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Wednesday, February 08, 2012

Why Santorum Won Last Night

In my less-than-enjoyable GOP debate-watching experience, I noticed that Santorum spoke with real passion and commitment about restoring jobs. We need jobs.

Now there are two types of jobs in this country. One type, on which the coasts substantially run, are generated through beyootiful flows of government money. That is why the DC metro area is doing so well jobs-wise. They are closest to the spigot. These jobs are dependent mostly on getting your paws on gobs of other people's money, and/or moving money around in gobs.

The other types of jobs are Main Street jobs, and are generated by the rolling consumption and production in the Main Street economy. They tend to vary more with industrial and consumer strength, they tend to be less prestigious, they tend to generate less income, and they employ a whole heck of a lot more people.

So if you are GOP on the coast, you are for Romney, because you are a money-mover. If you are GOP in the heartland, you've already realized that the jig is up, and you are for Santorum. The wheels of commerce in your area ride much closer to the ground, and you have had a good long look at the bare tread on those tires. You are scared and you know something's got to give but soon.

It's not exactly that those heartland people are illiberal. The vast majority of the public strongly supports the basic social welfare net, including Social Security and Medicare. No, the reason the people in the heartland think the jig is up is that they know in their bones that we are getting to the point at which we cannot sustain those programs.

This is the reality that the people in the heartland are experiencing:


Open this one up and take a good long look at it.

This is per capita real disposable personal income indexed to the trough of the recent glorious recession, which was June 2009.





Ugly facts:

The trust fund section is in Appendix D. Click on the bookmarks. Note that the DI trust fund is now projected to be exhausted during the course of 2016, which legally means that benefits are cut about 18-22% at that point. Less than five years from now. CBO assumes that we keep paying benefits anyway. Social Security deficits are vastly increased - by 2016 they are 38 billion annually, and in 2022 they are well over 100 billion annually. DI deficits are 43 billion in 2016 but remain pretty static through the rest of the forecast. The Hospital Insurance deficit is somewhere around 30 billion in 2016 but decreases slowly after that, this being due to a number of tax/premium increases plus other scheduled changes.

In the beginning of Appendix D CBO has helpfully pointed "Golly gee, Gomer, there ain't no money in them thar trust funds. What matters is cash flow." They phrased it slightly differently:

The balance of a trust fund at any given time is a measure of the historical relationship between the related program’s revenues and spending. That balance (in the form of government securities) is an asset for the individual program, such as Social Security, but a liability for the rest of the government. The resources to redeem a trust fund’s government securities—and thereby pay for benefits or other spending—in some future year must be generated through taxes, income from other government sources, or borrowing from the public in that year. Trust funds have an important legal meaning in that their balances are a measure of the amounts that the government has the legal authority to spend for certain purposes under current law, but they have little relevance in an economic or budgetary sense.
Thus, CBO is figuring the actual budget deficit from trust operations through the period (trust funds include Highway and government/military retirement programs) and came up with this, beginning in 2011:
At the end of the period it is over 900 billion annually.

Something's going to give. CBO points this out (page 23 internally):

The WWII debt was manageable because we entered into a period of prolonged growth due to international factors and demographic factors, and because the WWII debt was not generated by structural excesses.

Our current debt is now mostly going to rise due to structural excesses. The recession "bump" is over - now social spending takes over. Needless to say the alternative scenario is not sustainable and will generate an epic crash down the road.

Oddly enough, the US public seems to know this but the politicians have not caught up.


Comments:
What I've noticed about Romney the last couple of weeks is that he stridently defends himself on social issues that nobody cares about, but is wishy-washy on economic issues that are central to the election. I have come away with the idea that he's proposed economic reforms because they poll well, but won't be capable of convincing the public to go along with them. That can work for a Democrat president, who has most of the major media pulling for him.

A Republican president who can't articulate a moral case for economic liberalization is just going to get run over.
 
Oddly enough, the US public seems to know this but the politicians have not caught up.

Well the public wants to vote for someone who will cut benefits and raise taxes ON OTHERS but not them.

We're getting a lot more tribal than simple red/blue.
 
I also expect lots of money printing when the time comes. Easier to cheat on the inflation numbers than merely cut benefits. So everyone gets "made whole" but with ever-more worthless dollars and the COLA will be understated so that the benefits can be cut that way. Also, inflation will move people into higher tax brackets. So you can expect the tax code to get even more complicated. It's the American Way.

WV: shiesto. As in "the shiesto is going to hit the fan".
 
"... the US public seems to know this ..."
= = = = = = =

Well, yeah, I understand it intellectually, but dang, I'm going to NEED SocSec to keep a roof over my head.

I'm 63, on reduced-hours employment (everybody's been cut to a 4-day week; the only good thing is that health insurance is paid). I'm trying to put off --as long as possible-- taking Social Security because it'll freeze my monthly benefits at an unlivable amount. However, I'm making an unlivable amount as it is. I've been using savings to make up the monthly shortfall, waiting to see what the "new normal" is going to be but I don't see a "normal" anywhere. Just questions. Do I sell the house? If so where do I live & what will it cost? What about a reverse mortgage? God help me if the house needs fixing, or the car. I could take a distribution from the 401(k), but there's not enough money there to live on as it is... whatever I take out won't be available for when I'm REALLY old/sick/whatever.

Sigh. It would be so much easier to plan things if I knew for sure when my time will be up. Ten years - OK, I can handle that. 30 years - uhm, not-so-good; the cats and I will be fighting over who gets to lick the tuna can.
 
I've just visited two countries that have gone through national bankruptcy. - Chile and Argentina.
On the surface they seem, well, normal. People are still working, the streets are full, money is being spent, production of whatever they produce is happening. But there is little verve, and many buildings - most in fact - are in need of maintenance. The U.S., in contrast, is a shiny, rich looking land. I looked and wondered if this country will look like those countries in thirty years.

Greece, Rome, Spain, and the Netherlands were all rich and powerful at one time. Today, not so much. Will we be has beens a hundred years from now? I'm at the stage of beginning not to care. I guess the fire is burning low and my psyche is being ground down. I'm ashamed of the mess we have made and wish there was some way to right the ship. Our young people deserve better.
 
MOM,

Someone with an illusionary prosperity bias might do something bold and stick an exponential trend line on that per capita real disposable personal income chart of yours.

I'd do it but my exponential trend failure queue is all filled up, lol. Sigh.
 
To a_nonny_mouse,
Take a look at property taxes on that house. Can you afford to pay those on SS? If not, you might want to sell. In fact, I sometimes wonder if politicans aren't trying to get seniors to sell off their property.

It's just a mess and we seem to be offered an extremely poor field to challenge Obama.
 
Teri,

The Republican's choices can indeed seem meager when it comes to Prez2012. But look how much more meager are the Democrat's choices.
 
The comparison of the Republican field to President Obama is valid if the objective is a Republican president. What I find interesting, however, is whether the next president will have a mandate to begin reconfiguring the government into something that is sustainable. At least fiscally, if not in a broader social context.

It doesn't look to me as though any of the candidates will have that mandate, and maybe not even the inclination.
 
MoM,

Would love to get your thoughts on the steep drop in gasoline and petroleum deliveries:

http://www.oftwominds.com/blogfeb12/gasoline-tanking02-12.html
 
I would recommend taking in a renter, and if you don't have a 30-year fixed mortgage, get one. They're currently about the same as inflation, and it'll give you cash cushion. If inflation hits, then the real cost of the mortgage drops.

Or sell the house - I doubt housing prices will go up, except w/ inflation, and rent a room. Hard advice, I know, but as they say "hope is not a strategy" and right now you're burning through savings.
 
DON'T TOUCH that last link to hcg platinum... Takes you to an advertising page that pops up a dialog box when you try to navigate away from it.

Such things have been known to activate the download of nasties.

M-o-M if you read this, please kill that thing.
 
A_Nonny - done re blam spam comment.

I have been brooding over your comment and question. Consider the least personally painful of the two alternatives of either selling the house or taking a roommate.

If you don't think you can stay in the house long term, sell it ASAP. But if taking in a roommate can get your the base expenses of owning (maintenance, taxes and insurance) down to a manageable level, then do it and do it quickly. Also consider if the home is one you could live in when you get considerably older. Is that where you want to be when you're 80? If you may well not be there over the long haul, the best option is to clear the money now.

This money you're spending you can't get back. Also, if you are healthy, consider working a few years after you start Social Security at your full retirement age to build up a bit more of a nest egg.

I know you have years to go before you qualify for full SS, but your best option is probably to wait. You seem kind of alert and live-minded, and that does correlate to longevity. The house could well be worth less three or four years from now, so don't let that stop you.

I'm so sorry for you and for everyone just struggling to get through. I don't really know what to write except that I wish you the best, but that you are likely to get your personal best by adopting an attitude of severe realism.

Unfortunately, the less realistic our politicians get the more severely realistic the rest of us must get, because nobody's going to be looking out for our butts. The kids are climbing a steep slope that's getting steeper all the time.
 
Jimmy - I, too, feel shame.

But our society climbed down into a pit of illusion when I was young, and it's very hard to climb out of that pit until the rattlesnakes wake up and come out.

They will. We will then be ready for change. I do think economic liberalization a la Neil would help over time, and I do believe that focusing on energy will help over time.

But the bottom line is that this economy is going back to the 50s, but with less favorable demographics. The average person is going to end up living at a lower standard of living. Medicare as we know it will be gone in a decade, and now we are really just fighting about Social Security.

You've had a long, useful life. This is not your battle - all you can do is keep telling the truth and passing along some good advice.
 
Charles - but the money printing doesn't work well when you provide base levels of services to the poor in the population.

Yeah, we can depreciate the real value of SS benefits that way, but unless we are prepared to depreciate our standards for the younger low-income people, the only result will be to move masses of older people onto Medicare and SS plus food stamps and Medicare. If the person with a $950 monthly SS check sees that depreciate to a $750 monthly, that person will end up getting other benefits.

I agree with you about the tribalism, but that's a product of our dedication to an fantastical economic world view.
 
Neil - I have some problems with Romney. I'm not questioning his personal integrity (any more than that of the other candidates), but I don't think he has any personal grasp of the economic realities.

I don't see him as getting us much further than Obama did at dealing with it.

My sense of Romney is that he believes that we can just double down on the money game and BS our way through this - after all, it worked for him - but that cannot happen.

Therefore I don't see him as being a good choice. I'd almost rather see Obama back in office. Romney would be somewhat better than Obama in the near term, but my guess is that a Romney presidency would squelch any move toward reality, so we'd be worse off in the long term.

The virtue of Obama is that he is, in fiscal terms, such a horrendously awful president that he is forcing the Democrats in Congress to buckle down and try to develop some sort of plan, and if that doesn't happen, in 2016 we will be in a very bad situation.

People have no concept of how quickly this can snowball. We are going to be in an era of lower growth for some time to come, and borrowing all of this money has a very short range of plausibility.
 
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