Friday, February 12, 2016

Clarifying the Social Security "Trust Fund"

Don’t you get tired of people arguing that Social Security is not an “entitlement,” that they paid in and it’s their money being held in a “trust fund” for their retirement?  The word entitlement makes it sound like they weren’t paying in, and when politicians refer to the FICA tax as a contribution, that statement reinforces the idea.  But that is not what is really going on.  The contributions of retirees are long gone; and the government has its own definition for the term “trust fund.”  Common assumptions are wrong, and a little research and critical thinking explain why.

Social Security was set up such that the contributions of today, from today’s workers, are used to pay the retirees of today.  They may pass through some imaginary trust fund, but all they do is pass through.  In the past the contributions went partially to the current retirees and partially to build a reserve, but there are no longer enough workers to support the number current of retirees.  Now it takes all the money collected, plus interest from that trust fund to meet today’s obligations.  That’s right, every penny “contributed" by workers today is passed directly to retirees.  There is not an account with your name on it (and there never was).

To defend those statements, here is an excerpt from the 2016 Budget of the United States, page 30: 
As a result of reforms legislated in 1983, Social Security had been running a cash surplus with taxes exceeding costs up until 2009. This surplus in the Social Security trust fund helped to hold down the unified budget deficit. The cash surplus ended in 2009, when the trust fund began using a portion of its interest earnings to cover benefit payments. The 2014 Social Security Trustees’ report projects that the trust fund will not return to cash surplus, but the program will continue to experience an overall surplus for several more years because of the interest earnings. After that, however, Social Security will begin to draw on its trust fund balances to cover current expenditures.
 Note above that the Social Security surplus “helped to hold down the unified budget deficit.”  It’s all in one pool, not a separate, distinct fund.  This situation was confirmed when, during the debate about the raising the debt ceiling in the summer of 2011, the President said he could not guarantee the Social Security checks would go out on time.  Why didn’t Congress counter with:  “That’s just a scare tactic, because the money is in a separate trust fund”?  They didn’t say that, because it’s not true.

Furthermore the government means something different and directly admits it on page 374 of the same document: 
The Federal Government uses the term “trust fund” differently than the way in which it is commonly used…the Federal Government owns and manages the assets and the earnings of most Federal trust funds and can unilaterally change the law to raise or lower future trust fund collections and payments or change the purpose for which the collections are used. [Emphasis added]
So don’t tell me it’s your money that you paid in and you have a right to it.  The money you paid in is long gone.  The money your children are paying in is going out as fast as it’s coming in.  And the government can change the rules whenever they want to and use the money for whatever they want to.  In other words, the trust fund is “simply an accounting measure, specifying how much money the federal government owes the program out of general revenues, not an actual asset that can be used to pay benefits.”

Of course, Social Security could have a real trust fund so that people who pay in get back their money with interest during retirement.  It would be run more like people expect it to be run, but after 80 years running on a pay-as-you-go basis, it would cost almost $25 trillion to retrofit it in that way.

Monday, February 8, 2016

The Cost of Ignorance

How does an economy grow?  At the end of each quarter we hear news about the growth of the economy, how Gross Domestic Product has increased.  In very simple terms this means the economic “pie” is getting bigger; the country is theoretically that much richer.

This is important because some folks with minimum economic understanding think that if one person gets more, someone else must end up with less.  They believe the economy is a zero-sum game with winners and losers.  This may be true in some individual interactions, but it’s generally not the case.  When you go the to bakery to buy a birthday cake both parties are better off.  The baker wanted your money more than the cake.  You wanted the cake more.  It was easier for the baker to make and decorate the cake than for you to do it yourself.  Both parties are winners.  That’s why when you pay, you say “Thank you” and the baker says Thank you.”

In the long run everyone benefits from economic growth.  Consider this (based on 2013 numbers from the Census Bureau):  “Americans who live in households whose income is below the federal ‘poverty’ level typically have cell phones (as well as landline phones), computers, televisions, video recorders, air conditioning, refrigerators, gas or electric stoves, and washers and dryers and microwaves.”  About 76% had a car or truck, and 31 percent had two or more cars or trucks.  Many of those were luxury items in 1970, if they existed at all.  The poor are still not well off, but the growth of the economy has made some improvement in their lives.  The rest of us often take for granted things that were unheard of in our grandparents’ day.

But the economy doesn’t grow on its own and automatically.  Businesses must increase efficiencies to improve productivity and come up with creative solutions to real problems.  When they do that we have more, better and cheaper products and services.  If they waste time and resources needlessly, no one benefits.

What concerns me is the trend toward “faux” improvements driven by a misinformed and scientifically gullible public (in some cases bordering on superstitious).  Once it was a joke when a company came out with a product labeled “new and improved.”  People were skeptical.  Was there really a change, or did they just change the packaging?  Now that “new and improved” takes the form or “all natural” or “organic” or “non-GMO,” instead of being equally skeptical, consumers keep asking for more.

This came up again in some recent news and advertising.  The first example is an ad for Gluten Free Cheerios.  See the company statement:  “As a leader in the growth of organic agriculture, we naturally became involved in the production of gluten-free oat ingredients as more and more of our customers began asking us to utilize our expertise to produce gluten-free oat ingredients for use in their products.”  [emphasis added]  It’s not that there are more and more cases of celiac disease, a valid health reason for seeking out gluten-free products.  People hear about gluten sensitivity from TV doctors selling the latest health fads or from social media comments.  As a type of self-diagnosis, some try a gluten-free diet and convince themselves that it makes them feel better.

On one hand, big food companies are accused of trying to trick us into eating food not good for us (see below); but when consumers believe made-up stories about ingredients or processing methods, those same food companies are happy to jump on the band wagon to provide the new fad foods or ingredients, often giving the companies the opportunity to charge us more as they are praised for being sensitive to the public’s wishes!

The second example comes from a very balanced report on CBS Sunday Morning about genetically modified foods (GMO).  The expert in favor states:  "There's not a single instance of harm to human health or the environment using genetically-engineered crops… farmers have been genetically altering food for thousands of years, using techniques like grafting, hybridization, and cross-breeding…Everything we eat has been genetically altered using human intervention."  The expert on the other side says:  "I am increasingly concerned at the ways in which corporations have gained more and more control and influence over our food system."  This exchange strongly sounds like a thinking argument vs. a feeling one.

Again, many of the changes are consumer-driven rather than science-driven.  “Polls show 57 percent of Americans think GMOs are unsafe to eat. But consider this: 88 percent of scientists say GMOs are safe.”  (The entire segment lasts 10:30 and is worth watching or reading.)  It concludes by pointing out that in richer countries with more than enough food we can afford to be fussy.  The problem is felt in the poorer nations where people don't have much food.  The push to ban GMOs “is really harming the people most in need.”  And if they can develop bananas resistant to the virus that’s wiping them out or a peanut that doesn’t trigger an allergic reaction in children, is that a terrible thing?

When I continue to see the food police soliciting food companies and the government to make these changes, I wonder if all the effort is making any meaningful contribution or if it's just a kind of waste – a case of negative productivity, as when everyone is pulled away from their regular duties to attend a mandatory meeting.  Is this hypersensitivity about food adding any real value to the economy? Where will we be years from now when we have no choice other than organic, all natural, gluten-free and non-GMO food and must pay more for it? Will instinct rule out over our logic as we demand changes without substance or scientific backing?  The poor will not be better off.  The economy as a whole will not be better off; and we will have squandered another opportunity to improve the lives of our children by reacting to myths. 

Friday, February 5, 2016

How to Sell Magazines

I have heard from time to time various advertisements using the approach that there are secrets out there that they are going to let us in on to make our lives much easier or richer or healthier.  Ones tells me that they are going to tell me secrets Wall Street doesn’t want me to know, if only I attend some complementary seminar.  Another tells me there are secrets the credit card companies or banks don’t want me to know to tempt me to sign up for some service – I stop listening half way through, because I am not so paranoid as to think there are that many secrets out there.  Most businesses aren’t that smart or that good at keeping secrets; there’s going to be a leak with news agencies jumping all over it.  Most businesses want to serve their customers and maintain a good reputation and the leaking of secrets is not going to help.  So I usually ignore these pitches as, shall we say, insincere.

That’s why the news of “50 secrets hospitals don’t want to tell you” caught may attention.  It was on network news, but featured a story from The Reader’s Digest.  I thought, these Readers Digest titles feature articles and not advertising.  They are not just saying that to try to sell me some service or seminar.  What is the deal?  So I looked it up.

A Google search of “Reader’s Digest 50 Secrets” took me to this page.  Wow!  There was a whole list of similar titles.  According to the Reader’s Digest, everyone is keeping secrets from us:  hospitals, food manufacturers, nurses, your waiter, pilots, your surgeon, veterinarians, the nursing home staff, your grocer, the HR department and even your pets!  And the really odd thing is that each of these conspirators has exactly 50 secrets!

Curiosity led me to the 50 hospital secrets and I found some common sense ones, like don’t stay in the hospital longer than necessary because it costs more and check your bill for accuracy.  There were many that I wouldn’t really care if they kept the secret from me forever:  some providers bet each other on patients’ readings before they are taken.  Some bet on what the next condition an ambulance will bring in.  Sometimes nurses are getting attacked by violent patients.  None of this is going to affect me, so I don’t really care.  A few tips were helpful, like a tip to bring your own meds from home so you are not buying them at hospital-inflated prices.  In general though, it was kind of ho-hum information.

But let me correct an earlier statement.  I said I was surprised because I didn’t see the Reader’s Digest in the same light as some of the people who were trying to sell me something directly with their pitch about the secrets.  They aren’t trying to sell services, but they are trying to sell magazines – using the same sales approach (over and over) with a slightly different objective.

Monday, February 1, 2016

Teach Your Children Well

What are we teaching our children?  The question came up again with the latest announcement from Mattel about the new look of Barbie.  The doll has been re-engineered with three body shapes and a choice of 30 hair colors, 22 eye colors and seven skin tones in response to recently slumping sales.

Barbie dolls have been around for 57 years.  Before that girls would play with baby dolls and Raggedy Ann.  They would all sit around the table drinking tea with the Teddy Bear.

But when Barbie (invented by a woman) came along, mothers and feminists were (and still are) outraged that the proportions were so unrealistic.  If their daughters grew up wanting to look like Barbie, they were in for a big disappointment and possibly psychological problems.  I don’t think girls before 1959 dreamed of growing up to look like Raggedy Ann (or the Teddy Bear), but apparently Barbie changed the paradigm and the focus from tea parties to fashion.

The protests over Barbie seemed to have little impact as Mattel has sold more than a billion dolls over the years.  But when Barbie-related sales dropped to a point just over $1 billion annually in 2014, something had to be done!

Today we live in a more enlightened age.  We are all about diversity and tolerance.  People of all shapes and sizes, different colors, different religions and different preferences populate the world.  They all fit in. We are not supposed to judge them by any of these factors.  They should all be accepted for who they are.

To accommodate this new mindset (and possibly to make more money) Mattel responds with the new Barbie, available in 13,860 possible configurations.  Not only does this update allow children to choose a more realistic looking Barbie, it allows them to get one that looks more like them, one they can aspire to look like when they grow up.  The new focus is still on fashion, but now it’s on fashion for someone “who looks like me.”

But in this new age of diversity, the haunting question is whether the message should be that our dolls (and possibly our friends, too) should look more like us.  Isn’t there a bit of intolerance hidden beneath the surface?  Of course, this apparent contradiction could be addressed by intentionally buying a Barbie that didn’t look anything like the owner – but the old Barbie would have fit that bill perfectly.

Other questions might be whether a preoccupation with fashion and whether using any doll as a role model is really healthy.  Maybe these are things more worthy of consideration by moms and feminists and more worthy of protest.

Friday, January 29, 2016

Yet Another Magic Bullet

January must be the month for “magic bullets,” products, services and secret tricks to help you avoid the hard work of staying healthy in a simple, but often not affordable, way.  On January 4, I gave examples of magic bullets for physical health in the form of “healthier” foods that are natural, organic or some other special description that has been accepted without proof to be better.  On January 8, I discussed the “brain training” industry and their claims to be able to stave off any number of mental problems. What all these have in common is that they present or imply scary problems, like contaminated food or Alzheimer’s disease, and then try to sell a solution that requires less effort or less critical thinking with an unscientific solution.

The topic this time is detox.  This website gives a detailed description about how popular promotion of detox programs are not legitimate.  The term is a real medical service term “provided in hospitals under life-threatening circumstances—usually when there are dangerous levels of drugs, alcohol, or other poisons in the body.”  What is popularly promoted is not the same.

What's being promoted today as detox is “little different than eons-old religious rituals of cleansing and purification,” but in the twenty-first century they must use science as justification instead of religion.

No scientific evidence exists to prove that detox treatments have any positive effects on the body's ability to eliminate waste products.  They are promoted either by charlatans or by people who do not understand the way the body works.  They are another distraction, an empty promise, a magic bullet that only serves to distract people from what needs to be done on a daily basis to stay healthy. The website goes on in more detail but concludes that it is not possible to “undo lifestyle decisions with quick fixes.”

Nothing is scarier than some unknown threat that may be lurking around the corner waiting to pounce when you least expect it.  The appeal of all these magic bullet solutions is that they offer to let you in on some secret that relieves you from the fear of the unknown, whether it’s pesticides, dementia or imaginary toxins building up in the body.  The snake oil salesmen are more sophisticated than when they drove from town to town in horse-drawn wagons, but their products and methods are pretty much the same.  (The result is pretty much the same too, with people falling for the scientific-sounding jargon without a clue about the probable ineffectiveness and the possible danger.)