Wednesday, November 28, 2007

Social Security

I was discussing Social Security today and came across this piece of propaganda from Rock the Vote. I'm not stating that it's any less propaganda than my blog, but it's certainly not a flat statement of the facts.

What I wanted to comment on primarily was his assertion at the beginning that "Following is a table that illustrates, in 2005 dollars, the annual benefit that Social Security can pay with no changes at all." But his table is missing some data that would be rather critical in assessing whether it in fact "illustrates" that. The most obvious is what is he assuming the inflation rate to be? It took me a while to find the assumptions on the Social Security Administration publication from which he appears to draw his data and it looks like we're assuming a 2.8% inflation rate, a 1.1% increase in average real wages, a 1.95 fertility rate, a .67% average annual death-rate decline, and an immigration rate of 900,000 persons per year (illegal and legal).

Those might actually be reasonable estimates. I suspect 2.8% is low for inflation and 1.1% is very high for increase in real wages (1985-1995 for instance averaged something like .75%).

A bigger problem is that he's assuming that the "trust fund" actually works as advertised. So while (making all the above assumptions) Social Security can continue being 12.5% of payroll and payout what he posts, we currently put a sizable part of that into the general budget by "buying" treasury notes. I've read numerous people who say that the government would never default on those notes because then the entire economy would collapse. I don't buy that.

Social Security does not have a guaranteed benefit and those notes belong to the Social Security Administration, not to individual taxpayers. It's basically like saying if my wife made all the money in the family and had all the assets you could give me money that I made a promise to pay back later and I then loaned that money to her and she spent it. If the two of use decided later that I would just forgive her the loan then you would be up a creek. You could sue me, but I don't have assets. You can't sue her because she doesn't owe you anything. That's how the "Trust Fund" works. You pay money to the SSA, they loan the money to the rest of the US government. If they later decide they're just going to shut their doors and not worry about those T-bills it doesn't hurt the rest of the market at all, the government hasn't really defaulted on anybody except itself. It's actually a little bit worse than my analogy because in my analogy you made me a loan, with Social Security you are paying taxes that are "not earmarked, and ... Congress is at liberty to spend them at will." (Helvering v. Davis (301 US 619, 645)) so the government owes itself money for those bonds but neither Congress nor the Social Security Administration owes any individual anything related to Social Security. If the benefit went away tomorrow the government would still have upheld their legal obligation (which is none).

Anyway based on the SSA estimates in 2014 things will reverse and the SSA will start having to collect on those T-bills to meet shortfalls in the program (but they won't have a shortfall excluding the "trust fund interest" until 2026 or run out of money until 2040). The problem with this is that the shortfall escalates fast:

yearshortfall (in billions of dollars)
2015 7
2020 201
2025 506
2030 908
2035 1382
2040 1908

Keep in mind that the current entire budget is 2.3 trillion. So we're assuming that by 2040 we're going to double income tax revenues so we can support the existing programs plus pay a nearly equal amount back to the "trust fund". By the end of his chart we're paying out 10 times the current budget to keep up with shortfalls.

I don't know at what point the taxpayers say "No more" to this, but I'm pretty sure it's before that. Personally I would rather be in just about any situation than that one. If you could offer me a program where I continue throwing 12.5% away for as long as I work and the program goes away the day I retire, I'd still take it just so I didn't leave this mess to my kids.

Wednesday, November 21, 2007

Fun Money

Since I haven't yet had a personal finance post on the blog, I guess I might as well throw this into the hodgepodge of stuff currently here.

Amanda and I try to live on a budget and have tried various budgeting systems, many of which we've been unhappy with. One thing that has worked for us is what we call "Fun Money". Dave Ramsey calls something similar "blow money", but it's not exactly the same thing. Nearly every budgeting system I've looked at (including Ramsey) recommends budgeting for, for instance, work lunches. Ramsey has a category "blow" for small expenses that weren't worth budgeting. For several years Amanda and I did something similar, but it had a problem.

I wanted a very expensive camera (at the time a Nikon D70 which was around $700) that I knew would never fit in our budget. I'm a long term guy so I was perfectly willing to scrimp for years to get there but our budget didn't have any way for me to save money for personal purchases. Enter fun money. What we decided on is that we would each get some amount in the budget each month to do with as we please. That would include lunches, going out with friends, any dinner on our own (for instance me before Boy Scouts), toys we buy while out, anything of that nature. Any fun money we don't use during the month gets saved in our "fun money account" (a spreadsheet, though it already came out of the budget so it's backed with real money somewhere. It's not like Social Security where we put it in a trust fund and then spend it anyway.) so that if I want an expensive camera I can not go out with my coworkers ever and in a while I can afford it. It's so far worked very well for us and I think we've actually reduced our expenses some because of it because now we know that if we impulse buy some toy it's coming out of our fun money account and not some mysterious amorphous blow money line in the budget.

Wednesday, November 14, 2007

Shown up

Last night I was sitting around playing with Andrew and asked him "Can I have some Chapstick?" He responded "Yes, you may."

A bit later we were naming random body parts ("Where's your arm?") and I asked "Where's your metatarsal?" He pointed to his big toe. When asking the question I was thinking it was a bone between a fingers and the wrist but it ends up that's a metacarpal, metatarsals are the bones between the ankle and the toes.

Evidently I'm not smarter than a 3 year old.

Total Watering Bans, part 2

A friend sent me this link, which details a home in Marietta that's using an average of around 400,000 gallons of water per month. At the end of the story it mentions that his bill is going to go up to $2000 per month. Admittedly, I wouldn't want to pay that much for water, but in the middle of a drought it's hard for me to imagine that you can fill something around the size of an Olympic sized swimming pool for only $2000. With restrictions on particular usages, though, what he's doing is perfectly legal. It would even be legal to just stockpile a half million gallons a month so that you can sell it when we run out.

If he were a commercial user it would be even cheaper ($1139). That makes me wonder how many gallons of our water Coke is buying at $2.59 per thousand gallons so they can filter it, slap a Dasani label on it and resell it at $2 per liter.
If water is really so precious that we're going to run out of it why not just raise the cost until people quit using more than we have? And by that I don't mean raise the residential cost and subsidise commercial users while requesting that restaurants not automatically serve water when you sit down for dinner. If water were $20 or $100 per thousand gallons you wouldn't have to request it, the restaurateurs would see it in the profit margin. Some businesses that are heavy water users would either close or move, but if we're really going to run out of water then the lost jobs over Coke no longer getting cheap water from us would be more than offset by being able to keep drinking.

Of course we could also just keep selling commercial users water at $2.59 per thousand gallons. After all, we could always buy Dasani for $2 per liter when we run out.

Thursday, November 1, 2007

iPod screens and science

In my random wanderings around the internet I came across this post on the new iPod Touch (and the iPhone). The guy tries to scratch it with a bunch of household objects and it doesn't scratch. Now this makes for great video, but I found it completely uninteresting.

As you hopefully remember from middle school science, scratching happens with something of higher hardness cuts away part of something with lower hardness. The screen on the iPod Touch and iPhone is supposedly optical glass; I'll assume it's tempered, which would give it a Mohs hardness of a bit over 6. In the video the guy used a coin (I wasn't really paying attention to what coin, but they all have a hardness just under 3), keys (made of cheap steel, probably a hardness of 5 or so), an aluminum can top (2.75), and a box cutter. I couldn't see the box cutter blade but knife steel is normally around 5.5 and titanium is 6. Around here there is a lot of granite in the dirt, which is between 6 and 7.

So his box cutter didn't make a scratch, but if you got dirt in your pocket it might. Gravel or setting it on your granite counter top almost certainly would.