Bernie] Madoff promised to his investors)…. [A]n average wage earner born in 1950 will receive around a 2.2 percent return from the system, which is less than what you could earn on guaranteed government bonds. A person entering the workforce today will receive only around a 1.7 percent return. At some point soon, that return is going to become negative, meaning that Social Security will present every young person with the prospect of forty years’ worth of dead loss the moment he enters the work force. From this perspective, the fact that Social Security can coercively recruit new contributions makes it worse. At least a private Ponzi scheme is self-liquidating. It collapses the moment its victims realize they are being defrauded. Social Security is a Ponzi scheme with no escape, as if Bernie Madoff had been exposed—and then promoted to Secretary of the Treasury.

Note that there is no current example that might suggest big deficit spending leads to national prosperity. The unsustainable debts of Greece, Ireland, Italy, Portugal and Spain have nearly wrecked the European Union. Most consider a fiscally prudent Texas or Utah to be a better job creator than debt-ridden blue states such as California, Illinois and New York. Scholars who analyzed the 2008 financial meltdown see its origins not just in Wall Street greed, but also in massive government intervention into the subprime mortgage markets and in misdirected federal efforts to ensure capital for bankers to lend to unqualified buyers.

Nancy Pelosi on today’s vote: “What we’re trying to do is save the world from the Republican budget. We’re trying to save life on this planet as we know it today.

Jeffrey Eisenach and Kevin Caves of Navigant Economics, a consulting firm, recently examined ARRA’s subsidization of rural broadband. The ARRA stimulus funds for broadband constitute “the largest Federal subsidies ever provided for broadband construction in the U.S.” An explicit goal of the program was to extend broadband access to homes currently without it. Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in Southwestern Montana, Northwestern Kansas, and Northeastern Minnesota. The median household income in these areas is between $40,100 and $50,900. The median home prices are between $94,400 and $189,000. So how much did it cost per unserved household to get them broadband access? A whopping $349,234, or many multiples of household income, and significantly more than the cost of a home itself. Sadly, it’s actually worse than that. Take the Montana project. The area is not in any meaningful sense unserved or even underserved. As many as seven broadband providers, including wireless, operate in the area. Only 1.5% of all households in the region had no wireline access. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

Gasoline prices have been falling. Supplies have been and are expected to be relatively stable. And the Obama administration taps the nation’s Strategic Petroleum Reserves, designed to offset serious supply disruptions. That 30 million barrels — and 30 million more from the reserves of more than two dozen member countries of the International Energy Agency — will be dribbled into the supply chain over the next month. The net positive economic effect? Pretty negligible. But the net negative effect of what really is a political stunt designed to slap what looks like a rich veneer onto a particle board economic record — could be lasting. The New York Times reports that the move was intended, in part, to send a message to market traders “that governments would react when they believed there was excessive speculation in oil markets.” That would be those evil speculators whose work, in reality, promotes price stability. As Fox Business News host John Stossel reminded in a column last month, “When (speculators) foresee a future oil shortage — that is, when prices are lower than anticipated in the future — speculators buy lots of it, store it and then sell it when the shortage hits. They know they can charge more when there’s relatively little oil on the market. But their selling during the shortage brings prices down from what they would have been had speculators not acted.” And this Mr. Obama wants to stop?

It’s ironic that extending unemployment benefits, one of the reasons unemployment remains so high in the first place, is actually being touted as a jobs bill. Keynesian proponents argue that giving money to unemployed people will create jobs wherever they spend their government cheese. This is utter nonsense. If printing money and dolling it out to the unemployed could create growth and jobs, why hasn’t it already worked? After all, we have already extended benefits to 99 weeks. Where are all the jobs? Also, if every dollar of unemployment benefits generates two dollars of growth, as our legislators claim, why not double or triple the benefits? In fact, why limit them to the unemployed? Just give the benefits to everyone – then we will really get this economy going. Politicians cannot create economic growth at will simply by doling out money. If it could, the Soviets would have won the Cold War. Handing out cash does not create additional production, it merely changes who benefits from existing production. Transferring purchasing power from producers to consumers undermines economic growth and destroys jobs.

When you look around the world at the countries that have come through the recession best, it’s not the countries with the brilliant and aggressive stimulus models. It’s the ones like Germany that had the best economic fundamentals beforehand. It all makes one doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions. You don’t have to be a genius to come up with an economic policy like that.

Whether Buffett recognizes it or not, rich Americans’ investments are needed to push the economy ahead. Taking more from them deprives the private sector of the fuel it needs to expand. Government cannot boost growth by increasing taxes. Nor does giving more money to the government create jobs. All it does is cause the government to spend more. Economists Richard Vedder and Lowell Gallaway found in a well-known study that for each dollar in new taxes raked into the Treasury, Washington increases spending by $1.58. An updated study by Vedder and Stephen Moore, an economist who writes for the Wall Street Journal’s editorial pages, found that for every dollar in new taxes, the government spends $1.17. Either way, increases in tax revenues won’t close the deficit. They will only widen it.

Why do plastic shopping bags continue to get such a bad rap? Why is it still chic to pillory them? Frankly, I’m getting a bit tired it. I am quite certain many people would be shocked to know that plastic grocery bags are arguably a better environmental choice than paper. In fact, the Wall Street Journal observed that the choice between paper and plastic comes down to which environmental issue you think deserves the most attention. You’d be right to argue that paper bags produce less litter, but plastic bags have their benefits too. Oh yes, Virginia, they most certainly do. Don’t believe me? Well, the Wall Street Journal notes that plastic bags require significantly less energy and water to make. Not only that, but they also produce less greenhouse-gas emissions.

Possibly the most important event of the vice president’s day Tuesday is to meet at 2:15 with Earl Devaney. Everyone knows him as chairman of the Recovery Accountability and Transparency Board — the top guy monitoring the gazillion-dollar stimulus and the overdue economic recovery, and ensuring that the taxpayers financing same know all about it. However, no one outside the room will know what goes on in that Biden-Devaney meeting. That’s because the government meeting on government transparency has been closed.