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Tuesday, August 23, 2011

A Modest Lesson In Economics

Those pin heads that seem to be the best that my former party, the Republicans, can bring forward as candidates to run the government keep babbling about doing away with Social Security because it is a huge drag on the economy.  They ignore all the following facts.  Sometimes because they are simply dumb and sometimes simply stupid. Let's deal with dumb first.

They ignore the fact that virtually every person employed in the United States has money deducted from their paychecks to go into a Social Security account.  I started when I was ten yeas old and I got a job sweeping the floors at Apple's Drug Shoppe.  Most people have a similar story.  If all the money I put into my Social Security account had been invested and earned a modest 10% return over the years (that has been the average long term return from the stock market)  I would have to live to something like 120 to get it all back.

They ignore that, over the years, Congress has repeatedly raided my (and your) Social Security account and it is now empty, which is what they are whining about

They refuse to acknowledge that if the cap on Social Security earnings were removed, Social Security would be funded, and over funded, as far into the future as anyone can see.  But then Congress has to protect their Richy Rich campaign contributors.

O.K. so much for dumb (dishonest?). Let's turn to absolute stupidity.

We need to understand a simple economic concept.  It is called the Multiplier Effect.  Here is what a graduate level macro economic text has to say.  "Remarkably, it's quite reasonable to expect that each $1 increase purchases will increase real GNP and income in the nation by more than $1 for the year.  This conclusion stems from the fact that $1 in additional purchases during a year results in income that is respent many times."

So when you spend a dollar from your pension or Social Securty check, whoever gets it spends it to hire a new employee, or re-stock inventory, or expand to a new market, and so on and on.  That additional spending is what is called the Multiplier Effect and there is plenty of good research to prove that is truly is a fact of the way economies function.

This year, Social Security will pay out about $700 Billion, a huge amount to be sure.  But the question that the dumb heads inWashington ignore is what would happen when that much money were withdrawn from the economy.  For the moment, forget about pushing Granny off a cliff in her wheel chair.  That is true, but leave it aside for now.*

The Multiplier Effect demands that the economy would shrink by much more than $700 Billion because the Multiplier Effect works in both directions.  Have you heard of anyone address this fact of life???

Now let's take it to the state level.  As you know, in Wisconsin and Minnesota there have been large blow ups over government pensions.  In California, many state pensions are funded by a separate organization called CalPERS, which fortunately cannot be raided by the dumb heads in Sacramento.  (By the way, CalPERS earned a 20.7% return on its investments last year.)

Last year, CalPERS returned $46.6 Billion to its retired members.  Except for a couple of bad recent blunders, CalPERS is a well run organization.  They have studied what happens to the funds they distribute and they have found that the Multiplier Effect of CalPERS is 2.26.  That means that every dollar they pay out in pensions result in $2.26 in economic activity.

So the next time one of those Tea Party clowns says we should do away with Social Security and all other pensions, ask how they would replace those dollars.  I'll bet you will just get a blank stare.  And that should scare the crap out of you!!

And now, back to Granny in her wheel chair.  The typical Social Security recipient is a 63 year old widow who gets $33,000 a year and that is her only income.  78% of CalPERS members receive a pension of $36,000, or less.  So there you have it.  All those people living by "sucking on the teats of the government" as that asshole Alan Simpson called them, are really your neighbors living just above the poverty level.

*By the way, when the Richy Riches get an additional $1 from income tax cuts, they save most of it.  Hence, you give them a $1, their Multiplier Effect is something less than $1 and, thus, they shrink the economy.

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