Jan. 23, 2005 - 19:18 MST

THE WONDERING JEW

A Long Look Ahead

Just read an article by James P. Pinkerton of Newsday in the The Denver Post/Rocky Mountain News of Sunday January 23rd. He seems to be taking a look from all sides of the question on Social Security, for one thing. In full:

Managing An Aging America

"Here's a factual statement and two arguments about Social Security."

"The factual statement is that under any retirement system, the amount of America's national wealth devoted to the elderly is going to increase, for the simple reason that the elderly percentage of the population is going to increase. Today about 13 percent of the population is over 65; by 2030, that percentage is expected to rise to 20 percent. After that, the percentage will level off -- unless, of course, a break-through in geriatric medicine alters those forecasts."

"Now to the two arguments."

First, since we're going to be spending the money on the elderly, the exact nature of the account from which they draw their retirement funds matters less than the overall size of the economic pot. That is, if the U.S. economy grows faster than the increase in the elderly population, the Social Security "crisis" is inherently manageable. But if it grows more slowly, well, watch out."

"And so when President Bush says that Social security will be "flat bust, bankrupt" in 2042, he could ultimately be proved pessimistic, or optimistic, depending upon the fate of the economy."

"For example, Social Security trustees anticipate an average economic growth rate of 2.6 percent for the next 75 years. that's in line with the U.S. historical average over the past two centuries."

"But what if that growth percentage could be increased ? At 2.6 percent growth, the size of the economy would be about seven times larger in 75 years. But if the growth rate could be bumped up by just half a percentage point from 2.6 percent to 3.1, the economy would be ten times larger. That's the miracle of compound interest at work."

"Yet is it really possible to push up growth like that ? In the third quarter of 2004, the real gross domestic product grew at 4 percent, and indeed the average growth rate since 1994 has been about 3.3 percent. Many economists believe that the United States and the world have entered into a new era of accelerated economic growth, thanks to new technology and free trade."

"So the second argument concerns the need to guarantee economic growth, so as to pay for the oldsters -- which is to say all of us, eventually, if we're lucky. And after a century of debate and even war, it's pretty much settled: the best way to achieve economic growth is through market capitalism.

"Moreover, the way to speed growth further is to increase savings and investment. And the way to increase savings and investments is to cut the tax burden on such capital formation. The United States has cut its tax rates substantially in the past quarter century, but many of our leading economic competitors have cut their rates even more -- which is to say, we can't afford to be complacent about the comparative quality of our business climate."

"So the most important economic challenge facing America is maintaining strong growth, since it's the size of the pie that ultimately governs the size of the slices we each can get. And so Bushs' tax reform plan, along with other pro-growth ideas he has put forward, such as tort reform should loom large in our minds as we calculate the fiscal future."

"But what about the claim that providing individual retirement accounts will help goose the economy by pushing up the stock market ? Well, maybe, but the Dow Jones average goes up and down a lot more than the overall economy. And its a plain fact of politics: if people lose too much money in their "partially privatized" retirement accounts, they will turn to politicians and the public coffers for reimbursement -- and the politicians will give it to them."

"So our focus at the beginning of this century should be on improving economic performance through tax and tort reform -- because one way or another, a rising tide has the potential to lift all boats."

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Opinion City here.

A couple of things stand out in my mind. Yes productivity must increase, but of course to be profitable the proceeds must not go into those highly inflated salaries (ransom type stuff) and golden parachutes. That should help the economy grow faster I think. To my mind the public and a lot of board members have been suckered to believe CEOs and CFOs are more than worth their weight in platinum and diamonds. I can't see that much worth in any man, woman or robot. And to my mind a CEO of a company that is losing money should be working for NO salary, no bonuses until things are turned around to make the company profitable.

Another point Mr. Pinkerton brings up. Quote, "And the way to increase savings and investment is to cut the tax burden on such capital formation. The United States has cut its tax rates substantially in the past quarter century, but many of our leading economic competitors have cut their rates even more . . . ."

The old saw of "The poor we will have with us always," seems to be a truism, but imagine the volume of people needing something from the public coffers because their "partialy privatized" retirement accounts have not performed as expected. The end result will be as always, our people must be housed, fed, clothed and transported in a way that satifies their needs so they can lead productive lives. No matter which government department comes up with the wherewithal it will be done -- or mass burials will be taking place, those of us who live burying the ones who didn't.

Heather and I are fortunate, our co-pay on prescription drugs has doubled this year, visit co-pays have doubled and Lord knows what else we will encounter as the year goes by. My point is this I guess, from a personal standpoint is this. Make whatever changes need to be made but avoid putting old folks and poor folks up against something they are not equipped to handle and are unable to go out and get a job to make do.

Before all these pro-active folks start the fireworks I think a whole bunch of intelligent calculations be made resulting from A Long Look Ahead . . . . . .

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