//Methinks Says:
Redistribution of wealth does not create more economic activity, as your post implies. If it did, France and Germany would be obscenely wealthy.
//
Everything can be too much, of course, you need a middle ground. On the other hand:
In the past 20 years there was 1(One) school shooting (that is a pupil took a gun and killed his classmates and teachers) in Germany. How many were in USA?
Is it coincidence? Or is it rather that American capitalism makes people angry and evil?

Economy without welfare brought the Great Depression. Is it good?

Thank you, Shannon.

I think we may be talking passed one another. I didn’t mean to imply that moneys redistributed had no positive economic effect. Instead, I wanted to point out that they had the identical economic effect as if SS never existed in the first place.

Suppose we didn’t have SS taxes. Every worker would take home %15 more income. What would they do with it? They would spend most of it. For arguments sake, let us say they spend it all. Now, it is readily apparent that if they did not save that income then when they came to retire not only would they not have a nest egg as individuals but society at large would not have the surplus resources to care for them.

SS basically does this with redistribution. It takes %15 from workers and gives it retirees for the retirees immediate consumption needs. Indeed, it probably leads to greater consumption and less investment because retirees don’t save or invest at their time of life.

SS is not an investment plan. It does not create future surpluses. It merely moves money from working Peter to retired Paul in the here-and-now. In that regard it has the same economic effects as if Peter just spent the money himself.

Hasn’t that old Keynsian theory been disproven as well, in part by the permanent income theory?

As much as anything is proved in economics. I was thinking more from the perspective of the Keynisian model itself rather than if the model in entire was correct. The idea that people will save so much as to slow the economy is one of those hypothetical constructs that I don’t believe anyone has actually witnessed in the real world. The only circumstance in which I can think of it happening on any large and sustained scale would be during a period of severe deflation. People would hold onto their money because they believe it will be worth more tomorrow.

Methinks and Shannon,
Yes, I must admit that I really disagree with my use of the words “completely” and “directly” in the above. “to an extent” and “indirectly” are more like it.

In criticising Shannon’s extreme position I seem to have taken an oppisite extreme here; I see nothing to disagree with in the last two comments at all.

Shannon, isn’t that just “secular stagnation”? Hasn’t that old Keynsian theory been disproven as well, in part by the permanent income theory? I realize this was not the point of your post, but…

It seems to me that, especially if the funds are used immediately, the fund transfers that occur as the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers.

That’s a very Keynsian perspective and it is flawed.

Think of it this way: What is the economic differences between retirees spending the money and the workers spending the money? Well, none. If the workers paid no SS tax and simply spent the extra %15 you would see at least the same stimulus effect as the current system. Even from a Keynsian perspective, SS doesn’t stimulate the economy because it doesn’t cause the economy to move money around any faster than it would have otherwise. Keynsian stimulus only works when it causes people to spend money that they otherwise would have saved. (Even then Keynes envisioned it as only a temporary measure to be used during economic downturns.) You can’t spend your way to long term prosperity.

Now, if workers where saving so much of their income that they were becoming a positive drag on the economy (which in theory can happen) then SS would arguably have a stimulating effect on the economy. However, that is not the situation we face today nor one we have faced in the last 70 years.

The simply fact is that we prepare for tomorrow by doing without today. We take resources that we would have destroyed by consuming them and instead use them to build tools and infrastructure which will produce a surplus of resources in the future. When we no longer produce ourselves, we then consume those resources. Money has nothing to do with. Its just an accounting tool.

SS does nothing to increase the overall productive capacity of the economy. It does nothing today which will lead to surplus resources tomorrow.

First of all, the money doesn’t return directly back to young workers because a redistribution of wealth costs. An inefficient government has to employ a huge and inefficient beaurocracy to redistribute existing productivity, whithout creating any wealth in the process. This is a highly Inefficient use of resources and certainly, capital is NOT rewarded. Thus, the amount of greenback the retirees put back into circulation is much less than the greenback taken from the pockets of productive labour.

Also, let’s not forget that social security is not a simple redistribution of greenbacks from one pocket to another. Social security also pays for “payments in kind”, which is to say in goods rather than money. There is little dispute that payments in kind are are far more costly than simple cash redistribution. Productive labour ends up paying far more than it would pay if actual money were just taken out of one pocket and put in another.

Redistribution of wealth does not create more economic activity, as your post implies. If it did, France and Germany would be obscenely wealthy.

Shannon, this sentiment is wrong headed! Apparently you think the retirees put the SS check on their plates, cut it up, and eat it for breakfast, lunch and dinner.

It seems to me that, especially if the funds are used immediately, the fund transfers that occur as the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers. The “wealth” is certainly not used up as if coins were thrown into the ocean. Economic benefit may or may not be maximized (it’s beyond my ken) but capital is certainly rewarded and retiree spending puts the long green right back into circulation.

Having said this, the SS sys. is an all around screw job for the working people – and the way things are and have been, especially to the retiree who paid in money earning negative returns, eventual paybacks having long lost value to inflation. A dollar today buys what a dime would thirty-five years ago. The system to a large extent, like some other modern institutions, rewards only the ignorant, inept, and careless who would have nothing otherwise.

Me, too!

I think it is disingenuous, to say the least, to have children pitch about fixes that they will have to bear the burden for. The only fixes are cut benefits, and the kids can’t vote to cut grandma’s and grandpa’s check (or likely wouldn’t even if they could); raise payroll taxes on workers (kids will work, retirees won’t); or some combination of both. One wonders how the people who paid for the commercial sleep at night.

“Ungreatest Generation?” What have boomers done for anyone? Look at Cassandra’s heinous father. He absconded with her Yale tuition and convinced her to enlist, leading to her encounter with a land mine while escorting Massachusetts senator Randolph Jepperson. After going to jail for instigating anti-oldster riots at golf courses, Cass takes a cue from Jonathan Swift and offers her own outrageous “modest proposal.” With one eye on the White House and the other on tough and lovely Cass, blue-blood Jepperson decides to back her provocation. As Cass’s mensch of a boss observes, “The line dividing reality from absurdity in this country has finally disappeared.” With delectable, smart-talking characters and a devilishly clever story line, prizewinning humorist Buckley, author of the novel-turned-movie Thank You for Smoking (1994), has created a scrumptiously shrewd and hilarious political satire that takes bold measure of the newly widening generation gap and politics even worse than usual. Donna Seaman

h/t Blogfather

Large companies do engage in various internal accounting. However, none of the accounting changes the consolidated net worth of the company. Accounting transactions do not provide resources; they provide a way of viewing and interpreting the financial health of the company. A debit on the books of one division creates a credit on the books of the other division. They net to zero.

However, I use this type of accounting in my College Fund. As the earner, I am organized as one division within the family. The kids are organized into another division. The mason jar is an asset of the kids’ division. The accounts receivables of their division holds the mason jar. As a family corporation, we strictly adhere to generally accepted accounting principles.

My stupid neighbor doesn’t know much about modern accounting. He knows even less about government accounting. I can’t wait to see his kids going off to state schools on the bus while my kids go to Harvard in their new BMW.

The same principle applies here.

The key point is that there is no delayed consumption with SS. When people put money into private pensions, the resources that the people would have consumed and destroyed instead go into creating productive systems like buildings, factories, student loans etc. As a result of their delayed consumption the future economy can use the increased production to support the retirees without having to burden future generations. SS by contrast simply moves consumption from worker to retirees here and does nothing to increase the overall production of the economy. When workers become retirees, the economy doesn’t have any extra productive capacity to allocate to them. That means that the allocation must come from taking it from someone else.

Corporations may move debt between subdivisions but in the end that is just internal bookkeeping. Its profitability comes solely from the money it takes in, not way in which it does its accounting. Likewise, governments may use debt instruments as accounting tools between different departments but the money that it will send out to retirees will come from the taxpayers and nowhere else. The SS trust fund is just a political gimmick that allows the politicians of today to exploit the regressive SS tax while promising that future politicians will pay future SS obligations partially from general revenues.

Brilliant. If you don’t mine, I’m just going to copy-paste your post the next time the need to explain this arises.