social safety Bullshit: A Socratic conference with a Texas Cowboy at McDonald's

Law Of Diminishing Returns Business Definition - social safety Bullshit: A Socratic conference with a Texas Cowboy at McDonald's

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1. Introduction - family Values and Paris Hilton

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Law Of Diminishing Returns Business Definition

Economist: This McDonald's sure seems busy for being in the middle of nowhere.

Cowboy: President Bush is having a town meeting on collective safety privatization. Supporters and some demonstrators are here.

Economist: They handed me some brochures on privatization when I walked in. Unfortunately, it's mostly sound bites and, while not outright lies, bullshit.

Cowboy: They handed me some brochures also. Some of it is obviously bullshit, wrapping oneself in the flag, family values and call the other side names, but I can't tell if the economics is bullshit or not.

Economist: Look at this nice picture of a happy, smiling family in this privatization brochure - parents, children, and grandma - all happy to have their collective safety privatized.

Cowboy: They look like they just received huge checks from their hidden accounts.

Economist: But population investing in hidden accounts will not receive collective safety checks for decades.

Cowboy: In Texas, being so happy about money that one might earn in 2040 is counting your eggs before they hatch, but they are probably just models in the photograph.

Economist: If collective safety is privatized, some population will profit immediately.

Cowboy: Let me guess, one is Wall Street.

Economist: Wall street will earn money from handling everyone's retirement money. But to be fair, most supporters of privatization, privateers as I like to call them, perceive this and consist of these brokerage costs in their estimates.

Cowboy: Who else will immediately profit from privatization?

Economist: If population start investing collective safety money in stocks, such as Hilton Hotel stock, what do you think will happen to the price of Hilton Hotel stock?

Cowboy: The price of Hilton Hotel stock will rise.

Economist: And who owns Hilton Hotel stock?

Cowboy: Paris Hilton, the Hilton Family, corporate executives, and other investors.

Economist: As the price of stock rises, Paris Hilton and other millionaires will benefit immediately. They should put a picture of Paris Hilton on their privatization brochures.

Cowboy: Will Paris Hilton buy our stock back at a higher price in 20 years when we retire?

Economist: It's highly unlikely that millionaires will fund collective safety by selling stock low and buying stock high. But it's a rather long and complex question.

Cowboy: But if millionaires and Wall street are going to profit immediately, aren't the rest of us going to have less?

Economist: It absolutely means less for the rest of us - unless the economic pie grows. But there are also more costs of a privatized collective Security.

2. Free money for families and claim the moral high ground of family values.

Economist: This looks keen for its audacity. This foundation says that it's a "violation of family values" if you can die at 64 and your family gets nothing from all the collective safety payments you made all your life.

Cowboy: Well, if I die at 64, my family gets my land. I would guess that most population would leave their house and other assets to their family if they die at 64. Those without assets or those with young children should buy life insurance.

Economist: But wouldn't it be nice if you could give all your collective safety to your family if you died at 64?

Cowboy: Yes, it would be nice if my family got an extra few hundred thousand dollars if I died before my 65th birthday. But wait, who is going to pay the extra hundreds of thousands of dollars to my family - the hundred thousand dollars that would go to other beneficiaries? It sounds like the foundation is trying to sell me a free lunch. Aren't conservatives usually against free handouts?

Economist: I think the foundation would argue that it's not a government handout, since it would be a return of your collective safety money - but that still leaves less money in the principles for others.

Economist: If you die at 65, aside from being dead, you are also out of luck in that you paid collective safety all your life. But what if we live to 95?

Cowboy: We are here eating lunch at McDonalds so I don't know if we will live to 95, but if we do, we will get years of collective safety checks.

Economist: The goal of collective safety is not to contribute inheritances to younger generations.

Economist: But this added patrimony "life insurance" plan is not even a good life assurance plan, since a family with a younger father, say 30 years old, needs more to get his children straight through school, and there is unlikely to be much money saved while working in his twenties. While if a man dies at 64, he has probably already supported his family.

Cowboy: Doesn't the hidden store already sell life insurance?

Economist: Yes, the private, free store does have a competing life assurance store - but that is not stopping privateers from offering free insurance.

Economist: Introducing phrases like "violation of family values" is logical fallacy known as appeals to emotion.

Cowboy: Let me get this straight, Wall street gets money for stock brokering, the Paris Hiltons of the world are going to get money from the increase in stock prices, and the families of everybody who dies before 65 will inherit money. Where is this money going to come from?

Economist: It's going to come from the "magic" of compound interest, and we are all going to get rich in the stock market. (Laughing) But, seriously, I am getting there.

3. Transition Costs - Paying Double

Economist: In increasing to Paris Hilton, other millionaires, Wall Street, and families that inherit, there are also the transition costs of paying today's retirees, in increasing to recovery for your own retirement.

Cowboy: But here it says that the transition costs are offset but the reduction in future obligations.

Economist: Technically it's true that if you and our generation pay double, the government will no longer have to pay the next generation - but you still have to pay double. Doesn't that make you happy, that you can pay double, and the government will thank you for lowering the government's future promulgation to retirees in 2150?

Cowboy: I don't care that much about retirees in 2150. How can I get out of paying double?

Economist: Most privatization plans will borrow trillions for the transition to avoid paying double.

Cowboy: But won't I end up paying interest on the money?

Economist: Yes, if you don't pay duplicate immediately, you, society can pay the interest and pay it off slowly. Either way, there are transition costs if you switch systems.

Economist: But if we continue with a pay-as-you go system, we never have to pay it off completely. In effect, we will continue to owe every 65-year-old. They finally pass away but are supplanted by new retirees.

Cowboy: But if we switch to a hidden system?

Economist: If we switch to a hidden system, we have to pay off all the current population who have contributed to the old principles and save for our own retirement.

Cowboy: Let me get this right, if we continue with the pay-as-you-go principles we never have to pay the transition cost?

Economist: In succeed we roll over the promulgation from one generation to the next.

4. The cost of risk

Economist: There is another cost - which could informally be called the cost of risk - which privateers have largely ignored, but the risk is the most vocally expressed complaint about privatization.

Cowboy: I don't like risk, but what does risk cost me?

Economist: You don't get a bill in the mail for risk, but population are willing to pay to avoid risk. Suppose there were two possible retirement plans:

Plan A: 00 per month guaranteed.

Plan B: 0 per month if the stock store is low when you retire (50% of time) or 00 per month if the stock store is high when you retire (other 50% of time).

Cowboy: I would take the guaranteed 00 per month. Living with 0 less, only 0 per month, would be a lot harder and not compensated by the opportunity of 0 extra.

Economist: The economic presume for taking the less risky option is being "risk adverse" because of the "law of decreasing marginal utility of income."

Cowboy: Ok, if you say so, but it's been a few years since I was in college.

Economist: Suppose I changed the plans to:

Plan A: 00 per month guaranteed.

Plan B: 0 per month if the stock store is low when you retire (50% of time) or 00 per month if the stock store is high when you retire (other 50% of time).

which is the same as before except ,300 per month is the good result.

Cowboy: I might take the gamble for 00, but it would be a close, hard decision. I would absolutely take it for 00.

Economist: Lets say it's 00. You get 0 if the store is low and 00 if the store is high, an imaginable value of 50, but you would be just as happy with ,000 for sure.

Cowboy: They sound the same but man is paying more. Somebody must be paying ?

Economist: In order to make you as happy as you would be with a sure ,000, you need an imaginable risky return of 50 - which the store would have to pay you just to put you back to your former utility or happiness.

5. African-Americans and the cost of annuities - The assurance company's cut.

Cowboy: Here it says that African Americans are cheated by the collective Security.

Economist: It's true that African Americans die sooner after retirement and receive less money after retirement than a similar white man who made the same collective safety contributions while working. But African Americans benefit from the little progressiveness of collective safety and benefit from disability and survivorship benefits. I haven't looked at the studies in detail, but others have argued that African Americans receive a best deal overall.

Cowboy: Shouldn't we try to equalize healthcare so African Americans live longer?

Economist: Yes, I am not a curative doctor, but there could be genetic differences, which we can't change. For example, women live longer than men.

Cowboy: Should African Americans get more every month when they retire because they are likely to die sooner?

Economist: hidden assurance companies will contribute African Americans with larger monthly payments, since on midpoint African Americans will secure fewer payments by dieing faster, which brings up a good point: When population retire at age 65, they have to buy an annuity to receive monthly payments the rest of their lives.

Cowboy: Isn't an assurance business going to take its cut?

Economist: An assurance business is going to take its cut, and there are expenses in selling the annuities. I have seen figures that it costs hidden assurance companies 15% to 20%, but with a larger government program - it may be possible to get this down to 12%. Twelve percent is what Cato uses for their estimates.

Cowboy: Twelve percent is a huge cut of my retirement! Twelve percent is a huge cut of anyone's retirement!

Economist: An assurance or other business selling annuities has to invest in bonds, do the actuary work, and take the risk that population live longer than expected. There are real costs.

Economist: This is why white males often earn low returns with collective Security: males don't live as long as females.

Cowboy: Aren't hidden assurance companies going to give less per month to women since women live longer?

Economist: In a free store actuarial system, white women will receive less per month. Did you every see the whole of women compared to men in a retirement home?

Cowboy: I don't see privateers emphasizing that women will receive less in these brochures.

6. What if we don't want population to buy annuities?

Economist: If we don't want population to buy annuities when they reach 65 and retire, many population will outlive their savings - and collective welfare will end up paying.

Cowboy: But what if some population have sufficient money, say ,000,000 in the bank and won't be a burden to the rest of us?

Economist: A man with ,000,000 in the bank should not become a burden to us - assuming they don't gamble it away in Vegas or on risky stocks, but there are other reasons for production everybody buy an annuity.

Economist: Suppose you were sick when you retire at 65, and the doctor told you five years was the most you had to live. Would you buy an annuity?

Cowboy: No, I would live off my savings for five years and leave the rest to my family.

Economist: Right, you would do this avoid leaving your money to an assurance company. But if everybody who was likely to die soon did this?

Cowboy: Only the very healthy population would buy annuities.

Economist: In economics, this is known as "adverse selection."

Economist: But what if you were sick and the government made you buy an annuity?

Cowboy: I would go to the assurance company, bring my curative reports, and say, I am sick and going to die. You will have to pay me less, so I want to pay you less.

Economist: Exactly, assurance companies will start screening population and profiling people. Health assurance companies want healthy clients who have lower curative bills. In contrast, annuity companies want unhealthy clients because they can stop production the monthly payments when the client dies.

Cowboy: It sounds a bit macabre to me.

Economist: We could want a one-rate for everyone, which would eliminate this costly screening and profiling.

Cowboy: Isn't that what collective safety already does?

Economist: There is also another qoute with inheritability and requiring everybody to buy an annuity at 65.

7. Throw Yourself From the Train at 64 and your family can inherit.

Economist: Suppose you are in the hospital at age 64, a few days short of your 65th birthday.

Cowboy: If I die before I am 65, my family gets to inherit, while if I die on my birthday or later, I get the annuity for a few days - a few dollars.

Economist: That is a rather strong incentive to die before you are 65.

Cowboy: I am strongly, but not absolutely, against suicide, but if one is very ill and my family can inherit - it's something to think about. If it were a matter of a few days, I might stop curative treatment early.

Economist: By dying a few days earlier, you could give your family a few extra hundred thousand dollars. What if it were a few weeks, a few months, or a year?

Cowboy: It does not seem right at all. What if we changed the age to 66?

Economist: Then you would have the same qoute at 66: die before your 66th birthday or lose money.

Cowboy: In increasing to being macabre, it does not seem fair. Some population would get to leave an patrimony and others would not. What if man threw mamma from the train, as in the movie?

Economist: I do not think or wish to imply that privateers are in favor of throwing population from trains. It's an unintended consequence. I don't even think that most privateers are liars, just good at political bullshit.

The Free eBook can be read online at http://www.socialsecuritybullshit.com and covers the following topics:

- Introduction - family Values and Paris Hilton

- Free money for families and claim the moral high ground of family values

- Transition Costs - Paying Double

- The cost of risk

- African-Americans and the cost of annuities - The assurance company's cut

- What if we don't want population to buy annuities?

- Throw Yourself From the Train at 64 and your family can inherit

- All or Nothing Fallacy: Privatization or Bankruptcy

- False Analogies

- The false analogy that what is good for an private is good for everyone: The Fallacy of Composition

- Free Lunch - Just eliminate wasteful government programs

- If wasteful government spending could be cut, it could also be cut to save the current collective safety system

- Corporate bonds and starving the beast (government)

- Let's All Get Rich in the Stock Market

- Diminishing Marginal Productivity: Diminishing Profits

- Regression to the mean and other hazards of using past trends

- Money is a veil

- You can save money, but you can't save most goods. You can't carry your retirement on your back to avoid burdening future generations.

- Aliens (foreigners, not space aliens) will buy our stock and yield our goods

- Appeals to Authority and Personal Attacks

- gift only selective facts. Half the story.

- The magic of compound interest is not interest and is not magic.

- Less Government is best Generalization

- More option is best Generalization

- option has more crusade costs

- Using charts to make collective safety look bankrupt

- Big Scary Numbers

- Privatization is all the time best generalization. Privatize the entire government?

- Individuals make best venture decisions than government: requires divorce of government (social security) and stock market.

- The externality of having your mother-in-law live with you.

- Gaming the principles and Bailing Out the Stock store Losers

- rights with no assurance discourages entrepreneurial risk taking.

- Growing our way out of the problem.

- Taxophobia

- You have no legal rights to collective Security. Scare Tactics

- Leave if you want - but certify you won't be a burden. The glossy Slope.

- Leave if you want - but pay your share of the transition costs before you leave.

- The use and misuse of polls. everybody wants more for less.

- The use and misuse of opinions and forecasts: trying to have it both ways

- The Current collective safety System: the worst principles except for all others?

- Ten Point Summary

Read the entire eBook for free today at http://www.socialsecuritybullshit.com

Copyright 2006 by Steve Baba.

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