The Tangled Web: America, France and Indochina 1947-50

History Today

The Tangled Web: America, France and Indochina 1947-50

“To many, the Vietnam War defines their view of the nature of US international policy.”

 

“Kennan agreed: the United States was supporting the French in an undertaking that ‘neither they, nor we, nor both of us together can win’.”

A good short read. As a Vietnam Vet I was aware of some of this in later years. Follow this link first, then “The OSS and Ho Chi Minh” in my preceding post.

What a different world it might have been if we had applied the principles of the Marshall Plan to Indochina as well as Europe! The plan in Europe worked miracles. The plan in Indochina was a disaster from beginning to end.

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Taking a Second Look at Social Security

Recently Cousin Ron Lamont re-posted a Facebook “Like” quote by someone alleging that as early as 1967, liberal economists were calling Social Security a “Ponzi scheme.” This irritated me enough that I removed it with the “hide this post” tool. I’m still considering whether Facebook, a family-friendly safe space, is even the proper forum for hard-core political commentary and opinion.

So to be honest, It’s fair to say I started it all when I re-posted my personal website article “Social Security Not a Ponzi Scheme” on Facebook. Even though PolitiFact [1] rates Perry’s 2011 “Ponzi” statement as “False,” I’d have to rate the 1967 “Ponzi” allegation, far from being a “Pants On Fire” item, as “Half True.”

My cousin’s post was a fair turnaround. Now then, what’s the story about Social Security?

In 1967 Newsweek reportedly ran a column by noted liberal economist Paul Samuelson (of college Economics textbook fame). Samuelson in fact did compare Social Security to a Ponzi scheme [2]. This source cites numerous other early references to the same opinion, including the Wall Street Journal. The source notes that Samuelson was “actually drawing on the Ponzi analogy to defend Social Security”, a back-handed way for an academic to illustrate a point if ever I heard one. There’s a long history of groups that tried to pin Social Security to the mat before. You should read the PolitiFact assessment [1] of the whole issue.

In my first article I showed that Social Security is NOT a Ponzi scheme by definition, but an account that is actually but not physically held in each contributor’s name. Despite all the rhetoric about what Congress is doing or has done with those funds, the account is still due and payable according to the terms of the social contract. The obvious cause for concern is: how long will the Social Security trust fund remain solvent and be able to pay out on its obligations?

Over the years a major defense of Social Security has been that it is deemed “actuarially sound,” meaning that a statistical analysis of FICA and Employer Contributions, charting pay-in and pay-out amounts against actuarial table life expectancies shows that Social Security is paying its own way, or is at least solvent. Well, it probably would be solvent if its funds were securely invested at going interest rates like any other form of pension fund.

I recently read a cynical charge somewhere that when FDR and the New Deal Congress inaugurated Social Security in 1935, the actuarial life expectancy of the current generation of retirees was about three years. I couldn’t verify that. Social Security Online [3] presents a quite different accounting: “men attaining 65 in 1990 can expect to live for 15.3 years compared to 12.7 years for men attaining 65 back in 1940.” 1940 was the first year Americans could collect Social Security.

One study I can and did do is an analysis of my own SSI account. I started drawing on it at age 65 in 2009. Raw data includes all of my contributions from 1960 to 2009 (49 years), matching Employer contributions in like amounts, and even a withholding rate adjustment recalculation for a five-year period where I was mostly self-employed. Given the taxable income data posted to everyone’s annual SSA statements, and the withholding rate for each year [4], it is a simple matter to calculate annual withholding amounts without trying to locate 49 years of W2’s or Form 1040’s. My 49-year figures came within $186 of the government-reported withholdings. And I know exactly what my SSI income is.

I assumed those funds must be adjusted or amortized for the value of interest they should earn in any interest-bearing account, making no assumption about what the Congress and Treasury may actually be doing with our money. I chose a 5% APR. Some may object that the government doesn’t credit interest accruals to our account. I am calculating the value of the account, not just the portion allocated to us.

But what is the difference between the principal and principle plus accruals? My own contribution’s cash flow plus assumed accrual worked out to 148.47% of principal. (That’s so low because the early years contributed the least). I calculated what the future value [6] of each year’s total adjusted contribution would be by year 2009. Adding the sum of those payments plus interest equaled just under 12% of my lifetime earnings.

Obviously I won’t be publishing personal financial data out of privacy concerns, but you could run the same calculations on your own account using the source links I’ve provided in “References” below. If you do not yet have a retirement year and estimated SSI monthly income, use your SSA annual statements to make some assumptions. You need to know the effect of different retirement ages on SSI income anyway.

My own work experience may not be entirely representative. I probably worked somewhat longer than the average of all wage-earners. On the one hand, my wages include three years in the military, part-time income in college, and five years of exquisitely marginal self-employment income. On the other, I finally “capped out” on SSI contributions in my last years in the workforce. The difference is what those early years might have contributed to personal savings growth had my income curve been more even. That makes a big difference to my old age, but doesn’t materially affect the amount of my monthly social security payment.

We noted how low my wages were in those early years (even if adjusted for inflation, which we should not do here). My experience would be different from someone who went straight from college into a lifelong professional career. Those earners would “cap out” early, and the Social Security Administration fund would probably never “go into the red” for individuals least likely to depend on it. Conversely, my contributions would be proportionally greater than those of someone who, for example, left the workplace to raise a family, or on account of illness or disability. All I can conclude is that it sounds reasonable that a substantial proportion of the workforce probably survives to receive social security payments well in excess of that ever put into the fund. Perhaps people who complain that is not fair forget that’s the security benefit of a social security insurance plan. Private insurance plans of all types depend on the very same mathematical certainty of pooling of risk.

The reason we can’t add an inflation factor to our calculations is off-topic but worth examining. Savings and other interest-bearing accounts don’t take inflation into account either. There, a dollar is only a dollar whether deposited in 1960 or 2009. I ran the “Inflation Calculator” [5] on my yearly payments anyway, even though I could not fairly use them for my bottom-line calculations. It’s instructive to note that the same $36.13 worth of groceries in 1962 (my FICA contribution for that year) would cost $256.66 in 2009 dollars. Younger readers would not remember the late 1970’s, when so many of us consumed with plastic credit cards bearing an 18.99% APR, since we could more cheaply repay later with devalued dollars. It isn’t just the stodgy classic University of Chicago economic conservatives who call inflation the “hidden tax.” It is. Today we call it “Quantitative Easement.”

In my early years I argued that I would probably live to regret paying into the Social Security fund (as if I had a choice). My spreadsheet proves me wrong. Actuarially speaking, in my case, I should expect to get out of it almost exactly the value of what I put into it. The spreadsheet calculations revealed that my own account will hit “break-even” when I turn age 80.25, and my statistical life expectancy right now in 2011 is age 82.77 years.

Unfortunately, even considering my low-earning early years, the purchasing power of my Social Security “nest egg” would have been worth 91% more (almost double the real purchasing power) if we did not live in an inflation-addicted economy. Our “hidden tax” benefits the government in the short run, because it repays debt with cheaper dollars just like we did with the plastic 1970 credit cards. As you can see, in the long run inflation hurts all of us, including our government.

Unsurprisingly, conservatives and upper-income wage earners will argue that Social Security is inefficient and of limited value. Liberals, seniors and lower-income workers will argue that the vast majority of Americans need a safety net. Despite all the rhetoric on both sides, I’d like to know what is going to be done to save a program that has worked for generations of American retirees so far.

If Congress can’t or won’t fix the program we have now, it would be foolhardy to put our faith and trust in a poor substitute that takes the “insurance” out of Social Security insurance, or, even worse, in some scheme that’ll be shunted off to the same private sector that brought us toxic assets, job offshoring and an imperiled middle class. That’s just my opinion, but whether the polls prove that to be in the 51% majority or 49% minority, it can’t and won’t be ignored.

©Alex Forbes 2011

References

[1] PolitiFact, “Shacking up: Social Security & Ponzi schemes
[2] Liberally Conservative, “Perry Wasn’t the First
[3] Life Expectancy for Social Security, SSA
[4] Social Security Administration Trust Fund Data
[5] Bureau of Labor Statistics CPI Inflation Calculator
[6] Future Value: I couldn’t get the built-in Excel function to work properly in my spreadsheet. Just use the formula FV = PV ( 1 + i )^ t (see NetMBA Future Value) which, in the Excel cell, would look like this: =D5*1.05^G5 if cell D5 contains the principal and G5 contains the number of periods. 1.05 is the assumed interest factor compounded annually.

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Social Security Not a Ponzi Scheme

Many Americans were surprised to hear any frontrunner candidate for President, even Texas Gov. Rick Perry, say recently in the GOP candidate debates that Social Security is a Ponzi scheme. As quoted by the Washington Post on August 29, [1] Perry claimed:

It is a Ponzi scheme for these young people. The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie,” Perry said. “It is a monstrous lie on this generation, and we can’t do that to them.”

It’s a lie only if and when Congress reneges on a solemn US government promise and obligation. Seniors who have paid into the Social Security fund all their working lives should be outraged. The young and those who are only beginning working careers might well find cause for alarm in those words. I believe we can set the record straight here while still bypassing 95% of the partisan rhetoric. The status of Social Security as a “Ponzi scheme” begins and ends with the intent of Congress.

Merriam-Webster defines ‘Ponzi scheme’ as:

an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.

For more information on Ponzi scheme, see Wikipedia [2]. It is true that the money you’re depositing into your SSI account goes into the Social Security Trust Fund. It’s true that the money credited to “your account” goes not into the purchasing of equities to build a nest egg for your own eventual retirement, but to pay off obligations to the current generation of retirees. Just like most private pension funds, Social Security obligations pose a long and growing debt “tail” of outgo which is micro-managed by Congress in periodic fits of oversight.

According to OMB, the Office of Management and Budget as quoted in Wikipedia [3]:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense…. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)

The Wiki article quoted Dr. Alan Greenspan as saying: “The crucial question: Are they ultimate claims on real resources? And the answer is yes.”

The devil’s in the details. All the worrisome arguments about how those dollar bill notes paid to you out of the fund come from the current cycle of depositors, and are not “your” dollar bills, could equally well be applied to any checking or savings bank account you own. This out-of-context argument makes no sense. The thing to remember is that it’s YOUR account, and the source of the physical greenbacks is an irrelevant distraction. The obligation to make good on your account is indeed YOUR asset, and morally it should certainly not be subject to the discretion of Congress, any more than your bank can legally decide whether your savings withdrawals coincide with the bank’s current priorities.

It’s a well know fact that the Baby Boomers are putting a heavy strain on the Social Security system. We’ve known that was coming for half a century. As we face a looming cash flow problem with Social Security, I think Congress and not individual Americans deserve full blame and responsibility for that.

Personally, I was trained in classical laissez-faire economics, and I’m very conversant with all the theoretical arguments why Social Security was a mistake in the first place. They’re just another political case of “that may work in practice, but it won’t hold up in theory.”  In my twenties I resented Social Security bitterly. After a lifetime paying into the fund, and a lifetime observing corporate practice in the American workplace where I worked for over forty years, I saw I’d be a fool to trust any “privatized” solution. Neither am I amused when I hear my account dismissively called an “entitlement.”

Reasonable people will conclude that Social Security is NOT a Ponzi scheme because, among other things, it is NOT a get-rich investment scheme and, for better or for worse, the “real resources” backing the fund are United States Treasury bonds. One could, if one wished, even argue that Perry was really calling into question the full faith and credit of the United States government. After all, it was his party that shook world confidence in our national will to pay our just debts and obligations in the first place.

© Alex Forbes 2011

Further Reading

[1] Washington Post, “Perry’s Ponzi scheme rhetoric” by Jonathan Bernstein
[2] Wikipedia, Ponzi scheme
[3] Wikipedia, Social Security Trust Fund

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Wikileaks

Wikileaks seems to have become the paparazzi of the diplomatic corps, doing for Hillary Clinton’s world what National Enquirer magazine did for Paris Hilton. I tried at first to ignore the Wikileaks media sensation. Wouldn’t you know, it won’t go away. Some gossipy tidbits are fascinating. Many are potentially embarrassing. Some threaten delicate negotiations, or diplomatic relationships that took years to build. Almost all undermine international confidence in “the system.” Most confirm what we already knew, heard or suspected. How secure were they? The money was not actually kept in bank vaults, but the front door to the bank was thought to be really, really strong. What do these Wikileaks mean, who is responsible for them, and who, ultimately, is accountable for their embarrassing disclosure?

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Welcome

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Welcome to our Commentary page, home to our articles on political and social issues, business and the economy, government, history and opinion.

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Site News – Commentary Reorganization

You know how it goes. You’re looking for a 16mm socket wrench in the workshop, and you end up cleaning and reorganizing the whole basement.

Commentary is one of Summitlake’s oldest departments, with articles posted every year from 1998 to present. This spans not only html code “ports” through at least three or four web design applications, but several theme changes over the decade. The older departments (in particular) have suffered loss of that prized page-to-page “consistency” so valued by web developers and so welcomed by eye-weary readers and surfers.

Moreover, if you know a little about coding HTML, you’ll know that porting a page through several successive design applications can result in code that ain’t a pretty sight.

I found some old pages that badly wanted reformatting. The code was ugly and hard to work with; the visual layout was poor and in some cases broken. Hence my remark about the 16mm socket, and the decision to clean up the whole basement.

Similar to what has already been done for “Astronomy” and “Miscellany”, all the HTML articles are gradually being moved into WordPress (like this article you’re reading now). In most cases, this involves stripping the original text into raw “plain text”, in NotePad, and reformatting each page manually. So it does take a while.

WordPress More Searchable
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Bush Keeps S.F. At Bay

In a major front-page filler article in the Sunday SF Chronicle, Washington Bureau Chief Marc Sandalow writes that President George W. Bush has visited California, but has never visited the great San Francisco Bay Area. And, he’s unlikely to do so. The explanation is: (1) What’s in it for me? Up to 84% of voters here (depending on where you count them) reject Bush and his policies. (2) Protesters here traditionally use presidential visits to disrupt and draw attention to their own causes.

Well, you could have knocked me over with a feather. Any eighth-grader could have told us that in two sentences, without requiring two pages, over a whole page of newsprint in full, to cover this factoid. It’s not news. The Chronicle must be hard up for material.
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Patterns of History

HISTORY TEST

Please pause a moment, reflect back, and take the following multiple choice test. The events are actual events from history. They actually happened!!!

Do you remember?

1. The Symbionese Liberation Army was:

    a. A group of crazy black supremacists
    b. A rich white girl
    c. An orchestra musician’s union
    d. a Muslim male extremist between the ages of 17 and 40

2. Lee Harvey Oswald was:

    a. a deranged white commie dupe assassin
    b. a best-seller by Rachel Carson in 1962
    c. a popular fruit juice drink
    d. a Muslim male extremist between the ages of 17 and 40

3. Idi Amin was:

    a. a deranged syphilitic Ugandan who murdered 300,000 of his own people
    b. a poisonous Australian sidewinder
    c. a knockoff meditation technique popular in Los Angeles in the 1960’s
    d. a Muslim male extremist between the ages of 17 and 40

4. The Weathermen were:

    a. a radical terrorist organization dominated by spoiled liberal white kids
    b. a hit song by Bob Dylan
    c. a political reorganization of the National Oceanographic Survey group
    d. a Muslim male extremist between the ages of 17 and 40

5. The “Unabomber” was:

    a. a crazy white megalomaniac who glorified self-directed anonymous terrorism
    b. a powerful mixed drink of the Harvey Wallbanger genre
    c. a bicycling fad that went seriously astray
    d. a Muslim male extremist between the ages of 17 and 40

6. Timothy McVeigh was:

    a. a deranged white terrorist who blew up the Oklahoma City federal building in June 1997
    b. a discotheque in the Washington DC area
    c. a decoction of wild grasses favored by herbalists and the “natural” movement
    d. a Muslim male extremist between the ages of 17 and 40

Nope, ..I really don’t see a pattern here to justify profiling, do you?

Let’s send this to as many people as we can. Patterns without a point? Come on, send this to everybody in your address book. Never mind if this sounds like spamming; it is not some political theory, just common sense. Wake up America! There’s one behind every tree!

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Andy Rooney “sorry ass” Fraud

There’s a fake piece circulating on the email circuit now, “Ride on Andy Rooney”. It’s not by Andy Rooney as claimed, and doesn’t even represent his views. It’s evidently been around since 2003. It was sent to me, and I researched it, confirming my suspicion of fraudulence. I’m not going to reprint it here. Since it’s still in circulation, here’s my note to the friends who sent it:

All of us can agree with at least some of the comments, in some context or other, in the ramble attributed to Andy Rooney, but it isn’t his.
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WordPress 1.5 Upgrade

Speaking of upgrades, there’s a new version of WordPress out. What is WordPress? If you read the papers, web or other media, think “blog”. Websites are using weblog engines for many other purposes than weblogs. This page is composed in WordPress online, and its parts are stored in a mySQL database.

The installation outage took less than half an hour tonight, ending at about 9PM PST. Our apologies if you encountered the outage during this time span.

WordPress 1.5 has been written with stronger firewalls and comment handling against spam. We are cautiously turning on Comments again. The first time you submit a comment, it will be queued for moderation. If approved, you are approved for subsequent comments. Please expect a delay of up to 24 hours before you can see your first posted comment.

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