## Tuesday, May 10, 2005

### When right-wing wankers do math, it's not a pretty sight.

It's hard to believe that members of the right-wing wankersphere could take exception to Paul Krugman's latest article that explained (with really simple numbers and arithmetic and everything) how Commander Chimpy's proposed Social Security cuts are skewed mightily towards the uber-wealthy but, there it is.

What is it with wankers and math? What is so difficult about this? I mean, I like some good intellectual discourse as much as the next person but, really, there's only so much you can take of,"No! No! Two plus two doesn't equal four! Stop saying that, you big meanie!" I mean, Jesus, what does it take for these people to understand things like addition and fractions and percentages, fer Chrissake? As examples, let's follow a couple links and document the atrocities so you can see what I'm talking about.

First, let's review the (apparently) contentious part of Krugman's article:

Let's consider the Bush tax cuts and the Bush benefit cuts as a package. Who gains? Who loses?

Suppose you're a full-time Wal-Mart employee, earning \$17,000 a year. You probably didn't get any tax cut. But Mr. Bush says, generously, that he won't cut your Social Security benefits.

Suppose you're earning \$60,000 a year. On average, Mr. Bush cut taxes for workers like you by about \$1,000 per year. But by 2045 the Bush Social Security plan would cut benefits for workers like you by about \$6,500 per year. Not a very good deal.

Suppose, finally, that you're making \$1 million a year. You received a tax cut worth about \$50,000 per year. By 2045 the Bush plan would reduce benefits for people like you by about \$9,400 per year. We have a winner!

So, regarding the last two folks -- Mr, \$60K and Mr. \$1M -- let's remember those values, shall we, in preparation for the mathematical idiocy we're about to encounter.

First, we have a commenter to this site, Tim Worstall, who writes:

Well, I dunno Paul. Assume a couple of things (hey, this is a blog post, not a position paper), like you collect SS for 15 years (Age 65-80...not absurd). So \$6,500 a year is \$97,500 in total. Looking at this calculator, how much do you need to save over 40 years in order to have that \$97,500? At a 5% return (I don’t think that Krugman’s numbers are correcting for inflation, so the investment figures don’t need to. 5% including inflation is well within the numbers for likely returns that Krugman himself has given us before.) it looks like you have to save \$63.41 a month, or \$760 a year.

Why, yes, let's make some thoroughly unworldly assumptions, shall we? Let's first assume that, if Mr. \$60K were to get a windfall of \$1,000 per year, why, he'd be able to invest the whole thing -- every penny of it. It's not as if \$60K is such a stunning salary that he wouldn't, perhaps, use that money to pay off credit card debts, maybe do a little home renovation, conceivably use it as a down payment on a larger family vehicle now that he has three kids and needs a second car or anything, or even for that unforeseen medical emergency for which he's almost certainly underinsured, medical insurance in the U.S. being outrageously expensive and all.

Heck, no, suggests Mr. Worstall, Mr. \$60K would naturally immediately be able to invest it and get a 5% return on his investment. Apparently, Worstall knows something the rest of us don't -- where to get a guaranteed, risk-free 5% return on investments as small as \$1,000. Good for Mr. Worstall -- perhaps he'd like to share that information with the rest of us in the reality-based community.

(And, as I've written on previous occasions, if the right-wing wankersphere knows where to get this kind of guaranteed 5% return, a simple solution would be shift all of Social Security into that fund, wouldn't it? But when you suggest this, the somewhat-stunned response you get is typically something like, "Well, you can't ... uh, I mean ... you see, it doesn't ... Hey! Look at the bright shiny thing!" Indeed. Onward.)

But let's simplify things to where even Mr. Worstall might be able to understand it. Ignore entirely the possible returns on investing. Look simply at the numbers. In the case of Mr. \$60K, his \$1,000 per year tax advantage is, on a yearly basis, more than offset by his reduction of \$6,500 per year in Social Security benefits. Please tell me you understand that -- that \$6,500 is a larger value than \$1,000. This is not a deep observation, really. It requires you only to see that, whatever slow, careful gains Mr. \$60K makes because of his tax cut is rapidly clawed back at six and a half times that rate once he retires and starts to collect SS. Can we all agree on this? Please, dear God, don't make me explain how 6,500 is larger than 1,000, OK?

And what about Mr. \$1M? Well, according to the indisputable figures provided by Krugman, Mr. \$1M nets an extra \$50,000 per year due to tax cuts but, upon retirement, he takes only a \$9,400 annual hit in his benefits. See how that works? Mr. 1M's annual benefits loss is less than one-fifth of his annual tax cut windfall. Proportionally, if you combine these two observations, Mr. 1M's advantage over Mr. 60K is over thirty-fold, comparing ratios. Now, is it any wonder that Krugman can say that this scheme benefits the rich?

But, wait. We're not done here.

If Mr. Worstall is simply dense, one of the commenters on his site is really, truly, unspeakably stupid. I refer to "Pat", who writes:

Krugman Mangles The Numbers Again--Updated!

This is what passes for deep thinking on the left:...

Sigh. As I've written before, the only way you can get away with snark is if you're right. If you do snark and you're wrong, you just end up looking like an asshole. Kind of like Pat, who continues with one of the most breathtakingly inane justifications for Bush's plan. Try to believe that someone actually wrote the following regarding Krugman's piece:

Atrios finds this incredibily smart and witty (and it probably is compared to most of what Atrios posts). But there is a simple and obvious fallacy to Krugman's analysis, and that is that there is no reason to consider the tax cuts and social security benefit cuts as a package other than to use one as a club to beat the other.

The tax cuts have been passed. The social security benefit cuts have not.

That's right -- Pat suggests that it's not fair to compare the reduction in SS benefits in light of the tax cuts since, well, the tax cuts already happened and the SS stuff is still pending, therefore they can have no relation to one another.

Ignore, of course, that that very same tax cut is being used as a defense of reductions in SS benefits. Ignore that Pat, in his very next paragraph, writes glowingly of Tim's analysis which used those very same tax cuts to show how Mr. \$60K was getting a "pretty good" deal. And ignore the fact that Pat himself, over here, at the hideously-misnamed "Brainster" blog, produces his own table incorporating the very same tax cuts he just described as being irrelevant to the discussion. No, I am not making any of this up. Follow the links, and gaze in awe on mathematical stupidity and/or duplicity taken to a whole new level.

It really is something, isn't it?

Snarky afterthought: By the way, just in case you want to make an issue of these tax cuts and their relation to SS benefits, we can in fact take them entirely off the table and do one last analysis.

Ignoring tax cuts entirely, let's just compare the proportion of annual salary to proposed SS benefit cutbacks, shall we? In the case of Mr. \$60K, his annual loss in benefits of \$6,500 would represent a ratio of 10.83% of his \$60,000 annual salary where (do I really have to explain this?) a larger percentage means a proportionally larger hit you take in your benefits.

And Mr. \$1M? A million-dollar annual salary and a loss of \$9,400 per year comes out to a paltry 0.94% loss. That's right -- less than one per cent. How many different ways does one have to analyze this to see that Mr. \$1M comes out on top every time?

So, I'm begging you -- before you comment taking exception to any of the above, learn some freaking arithmetic. It's not hard. Really. Lots of children have done it.

Tim Worstall said...

Sure, I’ll agree, \$6,500 is a larger sum than \$1,000.
Good, so do I pass the arithmetic part?
What is the net present value of \$6,500 in 40 years? What discount rate are you using?
How many years does our man get his \$1,000 for? How many years does he lose his \$6,500 for? Which is larger, \$6,500x number of years or \$1,000 x number of years at NPV?
What would be a suitable rate at which to calculate his possible investment returns? Maybe US Treasury 20 years? 4.6% on May 8th this year. (Note I said before inflation as I suspect that Krugman’s \$6,500 is not adjusted for same).
So, the calculation is, which is a larger sum, \$1,000 a year for 40 years invested risk free in Treasuries at 4.6% or \$6,500 a year for the expected number of years collecting benefits?
Don’t forget, Treasuries are not really risk free, but then if the US Govt defaults on those then SS is screwed anyway. In fact, there is less risk with Treasuries than there is with Congress reducing benefits in the future...as the current discussion is showing.

As for Mr 60k and Mr 1 million. Note, please, that I did not address this, my point was solely that Krugman rejected Mr 60k’s options as a bad deal. It isn’t, it’s a good one.
(BTW, if he pays down his credit card this saves him a great deal more interest than anything else he could do with the money.)
But why does Mr 1 million get a smaller percentage cut in his SS than Mr. 60k, as a portion of his income? Well, gee, could that be because Mr 1 million gets less SS benefits as a portion of his income to start with? Umm, isn’t there a ceiling for FICA payments? Isn’t there a ceiling for benefits?

CC said...

"As for Mr 60k and Mr 1 million. Note, please, that I did not address this, my point was solely that Krugman rejected Mr 60k’s options as a bad deal."

No, he didn't -- he described it as "not a very good deal". If you're going to "quote" someone, at least do it accurately.

But I'm fascinated by your admission in the above -- that you didn't address the relative values of the two situations since, as you can read, this is precisely what Krugman was doing -- comparing them.

I'm amused how you and other defenders of the faith go to such excruciating efforts to analyze the first situation to death, yet completely ignore the second. Let's take a quick look at that, shall we?

You seem all excited about how Mr. \$60K will have ... what? A whopping one hundred and some thousand upon retirement, assuming everything goes just swimmingly. But what about Mr. \$1M?

If we don't assume any investment at all on his part, over 40 years at \$50,000 a year, he'll bank a cool two million. And, as I said, that's not even investing it -- that's stuffing it into his mattress.

Wow. Next to that, suddenly poor Mr. \$60K's situation doesn't seem like such a swell deal after all, does it? Which is precisely Krugman's point that you are so strenuously refusing to recognize.

You and the rest of the wankersphere are so desperately trying to squeeze the last drop of good news out of Mr. 60K's situation that you completely ignore Mr. 1M, and how he's just raking in the windfall with a front-end loader.

Let me present an analogy. As one member of a department, you go in for year-end review. You've worked hard, you figure you've earned a raise and, sure enough, your boss tells you that you're getting an increase of 10%.

Damn, you think, as you leave the meeting, that's all right. 10%! Hot damn. Life is good. Or at least it is until you find out that every other equally-competent and equally-productive person in the department got 20%. Suddenly, your raise doesn't look so good after all by comparison and, yes, you have the right to feel a bit miffed.

That's the comparison Krugman is making, and it's the comparison you're deliberately avoiding. You're going to haggle and obsess over investment schemes and percentages, while Mr. 1M sits there, like the elephant in the room, with his 2 million big ones.

"It's a great deal," you say, "and, by the way, pay no attention to the man with the two million dollars behind the curtain."

Talk about not seeing the forest for the trees.

CC said...

There's one more point I feel like making, since I'm just in that kind of mood and it has to do with the whole notion of "tax cuts" in general.

As most everyone knows, giving out a straight, over-the-counter tax cut means that there's just that much less revenue coming in to the government and, unless this is somehow offset elsewhere, that means less revenue to pay for things like social programs. With me so far? This is not a difficult concept.

Therefore, giving out a whopping tax cut for everyone might make them all happy for a while but, over time, you have to replace that revenue from somewhere or you will suffer. Quite simply, tax cuts are not free. They may be a reasonable thing to do if you're running a surplus but they make a lot less sense when you have a massive deficit staring you in the face.

So, should you be happy about getting a tax cut? That actually depends on whether you know that others are going to have to make up for it. That is, a tax cut for you is great if other people have to subsidize it.

As an example, really low-income folks might be grateful for a tax cut of some kind, but not if they find out that the fabulously wealthy are also getting one. It means those cuts, in a way, cancel out and, chances are, those poor folks are going to get whacked in the end with fewer government services while the rich won't give a shit. And how does this pertain to Krugman's piece? In a fairly obvious way.

The trick in pulling a good "tax cut" scam is to give the lower and middle classes enough of a tax cut to make them happy and think they've really gained something, while you quietly give the upper class a way bigger bonus -- you just don't advertise that second part, of course.

In the end, the benefit to the lower and middle classes is transient -- it seemed like a win at the time but they end up paying for it down the road anyway, while the wealthy scamper off with the lion's share.

And how do you keep the lower classes from figuring this out? Why, you give them folks like Mr. Worstall, who will delightfully baffle them with rates of return, and percentages, and treasury bonds, and spreadsheets and all sorts of nifty graphs and tables while, behind the scenes, Mr. \$1M carts off his winnings in a wheelbarrow. And the deficit increases and those poor folks are going to end up giving it all back anyway, whether they know it or not.

But hey, no problem. Perhaps they can burn Mr. Worstall's tables and spreadsheets to keep them warm.

russo said...

I am Mr. 60K and I did the math for myself. Based on AGI I only pay FICA so I recieve no tax cut at all.
I have already qualified for ful SS benifits, but still have to pay in for the benifit of others. Any reduction in 2042 or any other year is simply less money to me. Sorry not to involve complicated math. but sometimes the truth is simple.