re: The GOP's Sabotage of Social Security (LA Times, Robert Scheer, 12/21)
To the Editors: re: The GOP's Sabotage of Social Security (Robert Scheer, 12/21) Mr. Scheer is wrong about several important points regarding Social Security: First, nobody is arguing that current retirees are the source of the problem; the problem is with the lessening ratio of workers to retirees in coming years. Second, it is silly to talk about Social Security's 1% fees as compared to mutual funds or any other true investment since Social Security funds are spent, not invested. Third, private accounts do not mean only stock market investments; diversity of investment options will exist. And fourth, it is about to be broke (pun intended), so let's fix it before it is.
Published in the NY Times on 12/18/04!
Re: "Buying Into Failure", NY Times (Krugman) 12/17/04
To the Editors:
Mr. Krugman is once again appealing to the fears of current and future AARP members by arguing that older people will be left in poverty by private retirement accounts. He is wrong on several fronts. First, private accounts would not cause the government to abandon its promise to current and soon-to-be retirees. Second, leaving the current system in place is far more likely to lead to widespread retiree poverty than private accounts. And third, his argument about high fees is a straw man; comparing the US to a former 3rd world country is ridiculous. We already have a highly developed and competitive mutual fund industry with generally low fees even for non-index funds. Increasing participation in markets would only cause those fees to go lower.
To the Editors:
Re: Social Security Reform, With One Big Catch (NY Times, Business, 12/12/04)
Although the Social Security Trust Fund “is only allowed to hold” Treasury bonds, it does not in fact hold any. Payroll taxes are not invested in anything; they are spent like all other taxes. Any investment with a positive return thus has a better return than the black hole of Social Security. According to the Supreme Court, Social Security is neither investment nor insurance. It is simply another tax with the money going into “general revenue”.
Mr. Andrews falsely implies that private retirement accounts would be required to buy stocks; actually several classes of assets suitable to various risk tolerances would be available. Most importantly, Mr. Andrews ignores the benefits of private accounts. Whereas years of contributions into Social Security guarantee a worker nothing, worker-owned accounts bring security, inheritability, benefits to two-worker and minority families, and strong citizen interest in sound economic policies limiting growth of government and taxes.
To the Editors:
Re: Borrow, Speculate and Hope (Krugman, 12/10/04)
Regarding Social Security reform, Paul Krugman says that if the government borrows money and if citizens invest in financial markets then the Government is speculating in the markets. This argument falsely represents what private ownership of retirement accounts means. If the government were buying stocks then the shares would be owned by the government. If the government borrows to finance promises already made to retirees but allows younger workers to invest in personal retirement accounts, the workers, not Big Brother, own those investments. This is a hugely important difference. Private accounts give individuals property rights and much more interest in sound economic policy, all of which scares big-government fans like Mr. Krugman. Do not let his fallacious argument fool you: The government will not be investing in the markets. But if you want to, you will.
To the Editors:
Re: Justices Hear Arguments on Laws Limiting Interstate Wine Sales (12/7/04)
The longstanding prohibition by New York State of direct import of wine from other states is nothing more than protection of local wineries and of the State's ability to garner tax revenue on wine sales. Both of these uses of law are anti-consumer and would be obviously unconstitutional with any product other than alcohol. It is high time the Supreme Court ruled that the 21st Amendment does not override the Constitution's specific ban of commercial discrimination. Furthermore, the argument that the State is trying to protect minors is absurd on its face. No reasonable person imagines that rogue teenagers in Michigan will decide to order a California chardonnay (and wait a week for it to arrive) to quench their rebellious desires.
There's a very interesting story in the NY Times today discussing the world's largest holder of US Government bonds: the Japanese Treasury. They quote the head portfolio manager at the Finance Ministry as saying that he does not intend to pare his holdings of US bonds, and in fact intends to keep adding them. But he's very concerned about the damage that the falling dollar is doing to the value of their holdings.
Now, I'm not arguing that the US is as bankrupt as Trump (though we may be one day without Social Security and Medicare reform.) My point is that the Japanese own so many bonds that they could not or at least would prefer not to suffer the losses that would occur in their current portfolio if they stopped supporting the market with further buying.
At the same time, the Chinese appear to have dramatically cut back on their dollar-denominated purchases....same story with the Russians. Politics is one thing, but money almost always trumps it. These countries are not cutting back because they dislike the US (even if that's true). They are cutting back because they see the lack of fiscal discipline in the US government propertly frightens them about the value of any dollar-denominated investments they have or might consider.
The US because of its twin deficits requires foreigners to be willing to buy our debt or own our currency. As the world moves away from that willingness the dollar weakens and (long term) interest rates rise, although so far we have seen much more of the former than the latter.
Although the weak dollar is good for many of our corporations it is also a source of inflation. (When the dollar is weak our goods look very cheap to foreigners so our producers can raise prices on anything with foreign buyers. For example, imagine a music CD sold for $12.00 in the USA. When the euro was 1:1 to the dollar, that CD cost 12 euros. When the euro went to $1.20, that CD then cost only 10 euros. The CD manufactuer can then probably raise the price to $13, which would be about 10.8 euros. The net effect is that for European buyers, the CD is over 1 euro cheaper than originally but for American buyers the CD has gone up by $1. This sort of effect across the economy causes general price inflation.)
There are few things that the government and the Federal Reserve are more afraid of than inflation, but foreigners refusing to buy our bonds (and thus driving up interest rates and driving down real estate prices) would probably be one of those things.
Therefore, the weakening dollar should be a strong incentive on our government to find some fiscal discipline, if they can remember the obviously deep hole in which they have buried it.
Bush's instincts on economics are absolutely right: Low taxes, an "ownership society" including personal accounts replacing part of Social Security, etc. In the past he has not acted on his instincts but I hope the fact that he is not up for re-election will cause him finally to act in a principled way on domestic issues. It would be somewhat ironic if the driving force for principled action was essentially foreigners, but fiscal discipline will be a welcome change whatever the catalyst.
NY Times story: "Dollar's Fall Tests Nerve of Asia's Central Bankers"
First a brief update on my long dollar trade from about two weeks ago: I made a trading mistake by not having a "stop order" (to buy at a specified price above the current price if the product gets to that specified price) in order to cover my short euro/long dollar position. My intent in the trade was to stop myself out with no more than a 3 cent in the contract ($1875 in my account) loss by putting in a stop buy at around 1.3340. However, I didn't put the order in and the relatively weak jobs report sent the dollar plunging against the euro, and it now stands at about 1.3450. On Monday I will put in a stop at 1.3503 and we'll go from there. I regret forgetting my original plan...
Interestingly, over the past week, the Australian Dollar is essentially unchanged while the Euro, unfortunately for me, is much stronger. In retrospect the Australian dollar would have been a better bet with so many others in the world getting into using the euro as a reserve currency, giving it a base of support that other currencies don't have. On the other hand, I thought that the euro was more overbought than the AUD because Europe is full of nearly socialist economic policies and it's so hard for me to understand why people have any faith in that currency. I still believe that but I'm not willing to lose much more based on that.
A shorter version of this letter was published in the Washington Times on Dec 4:
Today, after the Senator chairing the Senate committee investigating the Oil For Food scandal called for Kofi Annan's resignation, the US State Department came to Annan's defense, albeit half-heartedly.
Senator Norm Coleman said "This is the most massive fraud in the history of the United Nations. Kofi Annan and the United Nations are slowly bleeding to death over this. It's time to cut the gangrene limb off."
Then a State Department spokesman said that Annan "has been working, I think, positively and cooperatively, in trying to get to the bottom of this oil-for-food program."
Senator Coleman and his excellent metaphor are precisely on target, and it would be easy to jump to the conclusion that the State Department is showing its too frequent institutional bias towards bureaucracy and endless debate. But this would be an incorrect assessment.
The best chance to get Annan to resign is for that action not to appear as precipitated by US pressure. The UN is a wildly anti-US organization. Even our historical allies such as France, Russia and Germany (I always feel funny considering them an ally) have demonstrated in recent years an intense desire to see us fail, to minimize the power gap between us and the rest of the world. The more an issue seems to be one that the US cares about and especially the more that it seems we are the only ones who care, the more likely we will get resistance from other UN members. They do not want us to win anything.
Therefore, the State Department's position of half-hearted public support while working behind the scenes to undermine support for Annan is likely the best tactic to further the true goal of causing him to leave. We must not appear overly excited about Annan. The problem is much bigger than one man even if he is the General Secretary. We want him gone; it would be good for the UN and the US. But the more loudly we want him gone, the more pushback we will get from those who look for every opportunity to block US goals.
Washington Times story about Senator Coleman vs. the State Department:
For anyone interested in foreign currency markets and folk music, I highly recommend this:
The recent elections in Afghanistan, the current events in Ukraine where it appears that massively fraudulent results may be thrown out in favor of a re-vote, and the likelihood of elections next year in Iraq, show a hopeful trend for the world.
I am not an unqualified fan of President Bush, but there is one area where he is exactly on target: His appreciation for the value and importance of freedom, and not just for Americans.
Bush laid out a lot of his view on this issue in an insightful speech he gave at the US Chamber of Commerce a year ago. I think Bush is vastly underrated in this area, and that he would engender much greater respect (though maybe not from European collectivists) if more people heard or read his comments like this:
"Historians in the future will reflect on an extraordinary, undeniable fact: Over time, free nations grow stronger and dictatorships grow weaker. In the middle of the 20th century, some imagined that the central planning and social regimentation were a shortcut to national strength. In fact, the prosperity, and social vitality and technological progress of a people are directly determined by extent of their liberty. Freedom honors and unleashes human creativity -- and creativity determines the strength and wealth of nations. Liberty is both the plan of Heaven for humanity, and the best hope for progress here on Earth."
The beauty of capitalism, globalization, and worldwide trends toward democracy is that these systems are the strongest forces in support of peace in the history of the planet. America does not want to conquer lands, take prisoners, exploit natural or human resources and other such goals of centuries-past great powers. America wants nothing more than to help create conditions in which democracy and economic freedom can create new customers and new markets where we can buy or sell products and services for mutual advantage, something which only happens in an environment of peace and the rule of law.
The current events in Ukraine are probably influenced, although indirectly, by the US, and to a lesser degree Europe, serving as a role model for democratic, pluralistic rule. The elections in the Middle East are a direct result of US policy. It is far from clear that the cost of getting to these elections was worth it. But there is no doubt that the fact of the elections opens a door to a brighter future for areas of the world in which a bright future is very much in our own interest.
Link to the text of Bush's speech: http://www.whitehouse.gov/news/releases/2003/11/20031106-2.html