Thursday, January 10, 2013

On “Noteworthy”




The most recent report from the Congressional Budget Office (CBO) used the following language it the summary section:

The resulting rise in the projected rates of………….is noteworthy.

“Noteworthy” is an interesting word for the CBO to use. Normally, the reports don’t use words like that, so the word is, by itself, noteworthy. If I was writing the report I would have stepped it up from the CBO language. I would have used:

Holy Smokes! Look at this will ya! The country is trying to fix one problem – but the consequences of the “fix” – will be far greater than the benefits!  We’re shooting ourselves in the foot! What are these people doing??

The CBO report is a discussion of the Full Retirement Age (FRA). How could that be interesting, and why is it noteworthy? Some background.

In a few years, Social Security will (gradually) increase the FRA from 65 years, to 66. This change in eligibility has been on the books for some time, so no one should be surprised when it happens.

If you put your economics hat on for a moment, and ponder the broader implications of changing the FRA, you probably would conclude that increasing the FRA causes older people to stay in the workforce longer. That conclusion is pretty obvious, and by itself, is not noteworthy. What is worthy of note is how significant the implications of adjusting the FRA are. The CBO estimates:




Men aged 62-64 = +3%

Men aged 65-69 = +4%

Women aged 62-64 = +4%

Women aged 65-69 = +4%


If you look at these results and conclude that the 3-4% changes over a 5-8 year period is a rounding error, and not of any consequence, you would be wrong. This is a very big deal. In this case, “Holey Smokes” for me, and “Noteworthy” for the CBO, are appropriate reactions.


Put the Eco 101 hat on again, and you can immediately conclude:


Changing the FRA by just one year, will translate into a generational increase in youth unemployment.


Changing FRA will reduce upward mobility for all workers who are under 50. This will be a permanent change.


The timing of the CBO blog is interesting. The change in FRA will not happen for years, and its consequences will take years more to be felt. –  “Who cares? We have plenty of pressing stuff today; worry about this one later” - is one way of thinking about this. But actually, the CBO report is very timely and on point.

Over the next month we will (hopefully) hear some serious proposals on how to change the direction of spending and debt. The CBO sent a message to the legislators who will be crafting the “fixes”. There was no reference to the debt ceiling in the report, but the conclusions are obvious. I think what the CBO was trying to say was:

Beware of what you do with your fixes. Changing the age limits for SS and Medicare will backfire one day. You are trading an accounting problem for a social/economic problem to be. There is already a huge intergenerational transfer of wealth programed into the system with SS/Medicare. Do you really want to add to that burden?


Note: I’m quite sure that changing age limits will be part of the “fixes”. They are “painless” solutions, as the changes would not become effective for many years, and be phased in thereafter. So this is a politically cheap way of kicking the can a generation or so, and then claiming success.

I have no answer to this. I know it’s not a Platinum Coin. Nor is it 200 – 300% debt to GDP. I see that it is tempting to bend things to preserve a system today, at the expense of future generations. I also believe that some bending is necessary.

But lets not kid ourselves, we are shooting arrows at younger workers. The arrows will take years to land, but they will land, and when they do, they will hit 24 year olds.

What will come in the next few weeks will prove to be a huge pass-of-the-buck. No doubt, everyone will celebrate that result. Shooting arrows at kids who are five years old today is nothing to celebrate, even if the arrows won’t hit for another decade or two.















  1. Federal Bureaucrat says:

    Holy Smokes!!! We are gonna end up losing are free pensions and endless benefits just like our fuck up public union brethren in California!!!

    I had no issue with this stupid spending nonsense when I thought it would harm people outside the DC beltway, but the disaster has become so serious it is going to effect (gulp!) us! We the bureaucrats cannot keep our bullshit promises — and now we have to decide whether to screw over registered voters today, or screw over children and registered voters a decade hence… They are all going to be pissed at us!

    What are we going to do when these math wizards find out how much ObamaCare is going to cost them?

  2. For every action there is an equal an opposite reaction, except when the government is involved. Than it’s more like lighting a stick of dynamite.

    65 year old people will retire and go play bingo, young people without jobs will cause mayhem so the cost of the criminal justice industry will explode as they commit crimes and get sent to prison. More theft, more cops, more courts, more prisons.

    There is about 4 million people born a year so jacking up the SS age 2 years removes 8 million from getting SS checks. Most will get average checks of something like $1500 a month so $18,000 a year.
    Times 8 million people = $144 billion. Most of the savings will be eaten up by the added cost of the criminal justice industry trying to police the young while the cost of the nanny state and welfare state baby sitting unemployed or under employed young people also explodes.

    Add 8 million to the labor force and further flood the labor force with excess labor driving down wages and benefits killing tax revenue.

    Congressman diaper boy is a real financial guru, they should make him head of the finance committee, oh that’s right he already is and has no clue after being raised on reagan red koolaid. Thankfully we have financial guru’s like Klugman on the other side, ugh we are screwed.

  3. This is one post i don’t agree with.

    I feel it is ridiculous to “want” people to retire so that younger people can get their job.

    If our economy’s success is based on this notion, we are Screwed to Hell.

    Of course, with the group we have in charge now anyway, wanting to put a trillion dollar figure on a coin, we’re already screwed to hell.

    • Yes, this general sentiment is idiotic and I’m surprised that Bruce doesn’t get it. It’s the argument that there are only a fixed number of jobs so if an old person takes one than that means a young person goes without. Except that the pie isn’t fixed – that’s the whole point. The way to grow jobs is to create an environment that’s friendly to job creators, namely business, so that business wants to expand and hire people. Lower taxes, get rid of our idiotic regulatory and legal systems, stop piling health care taxes, costs etc on business, stop attacking business from the bully pulpit etc.

      Create a business friendly environment and you get more jobs and everyone is better off. This stupidity about old people taking young people’s jobs is just that – stupidity.

      Hey Bruce – why don’t you continue your argument and say that if only we reduce the retirement age to 55 the country will be flooded with jobs and wealth? Sound stupid? Well it is.

  4. theft doesn’t equal violent crime. Keep trying guys with your double talk and spin, it’s not going to make the bill go away for the 30 year ME Generation party.

  5. Whilst Bruce is correct in everything he says, and this is an excellent post which raises a very important point, it misses the key problem. The key problem is “The number of jobs is declining globally”.

    Why? Technological progress/innovation etc.
    Think of this:
    -Agricultural age – 50-200 people working on a farm; Now – 1-2 farmers + tractors + equipment.
    -Industrial age – 2000+ people in a factory; Now 50 people + computers, automation, robots etc.
    -Services age – 100’s of brokers, book-keepers, lawyers etc; Current move to online-trading, accountancy software, out-sourced legal services etc leading to gradualy erosion of these jobs
    -Future Information Age – idea that there would be 1000’s of people in the knowledge economy – reality is that technology is displacing these jobs before they’ve properly begun.

    So – world population is still growing and industrialising. people are living longer. What the f*ck are we all going to do to earn a wage?

    Answer – the politicians have NO answer and won’t even address this question. You can’t un-invent progress, and there are limits to economic growth (based on resources and demographics).

    I’m not saying we’re all doomed, but I am saying the current system is unsustainable. And if somthing is unsustainable, it will not sustain. Period. Have a Happy New Year & sorry to spoil your day.

  6. Hi Bruce,

    Was this a misprint:

    “In a few years, Social Security will (gradually) increase the FRA from 65 years, to 66″?

    Born in 1943, my full retirement age was already 66.

    From SS web site:

    “In 2012, the full benefit age is 66 for people born in 1943-1954, and it will gradually rise to 67 for those born in 1960 or later.”


    I went to school with people who became professors, lawyers and doctors. They’re all around 69-70 this year and 90% are still working. Not one of those working gets it when I say, “Isn’t it time to give your younger associates a chance?” I don’t understand how they can be so oblivious.

    Vero Beach FL
    (Happily retired since age 48 :>)

  7. When social security was enacted by FDR the average life expectancy was 64 years old. It’s now increased to 78.6. That “Saftey Net” has turned into government subsidized health insurance. Who says we don’t have National Heath Care.

    I’m 41. Myself and my peers realize that we are going to have to work for the rest of our lives. We’re struggling as a whole especially when it comes to families. When it was decided that to own a home, you need dual incomes, we got splattered. That was brilliant thinking from the generation above us. Sorta funny how many of us decided not to have families because we really couldn’t afford it. Thank God for immigration to help us out with that one.

    We are educated, many over, but we all realize that there’s no way we can ever achieve the life that we grew up with.

    So maybe your right, it was a good idea to get the statesmen retired so we could try and set in, Poblem is the world changed again. Go figure.

    • Bravo, Bob, yours is a point rarely heard. If we’re going to have automatic $ increase to match inflation, why should not the age limit track life expectancy.

  8. buffett says the 5-yr olds are the luckiest things on earth, and he’s richer than you.
    listen, if I were to bother you with a merger arb question, what email address would I use?