RE: Reforms: Political Realities

[Michael Jones <powderfinger99@yahoo.com>]

<<<
Indeed, CATO supplies Op-Ed pieces to major newspapers asserting
that women and the poor are the 'real victims' of the current SS
system, when indeed those two groups are the primary beneficiaries
of SS benefits formulas today.  I am truly puzzled as to why CATO
finds it necessary to do that. 'Shooting themselves in the foot'
is the expression that comes to mind.
>>>

The point that I belive Cato is trying to get across is that 
preferencial treatment in a poor system is not necessarily a
good deal. It's important to take a step back from all the
formulas that make up the system and ask the fundamental questions
about the opportunity costs associated with the current system.

This is often difficult to do because politics is tied up in the
whole system. When politics gets involved in the system it tends
to draw attention away from the underlying problems of the program.
In my mind, numbers don't lie. The numbers show that Social Security
is a bad deal for nearly everyone. Even the targeted "risk" groups.

<<<<
"Any remaining transition costs should be financed by cutting other
government spending, much of which is wasteful and even counterproductive.
Reducing it will not amount to a significant cost.  "[33] Ferrara
has in mind cutting about $60 billion per year.[34] No matter how
insignificant he believes these expenditures to be, cutting budgets
is never an easy task, especially after the extensive budget cutting
of the past decade.
>>>

It actually wouldn't take cutting government spending to fund
the transition costs. To understand what I mean by this, it is
first helpful to discuss how the government views cutting spending.

When you or I cut spending, we actually reduce the number of 
dollars we spend. If we spend $100, and reduce spending 10%,
we spend only $90 dollars instead of the original $100.

The government loves to spend money so much that its own 
interpretation of a spending cut is different. 
Suppose the government spent $100 this year and planned on 
spending $120 next year. If the government instituted a 10% cut,
it's spending would still increase by $8. Even though spending
was reduced, the amount of dollars outlayed still increased.

It will be nearly impossible to get the government to actually
spend fewer dollars from one year compared to the previous year.
It's never happened. Fortunately, it wouldn't be required. All
that is needed is for the government to reduce the increase in
spending to be less than the increase in revenues. This means
that if the economy grows by 5% and revenues grow by 5%, as long
as the government spending increases by a smaller amount, savings
will grow. This might not sound like much, but if you compound
2-3% of government savings over a 30 year timeframe, it adds
up to big dollars.

Here's the numbers: 3% of the current federal budget is about 60B.
Think about your own finances. Could you eliminate 3% from your
budget? This is why Ferrara suggests that "reducing it will not
amount to a significant cost". If you compound 3% on a 1.8T (
that T for TRILLION!) over a 30 year time frame (with an assumption
of 4% revenue growth and 1% growth in spending), you would get
a savings of over 3T (that's trillion again).

The most remarkable thing about the whole equation is that government
spending never actually decreases year over year in real dollars.
Imagine all the money that could be saved if spending actually
decreased.

Do you think it is too much to ask for the government to restrict
spending to be less than the growth of revenues before it asks
for more money to solve the problem?

Michael