Friday, February 26, 2010
Wednesday, February 24, 2010
Long-term trend:
The United States had 2.3 state and local government employees per 100 citizens in 1946 and has 6.5 state and local government employees per 100 citizens now. In 1947, Hodges writes, 78 percent of the national income went to the private sector, 16 percent to the federal sector, and 6 percent to the state and local government sector. Now 54 percent of the economy is private, 28 percent goes to the feds, and 18 percent goes to state and local governments.Should I hope my daughter will secure a government job someday? No. Things that can't go on forever, don't. I believe this, and I'm putting my money where my mouth is. I have a government job right now, and, Lord willing, I'll eventually have a tenured job. However, I don't have a union card, and I chose a 401(k) retirement plan, as opposed to joining Texas' Teachers Retirement System (TRS). The latter has done fine for its members so far, but I'm not betting my retirement on their continued success.
There's a great fiscal squeeze coming. Texas is better than average among the states, with 91% of its pension obligations funded, but only 2.5% of its non-pension retiree obligations (mostly health care) funded. As the squeeze becomes more manifest, Texas will raise taxes, cut retirement benefits, cut government services, and/or default. With the first and third actions, I have the option of moving to another state if things get bad enough. With the second and fourth actions, my pension be unaffected, but only because I opted out of the TRS.
What could go wrong with my plan? The federal government will face its own fiscal squeeze, and getting money out the country is harder than getting it out of a state. There is already speculation that people's 401(k) savings will be heavily taxed or converted into government annuities (i.e., forcing you to lend your savings to the government).
I think this sort of worry is paranoid for now, but I have no idea what will happen ten years out. The "optimistic" scenario is that the political strength of older voters who saved will prevent it. Why the scare quotes? In the national fiscal crisis, the options will be steep cuts in services, steep tax increases/confiscations, steep retiree benefit cuts, and default. None of these sound pleasant to implement, do they?
(You can inflate away long-term debt, paying it down with debased currency. However, in a fiscal crisis, there is a deficit, and hence, if you don't implement some combination of the above four options, then you won't be paying down any of your existing debt; you'll need to issue new debt and presumably have to roll over plenty of the existing debt. In this situation, buyers of the new/rolled-over debt will demand high interest rates to match any future inflation they expect to happen. I don't think a series of giant jumps in inflation could be planned with enough secrecy to make much money off it.)
Tuesday, February 23, 2010
Monday, February 22, 2010
Friday, February 19, 2010
Update: see also Will Wilkinson's comments.
Friday, February 05, 2010
In Japan, 70 percent of women who leave the workforce to have a child never return. In low-fertility countries like Italy, Spain, and Greece, 40 to 50 percent of women are no longer working by 50. Over 70 percent of American women are still in the workforce at that age.
Wednesday, February 03, 2010
- Paul Krugman praises Canada's financial regulation.
- Bill Gross likes Canadian bonds:
Of all of the developed countries, three broad fixed-income observations stand out: 1) given enough liquidity and current yields I would prefer to invest money in Canada. Its conservative banks never did participate in the housing crisis and it moved toward and stayed closer to fiscal balance than any other country...
Apparently well-connected managers already know they prefer estimates by officials who respond to social pressure, over hard-to-manipulate market estimates, even if the later are more accurate. Of course less well-connected managers should prefer the opposite, but who wants to signal their bad connections by endorsing independent markets?
Tuesday, February 02, 2010
- Old folks can't afford inefficient care. Specifically, retired people are given vouchers (in lieu of traditional Medicare), but the vouchers don't grow as fast as the average cost of health care.
- The government can't afford to give old folks inefficient care. Specifically, Medicare is not voucherized, and Medicare costs finally reach the limit of what federal taxpayers and bondholders are willing to bear.
Even if Klein is right that most Americans will never find a better deal than Medicare, I doubt he would assert that no one will ever have unusual circumstances in which they would be better served by a private option. (One plausible scenario is wanting to fly to a foreign country and there purchase an unproven, experimental, potentially life-saving treatment that Medicare refuses to pay for.)
Therefore, I demand the option to exchange my Medicare benefits for their actuarially fair value as an annuity.