Could the US be headed for an economic meltdown

I don't think anyone has suggested reducing or eliminating Social Security benefits from thise receiving them or those approaching retirement. Serious people have suggested restructuring the program to take account of the many demographic changes that have occurred since it was created over 60 years ago. People live longer; birthrates are down, and the ratio of those receiving benefits to thoise still working and paying into the system has fallen considerably. This demands some structural change, most likely delaying the age at which benefits begin. Our problem in this area is serious, but it has solutions. Our economy remains robust, creative and adaptive.


In Europe, where immigration is much less, birthrates much lower, social benefits much higher, and the labor markets much more structured, rigid, and resistant to change, things are much worse. . They are facing a crisis, and it has already begun to affect their economic growth - they are falling farther and farther behind the U.S. It is far from clear that they will be able to sustain their systems without levels of significant social, economic and political change that their populations have so far resisted strongly.

We are emerging from a recession - the mildest one we have faced in more than a generation, but a recession nonetheless. Corporate America has seen some fairly tough years lately, as have many workers. However the cycle is reversing and we have every reason to expect that to continue for a while. Stock and equity markets are up and businesses are investing in new products and productivity enhancements that will do far more to keep employment here than would protective tariffs or other forms of protectionism disguised as environmental or social standards.

Whatever.

People will continue to be born, work, and age with some portion unable to keep funding rent/mortgage, food, water, electricity, heat, health care past the time they stop working. Most analysts seem to assume that the social security system must be self funding. I don't understand why such a crucial support to such a large and getting larger portion of the population must be held to the self-funding fire when so many other aspects of government expenditure are not.

ossobuco,

I am inclined to agree with you. When it was inaugurated the Social Security (payroll) tax was relatively much smaller than it is now - both for workers and employers. Now with higher relative retirement costs and Medicare added to it, the tax burden on employers (along with abuse of workers disability programs - at least in California) has become a serious disincentive to hiring. For employees this tax has made our overall income tax structure far less progressive than it was designed to be. For starters we could apply this tax to all earned income, not just the first 80 or so thousand dollars of income. That would shift a good deal of the tax urden to those earning higher incomes, and reduce an effect that I suspect few forsaw when the system was created. I'm not sure I would like to see us abandon the payroll tax altogether and roll the whole thing into the general fund. That seems to open an altogether new avenue to government sponsored wealth transfers.

No, not a general fund, unless that was the only way. I agree with the shift you describe re earned income.

georgeob 1,

I don't know how old you are, or how energetic. But I hope you are either rich or strong enough to dig.

I have WATCHED.... (not a link I can toss at you- thousands over the years) -- Watched,
this government for over 60 years.
Bit by bit by bit, I have seen GREED encroach on decent society.

Note the list Au published above. Service jobs... uhhh huhhh.

Reminds me, I told my little brothers YEARS ago, boys- learn how to dig a ditch, plant a garden and cut wood. Learn it well. and teach it to YOUR BOYS. For you are too nice to USE people as some will, and you will be on the wrong end of the shovel

George
Whether my fears regarding the future of the economy are unfounded or not only time will tell. However, IMO unless some way can be found to stop the bleeding the average worker and the economy of this nation are in for rough sledding.
Regarding social security, I believe that the tax should apply to all earned income.

The Sunday papers were full of the usual stuff on both sides of the political divides. Some expressed concern over the projected deficits, fortelling future increases in interest rates as a result; others debunking this idea, suggesting growth will overshadow any such effect. Others addressed recent statistics involving job losses in manufacturing (much as au1929 has done); others noting the vigorous recent growth in our economy and contrasting it with the stagnation that continues to grip Europe. Which represents the truth?

I have neither the time, knowledge, nor inclination to sufficiently study the problem, theory and data, needed to fully engage the advocates of the various sides in these issues. I have a very strong inclination to believe that all of these advocates are at least in part motivated by partisan political objectives, and that each is a bit selective in the topics they raise and the data they use to support their views.

I do know that the Reagan tax cuts and Paul Voelker's high discount rates did end the "stagflation" that gripped our economy in the early '80s. To a large extent the subsequent growth in the economy did indeed reduce the relative effect of the deficits that were created. However I strongly believe that the Republican advocates of tax reduction also had the objective in mind of creating future pressures to limit the growth of government - it wasn't all about growth, and tax cuts in any amount are not necesarily repaid in subsequent economic growth. It is also true that Democrat concerns about fiscal discipline are not so much a result of newfound virtue and frugality as they are a desire to protect the future spending power of the government that in turn gives them power and position. We can count on both sides in these disputes to adopt whatever self-serving positions are out there.

Despite all that, the United States remains, by far, the richest and most economically adaptive country in the world. We are large enough economically to be concerned about the economic health of the rest of the world, if for no other reason, the preservation of our own status. The development of industry and jobs in other countries will inevitably create new competitive challenges for us. However it also adds new buyers for our products and ideas, and enables us to use our greater wealth to find new innovations, new products, and new ideas. Adam Smith's comparative advantage idea was and is a sound one - we should not forget that.

I am comfortable, but not rich. I am able to dig if necessary. Life remains a challenge in its many ways for us all. We must each find our answers and our solutions. I don't think there are any free ones out there.

America's Trade Policy = Lost Jobs

When you are in a hole, first, stop digging. That’s the message of thousands of workers from across the hemisphere, assembled in Miami to protest negotiations designed to apply the failed NAFTA Treaty to the entire hemisphere.

But that common sense applies even more to US global policy in general. We’re now running a $400+ billion annual trade deficit, which even the IMF calls “destabilizing.” We’re bleeding manufacturing jobs. Normal Trade Relations with China was sold as a source of jobs in America. Now, we’re running a $100 billion annual trade deficit with China alone, and entire industries are moving there. NAFTA was sold as a source of exports for America. Now, we’re running a $100 billion trade deficit with our NAFTA partners, Canada and Mexico. And in Mexico, wages are lower, poverty is worse, and now their jobs are headed to China too. It is time to stop digging and start figuring out how to get out of the hole we’re in.


Reality Check by the Institute for America's Future

Annual current account balance % of GDP-United States Minus 5% [1]
Annual current account balance % of GDP-European Union Plus 5% [2]


Annual US trade deficit 2001 $358 billion [3]
Annual US trade deficit for 2003 $433 billion [4]
Increase in annual deficit since Bush took office $76 billion


Net US assets owned by rest of world $2,5 trillion [5]
Warren Buffett estimate of total national wealth $50 trillion [6]
Net ownership of US transferred to world each year 1% [7]
Annual trade deficit with Canada and Mexico Pre-NAFTA (1993) 9.1 billion [8]
Annual trade deficit with Canada and Mexico Post-NAFTA (2002) $85.3 billion [9]
Increase in annual Deficit since NAFTA took effect $76.21 billion


U.S. trade deficit with China Before Permanent Normal Trade Relations 1999 $67 billion [10]
U.S. trade deficit with China After PNTR 2002 $103 billion [11]


U.S. exports to China (year to date) $19.9 billion [12]
U.S Imports from China (year to date) $108.6 billion [13]
Ratio of good bought from China to goods sold to China: $6 to $1


The Wal-Mart Economy

Number of Wal-Mart employees 1.4 million [14]
Wal-Mart Share of US Imports from China 10% [15]
Annual average salary, Wal-Mart sales clerk $13,861 [16]
U.S. poverty level for a family of three $14,630 [17]
Wal-Mart’s effect on average grocery prices where it operates 14% less
Wal-Mart wages compared to unionized supermarkets 20% less [18]
Turnover rate of Wal-Mart hourly employees per year 44% [19]


A Clear and Unsustainable Danger
The US trade deficits are:


“Patently unsustainable”—IMF: Kenneth Rogoff, chief economist. [20]

“Unsustainable over the medium term, creating a danger of disorderly adjustment that would be disruptive to world economic growth.”—IMF: Horst Kohler, managing director [21]

“Absorbing too much of the world’s capital and were unsustainable.”—Bank for International Settlements: Andrew Crockett, general manager [22]

"The greatest potential danger facing the economy in the years to come.”—Nobel prize-winning economists: Franco Modigliani and Robert Solow. [23]

“A damaging deficit that the whole world knows we must correct”— Warren Buffet, investor [24]

White House downplays job predictions

Wednesday, February 18, 2004 Posted: 2:01 PM EST (1901 GMT)

WASHINGTON (AP) -- The White House backed away Wednesday from its own prediction that the economy will add 2.6 million new jobs before the end of this year, saying the forecast was the work of number-crunchers and that President Bush was not a statistician.
White House press secretary Scott McClellan, asked repeatedly about the forecast, declined to embrace the prediction which was contained in the annual economic report of the White House Council of Economic Advisers.
Unemployment and the slow pace of job creation are political liabilities for Bush as he heads into a battle for re-election. Despite strong economic growth, the nation has lost about 2.2 million jobs since he became president.
The jobs forecast was the second economic flap in recent days for the White House. Last week, Bush was forced to distance himself from White House economist N. Gregory Mankiw's assertion that the loss of U.S. jobs overseas has long-term benefits for the U.S. economy.
Asked about the 2.6 million jobs forecast, McClellan said, "The president is interested in actual jobs being created rather than economic modeling."
He quoted Bush as saying, "I'm not a statistician. I'm not a predictor."
"We are interested in reality," McClellan said
He said the annual economic report was based on data from about three months ago. Since then, Bush has said that things are improving.
The issue arose at the White House after Treasury Secretary John W. Snow and Commerce Secretary Don Evans declined to endorse the jobs prediction and said it was based on economic assumptions that have an inherent margin of error. They spoke during a tour through Oregon and Washington to promote the president's economic agenda.
"The number-crunchers will do their job. The president's job is to make sure we're creating as robust an environment as possible for job-creation," McClellan said. "That's where his focus is."
"This is economic modeling. ... some have said it would be lower," he said.
"The president has said he is not a statistician. He is most concerned about whether people are hurting and able to find jobs," McClellan said.
"The economy is moving in the right direction ... but there is more to do," he said.

I studied Economics many years ago. However, I have kept my notes. Perhaps someone with a stronger background than I can advise me whether the information I have is adequate.

It would appear that the hysteria about the "deficit" does not take Economic history into account.

MY NOTES:

"The government's ability to finance its debt is tied to the size and strength of the economy or Gross Domestic Product. As a percentage of GDP, debt held by the public was highest at the end of World War II, at 109 percent, then fell to 24 percent in 1974. That decline, from 109 to 24 percent occurred because the economy grew faster than the debt accumulated, although debt held by the public rose in those years, the economy grew faster."

It would seem then, that if the economy grows faster than the debt, we will be doing well.

At this time, the GDP amounts to about eleven and a quarter trillion. An Economy growing at about a Four or Five % a year rate coupled with a decrease in discretionary spending would result in a significantly lower debt/GDP ratio over time.

For example, a Five % a year growth in GDP coupled with a significant decrease in discretionary spending would result in a one to three ratio of debt to GDP by 2118.

That is certainly something we can handle but it would require financial discipline no matter which party is in power. It would mean that there can be no growth in entitlements, no new entitlements and a gradual rise in the age at which people would be able to draw social security.

The Oz dollar has hit 80 cents US after being as low as 47 only two years ago. I was reading about it in the paper today. The story said the reason the US dollar slide was the trade deficit, which apparently is becoming astronomical. I don't pretend to understand any of it, but there must be some reason for the US dollar to be tumbling against almost every other major currency.

Does it make sense for Dubya to be trumpeting over his economic record? This is not a rhetorical question. I really want to know.

Gradual rise in the age at which one can collect Social Security? In order to take my full share of benefits I will be obliged to work until I am 70. I am 61. How many of us can work at full capacity until 70? Any more rise they will have to unearth people's remains to hand them their checks. How about cutting into that military and corporate welfare instead?

Can't
The USA needs that huge defense budget to continue to pre-emptively attack those countries that are not bowing down to Corporate America and to keep the ones bowing now to continue to do so. If Corporate Welare was cut the politicians would have a hard time getting elected.