I almost agree with the editors of the Washington Post. In a recent editorial they say this in response to a proposal that FICA max be increased:

Even after all that pain, removing the cap would only close about half of Social Security’s funding shortfall. That’s because the fundamental problem with the program is not that it doesn’t tax enough. The problem is that its structure is based on demographic assumptions that no longer hold.

That’s almost correct. If they restated it “The problem is that its structure is based on demographic and income assumptions that no longer hold” I would agree completely. Notice the emphasis. Social Security was designed around two assumptions: the ratio of workers to retirees and the distribution of wages. The first has changed because Americans live longer and have fewer children. The second has changed because an increasing share of national income now goes to people earning above the FICA wage base.

The change is easy to see. Since 1980, incomes for the top 1 percent have grown at a dramatically faster rate than those of everyone else.

Note that the graph has two scales, one for incomes of the top 1% of income earners and the other for the bottom 99%. If the bottom 99% were shown on the same scale as the top 1%, the line for them would read as flat whereas it actually increased. Since earnings above the FICA wage base are exempt from the payroll tax, shifting more national income into those earnings automatically reduces the share of total wages subject to Social Security taxation.

I’m open to other suggestions for reforming Social Security than increasing FICA max. I know of several:

1. Just abolish it.
2. Supplement it with private accounts. Let individuals buy stocks or other investments. This was proposed during the Bush II Administration.
3. Supplement it with national accounts. Let the Social Security Administration buys stocks or other investments.

but let’s not pretend that each of those wouldn’t have adverse side effects as well. If you’d prefer one of those alternatives, explain how you’d mitigate the problems it would create.

#1 and #2 assume that we’d be satisfied if some retirees became destitute in their old age. Nearly 40% of Americans rely solely on Social Security Retirement Income. The problem with #2 is that it shifts investment risk to individuals. Some retirees would inevitably reach retirement with inadequate savings.

The problem with #3 is that over time the federal government would come to own an increasing percentage of the U. S. economy. My experience has been that most proposing #3 are strongly opposed to that.

As may be apparent I received my new prescription eyeglasses. They have improved my vision considerably. I’m taking things slowly. We’ll see how things work out.

I think that Steven Taylor has got out over his skis in this post. Said another way, I think he’s exaggerating. Here’s the passage from the post I’m questioning:

Second, because our system (i.e., plurality elections in single-seat districts, the usage of primaries, and a number of other structures) funnels us into two parties, and because primaries open the door wide for anyone who wants to be one of the two collectives (providing that they win enough votes), this means both parties are coalitional in nature. Further, because of the porous nature of the nomination system and because centralized leadership of consequence does not exist in either party, it is nonsensical to say that a person who won a Democratic primary isn’t a Democrat.

The reason I question it is that Steven overstates his case. If he’s saying that American political parties are weak relative to, say, European political parties and parties in parliamentary systems, I agree completely. If he’s saying that American political parties don’t and can’t limit their membership, he’s wrong.

In 2014 the Arlington County Democratic Party in Virginia expelled a member for opposing a Democratic candidate in a general election. In Texas the Republican Party uses a censure mechanism, Rule 44, against state legislators for inadequate fidelity to party principle and priorities. In addition both political parties parties have denounced members with views outside the mainstream, e.g. David Duke and Lyndon LaRouche.

There are many other examples from further back in history. Franklin Roosevelt attempted a purge of members who didn’t support his policies. There was actually a loyalty test during the Civil War and Reconstruction.

Our political parties have other tools that Steven did not mention including:

• They determine debate qualification rules.
• They determine delegate allocation rules.
• They determine convention rules.
• They have, at various times, changed superdelegate rules, primary calendars, ballot access requirements, and candidate qualification standards.

Whether those tools will be exploited remains to be seen.

Rather than being “nonsensical,” what is happening within the Democratic Party is a debate over the boundaries of party identity, prompted by the New York elections. I understand James Carville’s despair, for example. Whether the solution to the problem is resigning from the party, I’m less confident. I do think that Democrats should decide what they believe and don’t believe and not be afraid to declare their beliefs.

As is my custom I won’t comment on the results of the New York elections. Whom New York voters choose to represent them is none of my business.

I will comment on one thing. If New York City’s fiscal policies create a crisis, don’t ask taxpayers in the other forty-nine states to rescue it. New York voters are entitled to make their own choices but they’re also responsible for the consequences.

The same applies to New York State. Don’t bail it out, either. Money is fungible. A state bailout can become a city bailout by another name.

While I’m fumbling to post and expressing my opinions anyway, I thought I’d give four thoughts on the war with Iran.

First, as you should recall, I opposed going to war with Iran from the start. That doesn’t mean I think the Iranian regime are good guys—far from it. I think they’re awful. I simply think that wars should be fought only for just causes, as a last resort, conducted justly, and undertaken by a legitimate authority. That’s a very high standard and this war did not meet it.

Second and especially under the circumstances, we should all be happy for a conclusion to the war.

Third, I think those proclaiming that the Iranian regime won the war are exaggerating. By no reasonable measure did Iran win militarily. One can argue that the regime emerged from the negotiations in a stronger position than it deserved or than one would have preferred but that is not the same thing as winning the war.

Finally, neither did the United States. It may be too early for a definitive judgment but at this point it does not appear that we have achieved the objectives President Trump set out before the war.

Given the conversation going on in comments I thought I’d contribute some thoughts about federal deficits and Social Security. The following graph illustrates the surpluses in Social Security (Revenues – Expenses) during the Clinton Administration:

and this graph illustrates shortfalls in Social Security:

As you can see, Social Security expenses have exceeded revenues since 2010, largely because the long-anticipated retirement of the Baby Boom generation increased the ratio of beneficiaries to workers.

In only one year of Bill Clinton’s presidency (2000) did the federal surplus exceed the Social Security surplus.

I think that Bill Clinton deserves credit for not increasing his spending faster. And he didn’t create the “unified budgeting” (it had been in place in one form or another since the 1960s) but he did benefit from it.

The retirement of the Baby Boom generation was one of the most predictable fiscal events in American history. Once Social Security shifted from generating annual surpluses to requiring redemption of Trust Fund securities, a source of financing that had helped mask the size of the underlying federal deficit disappeared. I think that the two political parties share the blame for the budgetary fix we are presently in. IMO the simplest fix would have been to maintain the taxable wage base at roughly the same share of national wage income that it covered in 1983. Better yet FICA max could have been removed entirely and applied to all wage income.

IMO the message to take from this is bite the bullet. Reforming Social Security is politically painful. Do what’s necessary as soon as you can.

There is a corollary to that: there are no mulligans in politics. Simply putting a policy in place has implications and creates new challenges that would not have existed but for the policy. We have been pretending that we could just finetune our policies for more than a century. Social Security illustrates this broader lesson: every policy creates future obligations and constraints. Political systems often behave as though policies can be adjusted indefinitely without consequence but eventually demographic, economic, and fiscal realities arrive and require choices.

I’m still waiting for my updated prescription eyeglasses. Until I receive them my activities including both reading and blogging are considerably constrained. For example, with my newly-operated on eyes I can read with some effort for about twenty minutes particularly if I keep my left eye closed. After twenty minutes I begin to experience eyestrain.

If I haven’t received an update on the availability of my new glasses from my optometrist be 3:00pm today, I will reach out to them. It will have been ten days since they received the prescription.

On Monday I had my final post-operative examination by my ophthalmologist, had an eye test, and received a new prescription for glasses. I took my prescription to my optometrist and should have new glasses early next week. I have now been cleared to engage in “strenuous activities” and resuming something approximating a normal schedule. I celebrated by mowing the lawn.

As things stand I can’t drive and can only read for a few minutes at a time without experiencing eyestrain. Going down to my oral surgeon for the final step in my dental implant (Round 2) was quite an adventure. The oral surgeon’s office is in River North so I took an Uber down and the El back up to the Northwest Side. My wife was kind enough to pick me up after I arrived at the Montrose station. As I’ve said before, she’s a saint.

When I get my new prescription I hope to resume my regular blogging schedule. Except for the last month and a half I have averaged four posts per day. Fingers crossed.

Also I hope to be able to drive. In normal circumstances I’m a daily shopper and have been responsible for all our grocery, pharmacy, and hardware store shopping. Maybe I’ll also be able to read for pleasure again. From the time I was 7 I read a book (or more) a day. Maybe I’ll enjoy reading again.

There’s an article at Barron’s by Brij Khurana that echoes some of what I said in yesterday’s post. Read the whole thing but here are some snippets.

Monetary policy is also becoming less effective in shaping longer-term interest rates. Historically, when the Fed cut short-term rates, long-term yields declined as well. That is no longer true. Since the Fed began its ongoing easing cycle in September 2024, 10-year Treasury yields have actually risen. This reflects resilient economic expansion and a fiscal deficit that has grown so large as to mute the effects of the cuts.

Given these changes, it is worth considering whether the Warsh Fed should prepare markets for more forceful and less predictable rate adjustments ahead.

and

The federal debt complicates the Fed’s ability to achieve its dual mandate of maximum employment and price stability. If foreign investors, who finance a third of U.S. debt, trim their Treasury holdings and the Fed responds by expanding its balance sheet, the dollar could weaken, fueling inflation.

Heavy Treasury issuance creates distortions between government bonds and derivatives linked to them. Hedge funds use substantial leverage to arbitrage these discrepancies. An estimated $1.5 trillion of such trades are outstanding, posing a risk to financial stability. Finally, government spending has helped lift equity markets, supporting wealth-driven consumption and keeping services inflation persistently high.

concluding:

Perhaps the Fed should shrink its balance sheet so the real cost and liquidity of government debt can be fully known. Maybe it should use interest-rate and balance-sheet policy to lean against debt-fueled asset price appreciation, regardless of where that debt originates.

I doubt that will have the results he’s seeking.

If the FOMC were following the Taylor Rule, interest rates would be around 5%. Given the changes in the structure of our economy it might well need to be substantially higher than that to achieve the effects that are needed. My point is not that the Fed doesn’t have the tools to curb inflation. The Fed almost certainly retains the ability to suppress inflation but doing so may require much higher interest rates, a much larger decline in asset prices, and a much deeper economic slowdown than policymakers have recently been willing to accept. My question is whether they have the political will.