Starving the Beast: Can it work?

Great Debates
81

**Sam, better look up “Ponzi scheme” before you misuse the term any more. The classic pyramid that Ponzi invented fails only because it runs out of new entrants to make one-time payments. SS, and whatever you have up there, does not.
**

That’s a pretty narrow definition of it. A more expansive one would be, “A program in which early participants receive money by relying on the growth of new participants who contribute money to them.”

That’s also a pretty accurate description of how SS has worked. When the program was first instituted, contributions were much lower as a percentage of income than they are today, despite the fact that many people opted in mid-way through their careers without having contributed a nickel up until that point. Over time, the contribution rate has increased to keep the fund sound, but the ‘excess’ money that was supposed to be stored in a trust fund for the coming actuarial collapse was A) insufficient, and B) spent.

The only reason the government could get away with spending the trust fund was because more people were entering the work force (or increasing their salaries with growing seniority) than were retiring. In other words, a pyramid.

As things stand today, workers entering the system now are on the wrong end of the pyramid - soon there will be no more growing revenues to pay their portion of the scheme. At that point, the whole shoddy enterprise will crash to a halt unless the SS contribution is increased dramatically - so much so that the people contributing will never get that much money back in benefits.

In Canada, SS came in in 1964. The original contribution rate was 2%, with the employer matching that. So, 4% total. My mother, for example, paid nothing in her first 15 years in the workforce. Then she paid 4% for the next 10 years. Then the rate increased to 8% total, which she paid for the next 10 years. Then it went to 12%, and finally to 16%, which she paid for the last 10 years or so until she retired.

Now, with no increase in retirement benefits in constant dollars, a new worker entering the workforce starts off paying 16% of his salary into SS. It will increase to 24% in a few years, and even that isn’t enough to keep it sound. So it will either increase again, or benefits will be cut, or the program will have to be supplemented with other taxes (also paid for by the same workers).

Now, if a person making an average income of about $45,000 pays 24% of his salary into SS, that’s $10,800 per year. Over a 40 year career, that’s a direct contribution of $432,000. The maximum benefit from the government today is about $750/mo, I believe. And that will be paid out for an average of 13 years before the retiree dies, for a total return of $113,000.

All of the rest of that worker’s money, plus all the interest it would have earned, goes towards paying the people who will be retiring for the next 20 years, who did not contribute enough to SS to pay for their own retirement.

82

Dirk Gntly: had to figure it out for myself. Very annoying.
Anyway, figures below:

GDP 1933/Debt as % of: $56,400,000,000.00 / 39.96%
GDP 1941/Debt as % of: $126,700,000,000.00/ 38.64%

GDP 1981/Debt as % of: $3,128,400,000,000.00/ 32.88%
GDP 1989/Debt as % of: $5,484,400,000,000.00 / 52.10%

So, the debt under Reagan increased by a larger percentage than under FDR in the first eight years, and as a percent of GDP it actually went down under FDR, as opposed to Reagan, where from a lower base starting percentage it went sharply higher as a percent of GDP by the time he left.

Source for GDP data: http://www.bea.doc.gov/bea/dn/nipaweb/TableView.asp#Mid

83

Gah. There was a lot wrong with my last message. I’m going to chalk it up to an extended binge of Rum and Eggnog.

While the essential conclusions are still correct, ignore most of the math. I totally neglected to consider that there is a cap on annual contributions which makes the overall contribution level much lower. (I thought that $10,800 number sounded high…). I believe the cap this year is $1,831, with the employer matching.

Hey, I was only off by about 250%. Oh, and I was also wrong about the date the Canada Pension Plan came into effect - It was 1966.

But the fact is, if you dumped $3,662 per year into an interest-bearing retirement account for 40 years, you’d get a lot more than $750/mo for an average of 13 years in return.

84

SS is a great example of the triumph of mediocrity. If there has to be a system, a much better scheme would be to require people to contribute a % of their income into a retirement account and then let them manage the investments. Of course some people would make stupid investment decisions and some would make good decisions. That would make the system “unfair” in some peoples’ eyes, and so the solution is to condemn everyone to a meager return. And of course the Pnzi nature of the current system, as San pointed out, simply represents a wholesale transfer of wealth from one segment of society to another.

For myself, I assume I’ll get nothing from SS and have made my own arrangements for retirement. I expect means testing to be introduced at some point, and that’ll dump me out of the system. If I do ending up getting something, it’ll be just a little extra icing on the cake.

85

The assumption behind the points of most of those who are in favor of the “starve the beast” scenario is that they actually want to do it.

However, if you look at what happens that isn’t the case at all. For example, there is no outcry among most of them over spending a huge amount of money that the government doesn’t have for the present war and “rebuilding” Iraq.

The argument will be made that this is for national security and all bets are off in that case. The “starve the beast” crew acts as if there is no doubt whatever that the war with Iraq strengthens our defenses against sneak attack and terrorism. To put the most charitable light on that argument, it is at least debatable. Some see it as a needless and self-inflicted drain on the treasury.

The question with regard to government spending isn’t so much the spending as it is who spends it. Money spent by Uncle Sam also goes into the economy for goods and services. The money given out in welfare is spent at Wal*Mart, Albertson’s grocery, etc. The billions spent on B-2 bombers goes to salaries and keeps a lot of prime and subcontractors in business. “Starve the beast” supporters will claim that government spending is less “productive” than private spending. Maybe so, but the assurance with which it is said is deceptive and grates on the ear.

The people who complain about government spending are often well enough off that their standard of living is little affected by the taxes they pay. They seem to be so busy carping about what they pay in taxes that they can’t even enjoy what they have.

And, one more time. the supporters of the method don’t want to starve “their” beast, only the other guy’s.

86

Well, John Mace, your post is a great example of what’s wrong with right wing/libertarian thinking on economics.
Not everyone was born with a talent for business. Making it the most prized talent in a society is a formula for poverty. Investing well over a lifetime is, as I’m sure you’ve found out, very much a full time job.
Economics is a social science, with emphasis, for me, on the social part. An affluent society allows its members a full range of opportunity, in creative, technical, physical, and business pursuits. It is the mark of an underdeveloped economy that only a small segment of the society gets to express its talents to the fullest.
We’re arriving at that point by a severe overemphasis on those of us (myself included, thank God) who have a good eye for the business opportunity. Not everyone is so blessed, and those of us who have that eye are in fact dependent on those with a talent in the creative, technical, or physical spheres for our affluence. We need them, and making their lives impossible gets us nowhere.

87

David Simmons That is a good approximation of the Starve the beast philosophy. Can you please point me to any politicians or thinkers who advocate this policy? Can you cite any web sites which do so? I asked this before of someone else, and could not get a good example. I’d like to see a single conservative, republican or any other player who advocates a “starve the Beast” attitude.

88

Not to put words into anyones mouth, but this is exactly why some people do not want to tax the s#$t out of these people.

89

Sam, Entitlements have everything to do with my raise. That $16 a month raise is from Social Security! I have no idea why you call $1100 a month “making out like bandits.”

Of course, I must admit that I did amass a fortune teaching in public schools.

My mother lives in an assisted care facility in a small town in the rural South. Her meals are prepared, her room cleaned and her laundry done. She lives in one room. It costs $2,500 a month. Her social security is less than half of that and she still has to pay for supplies and medicine.

Her maiden name is one that you would recognize and my father did well. Not knowing anymore than that, you would probably put her in the category of those who should pass on entitlements. I can assure you that she does not live in the lap of luxury.

As all of us live longer, many of the boomers are supporting aging parents.

These are some of the things that you might want to take into consideration before you paint us bloomers with too broad a brush.

I do understand your concerns about your own future. That’s why it’s important to elect officials now that will protect SS. But I have paid my dues. Pardon me while I don’t roll over and die just yet.

Pass the eggnog and rum.

pervert, sorry – I must have confused you with someone else.

90

No I can’t. I’ve heard the phrase from commentators in all of the so-called mainstream media. Maybe those who started this thread and support the idea can point to one.

I don’t believe that would-be innovators won’t innovate because they are afraid they will get rich and have to pay a lot of taxes. It didn’t stop Bill Gates and the others who started Microsoft. It didn’t stop the founders of Apple. Even in the days of the 90% surtax innovators were at it and some of them even got rich. This seems to me to be a false assumption.

91

I’ll take back the first part of my previous post. I found this byPaul Krugman with just one try using “starve the beast.”

In it there is the following: “The other doctrine is often referred to as ‘‘starving the beast,’’ a phrase coined by David Stockman, Ronald Reagan’s budget director.” It is in section 3. down the page a way. Does Stockman rate as a “politician?”

And my search also turned up quite a number of references to the term.

92

OK, please forgive me if this feels like I am picking on you. I’m not trying to. But I had this exact same conversation a page or so ago in this very thread. Those sites are all liberals caliming that conservatives are using the term. I don’t mean to sound skeptical, and I’m not doubting that someone said the phrase. But I haven’t ever heard a conservative use it in a way that I could tell what they meant by it.

Do democrats hold to a philosophy of “tax and spend”? I’m not sure they do. But to hear Republicans tell it, that’s all they Democrats talk about. This “starve the beast” phrase strikes me as the same thing. Do you have a quote from someone advocating it? Do you have another pharase that conservatives use instead? Can you point to a single use of this phrase or any other phrase which means the same thing which conservatives use?

93

FYI, here and here are some interviews with Grover Norquist, who, more than anyone else I can think of, is associated with the “Starve the Beast” philosophy. I agree that this phrase itself seems to be associated with a characterization of the philosophy by others (often those opposed to the philosophy, such as Krugman) rather than use of this phrase by the proponents of these sort of policies.

94

I didn’t listen to the radio broadcast. I will have to do that later. But I did read the Moyers interview in the first link. Thank you very much jshore.

I don’t think that he comes out very strongly in favor of “starving the beast”. I found this question quite enlightening.

I’m not sure he advocates creating a crisis. Merely finding new ways to do things. I’m certainly not defending him or his ideas. I don’t know enough about them to try that. I’m only responding to the idea that “starve the beast” is a real philosophy held by conservative types in an irresponsible way. The questions in that interview regarding child protection are quite instructive. He points out that some child protection agencies get more money the more children they have in foster care. He suggests that they adopt out those children and reduce the foster roles.

I don’t want to argue this particular policy. It is quite off topic. The point is that many programs which have thier funding cut may need their funding cut in order to find new and possibly better ways of dealing with the problem they were intended to address. I suppose this could be called “starve the beast” but it is quite a bit different from the way it has been protrayed here. In the same way that loonies on the right call abortionists murderers. It appears to be a bit of unhelpful hyperbole.

95

I don’t think that Krugman claimed that conservatives are using the term. And do you think he is lying when he says that Stockman coined the phrase?

And is he also misquoting GW here? "The starve-the-beast doctrine is now firmly within the conservative mainstream. George W. Bush himself seemed to endorse the doctrine as the budget surplus evaporated: in August 2001 he called the disappearing surplus ‘incredibly positive news’ because it would put Congress in a ‘fiscal straitjacket.’ ‘’

And US News @ World Report on Grover Norquist? “The other camp in the tax-cut crusade actually welcomes the revenue losses from tax cuts. Its most visible spokesman today is Grover Norquist, president of Americans for Tax Reform, who once told National Public Radio: ‘I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.’ And the way to get it down to that size is to starve it of revenue. ‘The goal is reducing the size and scope of government by draining its lifeblood,’ Norquist told U.S. News & World Report.”

And Irving Kristol is misquoted here? "… Irving Kristol, in his role as co-editor of The Public Interest, was arguably the single most important proponent of supply-side economics. But years later, he suggested that he himself wasn’t all that persuaded by the doctrine: ‘I was not certain of its economic merits but quickly saw its political possibilities.’ Writing in 1995, he explained that his real aim was to shrink the government and that tax cuts were a means to that end: ‘The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority – so political effectiveness was the priority, not the accounting deficiencies of government.’ ‘’

If you think that Krugman was blatantly lying in all these instances then I guess that ends it.

96

That may be largely because of landmark pieces of legislation like the Clean Air Act and Clean Water Act that were passed quite a while ago in the era when corporations had less control in the political process than they appear to today and when even Republican Presidents were working to strengthen, rather than weaken, environmental regulations.

There is a lag time on environmental issues since regulations tend to be implemented over time. The results are not instantaneous.

97

By the way, one of the things that seems to be lost in this discussion with the implication that spending cannot be controlled without drastic measures is that the federal government spending as a percentage of GDP reached a low of 18.4% in 2000. You have to go back to 1966 to find a lower percentage. (As of 2002, it was back up to 19.5% but this is still lower than what it has been over most of the last 30 or so years.) From the last Bush Sr. budget (FY1993) to the last Clinton budget (FY2001), it declined from 21.5 to 18.6% of the GDP. The highest it had reached in the last half of the 20th century was 23.5% in FY1983 (Reagan’s second budget).

See Table 1.2 in the “historical tables” section of the FY2004 federal budget for details.

98

jshore is right, and his message illustrates the only feasible way that the size of government will ever be shrunk in a politically feasible way - to simply set growth in government to be lower than the growth of the economy as a whole, and let the economy outgrow the government. And while many Republicans don’t want to admit it, the only president in recent times to achieve that is Bill Clinton. Granted, he had the help of a Republican congress and an economy that was booming because of a bubble. But he was President, so he gets the credit.

99

jshore, are those percentages that you quoted the rate of growth in government spending?

According to my Social Security letter of last week, the cost of living went up just a little over 2%.

We know that the Bush Administration has begun to cut back on funding for school programs – including No Child Left Behind and on programs for Vets. Those are just two examples that particularly irk me so I can mention them off the top of my head.

And I know there has been an increase in defense spending despite the one trillion dollars that remains unaccounted for.

What other programs are seeing such massive increases?

100

I’m surprised no one has brought up (former) Senator Phil Gramm of Texas. He often spoke of reducing government by “turning off the spigot”, which I would enterpret similarly to “starving the beast”.

Wow, you sure read a lot into my short post!:slight_smile: I’ll try to respond to your points individually:

Nope. If it were a full time job, how would anyone do their day job? If it is for you, then maybe you should try some “libertarian economics”.:slight_smile: Anyway, I’m sure you don’t actually believe this, so what point were you trying to make? Yeah, investing is hard. No reason that in a privatized or semi-privatized SS system people couldn’t put their money away into ultra-safe investment vehicles like government backed bonds or even CDs if they’re not business savvy.

I have no idea where you got that out of my post. Are you saying that privatizing SS would turn us into an underdevloped country?

You completely lost me here. You seem, in this last paragraph, to be completely contradicting everything you said before it. Maybe I’m reading it wrong. Can you clarify what you’re trying to say?