In yesterday’s column, I wrote:

If you have an issue with Social Security, then fix it. The regressive taxes to fund retirement benefits top out at about $117,000 in 2014. Why not simply raise that to $250,000 next year and $500,000 during the next 20 years. Congratulations, you just made Social Security solvent for the next century.

I was incorrect. Several sharp-eyed readers pointed out those numbers didn’t add up. That sent me back to a research report I was basing this on, and as it was, I had incorrectly read the data, conflating raising the cap with removing it entirely. As the Congressional Budget Office numbers show, making incomes up to $500,000 subject to the payroll-tax wouldn’t get the job done. Indeed, removing the cap would only cover about nine-tenths of the projected Social Security shortfall in the coming decades.

Any opportunity to correct myself when I make an error is an opportunity that is always appreciated. It happens to everyone all the time. But as Bridgewater Associate’s Ray Dalio has so eloquently argued, it is much better to own up to a mistake, rather than pretend it never happened, or simply hope no one notices or mentions it again in public. Bridgewater, the world’s largest hedge fund, makes this a key part of it culture and process. Some people deem this self-reflection cultish; it has also led to one of the most enviable long-term track records in investing.

Continues here

Category: Cognitive Foibles, Corporate Management, Hedge Funds, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “Be Wrong Like Ray Dalio”

  1. wally says:

    I guess I was wrong about you, Barry.

  2. ch says:

    Amen, Barry – I applaud you for your intellectual honesty…it’s refreshing.

    If I may, I would point out another potential “error” though you made that is commonly made by Wall Street and investors – not looking at systemic impacts.

    What do I mean? The only people in the economy with money to spend are the 1%. For example, YTD home sales of the top 1% of homes are up 21% y/y, the bottom 99% down 8% y/y.

    You would propose fixing Social Security by taxing the only people spending money in the US economy? Into a GDP # that was negative in 1Q and estimates are already falling for 2Q?

    And then how shall we pay for the $100T in Medicare/Medicaid that we owe Boomers?

    • willid3 says:

      and how do we know that is what is owed?

      unless we use some actuarial tables, and some just plain guesses, or ‘assumptions’ that usually end up being based on some one’s biases i dont know how we determine what is owed

      but you are correct

      most of the money is in the hands of 1%.

      who really have no incentive to spend it (after all, what do they want to buy, more houses or cars?)

      as a bank robber explained why they robbed banks

      its where the money is

    • gman says:

      Even easier..have healthcare cost in line with the rest of the developed world…if we did we could even afford the Bush tax cuts! ;o)

    • DeDude says:

      “The only people in the economy with money to spend are the 1%.”

      Exactly they are the only people with money to spend because those bastards don’t spend all the money they get – they don’t live paycheck to paycheck like normal people. So take some of their money away and give it to social security recipients (who otherwise face a 25% benefit cut), to make sure that the darn money get spend. No more freeloading from those 1%’ers – they got to live paycheck to paycheck just like the rest of us so we can keep the economy going.

  3. W T F says:

    I used the “American Academy of Actuaries has even set up a dashboard” and made one change.

    Under question “6: Increase wages subject to Social Security tax” I chose option b:

    Eliminate cap and pay Social Security tax on all taxed earnings. But calculate benefits only on earnings up to the current-law cap.

    This solves 100% of the problem.

    As Barry wrote:

    “It turns out to be surprisingly easy to numerically make Social Security very solvent.

    It’s the politics that are so challenging.”

    This change would affect me. I’m all for it.

    What about the rest of you folks?

    • Tygerrr says:

      We Boomers had this debate in 1982. Alan Greenspan ran the SS Reform Commission, whose recommendations were enacted – retire older, pay higher FICA taxes, change the CPI calculation to lower COLA increases, and build up the Trust Fund by, for the first time, restricting investment to non-marketable Special Purpose Treasury bonds. Bond redemptions were predicted to be required to pay benefits by 2002, but actually began in 2010. We Boomers have done more than our part.

      We were in the worst recession since the Great Depression (until 2008), and Greenspan urged investment income tax cuts to boost job creation. Sound familiar?

      He said at the time that the income tax cuts would be “free”, not raising annual deficits because FICA tax cash flow would replace income tax cash flow. And he told us that taxes on investment income would have to rise when bond redemption began!

      What it boils down to is that high-income American investors borrowed from lower-income American workers for 30 years, with the promise to pay us back on demand. Now they’re reneging on the deal. We should use the same means on them they’d use on us if we refused to pay a debt owed to them – call the sheriff!

      It would really clarify citizens’ understanding of government financial operations to impose a high Social Security Trust Fund Reimbursement Tax on all investment income earned other than on bona fide retirement accounts or physical business capital located in the US.

  4. CD4P says:

    “… it is much better to own up to a mistake, rather than pretend it never happened, or simply hope no one notices or mentions it again in public.”

    Um, there was that little financial mishap in 2008-09 neither political party has really owned up to (ie, no one has been prosecuted, and Jamie Dimon et al, is seemingly engaging in naked jumping jacks in Times Square in that he gets to keep all his bonuses, etc…). They did though manage to drive off the “Occupy Wall St.” movement, in a sure testament to their raw courage and infinite fortitude. Quite a way in which to dishonor veteran’s, past and present, by mistreating the legacy they left behind.

  5. gman says:

    This solution further increases the gap of the high tax burden on wages and ordinary income and low tax burden on those who make capital gains, carried interest and have offshore assets!

    • Acharn says:

      Well, the world we live in is imperfect, and politicians are fallible, so I guess the problem is that income from capital gains was such a small amount in 1935 that nobody thought to include it. The “carried interest” scam is a different thing. We need to either amend the tax code (again) or implement a new IRS rule. I don’t know the exact source of that noxious loophole (well, except for K Street lobbyists, of course). I would not advocate changing the Social Security law now to include capital gains. The way the law works now seems pretty fair to most people (except for that cap).

      • gman says:

        “Seems pretty fair to most people”..right..I could end up with a effective tax burden of north of 50% all in and Billionaire will pay 1/3 of that rate..if they don’t just hide their money offshore and pay nothing.

        The only reason it “seems fair” is that people do not understand how the truly wealthy have their income treated much more favorably than us working slobs.

  6. howardoark says:

    The only people who never make mistakes are the people who never do anything – and those people will always be your harshest critics.

  7. intlacct says:

    Social security and Medicare exist to save a semi-capitalist system, not as a threat or impediment to it.

    Treat SSI like insurance – people who have done well really don’t need it. Those who haven’t done well get some non-princely sum as is.

    It relieves a lot of social tension. Shirtsleeves to shirtsleeves in three generations. You’ll be thankful for it later. ;)

  8. Robert M says:

    Sorry was traveling to see family and I shut off reading;