El-Erian: A Paradigm Shift

I don't know how I missed this Charlie Rose roundtable (click on the "Transcript" tab, or scroll up to see the video). It was back in February 2010, and it included Krugman, El-Erian, and David Walker, i.e., the heavyweights. Here are some excerpts:

"I think the extreme deficit that we’re dealing with now is something that came at us out of the blue resulting from a crisis in high finance, a crisis in housing, a crisis in automobiles. The private sector created a lot of the problems that’s given rise to these huge recessionary deficits."

"The way I look at it, there are really just two things that are top of the line. Everything else is secondary. First is health care. Nothing works unless you can get health care costs under control...[and second,] the bulk of it has to involve raising more revenue. "

"And I would say we’re still spending quite a lot of money to keep Soviet tanks from going across Germany, and so if we could stop doing that, that would help."

"Why is it that we want fiscal consolidation and fiscal stability? It’s a means to an end. And the end is growth, employment creation, and welfare creation. Ultimately we look for financial stability and fiscal stability because it’s a means to an end."

"Let me give you my broader take, which is that the United States does worse than anybody at controlling health care costs."

"[L]ook, we need protection against catastrophic accidents and illnesses that could wipe us out financially. It’s the number one cause of bankruptcy in the United States."

"Even if they [interest rates] don’t go up, the single largest line item in the federal budget within 12 years will be interest on the federal debt -- larger than defense, larger than Medicare, larger than Social Security. And what do we get for that? Nothing." (David Walker)

"I’m really -- I really hate that calculation. I share your concerns about the long term, but I really hate that calculation. Take the Obama budget, I happen to know the numbers. It says in 10 years we will be spending 3.5 percent of GDP on interest payments. And when did we last do that? We did it when the first George Bush was president. It wasn’t catastrophic then and it isn’t catastrophic now. It’s a very misleading number in calculating the real burden." (Paul Krugman)

"Let me put it this way -- you need a situation where irresponsible rhetoric actually loses people elections. And that has not been the case in America for a while." (Krugman)

"[W]hen you add in the unfunded promises that have been made, this country is in a $60 trillion-dollar hole. Just Medicare and Social Security, pensions and health for civilians and military. That’s three times what it was when George Bush became president. The debt has doubled, more than doubled, since George Bush, this is 43, became president." (David Walker)

"It’s not that our democracy has become dysfunctional. It’s really that we’re going through a paradigm shift. We have a seen a 20 percent increase in the debt to GDP ratio in a very short period of time. We have seen unemployment go up to levels that were unthinkable and is likely to stay there. And this is in a system built on the assumption that unemployment cannot stay high for a long time. That’s why our safety nets are so weak. We have seen major questions being raised about institutions, about the Fed, about the banks. This is a paradigm shift." (El-Erian)

"Let me tell you one other thing I say to my Democratic caucus when we’re trying to pass a budget resolution, referring to the incumbents about what the rest of the world thinks of us. I tell them, if you can’t budget, you can’t govern. That’s the way it is looked upon. And if you look at other, true parliament systems is it particularly a condition or rule of the parliament, if they fail to pass the budget it’s a call for dissolution of the parliament. And frankly we should be held accountable for what we do to a far greater extent than we are." (John Spratt)

Baby Boomers are Fleecing their Kids and Grandkids

Laurence Kotlikoff is fast becoming one of my must-read authors. From a recent Bloomberg article:

Over the past five decades, our policy of taking ever larger sums from young savers and giving them to old spenders has more than doubled the ratio of average consumption of oldsters to average consumption of youngsters.

Much of this redistribution has taken place through Social Security, Medicare, and Medicaid. Collectively, these three programs spent $1.2 trillion on the elderly last year [2009]. Their total payment per oldster equaled a whopping $30,000, which is three-quarters of U.S. per-capita income. And, about half of this total constituted Medicare and Medicaid benefits, which are provided to the elderly directly in the form of personal consumption of health-care goods and services.

The bottom line? If we are serious about reversing the decline in national saving, we need to stop expropriating the young for the benefit of the old.

Oh, the betrayal.

Reliable Net Worth Numbers?

It's difficult to analyze the average person's net worth because most of the data comes from informal surveys. In a way, it's like asking people how many times they have sex--chances are, they're going to focus on the good times and give you a higher number.

Anyway, here is one link that leads to a compilation of net worth numbers. CNN's money calculator indicates that most people making $120K a year have a $301K median net worth. When you examine the retirement account numbers below, a $301K net worth seems high, but perhaps not so unusual for a two-income family on either coast who bought their home more than ten years ago.

Bonus: according to EBRI, "More than half (56.4 percent) of those owning at least one IRA had less than $25,000 in them in 2008."

The average IRA account balance in 2008 was $54,864. Because the EBRI IRA database can aggregate multiple accounts held by one individual, the new EBRI analysis also finds the average IRA individual balance (all accounts from the same person combined within the EBRI IRA database) was significantly higher, at $69,498.

The median IRA account balance was considerably less: $15,756 per account and $20,046 per individual. Median levels mark the mid-point (half above and half below) and are less affected by outlier data.

Elsewhere on EBRI, they report that at "year-end 2007, the average account balance in the EBRI/ICI database was $65,454, compared with $61,346 at year-end 2006. 401(k) account balances varied with participant age, tenure, and salary. Individuals with account balances of less than $10,000 were primarily young workers or workers with short job tenures. In contrast, those with account balances in excess of $100,000 were primarily older workers or workers with longer job tenure."

Median 401k balances are harder to come by. According to EBRI and the Investment Company Institute, at the end of 2007, someone in his/her 50s making $60,000 - $80,000 had a median 401k balance of $160,324 and someone in his/her 50s making $80,000 - $100,000 had a median balance of $226,266.

It appears almost all Americans have most of their net worth in their homes.

David Walker, Fiscal Hero

David Walker, former comptroller of the United States, on gerrymandering: out of the 435 House of Representatives' seats, only 60 seats have any real competition. We are not a true representative democracy/republic. We need to consider political districts, campaign finance reform, and open primaries. We may also need to look at term limits.

(Elsewhere, Mr. Walker has recommended electing members of the House of Representatives to four-year terms instead of the current two-year terms to minimize 24/7 re-election efforts. He would also limit the tenure of Representatives and Senators to 12 to 18 years and even suggests electing Presidents to a single 6 or 8-years term.")

Another (paraphrased) gem, on the so-called Social Security trust fund: government uses terms in its own way, outside the Merriam-Webster definitions. For example, take "trust fund"--you can't trust it, and it's not funded.

Bonus: from Walker's book, Comeback America (hardcover, page 121): "we must realize that corporations don't really pay taxes. Rather, they pass along any tax, in the form of higher prices to consumers, lower wages to workers, and/or lower returns to shareholders."

True Patriots Don't Suffer from Blind Allegiance

I love good police officers. Good, honest cops are essential to a civilized, well-functioning society. It's the bad cops I despise--and it continues to astound me when normal people defend bad cops, as if wearing a badge is a license to do harm.

To anyone who has raised issues with corrupt police officers, only to have someone say, "Why are you criticizing the police? Don't you know they risk their lives every single day?"--I offer the following handy response:

I apologize. Any criticism of police officers, even the worst ones, is unpatriotic. Unlike mine workers, loggers, taxi drivers, pilots, construction workers, and farmers--all of whom have higher job fatality and/or injury rates--police officers risk their lives every single day.

In any case, don't assume that respect is a two-way street. Like any abusive relationship, you should not complain publicly, even if someone has done something unethical, wrong, and indecent.

Before you say anything else, remember this: America was founded on blind allegiance to executive authority. The founders clearly envisioned a country where citizens would be unable to use their free speech rights to criticize the government. I question how you were able to graduate high school without learning these basic facts about our country.

Now, the person on the other side has three options: one, say he didn't mean what he actually said, in which case you thank him for his clarification; two, he gets upset and starts calling you names, in which case you win by default; and/or three, he protests your use of sarcasm, in which case he is just protesting style, not substance.

Journalism Lives at SCU Magazine

Sam Scott has written an excellent article in SCU Magazine (Fall 2010) about how one man saved the internet. More HERE.

[W]hat he finds is a gaping hole in the very pipes connecting computers across the Web—a weakness so fundamental that the security of practically everything online seems suddenly at risk. “At first I thought I must be missing something,” Kaminsky says, looking back. “I thought, ‘This can’t work—because if it worked, the Internet would be in so much trouble.’ Then it worked.”

Great story.

On the History of American Religious Tolerance

I found this interesting article on Instapaper.com:

From the earliest arrival of Europeans on America’s shores, religion has often been a cudgel, used to discriminate, suppress and even kill the foreign, the “heretic” and the “unbeliever”—including the “heathen” natives already here. Moreover, while it is true that the vast majority of early-generation Americans were Christian, the pitched battles between various Protestant sects and, more explosively, between Protestants and Catholics, present an unavoidable contradiction to the widely held notion that America is a “Christian nation.”

Read more: http://www.smithsonianmag.com/history-archaeology/Americas-True-History-of-Religious-Tolerance.html

Bonus: interesting article about Roald Dahl.