About Me

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Los Angeles, California, United States
The blog 'Breaking Bread' is for a civil general discussion, like you might have at the dinner table with guests. The posts 'Economics Without the B.S.' are intended for a general audience that wouldn't have to know the difference between a Phillips Curve, a Laffer Curve, or a Cole Hamels Curve. Vic Volpe was formally educated at Penn State and the University of Scranton, with major studies in History, Economics and Finance, and Business; and, is self-educated since by way of books and on-line university courses. His practical education came from fifty years of work experience in the blue-collar trades as well as a white-collar professional career -- a white-collar professional career in production and R&D. In his professional career and as a long-haul trucker, he has traveled throughout the lower forty-eight. From his professional career alone he has visited many manufacturing plants in the United States, Europe and China. He has lived in major metropolitan areas and very small towns in various parts of the United States. He served three years with the U.S. Army as an enlisted man, much of that time in Germany.

Tuesday, May 19, 2015

Texas Conspiracy Theories

Economics Without The B.S.**: Texas Conspiracy Theories



[**  Double entendre intended.]


Texas and California:  Entertainment Value


As someone who formerly lived in Texas and for almost the past forty years in California, I think I am qualified to comment on some of the differences between Texas and California.  I say this because I am not just a Texan or Californian – I was born and raised in Philadelphia and have lived in Upstate Pennsylvania, having both a big city and small town perspective.  Having been well traveled around the Lower 48, with some additional travel overseas, I think I have some understanding how these two states are viewed by others – generally several standard deviations from the mean.
Now we have a new conspiracy theory coming out of Texas, that the U.S. Military is about to invade the State of Texas for a takeover.  What is actually going to take place are U.S. Military exercises to utilize the unique Western terrain of the U.S., to include Texas and other Western states, for training purposes.  This notice got hyped up in Texas when its Governor Abbot, in response to Right Wing zealots and Hollywood’s Chuck Norris warning about an invasion and takeover in Texas, ordered Texas military units to monitor the U.S. military exercises so to protect Texan’s “civil liberties”.
This hyperbolic response coming out of Texas reminds me of the 1990s when Right Wing zealots reported spotting blue tanks on military maneuvers in Texas and that we needed to defend ourselves from a United Nations invasion and takeover.  That passed.
Well if nothing else, when these stories get circulated around the rest of the country (and world) they sure add credence to what constitutes entertainment coming out of Texas.  And California sure knows how to get into the act, and I don’t have to go into any details.  Occasionally they do cross paths – like when Hollywood went out to West Texas to shoot (not literally; just use of an American idiom for filming for my foreign language friends) Giant in the mid-50s.

I have to remind you that while entertainment venues constitute a few acres in the State of California, in Texas it is about 250,000 square miles.

Thursday, May 14, 2015

Social Security: Critique by Heritage Foundation

Economics Without The B.S.**: Social Security: Critique by Heritage Foundation



[**  Double entendre intended.]


Social Security: Critique by Heritage Foundation


The Heritage Foundation cited a report which criticizes the actuaries at the Social Security Administration:  the link to their article,

My reply:

          Your report and analysis of the Social Security System is disguised as “Reform” but is just the usual misinformation of a system that has been functioning quite well in our democratic political process among both Republicans and Democrats (as well as independents and others) for over 70 years now – a system that has required only modest modifications over those decades to keep it on-going as it was initially designed under the New Deal of Franklin Delano Roosevelt.  And I might add, a system that does not contribute one penny to the National Debt and currently has a surplus account of almost $3 trillion,   (That is not a typo, TRILLION with a ‘T’.)
          Now you want to attack the actuaries of the Social Security System, government employees who are apolitical and serve Democrat and Republican administrations as well as all congressional representatives of the House and Senate, who are responsible for providing guidance for the sound management of the Program.  You cite academic research from Kashin, King, and Soneji with back-fitted data and analysis to contradict and discredit the work done by the actuaries of the Social Security System who were projecting information for the future solvency of the program.  You have a one-time academic citation while the actuaries of the Social Security System have given Congressional testimony each year over the many, many decades of the existence of the program.  Over these decades, Mr. Stephen Goss, the Chief Actuary at the Social Security Administration for over twenty-five years, and other actuaries have given public presentations and have written papers explaining the Social Security System, have held themselves up for the scrutiny of the many professional actuarial organizations that are out there, and have responded to critics – being so effective that once during Bush’s second term when he attempted to “privatize” Social Security some Congressional Republicans wanted to prevent Goss from speaking in public because he was so effective a speaker and was opposed to privatization.
          The academic research you cite from Kashin, King, and Soneji that criticizes the work of the Social Security Administration’s actuaries slings one canard after another.  Their assertions of the Social Security Administration’s actuaries are just plain false – (1)  that the Actuary Reports do not publish systematic and comprehensive forecasts; (2)  that the actuaries withhold data; (3) questioning the academic standards of the actuaries; and, (4) their assertions of the Social-Psychological pressures along with the Internal and External pressures is pure bunk and psycho babble .  First, the actuaries report to the public and to Congress where it has been subject to public scrutiny over many, many decades.  Their models are stochastic models along with sensitivity analysis of the assumptions that they have made.  Other professional and academic organizations have compared these models to their own.  Second, there are downloadable data sets right on the web site of the Actuary Section of the Social Security Administration as well as citations of the data in their many, many reports.  And third, you question the academic standards of the actuaries, but their work has met the professional standards required of actuaries and has withheld the scrutiny of the many professional actuarial organizations that have reviewed their work plus the scrutiny and review and critique of other academic institutions, just to name Yale and Northwestern as two examples that immediately come to mind.  And, Stephen Goss and his actuaries have stood up to Congressional reviews time and time again.  When the next Congressional review takes place, let Kashin, King, and Soneji testify.  It is their bona fides of being apolitical that will be questioned with the likely outcome that they will discredit themselves under cross-questioning and where the views of others and the Social Security actuaries can respond.
          Over the decades, the opponents to Social Security have lobbed one canard after another on the soundness of the Social Security System:
          (1)  The Social Security Program has been called “Socialism” even though the concept of social insurance was initiated by the bulwark of German conservatism, Otto von Bismarck, way back in the 19th Century.
          (2)  You use “unfunded liability” and “pay-as-you-go” as pejoratives.  You fail to mention (or enlighten your readers) that this $13.4 trillion unfunded liability is the present value of a 75 year sum, a cash flow that will take place over 75 years.  Yes, it is huge, but it is manageable.  The key to managing it is how well the economy does over that period.  If we could get back to an economy like we had in the ‘60s – near full-employment, a better educated work force, and pay (not subsidized incomes) for all workers who contribute to the economic growth having some share of that growth – then we should see healthy receipts in Social Security.  “Unfunded liabilities” is how most folks live, especially when their children are born.  After all, who has all the money needed to raise children at the time you first give birth to them?
                   (a)  Your mention of an additional $400 billion to that $13.4 trillion is hardly “massive” – an increase of less than 3% for that debt incurred over that 75 years of cash flow.
          (3)  And the red herring that Social Security is redistribution – another pejorative?  Yea!  You bet it is.  Just as intended back in the New Deal – upper income folks who depend less on Social Security for retirement income get less of a return on their Social Security contributions than lower income folks who usually rely more almost exclusively on Social Security for their retirement income.  Redistribution – that’s how the westward expansion of the U.S. got financed.  Name any major society in the history of humankind that has not had redistribution?
          (4)  And the canard that Social Security discourages work???  That has more to do with the present state of our economy, which has just been fumbling along at about an annual growth rate of 2% far below what we had in the ‘60s.  Place the blame where it belongs, not on Social Security.  Social Security did not discourage work in the 1960s, our most productive decade (by GDP) since WWII, or during the 1990s when we eventually got near to full employment.
          (5)  The red herring that Social Security adds to the National Debt.  The Social Security Trust Fund cannot use debt unless they get a special authorization from Congress – which they have not had to do since their last crisis in the early ‘80s.  And that debt was paid off in a few quick years.
          (6)  The red herring that the IOUs in the Social Security Trust Fund are worthless.  The IOUs are better than bonds or cash.  Whereas bonds can go up or down in value over time, the IOUs in the Trust Fund are redeemed at face value – they cannot lose value.  And where cash earns little interest on deposit, the IOUs earn a dividend (or coupon payment) like bonds, currently paying around 3% annually.  Trying earning that on a guaranteed bond in today’s market.
          (7)  And finally the canard that the “full faith and credit of the United States of America” doesn’t stand for something and that is why the IOUs are worthless.  I mean, REALLY???  The U.S.A. has never, NEVER, defaulted on its debts.  The “technical defaults” that you conservatives/libertarians come up with have been handled by a variety of measures that have always, ALWAYS, resulted in creditors to the U.S.A. of being paid one way or the other with a recognized legal tender.  A legal tender that has been acceptable to the great majority of U.S. citizens (if not those who question the legitimacy of the currency) and a legal tender that was held by foreign countries who buy U.S. debt and hold that debt in U.S. currency and not gold or some other currency.  Take a graduate level finance course and you will find out what the “full faith and credit of the United States of America” means.  For a risk-free rate students use U.S. treasuries because foreigners as well as Americans know the U.S. A. has never defaulted on its debt.


Mr. Stephen Goss, the Chief Actuary of the Program, actuaries who are responsible for providing guidance for the sound management of the Program, has plenty of statistical studies to show that the type of modifications that were made in the past – raising the income cap, raising the payroll tax, adjusting the retirement age, re-computing the benefit formula, etc. – and were gradually phase in so as not to shock people can restore the system as is to long-term sustainability.  The biggest obstacle to this has been political inaction because politicians would be labeled as tax increasers. 
          Here is a C-SPAN link of Congressional hearings held in 1989 on those very issues with all views present from liberal, conservative, and libertarian viewpoints:
In this 1989 piece they talk about what the Program will look like in 2000, 2010, and the rest of the 21st Century with and without modifications if nothing is done, using estimates from the Social Security actuaries, and they are right on target for where we are today.  They discussed how gradual changes over twenty years would bring the Trust Fund into sound financial standing.  They discussed it in the late 1980s, the 1990s, the ‘00s, and since.  They discuss; but, they did nothing – in the 1990s, the ‘00s, and since.  Clinton talked about it (even in a State of the Union address) but did nothing.  Bush wanted to privatize Social Security in his second term.  Right after his re-election and at the start of his second term in January of 2005 he made it his number one priority and had over half the American people believing that Social Security needed to be “saved”.  He followed this by going on the road to sell his program of private accounts in Social Security as part of the Ownership Society.  The more he talked about it as he went around the country, the more support he lost; so, that by mid-April of 2005 the Gallup Poll (hardly a liberal organization) showed 2-to-1 disapproval of his recommendations and all efforts to change or modify Social Security were dropped like a dead weight and the political agenda moved to other topics.  Obama has talked only a little bit about the Program and has done nothing, even mentioning that it will be done some time by a future administration.
          This critique and analysis by the Heritage Foundation only shows you to be the political hack organization you have become in recent years disguising yourselves in the respectable previous prestige you enjoyed as an alternative political research organization and now using this disguise to impute the integrity of apolitical professionals who work in the Federal Government and serve the public interest.  What is troubling is not as you state the actuarial assumptions by the Social Security Administration but your use of academic research to undermine the soundness of the Social Security system.  Although the Social Security system needs modifications once again – the last time being with the Greenspan Commission in the mid-1980s – to keep it sustainable, economically and financially sound, and socially responsible, it is not financial problems but rather a politically driven agenda by long-time opponents of the Social Security program that are the problem.
          What is it about modern-day Republicans – not Ike, not Nixon, not even Reagan (who initiated a bi-partisan effort to modify Social Security) – what is it about modern-day Republicans and Right-Wingers that they can’t put their arms around and embrace the Social Security System (with almost $3 Trillion in surplus) that has been functioning for over 70 years as it was originally designed during the New Deal?
          Social Security does not exist in some abstract world of academia.  It exists in a society with a political realm and your views about a democratic representative government are out of favor.  Leadership is needed, similar to that displayed by President Reagan, to forge a bi-partisan consensus to make the modifications that are necessary to sustain the program.  Even if no changes were made to Social Security it would still have enough money to pay $.75 for each dollar of benefits by sometime in the 2030s when you critics claim it will be brokeBut is there some politician who thinks they can get re-elected after they tell Granny that she is only going to get $.75 for each dollar of benefits?
          Since the inception of the Social Security Program over 70 years ago critics have used hyperbolic language to describe any problem that came up along the way and predicted calamitous events for the outcome.  The critics have used the democratic process to undermine a well-functioning program and prevent the necessary modifications from being made and their political opposites (who say they champion the Social Security Program) have used this tactic to their political advantage.  The longer the Social Security Program goes without the needed modifications the more likely any future shortfalls will be bailed out by dipping into the General Fund (just like what has happened to the Highway Trust Fund); and, that will be regrettable.  The present system can be fixed with the modifications; and, that will keep the program sustainable, economically sound, and socially responsible.


We live in a democratic system.  It is up to each generation that participates in the Social Security System to either renew that support or find a different approach.  Political will is not just a test for politicians, but also a test for the people they serve.