Category Archives: Politics

George W. Bush and Social Security

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George W. Bush was vilified for “wanting to privatize Social Security” after he proposed allowing younger workers to voluntarily elect to invest a third of their Social Security taxes in a private IRA type retirement account. However, there has been little political outcry as Barrack Obama champions the continuation of reducing personal Social Security taxes from 6.2% to 4.2%. My rudimentary math indicates that workers are being allowed to keep just under a third of the taxes they were originally paying. A friend points out that Obama’s approach has the advantage that the government isn’t involved in what happens with the money left in the paychecks.  Workers can use the money in any manner they elect, and they might even decide to put it into an IRA. However, it doesn’t do anything to repair or improve Social Security.

A brief history of Social Security was given in a posting titled “Weasels and Social Security,” and preparing that posting has me thinking more about the subject. I’m going to focus this posting on what Mr. Bush really proposed, which was a far cry from “privatizing Social Security.” The information I’ll be using is from a link that provides fact checks on several of his speeches beginning in 2000 on the subject.

Mr. Bush said in his State of the Union address on January 20, 2004,” Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people.” He continued his advocacy for changes in his acceptance speech at the Republican national convention on September 2, 2004.  “We will always keep the promise of Social Security for our older workers. With the huge Baby Boom generation approaching retirement, many of our children and grandchildren understandably worry whether Social Security will be there when they need it. We must strengthen Social Security by allowing younger workers to save some of their taxes in a personal account a nest egg you can call your own, and government can never take away.”

Mr. Bush clearly stated that his ideas were for workers under 50, and that benefits promised to older workers and people who were already retired would not be changed. However, I learned that elderly relatives were sending money to organizations promising to prevent George W. Bush from gutting Social Security with his plans “to privatize it.”

The outcry against what Mr. Bush had proposed was reinstated when the stock market tanked in 2008. There were frequent news reports that the market collapse would have been even more devastating to people if Bush’s proposal to “privatize Social Security” had been accepted. I’ve done some calculations based on a worker who has a static salary of $50,000/yr to estimate the results. That worker has Social Security “contributions” of $6200/yr. Half would be taken from the paycheck and the employer is required to match it. The Bush proposal would have allowed the worker to voluntarily invest one third of the total, or $2066.67/ year in a private account. The worker could also choose to leave all the money in Social Security.

Everyone who has investments in the stock market knows that 2008 was a scary year. The hypothetical young worker who elected to open the private retirement account would have been just as spooked. There would have been about $8300 added to the account if the account had been opened at the beginning of 2005. The value would have dropped to about $5700 at the end of 2008 if it had been invested in a Standard and Poors 500 index fund. The good news is that more shares are purchased per dollar invested when the market drops if you have the guts to keep buying when the market is plummeting. Continuing to invest the $172/month in the same S&P 500 fund would have resulted in your account being worth about $16,400 (including a net dividend of about 2 % after expenses) versus the $14,469 put into the account by the end of 2011.

What would the account have in it at the end of a career? Who knows? The stock market has historically been a good place to invest. However, as all those financial documents say, “past performance is not an indication of future performance.” Mr. Bush’s proposal was that people could invest the money according to their willingness to take risk. People could have put the money into insured CDs, and those could have very high yields if surging inflation happens a few years as many predict.

I’ve provided a fun link to a calculator to allow a reader to play with various investment scenarios. I entered data for a person opening a private account beginning in 2005 that is worth the $16,400 estimated above. I kept salary static at $50,000/yr for the worker who retires at age 62. The account would be worth $58,000 for a person who began the investments at age 40 and $94,000 for someone beginning at age 30 using an annual rate of return of 2%. The account would be worth about $81,000 for a forty year old and $154,000 for a thirty year old worker with a rate of return of 5%.

I see at least two important lessons. It is important for people to begin preparing for retirement as early as possible. That is especially true for young people who can’t depend on Social Security unless our politicians suddenly develop the courage to improve it.   The other lesson is to be successful in politics you must dress up your policies and criticize others with selective language. For example, you can explain your idea to let people keep about a third of their Social Security contributions is a tax break for the middle class while Bush’s idea about allowing people to voluntarily put a third of the money in a private account is “privatizing Social Security.”

Weasels and Social Security

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I’ve tried to maintain interest in politics, but it is challenging. Republican candidates demean each other while the Democrats demean the Republicans ranking highest in the polls at the moment.   The spectacle brings to mind an article titled “On Weasels and Removal Thereof Though Unified Action” by Susan Westfall. The author wrote that she “…decided to settle on a word to use when referring to politicians…and special interest groups who work so hard to sell the sovereign countries of the world down the road for personal gain, all the while espousing their good intentions for the ‘general welfare’ of the people.”  “Ultimately, I settled upon the term ‘weasel’.” That term is used to describe people who are acting in “…a cunning/and or deceitful fashion to achieve desired ends.”

We need fewer politicians willing act like weasels to buy enough votes to be reelected. Government entitlements such as Social Security and Medicare are popular with voters and any politician mentioning changes to improve the long term economics of the programs will face the wrath of voters. Too many politicians buy votes by defending both of the programs even though they know the programs need to be fixed.

President Clinton spent a year at town hall meetings talking about Social Security and that we should “…fix the roof while the sun is shining.” He was and is a clever politician, and he didn’t lay out details of how to fix the program. That resulted in people nodding knowingly that something should be done.

George W. Bush wasn’t as clever. He actually suggested that we begin to fix the Social Security by letting younger people voluntarily put a third of their Social Security “contributions” into private retirement accounts similar to IRAs. The account owner could then select how the money was invested, and they could select treasury bills or insured certificates of deposit if they wanted to be conservative to assure the money was there for them when they retired. They could also select the beneficiary, while Social Security is limited to dependent children and legal spouses (and is therefore homophobic).  Democrats were mortified. Robert Reich, who had been Clinton’s Labor Secretary, responded, “If it ain’t broke, don’t fix it!” Alliances were formed with older people who were told Bush wanted to destroy Social Security by “privatizing it.” I was discouraged that members of Congress and evidently their voting constituents believed the government could more intelligently manage money than the people who originally earned the money.  Bush lost, and future politicians received a clear message. Act like a weasel if you want to be reelected.

I have one hope, and that is some future politician will have the courage to offer what Franklin Delano Roosevelt proposed in an address given November 14, 1934. “It takes so very much money to provide even a moderate pension for everybody, that when the funds are raised from taxation only a “means test” must necessarily be made a condition of the grant of pensions.” He not only recommended a means test to determine whether people should receive a benefit, he also said he believed the taxpayers should only support the program for thirty years (until about 1965) at which time it would be replaced by private accounts.  When Bush’s opponents commented that Bush wanted to “destroy FDR’s legacy program,” they apparently believed what he had proposed didn’t go nearly far enough to implement FDR’s vision.

(Some readers might hesitate to believe the previous paragraph. A link is provided for those who want to read FDR’s comments in context. I predict you will find what I’ve written is accurate. Links are also provided to speeches by President Clinton and George W. Bush on the Social Security web site.)

Realistically, FDR probably would have been pleased with the backlash at Bush for suggesting changes. He even predicted that once the program was put in place “…no damn politician…” would ever be able to change it.  An advisor told FDR that Social Security wasn’t good economics. FDR famously responded, “I guess you’re right on the economics, but those taxes were never a problem of economics. They were politics all the way through.”

A few years back there was a bumper sticker popular in areas of the country where you would find large concentrations of retirees on vacation that read, “We’re spending our children’s inheritance.”   I hadn’t seen the sticker lately, and it occurred to me that message is no longer valid.  We retirees are no longer satisfied with spending only the children’s inheritance.  The Social Security program is diligently collecting substantial portions of incomes from the salaries of young workers and transferring it to those of us who are retired after skimming the cost of operating the bureaucracy.  Not fixing the program means we are willing to take that money with the promise workers under the age of about forty won’t receive equivalent benefits unless more money is taken from paychecks of the shrinking numbers of employed younger people.

I have advocated ending the cost of living adjustments to Social Security beneficiaries, and I’m guessing that one suggestion means there’s no risk of me being elected to any political position. However, I promise I’ll vote for people who show the courage to do something to improve future prospects for the country. My appeal is for others to join me in a quest to show the weasels the door. The other alternative is to wait for the eventual bankruptcy of the U.S. economy and the end of those monthly Social Security checks. I don’t think I’m the only grandparent who is willing to see changes to the Social Security program that would  give our families a better future.

Obama Kicks Keystone XL Down the Road

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A posting on this site was titled “Economic Recovery Versus Red Tape” discussed two pipeline projects. The Ruby natural gas pipeline provided thousands of jobs to construction workers and hundreds of jobs to environmental specialists. It also boosted property taxes in the areas where it was constructed. You would think such a project would have wide support, but the environmental hoops it had to jump through before successful completion, which cost millions of dollars, were tiny. The second pipeline described in the posting was the Keystone XL, which is proposed to bring oil from Canada to be processed in U.S. refineries. I’ve seen estimates that the project would add “shovel ready” jobs ranging from 4,500 (from environmentalists opposing the project) to as many as 20,000.

President Obama has taken the decision to approve the project out of the State Department and announced that he will make the decision after the 2012 election. This comes after three years of intensive study that decided the project had an acceptable environmental impact. (Hmmm, is there any significance to making a final decision after the 2012 elections?) I expect the announcement might have something to do with the fact that environmentalists opposed to the pipeline recently surrounded the White House and the Sierra Club declared that Mr. Obama could not count on the environmental vote if he allowed the project to be approved.

One objection to the project is that the oil from Canadian tar sands has more of an impact on “global warming” emissions than oil from other sources. I’ve seen estimates as low as a 5% increase in “greenhouse gases” to as high as three times by those who don’t like the project. An article in the Washington Post by Steven Mufson points out that any argument on how much more greenhouse gas is produced is meaningless, since the oil will probably be exported to China and consumed if there isn’t a closer market. Mr. Mufson also says several alternatives are being considered, to include a proposal to build a new refinery in Alberta to process the oil. That alternative would of course prevent creation of U.S. jobs to build a pipeline and to process the oil.

Environmentalists of course are demanding that alternate pipeline routes be considered to avoid the Ogallala aquifer (which is at a significant depth under the proposed pipeline). Matthew Brown of the Associated Press points out that there have been thirteen routes rejected. Environmentalists will find a reason, or many reasons, to reject any route. They don’t want a pipeline to be built, and will find compelling reasons to oppose any route.

The New York Times predictably applauded Mr. Obama’s decision to kick the can down the road. They point out that labor unions had supported the project while environmentalists oppose it. Call me a cynic, but I’m guessing that preventing the project until after the election will allow environmentalists to eagerly support Mr. Obama’s reelection, and that he already has done enough to earn the votes of labor union members.

It is interesting that there is already “Plan B” to transport the Canadian oil to U.S. refineries by expanding current pipelines with additional pumping stations. The delay to making a final decision on Keystone XL until after the 2012 elections will probably provide Mr. Obama cover for maintaining votes, but it won’t have any measurable impact on the eventual pathway for the oil except for preventing addition of “shovel ready jobs.”

Commercial Mortgage Loan Turmoil

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I mentioned in a June 29, 2011 posting titled Financial Crisis–Part III that one component of the Dodd-Frank law was to create a new regulatory structure for credit rating agencies.  Erroneous credit ratings that were given to mortgage-backed securities resulted in billions of dollars of losses, and were one cause of the financial crisis.  The SEC has not fully staffed the new office mandated by the Dodd-Frank law that is supposed to address this issue, and the provision that would hold credit rating agencies legally liable for their ratings was reported to have been tabled. Of course the government is now angry at Standard & Poors (S & P) for downgrading U.S. debt from AAA. There was a recent event involving S & P that was given very little media attention, but shocked the commercial mortgage-backed security (CMBS) world into disarray. Goldman Sachs and Citigroup pulled a $1.48 billion dollar CMBS offering hours away from settling the issue after S&P announced they would not be able to deliver final ratings on the security. A Wall Street Journal article by Al Yoon quoted a man who has worked in real estate finance since 1995 as saying “I’ve never seen this happen, to the extent where a deal was so far along, ever.”

The process of issuing a CMBS involves issuers working with the rating agencies to determine final pricing based on a preliminary rating, which has been developed after months of diligence. As was the custom, Goldman Sachs and Citigroup priced the recent issue based on the preliminary rating. No rating agency has previously failed to issue the rating when the deal is about to close, but that string has now been broken. S&P muddied the issue even more by saying “…it won’t assign new ratings to transactions based on its current criteria” (whatever that might mean). Other deals had to be recently “sweetened” to reassure investors.

What does this mean, and why should we care? The drama of watching the President and Congress thrash around with how to come up with a way of keeping the government funded followed by a stock market swoon has consumed nearly all of the news reporting. The possibility that the commercial real estate mortgage market is in limbo has been hidden behind the screen of bureaucratic ineptness of our elected officials trying to figure out how to fund overspending by the government. I fear this mostly unnoticed event instigated by what must be a nervous S&P could further cripple an already fragile economy. For those who haven’t been watching, the real estate market hasn’t been doing very well, and killing the commercial market by causing funding to dry up will be harmful. I write that believing that I have mastered the art of understatement. One analyst was quoted as saying, “This is a debacle of epic proportions.”

Drone Pilots

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I became interested in this story after writing a previous blog about Pakistan and that country’s nuclear weapons. A 60 Minutes show in 2009 reported the United States was using drones, which the Air Force calls “unmanned aerial vehicles,” to attack insurgents and military targets in Pakistan, Afghanistan, and Iraq.  George W. Bush stirred national and international debate and criticism when he authorized drone strikes in Pakistan.  A Times Online report dated January 29, 2009 reported that multiple “suspected drones” killed at least 15 people in Pakistan.  They were “…the first strikes since Barack Obama became president and a clear sign that the controversial military policy begun by George W. Bush has not changed.”

Pakistan watched U.S. drones operate successfully for years and finally asked for the some of their own.  The U.S. denied the request, and  Pakistan began developing the technology. They are now reported to be working closely with Italian, Chinese, and Turkish firms, all of which use Israeli technology “borrowed” from American technology, on upgrades.There is a YouTube video titled “Pakistan Starts Manufacturing Drones,” but unfortunately I neither read nor understand Pakistani.

The drones are controlled from Creech Air Force Base 45 miles north of Las Vegas.  The drones are constantly on the hunt, and they are controlled by a pilot and crew member supported by a team of intelligence analysts.  There is a video that has been going around that shows a drone pilot and crew member controlling a drone, being given a target, acquiring the target (a white pickup truck), and blowing it up.

Watching it made me remember an Army officer giving a lecture to my Infantry Officer Candidate class.  He made what seemed to be an off-hand comment that made me think then and that I recall more than forty years later.  “The more impersonal war becomes, the more dangerous it becomes.”

Tea Party Origins

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A Seattle blogger named Liberty Belle (Keli Carender) is credited with organizing a mid-February 2009 protest against the stimulus package that she originally called the “Porkulus Protest.” The protest gathering of about 100 people became known as a “tea party.”

CNBC’s Rick Santelli is widely acknowledged to have began the nationwide launch of the movement. He was being televised from the floor of the Chicago Mercantile Exchange when he went into a rant about proposals that the government step in to help homeowners facing foreclosure. He said, “Do we really want to subsidize the losers’ mortgages? This is America! How many of you people (looking at the floor traders behind him) want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?” He went on to suggest that he would organize a Chicago Tea Party, where capitalists would dump “some derivative securities into Lake Michigan.” The video of his tirade became a YouTube hit, and the movement was born.

Tea party protests sprang up across the country, and MSNBC and other media outlets began running stories demeaning the gatherings.  I tolerated the frequent “insider joke” about “tea baggers” (apparently the commentators didn’t believe average people would know how to use the Internet to learn what that term means).  However, I stopped watching Rachel Maddow the night she said something to the effect that it was difficult to understand what the protestors were saying, because their words were muffled by their white hoods.

I’ve been an interested watcher of politics since the mid-1950s, and the criticisms by public officials against the Tea Party is the first time I can recall politicians demeaning a significant group of their customers, the voters.