Retirement Planner: Full Retirement Age

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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Social Security Retirement By Jim Blair

With over 35 years of experience working with individuals to help them get the most out of their Social Security benefits, and a former Social Security Administrator himself, Jim Blair has developed this great Social Security Retirement Guide. Numerous companies have put their trust in Jim Blair as a consultant and seen positive results, and now these results are available to you as an individual with this guide. All you need to do is look through the guide to find the section which applies to you, and follow the steps to determine how much you are entitled to, and what kind of option will get you the best deal. Your purchase includes an instant download of the ebook The Social Security Retirement Guide, and includes access to all future editions. As soon as the guide is updated, you will be emailed so that you can keep up to date with any changes to social security rules, so you are never at risk of missing out on the money that you are rightfully owed.

Social Security Retirement Guide Overview


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2. The First National Bank Received 3 000 Inquiries Following The Latest Advertisement Describing Its 30-month Ira

The First National Bank received 3,000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper. The most recent ad in a similar advertising campaign in Massachusetts Business, a regional business magazine, generated 1,000 inquiries. Each newspaper ad costs 500, whereas each magazine ad costs 125.

State Earnings Related Pension Scheme

UK state pensions scheme introduced in 1975 and intended to be fully implemented by 1998. It originally entitled employees to 25 per cent of indexed qualifying earnings during the best twenty years of indexed earnings in a working life. The size of the pension would be within the range of a flat rate for a single person to an upper limit of 6.5-7.5 times the minimum level. contracting out was permitted, provided that a guaranteed minimum pension was paid. When reviewed in 1985, SERPS was criticized for its costs, for not targeting on the needy, for giving too large a role to the state and for discouraging private schemes. it was initially proposed then to replace the scheme with the requirement that at least 4 per cent of earnings be contributed to an occupational or private scheme to purchase an annuity subsequently this was modified to the recommendation to reduce contributions by setting pension levels lower so that they would only replace 20 per cent of employment earnings.

Personal Retirement Accounts And Social Security Reform

When the number of workers is small relative to the number of retirees, a system in which people finance their own retirement by saving and investing during their working years becomes more attractive. In varying degrees, several countries have already moved toward systems based on personal retirement accounts (PRAs). Beginning in the early 1980s, Chile shifted to a retirement system based on saving and investing through PRAs rather than pay-as-you-go. The Chilean plan was so successful that other Latin American countries, including Mexico, Bolivia, Colombia, and Peru, adopted similar plans in the 1990s. High-income countries have also moved in this direction. In 1986, the United Kingdom began allowing workers to channel 4.6 percentage points of their payroll tax into PRAs in exchange for accepting a lower level of benefits from the pay-as-you-go system. The PRA option is highly popular. Three-fourths of British workers now choose it. Other countries that now permit at least some...

LP Pension Funding Model

Several companies have learned that a well-funded and comprehensive employee benefits package constitutes an important part of the compensation plan needed to attract and retain key personnel. An employee stock ownership plan, profit-sharing arrangements, and deferred compensation to fund employee retirement are all used to allow productive employees to share in the firm's growth and development. Among the fringe benefits offered under the cafeteria-style benefits plans is comprehensive medical and dental care furnished through local health maintenance organizations, on-site daycare centers for employee children, and eldercare support for the aging parents and other dependents of workers. Many companies also provide their employees with so-called defined benefit pension plans. Under defined benefit plans, employers usually offer workers a fixed percentage of their final salary as a retirement annuity. In a typical arrangement, a company might offer employees a retirement annuity of...

Pension H2 J3

1 A replacement of employment earnings for retired persons. It can take the form of a flat rate benefit or be related to previous earnings and be arranged by a government or firm or financial institution. Pensions can be financed from an insurance fund or on a 'pay-as-you-go' principle with contributions and government grants financing the payout of benefits.

Pension fund G2

The accumulated contributions of an employer and employees of a firm, or other employing organization, which are used to finance the future payment of retirement pensions. In the UK, the largest funds are those of the long-established public corporations, major private sector firms and local governments. Pension funds since 1945 have become major institutional investors with the potential to have a great influence on the movement of share prices. pension mis-selling (G2) The sale of complicated pension schemes without explaining the full nature of the pension scheme. In the UK this led in the 1990s to many retired people having lower than expected incomes. pension scheme (G2) An arrangement to pay a regular income to a person too old or too ill to work. By the late nineteenth century, many governments realized that some provision for the elderly was needed in the twentieth century, the spread of collective bargaining brought a proliferation of private pension plans. See also Old Age,...

Retirement age J2

The age when a person finally leaves the labour force. This is mainly determined by the employment and pensions legislation of a country. In developed countries it is between 60 and 65 in socialist countries 60 for males and 55 for females in developing countries between 50 and 60 years. Uruguay has the most generous scheme men can retire after thirty years of work and women after twenty-five, receiving a pension equal to 100 per cent of the wage rate received in the five years since reaching the age of 50. Equal opportunities legislation has led to a convergence between male and female retirement ages. Before 1900, the retirement age of workers was less of an issue as life expectancy was much lower and the provision of pensions rare.

The Pensions Crisis

Many countries face a pensions crisis which will require that their pensions systems are significantly reformed. This section identifies the nature and consequences of this crisis. Once the analysis of social security is completed, we return in Section 22.9 to review a range of proposals for reform of the system in the light of this crisis. The basis of the pensions crisis is three-fold. Firstly, most developed economies have witnessed a reduction in their birth rates. Although immigration has partially offset the effect of this in some countries, there has still been a net effect of a steady reduction in the addition of new workers. The second effect is that longevity is increasing so that people are on average living longer. For any given retirement age, this is increasing the number of retired. Thirdly, there is also a tendency for the retirement age to fall. The consequence of the increase in the dependency ratio can be expressed in more precise terms by looking at the...

Patterns Of Corporate Financing And Financial Systems Convergence

With reference to the EU, therefore, a bank-orientated system could be viewed as one in which banks are the key financial institutions as regards corporate governance by virtue of being both providers of debt finance and the key institutional holders of equity, as in the universal banking system of Germany (and to some extent France Bertero, 1994). In contrast, in capital market-orientated systems the key institutional shareholders are pension and insurance funds. This is especially true in the UK, where share ownership remains heavily concentrated (see Mayer, 1994). Hitherto, the institutional shareholders in the UK have not exercised their voting rights (including proxy voting rights) as actively as the German Grossbanken (Deutsche, Dresdner and so on). The capital markets in the UK also influence management behaviour via the threat posed by aggressive mergers and acquisitions activity. In contrast, in continental Europe, unsolicited takeover bids have, at least until recently, been...

Annual percentage rate of interest

An amount of money paid annually or at other regular intervals. Major examples include life assurance premiums, pensions, rent payments and instalment payments. An annuity certain has a fixed term, unlike a perpetuity whose payments continue indefinitely (e.g. an unredeemable government stock). An annuity contingent depends on an uncertain event, e.g. the death of a person. The purchase price, or present value V, of an annuity depends on the rate of interest used in the calculation

Solutions To Text Problems

The provision of Social Security benefits lowers an individual's incentive to save for retirement. The benefits provide some level of income to the individual when he or she retires. This means that the individual is not entirely dependent on savings to support consumption through the years in retirement.

Trends In Corporate Governance

Pension funds, but financial markets are becoming increasingly important. The insurance, mutual and pension funds are, however, increasingly becoming the dominant institutional investors as pensions are progressively being privatized and banks disengage from cross-shareholdings in Japan and the EU (particularly Germany). Through the institutional shareholders, the interests of small investors and pensioners are represented and legislation can be used to encourage investors to take account of ethical and environmental considerations in constructing their investment portfolios (for example, the 1999 pensions fund legislation in the UK). corporate governance and this tendency is enhanced by their declining role as institutional investors through cross-shareholdings (particularly in Germany and Japan). Bondholders (often banks and other financial institutions), not just shareholders, are increasingly important. However, banks remain the key monitors of SMEs. Stock markets, through...

Part C Social Competition And Interdependent Preferences

Adopting a geometrical analogy, fashion is a form of horizontal competition, where contestants vie for the different, the new, and the fun-making. Positional interaction is instead a form of vertical competition, where the stakes are relative standing and rank in the social hierarchy. In his paper, ''Does Context Matter More for Some Goods than Others '' Robert Frank explores how positional competition can affect the distribution of individual resources among various activities. Not all consumption activities are equally sensitive to the social context within which their participants interact. Competing for all those goods that visibly mark difference, social standing and relative position, such as high incomes, highly paid jobs, big houses and cars, inevitably subtracts resources from goods that are less context-dependent. Expenditures for safety and health, pension savings, time devoted to leisure and to being with friends, the provision and conservation of public goods, are...

Basle Concordat on Banking Supervision G2

Bauer, Peter Thomas, 1915- (B3) A prominent development economist born in Budapest, Hungary, and professor at the London School of Economics 196083. He was created a life peer on retirement. After early field work in Malaysia and West Africa, he progressed to a general study of economic development, emphasizing the superiority of markets as a method of allocation he has long been a trenchant critic of many forms of economic aid and central economic planning and is therefore opposed to barriers to trade, investment and migration.

How He Wrote His Magnum Opus

In 1764, Charles Townsend, a leading British member of Parliament, offered Smith a handsome fee and lifetime pension to tutor his stepson, Henry Scott, the Duke of Buccleuch. They traveled to France, where Smith met with Voltaire, Turgot, Quesnay, and other great French thinkers. This Smith is an excellent man exclaimed Voltaire. We have nothing to compare with him (in Muller 1993, 15). Following the publication of his classic book, Smith was appointed customs commissioner in Edinburgh, as noted earlier. He also spent time revising his published books, lived a modest life despite his pension, and over the years gave away most of his income in private acts of charity, which he took care to conceal (Rae 1895, 437). He lived in Edinburgh for the remainder of his life.

Life the great risk shift

The Great Risk Shift extended to areas such as health care and retirement income. The one size fits all systems of single-payer health care and retirement income provision introduced in the aftermath of the Great Depression and World War II were attacked as bloated bureaucracies that crippled individual choice. Instead, it was argued, ordinary households should make their own provision for health insurance and retirement. The public sector safety net was reserved for the indigent and improvident, and soon began to fray.

The Future Of Multinational Banking

Some multinationals defy the trend, however, and remain largely un-diversified in their activities, specializing in a particular subset of banking and financial services. A prominent example is J.P. Morgan who specializes in investment banking and funds management services. Competitive pressures are polarizing the industry into specialists at one extreme and universal banks at the other. For the universal banks, conglomeration combined with consolidation is creating one-stop financial services supermarkets able to provide the full range of sophisticated banking and financial services. CitiGroup is a classic example of a financial conglomerate, where loans, risk management services, insurance, pensions, funds management and the like can be obtained from the market through the interface of a single financial services provider.

Mortgage Backed Securities

A major change in the residential mortgage market in recent years has been the creation of an active secondary market for mortgages. Because mortgages have different terms and interest rates, they were not sufficiently liquid to trade as securities on secondary markets. To stimulate mortgage lending, in 1970 the Government National Mortgage Association (GNMA, called Ginnie Mae) developed the concept of a pass-through mortgage-backed security when it began a program in which it guaranteed interest and principal payments on bundles of standardized mortgages. Under this program, private financial institutions such as savings and loans and commercial banks were now able to gather a group of GNMA-guaranteed mortgages into a bundle of, say, 1 million and then sell this bundle as a security to a third party (usually a large institutional investor such as a pension fund). When individuals make their mortgage payments on Although the size of the corporate bond market is substantially smaller...

Limitations of the agency model

Sure enough, in the midst of the latest corporate-governance disasters stand the usual feudal-baron types - such as Mr Kozlowski of Tyco, Mr Ebbers of WorldCom and Gary Winnick, the founder of Global Crossing, a bust telecoms firm. These burly ex-sports jocks get things done quickly. But they also tend to bully their boards into meek docility. The symptoms are clear egomaniacal corporate strategies and extravagant personal rewards. IBM's board recently rewarded Lou Gerstner on his retirement from the chair not with the stereotypical gold watch but with 100m-worth of company stock.

Limitations of the EMH

The ASB has recently enraged businesses in Britain with a new standard, FRS17, which will force them to disclose and recognise the full effect of pension-fund gains and losses. Companies hate the standard because it will bring the volatility of financial markets into their earnings. They have tried hard to get politicians involved, says Mary Keegan, the standard-setter's chairman, but the ASB has not come under Sir David also wants to bring in a new international standard on pensions, similar to FRS17. Like FASB, however, the IASB would be better positioned to push through high-quality standards if it did not rely on business and big audit firms for its funding. Earlier this year it was badly embarrassed by an e-mail Proper accounting for pension schemes, along the lines of FRS17, would have the same effect. The IASB is working on the recognition and measurement of intangibles, as is FASB. Again, if intangible assets are recognised on balance sheets, they will add volatility to income...

Hedge Funds And The Bull Market

Making money in the bull market was easy, so vast portions of the U.S. population got hooked on the stock market. Some of this new interest in stocks was part of a healthy and growing equity culture, in which more and more people invested in diversified stock portfolios through their individual retirement accounts (IRAs), 401(k) plans, and other investment accounts. But some of this interest was not healthy. Some people became obsessed with the stock market, even giving up their more conventional jobs to become day traders. The United States became a market-obsessed culture, in which people watched financial news on television and spent time at parties swapping stories about stocks, mutual funds, star portfolio managers, and so forth. Newspapers advertised mutual funds run by investment wizards who had compiled dazzling performance records. The financial pages became an extension of the sports pages as investors pored over the statistics, and the paychecks, of celebrated financial...

Taste of What Is to Come

Naomi was just putting on her newly laminated security pass when Clem came rushing in. Sorry to be late, he putted. I got caught up in a discussion with someone in marketing. Are you ready for lunch She certainly was. She had spent the better part of the morning going through the benefits package offered by Global Widgets and was a bit overwhelmed by the paperwork. Dental plan options, pension plan beneficiaries, and tax forms swam in front of her eyes. The thought of food sounded awfully good.

Hedge Fund Managers and Clients

A hedge fund brings together three very different types of individuals and organizations. First, there are the individuals and organizations who invest in the fund. These are the owners of the assets. This category covers a wide range, including high-net-worth individuals, large pension funds and endowments, and others. Second, there is the manager of the fund, who buys and sells securities on behalf of the owners of the asse ts. This category also covers a wide range, all the way from small firms managing a few million dollars to large organizations managing billions of dollars. Third, there is a category of financial intermediaries, which includes small and specialized firms, as well as financial powerhouses like Goldman Sachs, Morgan Stanley, Merrill Lynch, and others. These firms deliver a broad range of financial services, many of which are indispensable for the hedge fund manage r. And the hedge fund manager has become an increasingly important client of these firms.

After the zombies rethinking the experience of the twentieth century

The sharp decline in stock market values, which are still below the levels of a decade ago, has eaten away the life savings of many workers. More fundamentally, it has undermined the idea of a shareholding democracy. The promise that most households would have sufficient financial wealth, earning good returns, to be capable of financing their own retirement, has not been fulfilled.

Individual Versus Institutional Investors

Individual investors are real people. In the case of hedge funds, these people will generally be wealthy individuals who comprise the so-called high-net-worth market. The assets that they own fall into two categories taxable assets and tax-exempt assets. The tax-exempt category has become increasingly important over the years as individual investors have taken advantage of individual retirement accounts (IRAs), 401(k) plans, 403(b) plans, and other forms of tax-advantaged investing. But the most important institutional investors are the large tax-exempt institutions pension funds, endowments, and foundations. Pension funds are funds formed by employers to make sure that the employer will be able to pay the retirement benefits it has promised to employees. For example, the General Motors pension plan is a pool of assets designated for the payment of benefits to current and future retirees. These assets are owned by a legal entity separate from General Motors...

Forced Labor in Soviet Industry

More than 20 million people had been lost in the war, not counting the millions of war invalids and physically handicapped. The government had to establish orphanages and create pensions for the tens of millions of invalids and widows. The prewar social order had been torn apart by the loss of life, the millions of children without parents, and the deterioration in living standards. Social ties collapsed, and criminality and banditry were rampant. The population continued its wartime mentality, although the enemy had been vanquished, and the rhetoric of the cold war created the image of a new enemy, American imperialism. The armed forces continued to occupy a special position of authority. Society remained to a great extent mobilized, and the idea of a new peacetime society only slowly entered the consciousness of people. Many problems continued to be resolved by coercion and force, requiring an iron hand to restore order.

Banking With A Single Currency2

An important segment of capital market business is the fund management industry, pension funds or mutual funds. As Tables 4.3a and b illustrate for France and the United Kingdom, respectively, it is symptomatic to see the dominance of the fund management industry by local firms.4 In view of this extreme fragmentation, especially in comparison with other segments of the capital markets, what is the impact of the single currency on the fund management industry In this case too, an understanding of the main sources of competitive advantage needs to be developed. These concern the retail distribution network, the home-currency preference, research expertise and the existence of economies of scale (Kay et al., 1994). The first source of competitive advantage in the retail segment is the control of the distribution network, in the hands of local banks in several countries. Table 4.3b UK league of segregated pension fund managers, 1998 Fidelity Pensions Management

Uncontrollable factors

These refer not only to the size of population, but also to its structure. In particular the ageing of the population affects demand in many ways because older people demand more health services and pensions. This has important implications for government policy and the taxpayer.

Structure And Performance Trends In Eu Banking1

This viewpoint, however, is too simplistic. It neglects the fact that in all banking markets, traditional margin-based business is probably more competitive than ever before. In addition, banks are increasingly building on non-interest income in areas such as investment banking, brokerage, insurance, pensions, mutual funds and other collective investment product areas (to name but a few) where there are strong established operators competition, therefore, is likely to be intense in many of these areas. The simplistic argument also neglects the role of technology and the importance of new competitors. For instance, advances in technology allow banks to out-source non-core processing and other activities to scale-efficient, third-party service providers. Customer databases also make the cross-selling and delivery of new types of financial products and services more effective and profitable. Technology has promoted the development of direct banking services and so forth. Non-bank...

General Impact Of Emu On Banking And Financial Markets

The arrival of Euroland represents a watershed in EU (and global) banking. This is not only because of EMU itself, but also because of the positioning in time of EMU and concurrent market developments. The latter 'positioning' reflects the apparently successful launch of EMU closely on the heels of another major and related regulatory initiative, the SMP. EMU has helped to consolidate EU bankers' expectations towards more sustained deregulation and intensifying competition. Contemporaneous market developments embrace trends like globalization, the rise of a shareholder value culture in banking, a related drive to be more efficient, intensifying competition, needed pension reforms throughout much of Europe and, of course, technology. In this context, EMU has a potentially significant and complementary impact on an already strongly integrating and more intensely competitive banking market. Although fiscal consolidation within EMU is likely to reduce the volume of government debt...

Competitive Strategies In Euroland

The 'privatization' of government debt may help to promote the municipal bond market, which until recently has been virtually non-existent in Europe. The funding of large public infrastructure projects may transfer increasingly to the private sector. Both equity and bond financing are relevant, but bond finance is especially suited to the kind of revenue streams involved. A US-style municipal bond market might eventually emerge as a replacement for present government borrowing. The privatization of social security and pensions is also likely to boost capital markets, investment management and related wholesale banking. that during an era of reform of pensions business, such institutions may want to provide mutual fund products and equity brokerage services to their customers. One option for the smaller players might be to form strategic link-ups. Another option for these kinds of players is to focus more strongly on core specialist and niche products. The latter may also be developed...

Table 26 Summary of Recent Empirical Studies Examining the Fiscal and Macroeconomic Impact of Privatization Study

Macedo (2000) Examines the fiscal impact of the Brazilian privatization program, which raised over US 71 billion through the sale of 115 companies between 1991 and 1998. Asks whether the proceeds were used responsibly to improve fiscal situation of Brazilian government, to partially finance very large unfunded pension liabilities, to reduce net government debt or to reduce income inequality within Brazil's population.

Are Privatization Proceeds Saved or Spent

On the other hand, Macedo (2000) clearly shows that at least one country did not husband privatization revenues responsibly. He studies the fiscal impact of the Brazilian privatization program, which raised over U.S. 71 billion through the sale of 115 companies between 1991 and 1998. He specifically asks whether the proceeds were used responsibly to improve the fiscal situation of the Brazilian government, to partially finance very large unfunded pension liabilities, to reduce net government debt, or to reduce income inequality within Brazil's population. Macedo concludes that the proceeds from the Brazilian privatization program were essentially squandered. The revenues contributed to the softening of both the fiscal and external budget constraints and contributed to delaying (but not preventing)

Concentrated Benefits and Diffuse Costs

The argument in defense of the tariff was the potential unemployment of the four or five engaged in manufacturing the chin rest. A tax, even a small tax, on violins to provide a pension for the employees of the company would have failed because, although economically more efficient, it would have been entirely too obvious.

Box 52 World steel trade a case of permanent intervention

The significant government role arises for several reasons. Large integrated steel producers have very high fixed costs of plant and equipment. In many countries worker layoffs are unacceptable, and labor costs become fixed regardless of the amount of steel produced. Even in the United States, where layoffs are more common, health and pension benefits to retired union workers represent a significant fixed cost that must be met regardless of actual output. Under such cost conditions, firms are likely to continue producing even when prices fall substantially, a sign of inelastic supply. Falling profits create a strong incentive to lobby for government intervention.

The 2006 World Cup

Despite being ranked second in the world by FIFA, the Czech Republic only just made it through the qualifying rounds in play-offs. Placed in a difficult group with the Netherlands at the top, their position in the finals was never really in doubt once they reached the play-offs. They beat Norway 2-0 fairly convincingly to book a place in the finals. The Czechs face a tough group in Germany Italy (ranked 14), the USA (4) and Ghana (50). Italy has a good record in tournaments and will be hard to beat, while the USA has a good outside chance of winning, so the Czech team will have to play at the top of their game to proceed to the next round. Pavel Nedved, Europe's Footballer of the Year in 2003, came back from retirement to help the Czechs qualify and will now be the focal point of the team. With his creative influence and ability to score goals, the Czech Republic pose a strong threat upfront. Petr Cech has become one of the best keepers in the world and could potentially be one of the...

Double taxation of savings H2 Taxing both the income out of which

Douglas, Paul Howard, 1892-1976 (B3) A US economist who was taught, and much influenced, by John Bates clark at Columbia University. For most of his academic career, i.e. 1920-4 and 1927-48, he was a professor at chicago. As US Senator for illinois in 1948-66, he fought for family allowances, old-age pensions and pro-union legislation.

A flow perspective of the labour market

At all times the labour force is made up of people who are employed and those who are unemployed. However, unlike what we assumed for the sake of simplicity in previous models, the labour force never remains constant. New entrants, made up of school leavers, graduates, immigrants or people who re-enter the labour market after a temporary exit, increase the labour force. Exits because of death, retirement, or the pursuit of other interests cause it to shrink. mostly retirements

Changes in intertemporal preferences

Changes in technology and resource availabilities give rise to permanent, or sustainable, changes in the economy's growth path. Sustainable growth can also be set in motion by changes in intertemporal preferences. Our framework is well suited to trace out the consequences of such a preference change. It is convenient simply to hypothesize an autonomous economy-wide change in intertemporal preferences people become more thrifty, more future oriented in their consumption plans. In reality, of course, intertemporal preference changes are undoubtedly gradual and most likely related to demographics or cultural changes. For instance, baby boomers enter their high-saving years. Or increasing doubts about the viability of Social Security cause people to save more for their retirement. Or education-conscious parents begin saving more for their children's college years. The essential point is that intertemporal preferences can and do change and that these changes have implications for the...

National debt government or public debt

The debt is often understated since governments carry various liabilities which do not show on their balance sheets. For example, public-sector pensions are usually unfunded, that is, paid out of current income rather than from a reserve created during the individual's working life as happens with private-sector pensions.

Social capital and operational issues

Decade at least, the public sector's regulators have increasingly been shying away from responsibilities for the delivery of social sector services such as health, education, welfare and pension schemes. Arguably, there is now renewed interest in understanding if not addressing the challenges that globalization brings for governments and governance in general (see European Commission 2003).

Consumers persons and households

Cooking facilities. e Consumer sector and personal sector. These terms are generally used interchangeably and are usually defined to include households and individuals owners of unincorporated businesses non-profit-making bodies serving individuals private trusts and private pension, life insurance and welfare funds. e Private consumption. The same as personal consumption since, by national accounts definition, companies do not consume. But businesses invest, so private (personal plus business) investment is different from personal investment. e Total consumption. Personal (private) consumption plus government consumption.

Personal income disposable income

Personal income is current income received by the personal sector from all sources. The bulk is wages and salaries, but the total also covers rents (including the imputed rental value to owner-occupiers of their homes), interest and dividends (including those received by life insurance and pension funds), and current transfers such as social security benefits paid to persons and business donations to charities.

Setting Price to the Last Clearing Price

Example 2 demonstrated that some markets cannot sustain sufficient installed capacity (ICap) to prevent market failure. In these markets, as long as market clearing is assured, there is so much ICap that prices and short-run profits are too low to cover the fixed costs of the installed generation. Retirement of older plants and load growth will ensure that, in equilibrium, ICap is low enough that for some fraction of the time demand will exceed supply at any price. During these times the system operator is forced to set a regulated price, which, if properly selected, will be high enough to cover the fixed costs of the optimal quantity of ICap.

After The First World

The scene in Austrian economics after the war was rather different from what it had been before. Bohm-Bawerk had died in 1914, Menger, who even in his long seclusion after retirement used to receive visits from the young economists at the university, died in 1921. Although Wieser continued to teach until his death in 1926, the focus shifted to younger scholars. These included particularly Mises, the student of Bohm-Bawerk, and Hans Mayer, who succeeded his teacher Wieser to his chair. Mises, although an 'extraordinary' (unsalaried) faculty member at the university, never did obtain a professorial chair. Much of his intellectual influence was exercised outside the university framework (Mises 1978 Ch. ix). Other notable (pre-war-trained) scholars during the 1920s included Richard Strigl, Ewald Schams and Leo Schonfeld (later Illy). In the face of these changes the Austrian tradition thrived. New books were published, and a new crop of younger students came to the fore, many of whom were...

Changes in the Labor Cost Situation

The two-tier system has been criticized as leading to animosity between workers at the two pay levels. Those on the lower tier are likely to resent being paid less than other workers who do the same work, solely on the basis that the latter were employed before a particular date. The upper tier employees may worry that management will have an incentive to refrain from promoting them or to push them into early retirement so that they can be replaced with lower-paid colleagues.

Adjustment Of Depreciation Accounts

According to the Federal income-tax laws, any gain on the retirement of a property is taxed as a capital gain. However, losses cannot be subtracted from the taxable income unless the maximum expected life was used. Because of the losses involved when a property must be retired before the end of its estimated service life, some concerns prefer to use a combination of methods 2 and 3 indicated in the preceding paragraph. A special depreciation reserve is built up by continuing the book depreciation of properties whose actual service lives exceed the estimated service lives. This fund is then used to handle losses due to early retirement of assets. The final choice of method for adjusting depreciation accounts depends on the accounting policies of the individual concern and on income-tax regulations.

Why the Minimum Wage Got the Maximum Shaft

This time around, Republicans in the House of Representatives enthusiastically supported the Democratic initiative for a 1 increase in the minimum wage to 6.15 an hour, phased in over two years. The GOP dropped its insistence on tying the minimum wage bill to the repeal of the estate tax and overhaul of pension laws, both of which passed as separate bills.

Consumer and personal expenditure private consumption

Consumer expenditure is personal (mainly household) spending on goods and services. Thus it includes imputed rents on owner-occupied dwellings the outlays which would be required to buy income in kind and administrative costs of life insurance and pension funds. It excludes interest payments the purchase of land and buildings transfers abroad all business expenditure and spending on second-hand goods, which reflects a transfer of ownership rather than new production.

Malthus and the population principle

7 An Englishman, Thomas Paine (1737-1809) moved to America in 1774, and there published an essay, Common sense (1776), which constituted one of the immediate intellectual foundations of the Declaration of Independence of the United States emigrating to France, in 1792-5 he became a member of the Convention, opposing Robespierre. In the Rights of man (1791) he supported, among other things, a progressive fiscal system to finance subsidies to poor families and old-age pensions, and extension of the right to vote to all adult males.

Financial Institutions

We can repeat the same kind of story for other patterns of asset endowments. One individual might have an endowment that provides a steady stream of payments and prefer to have a lump sum, while another might have a lump sum and prefer a steady stream. For example, a twenty-year-old individual might want to have a lump sum of money now to buy a house, while a sixty-year-old might want to have a steady stream of money to finance his retirement. It is clear that both of these individuals could gain by trading their endowments with each other.

International comparisons

As far as definitions are concerned, the calculations depend on the treatment of consumer durables, private pensions and life insurance payments, social security, household interest payments, capital transfers and depreciation. Adjusting for such factors can change savings ratios by several percentage points.

The Aging of the Fleet

The effect of the required phaseout of Stage 2 aircraft on the aging question has been to hasten the removal of some old aircraft from airline fleets, but also to postpone the retirement of the re-engined or hush-kitted aircraft well into the future. A very old airframe with new or noise-adjusted engines leaves us with the controversial question of whether there is some finite limit beyond which no airframe, no matter how well maintained and inspected, should be considered safe.

Influences on household savings

Savings ratios fell in the 1980s for several reasons. There was lower inflation stockmarkets were rising in some countries higher house prices boosted personal wealth and so encouraged spending financial liberalisation made borrowing easier public pensions improved and the population was ageing (older people save less).

Brief Overview Of Trends In The Uk Us And Japanese Financial Markets

At the same time as banks have been diversifying into other areas of the financial services marketplace, however, other institutions have simultaneously been diversifying into areas which were hitherto the exclusive preserve of banks. Following the deregulation associated with the 1986 Building Societies Act, for example, UK building societies were able to offer unsecured loans, credit cards and money transmission services as well as life and general insurance, unit trusts (mutual funds) and so on. The recent 1997 Building Societies Act has removed most of the remaining restrictions on building societies' activities. More recently, insurance companies such as Standard Life and the Prudential have obtained banking licences, as have a number of large supermarkets and retailers. Furthermore, relatively new 'non-financial' entrants into the financial services marketplace, such as Virgin and Marks and Spencer, are now offering a range of financial services such as credit cards, unit...

William Stanley Jevons 183582

Born in Bermondsey (London) in 1842, Marshall was seven years younger than Jevons. He was educated at the Merchant Taylor School, where he gained a taste for mathematics he subsequently completed the Cambridge Mathematical Tripos in 1865 as second wrangler (second in the first-class honors list), thereby securing a Fellowship at St John's College. He then gradually switched to the moral sciences, concentrating on economics from the early 1870s. His first book, Economics of Industry (1879, 2nd edn. 1881) was written jointly with his wife (a former student, whom he had married in 1877). That same year he privately published material on pure theory (Marshall, 1975b 1879 ). After holding academic positions at Bristol and Oxford, in 1884 Marshall became Professor of Political Economy at Cambridge. He retired in 1908, when his student Pigou (discussed below) succeeded him. Marshall's major book, Principles of Economics, appeared in 1890 (eighth, definitive, edition in 1920 reprinted in...

In the fourth edition

As a matter of some interest, however - although of no consequence for my economic analysis -1 sought to explain why the quality and quantity of Walras's work diminished. The most probable explanation I could think of was that his health deteriorated. In contrast, Bridel contended that the apparent worsening of Walras's health between 1890 and 1892 has probably more to do with a teaching load he found unbearable. As a matter of fact, soon after his retirement in 1892, his publishing rate went up quite drastically - hardly a sign of a sudden softening of the brain (Bridel 1998, p. 232). Bridel thereby imputed to me a diagnosis that I never made and that I explicitly disavowed when I stated that my attribution of Walras's difficulty with theoretical construction late in life to his poor health was not to suggest that Walras was then or ever became senile (Walker 1996, p. 322). Thus Walras stated that his health continued to deteriorate after his retirement and that it worsened with each...

FIGURE 107 Relative importance of different taxes 2002 Source OECD Economic Outlook 2003

Or goods and services consumed) have consistently been far more important than taxes raised from corporations. In those countries in which state pensions are generous and account for a big slice of government spending Japan, Germany, France, and Italy social security contributions are an important source of revenue.

Walrass productivity

Let us examine even more closely Bridel's contention that it is a matter of fact - as distinct, he meant, from what he wished to portray as mistruths that I concocted - that Walras's productivity increased quite drastically shortly after his retirement in 1892 (Bridel 1998, p. 232, emphasis added). Counting new writings, as is done throughout this examination, the facts are that in 1888-1892, the five years prior to 1893, Walras published a total of 147 pages of economics (and zero of other) writings, or 29.4 pages per year, and that in the next five years, 1893-1897, he published 126 pages of economics (and zero of other) writings, or 25.2 per year - that is, not a drastic increase, not a medium-sized or even a small increase, but in fact a decrease. What about Walras's contention that he was running out of mental energy in regard to his economic theorizing after 1893 Walras's output of theoretical writing was an average of 28.4 pages per year during 1888-1892. Then, after his...

Intergenerational Redistribution and Fiscal Policy

Government spending and taxing patterns often reallocate resources between people of different ages. They can also reallocate resources between people alive today and those not yet born. Laurence Kotlikoff3 has studied countries to show the net impact of spending and taxing on people of different ages. He and his colleague Willi Leibfritz have developed a method that allocates elements of government spending (e.g., on health, education, pensions) to different cohorts, or age groups, of people. They also predict how tax rates will evolve in the future, calculating rates that ensure government debt remains sustainable. Using these tax rates and assumptions about who benefits from different types of spending, they work out the balance between payments of tax and receipts of benefits over the entire lives of people born at different times, known as net taxes. In this context, by net taxes we mean the difference between tax payments and receipts of benefits due to government expenditure...

Attempts To Secure Foreign Help

The question of foreign help for Russia was, for me, the dominant theme for the next two years. I believed that Russia needed something like what Poland had received, but scaled up by a factor of four to match its much larger economy and much greater challenge. I called repeatedly for a 15 billion per year aid program to enable Russia to stabilize the currency, introduce a social safety net for pensioners and other vulnerable groups, and to help restructure industry. I thought that 15 billion per year was not too much to ask, since it was a tiny fraction of 1 percent of the income of the rich world, and a tiny fraction of the annual spending for armaments to fight the cold war. If the end of the cold war could be secured, it would amount to a minuscule and worthwhile fraction of the peace dividend. portant political backing, but the headline figures for Russian aid were hyped. Too little aid came in a form useful for supporting budgetary needs like pensions and medical services. Much...

Conceptual Questions

(Section 10.1) Figure 10.3 shows that the level of social benefits (e.g., unemployment benefits, retirement benefits, and income support) varies hugely across countries. Why might this be so Consider whether differences in the degree of inequality of pre-tax incomes might be a factor.

Productivity Lag And The Growth Of Music Festivals

Bruno Frey has pointed out that the growth of summer music festivals, especially notable in Europe, can be regarded as both a response and an offset to productivity lag.15 He argues that music produced at summer festivals such as Salzburg in Austria, Glyndebourne in England, or Wexford in Ireland has enjoyed cost advantages over music produced in the conventional home venues of opera companies or symphony orchestras for several reasons. First, festival labor costs usually do not include labor overhead items such as retirement benefits, health insurance, and vacation time that are paid by the artists' permanent employers. Second, they are not hampered by the union and or government restrictions that often burden production in the home venue. The first of these advantages would make for a lower level of costs at festivals, the second for a slower rate of cost increase.

Issues In The News

How do I know this It's in bold type in the top right-hand corner of his Web log, where Ping keeps a daily tally of his progress. He's one of more than 150 bloggers, mostly 22 to 35, who have adopted an open-source approach to personal finance. In stark contrast to their parents' generation, for whom comparing incomes can be awkward, if not downright taboo, bloggers list financial information down to the dollar in retirement, brokerage, and savings accounts. They recommend investments, decry credit-card debt, and wallow together over high taxes.

Box 91 Mergers acquisitions and takeovers hold the phone

From the perspective of the home country, we raised the concern that host countries have the opportunity to tax MNC income first, which reduces the tax benefit to the home country. For many developing countries, there is a benefit from being able to impose a corporate tax on enterprises that keep books and are subject to financial audits, conditions that may not hold for domestic enterprises. Nevertheless, host countries complain that MNCs are able to shift income out of their jurisdiction to avoid taxation, too. For example, suppose a US MNC finances the expansion of an affiliate by borrowing from a subsidiary in the Cayman Islands rather than selling shares of stock to pension funds in New York. The affiliate's reliance on debt financing means that it deducts the interest payments from its income to be taxed in the host country. The interest payment is received in a tax-haven country where that subsidiary pays no tax, and in some circumstances the parent MNC may even avoid paying a...

C A Tax on Individual Wealth

How much accumulated capital would be taken by the tax depends on the concrete data and the valuations of the specific individuals. Let us postulate, for example, two individuals Smith and Robinson. Each has an accumulated wealth of 100,000. Smith, however, also earns 50,000 a year, and Robinson (because of retirement or other reasons) earns only 1,000 a year. Suppose the government levies a 10 annual tax on an individual's wealth. Smith might be able to pay the 10,000 a year out of his regular income, without reducing his accumulated wealth, although it seems clear that, since his tax liability is reduced thereby, he will want to reduce his wealth as much as possible. Robinson, on the other hand, must pay the tax by selling his assets, thereby reducing his accumulated wealth.

Think globally act locally

So what is a new personal economic plan that works One where I don't have to live on sticks and nuts foraging in the outback, a life where I still have DSL and a good cup of coffee in the morning Where I don't have to bet my retirement account on the global casino that already sucked much of my 401K away with the dotcom crash Think globally, buy locally may be a catchy bumper sticker, but it works in practice as well. How do I help keep my economy local and contribute to the kind of world I want to live in How do I walk the path of sustainability in every part of my life including work, investing and buying the necessities in life Here are five ways I'm exploring to contribute to a sustainable local and world community.

Should Social Security Be Privatized

Individual accounts in addition to those in the trust fund. This option has advantages and disadvantages similar to those of option 2 and may provide more funds to individuals at retirement. However, some increase in taxes would be required to fund these accounts. State and local governments and the federal government, like private employers, have also set up pension plans for their employees. These plans are almost identical in operation to private pension plans and hold similar assets. Underfunding of the plans is also prevalent, and some investors in municipal bonds worry that it may lead to future difficulties in the ability of state and local governments to meet their debt obligations.

Keep Uncle Sam Out of the Investment Business

Market has blessed Americans, individually or through retirement accounts, with gains in excess of 20 percent for the last four years running. Consumer confidence is high. By and large, consumers approve of the job President Clinton is doing and would prefer that the first priority of government be to do no harm. What a plum it would be for a scandal-plagued president who governs on the basis of public opinion polls to be able to tell Americans that their retirement savings system is on sound footing.

Gores Social Security Fix Isnt a Fix or Secure

That's what Vice President Al Gore would have you believe. He called the idea of allowing individuals to invest 2 percent of the 12.4 percent payroll tax in private retirement accounts part of a plan put forth by Republican presidential candidate George W. Bush a catastrophe that would put individuals at the mercy of a volatile stock market. Opinion polls suggest that workers overwhelmingly would prefer to invest their own Social Security taxes instead of the government. Yet labor unions, ostensibly in the interest of protecting their rank and file, are as opposed to privatizing Social Security even carving out a small piece for personal retirement accounts as they are to granting permanent normal trade relations to China. By giving workers access to capital, it would turn Marx upside down, says Jos Pinera, president of the International Center for Pension Reform. There was something of a to-do a year ago when it became known that some large labor unions wrote a letter to the chief...

Figure 31 Privatization in OECD countries by main industrial sectors 1 includes electricity gas and water p provisional

Unfunded pension liabilities from the SOE to the government. By far the more difficult process is operational restructuring, which involves selling off or closing down unproductive divisions of an SOE, reconfiguring the company's manufacturing process, changing suppliers and customers, and most painful of all, laying off redundant workers. Since we saw in chapter 2 that one of the distinguishing features of government ownership is massive (and deliberate) overstaffing of state enterprises, there is frequently a need to make significant staff reductions in firms that are slated for privatization. But who should do the restructuring the divesting government or the new private buyer Early advice from the World Bank Nellis and Kikeri (1989) was that governments should restructure SOEs prior to divestment, since governments are better able than private owners to cushion the financial blow to any displaced workers by using unemployment or pension payments. Government-led restructuring can...

The Inevitable Bankruptcy of the Socialist State

Socialism teaches that a higher standard of living may be attained if the state owns and operates the means of production and distribution. To prove its case a Socialist government must continually spend more money to do more things for more people. Appropriations for welfare are increased. Subsidies for renters as well as home owners tend to grow ever larger. More money is spent for public housing. Social Security, Medicaid and Medicare payments grow larger. Pensions and scholarships rise while qualifying conditions for all of these are made easier. Wages are increased. Hours are shortened. Fringe benefits are liberalized. There are more holidays, longer vacations and earlier retirement. The state must do all this to try to show that the people live better under Socialism than under free enterprise.

State of the Economy

Demographics pose a further challenge, and not only for Gli Azzurri. On the positive side, labour force participation is increasing, and working age has been extended. But the low birth rates which, like the high household savings rate, are probably a function of uncertainty surrounding the job outlook, are a burden, particularly for the state sponsored pay-as-you-go pension scheme. At 106 , the debt-to-GDP ratio is among the highest in the developed world, and has stopped declining.

The Internet Comes to Wall Street

Pension plans provide income payments to people when they retire after contributing to the plans for many years. Pension funds have experienced very rapid growth as a result of encouragement by federal tax policy and now play an important role in the stock market. Many pension plans are underfunded, which means that in future years they will have to pay out higher benefits than the value of their contributions and earnings. The problem of underfunding is especially acute for public pension plans such as Social Security. To prevent abuses, Congress enacted the Employee Retirement Income Security Act (ERISA), which established minimum standards for reporting, vesting, and degree of underfunding of private pension plans. This act also created the Pension Benefit Guarantee Corporation, which insures pension benefits.

John Stuart Mill and philosophical radicalism

The son of James Mill - already met as the friend who helped Ricardo in writing the Principles - and a pupil of Bentham, the young John Stuart grew up in an environment rich in cultural stimuli. Subjected by his father to a formidable educational tour de force (when three years old he began studying Greek and arithmetic), intelligent and cultivated, but also sensitive to the stimuli of Coleridge's poetry, after a period of psychological crisis which brought an end to a childhood and youth sadly lacking in human warmth and light-heartedness, at the age of twenty-five Mill fell in love with Harriet Taylor, two years younger but already married and mother to two children. John Stuart and Harriet married twenty years later, in 1851, after the death of her husband but Harriet had by then long been, and would remain until her death in 1858, an important source of inspiration for John Stuart. Like his father James before him, he worked for the Company of the Indies, with positions of...

Soviet Bureaucracy And Perestroika

Dynasty models of political succession, and has proven very stable in the few cases that it has been successfully implemented.27 The major characteristic of this system is that a voting body is appointed to determine the autocrat's successor after the autocrat's death or retirement. Like his predecessors, Gorbachev rose to Chairmanship of the Communist Party of the Soviet Union (CPSU) as the result of a Politburo vote.

Hidden Knowledge and Hidden Action

There are also plenty of examples of hidden action. The manager of a firm does not seek to maximize the return for shareholders but instead trades off her remuneration for less work effort, when it does not simply divert some profit. Firms may find most profitable to make unsafe products when quality is not easily observed. Employers also want to know how hard their workers work. Insurers want to know what care their insured take to avoid an accident. Lenders want to know what risks their borrowers take. Patients want to know if doctors do the right things or if, in an attempt to protect themselves from malpractice suits, they choose conservative medicine, ordering tests and procedures that may not be in the patient's best interests, and surely not worth the costs. The tax authority wants to know if taxing more may induce people to work less or to conceal more income. Government wants to know if more generous pension replacement rates may induce people to retire earlier. A welfaristic...

The Definition Of Capitalism Revisited

Peter Drucker (1993) has argued that Western economies are no longer capitalist, because ownership of the means of production is largely in pension funds, and the pension funds are owned by the workers, not the capitalists. However, capitalism does not necessarily involve two mutually exclusive social classes, where each individual can be unambiguously assigned to one social class or the other. It is an economic structure with two important sources of income one from ownership of the means of production, and the other from employment for a wage or salary. It has always been possible, in principle, for individuals to receive income from both of these sources. If a person receives a substantial income from both, then this may put difficulties in the way of attaching the single label 'capitalist' or 'worker' to that individual. But it does not undermine the reality of two quite different types of income, and of their underlying structural sources. Even if capitalism evolved to the extent...

Liability management G0

Life-cycle hypothesis (E2) Ando and Modigliani's theory of saving and the consumption function which recognizes that for each age group there is an associated average propensity to consume with the consequence that a change in a country's age distribution will affect aggregate saving and consumption. This hypothesis has been applied to the financing of pensions as during a person's working life saving is accumulated which is spent in retirement. A reverse life-cycle hypothesis asserts that at the beginning of one's working life there is dissaving to finance education, house purchase or consumer durables expenditure precedes saving in these cases.

Applications In Economics

These innovative people see a need and find a niche in the market By DavidYoung (Chicago Tribune) Mike Turk lost a coin toss and wound up with a thousand teak trophy bases he couldn't get rid of. So he bolted Army surplus hand grenades to them and sold them for 15 apiece as desk ornaments. Joseph Tokarski, a postal worker contemplating a post-retirement business, developed a machine to clean up Canada goose droppings.

Recollections Re a Kindred Spirit

In 1892, after a period of teaching history at Albion College, Professor Taylor joined the Department of Economics of the University of Michigan, where he was in charge of the basic course in principles, as well as of the advanced work in economic theory, until his retirement in 1929, at the age of seventy-five. He died in South Pasadena, Califor

Demographic Influences in the Life Cycle Model

Their life cycle.Most people earn low amounts in their teens and often into their twenties as they get a formal education. They then (usually) start work, and their income tends to rise as they become better at what they do and get promoted. At some point, productivity declines and earnings fall. The profile of earnings over working life depends on the work people do. Professional football players' productivity declines sharply in their 30s, but a professor of English literature might not peak until her late 50s (at which point she can understand Finnegan's Wake). The Rolling Stones' earnings seem to rise as they move into their 60s. But usually income tails off sharply as people move near or into retirement. Consumption is also likely to vary dramatically over the life cycle. Most people are single in their early adult life, during which period consumption is relatively low. However, as they become older they may have a family, with consumption increasing as a result. Eventually...

Alan Greenspan Is a Knight for All Ages

Somewhere between the reign of King William and the reign of King George, Sir Alan had a change of heart. No longer should the king's stuffed coffers be used for debt retirement, Sir Alan told members of Parliament. Relying on 10-year budget forecasts that he had previously derided, Sir Alan said the fiscal situation was so good that unless King George cut taxes, there would be no sovereign debt for the kingdom to retire in the next five years.

Public provision of Health care 1281 Efficiency Arguments

Another advantage of public provision of insurance is to achieve pooling on a much larger scale with improved risk sharing. By including every person in a nation-wide insurance scheme and pooling health insurance with other forms of insurance (unemployment, pension, etc) public insurance comes closer to the ideal optimal insurance which requires to pool all the risks faced by individuals and defining a single contract covering them jointly (with a single deductible against all risks).

Problems in Measuring Inequality

Because people can borrow and save to smooth out life cycle changes in income, their standard of living in any year depends more on lifetime income than on that year's income. The young often borrow, perhaps to go to school or to buy a house, and then repay these loons later when their incomes rise. People have their highest saving rates when they are middle-aged. Because people can save in anticipation of retirement, the large decline in incomes at retirement need not lead to similar declines in tin' standard of living. This normal life cyde pattern causes inequality in the distribution of annual income, but it does not necessarily represent true inequality in living standards.

European Central Bank and monetary policy

A credible strategy of fiscal consolidation combined with structural reform should also contribute to long-term fiscal sustainability and higher potential growth by improving supply conditions. In particular, reforms of tax-benefit systems could increase incentives to work and invest while reducing pressures on social budgets. Reforms of the pension and health care systems are urgently needed in many countries to raise labour force participation and prepare for the future fiscal costs of population ageing. Furthermore, reducing inefficient public spending can help to finance tax cuts.

How Do Interest Rates Affect Household Saving

Consider the decision facing Sam, a worker planning ahead for retirement. To keep things simple, let's divide Sam's life into two periods. In the first period, Sam is young and working. In the second period, he is old and retired. When young, Sam earns a total of 100,000. He divides this income between current consumption and saving. When he is old, Sam will consume what he has saved, including the interest that his savings have earned.

The Surest Protection

Countries and give it to the old-age pensioners, whilst never of course forgetting the young and generations yet unborn And today, a large chunk of cake must be earmarked to pay off the debts we have incurred abroad. Is it surprising that politicians are inclined to run out of cake long before they run out of promises taxation Here it is the politician who decides what and how much service our families might enjoy in doctors, hospitals, the so-called comprehensive schools, universal pensions and student grants. Under the stress of crisis, politicians are now bolder in talking about selectivity in welfare, but the paltry start with a prescription charge doesn't scratch the surface. We need a transfer of several thousand millions from government expenditure back into the pockets of the individual earner. In January, the Cabinet went into a sort of trance to save perhaps one hundred millions a year in expenditure on all forms of welfare running to seven thousand, five hundred million -...

A survey of the existing system

Like the UK and Germany if they differ from our system radically. Basically, the welfare state, which is to such a large extent the legacy of Bismarck, falls in four general categories. There is first, a pension system for the old, then there is aid for people who are ill. In this latter case the American system is less generous than in many other countries, although this may be in course of modification. There is also some system for helping people who are simply poor, more often than not because they are unemployed. Finally there is a large collection of more or less miscellaneous activities such as, to quote one from the daily newspaper, making efforts to prevent killer whales from sharply reducing the population of seals and sea otters.2 Let us take these programs up one at a time starting with the old age pension problem. In order to explain that, I would like to produce a little mythical account of a mythical country. Suppose then, that there was a country in which everyone went...

Income and Payroll Taxes

The federal individual income tax base includes salaries and wages, commissions tips, earned interest and dividends, alimony, rent, and unemployment compensation. Some forms of income are not taxed, however, such as food stamps, disability retirement, and Workers' Compensation. The individual income tax at the federal level is progressive in design the tax is graduated, with six marginal rates (see Table 7.3). A single individual pays 10 in tax on the first 7,000 of taxable income, then 15 on the amount of taxable income between 7,001 and 28,400, etc. Therefore, individuals with greater incomes pay a higher percentage of their income in tax. These tax expenditures reduce the income tax base. A few of the larger items and estimated amounts of revenue loss for 2002 include deductibility of mortgage interest on owner-occupied homes ( 63.6 billion), deductibility of state and local property tax on owner-occupied homes ( 21.8 billion), child credit ( 22.2 billion), deductibility of...

Investing in Corporate Liquidations

Complex securities have existed throughout modern financial history. In the 1930s, for example, railroad bankruptcies often resulted in the creation of income bonds, which paid interest only if the issuer attained certain levels of income. In 1958 the Missouri-Kansas-Texas Railroad Company (MKT) reorganized and issued participation certificates whose only entitlement to monetary benefit consisted of the right to have payments made into a sinking fund for their retirement. Such payments were required to be made only after accumulated earnings reached a specified level as defined in the indenture. The certificates traded for years in the illiquid pink sheet market at very low prices, partly as a result of investor neglect. In 1985 MKT was merged into the Missouri Pacific Railroad Company, and the certificates were the target of a tender offer at several times the market price prevailing earlier that year.

Keynes Writes a Best Seller

Many critics consider it Keynes's best book. Writing in trenchant prose, he revealed peculiar personal characteristics of the Allied leaders.3 Keynes condemned the Allies for imposing impractical and unrealistic reparations on the Germans. The defeated nations were required to pay the complete Allied costs of the war, including pay, pensions, and death benefits of troops up to 5 billion whether in gold, commodities, ships, securities or otherwise, before May 1, 1921. The existence of the great war debts is a menace to financial stability everywhere, warned Keynes (1920, 279). A pessimistic Keynes predicted negative consequences in Europe. He implied that Germany would have no recourse but to inflate her way out. In a famous passage, Keynes noted, Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a...

The Problems Inflation Raises

Inflation is an invisible tax that redistributes income. Rising prices take real purchasing power away from those whose money incomes rise less rapidly than the prices they pay and redistribute it toward those whose money incomes rise faster than the prices they pay. As a rough generalization, those on fixed incomes, such as old-age pensioners and college professors, are heavily taxed by inflation. During this era, highly organized union workers felt less of its sting. For example, between 1967 and 1978 the average steelworker's income (after taxes and effects of inflation) increased 32 percent, whereas that of the average university professor declined 17.5 percent.

The Choice of Schemes of Payment

Explaining Delayed Pensions, bonuses, stock options, and the like, for example, are budget lines Wages with wages delayed, delayed in order to assure good behavior. A To keep them to the terms of their agreement. A servant who escaped received no land or cash at the end of the indenture term. The greater the total pay piled up at the end of the term the less likely would the servant be to escape. But the passage to the New World (chiefly to the Chesapeake Bay region, incidentally) was a very expensive and early payment to the servant Some decided therefore to escape anyway, though less than would have without the bonus. Pensions work the same way.

The Inflation Trap

Was empirical evidence that an increase in the rate of unanticipated inflation could generate a temporary increase in employment (a reduction in unemployment). But after a time, employment (and unemployment) seemed to settle back to a natural rate, a rate that was not basically affected by the now anticipated rate of inflation but that was, instead, dependent on structural characteristics of the economy, on such things as the flexibility of labor markets, the spatial location of employment, the skill level of particular employee groups, minimum wage and union restrictions, levels of unemployment, disability, retirement compensation, and a host of like factors. Economists came slowly to learn that no permanent and continuing increase in employment could be sustained by some optimally chosen and maintained rate of inflation.

Policy 1 Taxes And Saving

In response to this problem, many economists and lawmakers have proposed changing the tax code to encourage greater saving. In 1995, for instance, when Congressman Bill Archer of Texas became chairman of the powerful House Ways and Means Committee, he proposed replacing the current income tax with a consumption tax. Under a consumption tax, income that is saved would not be taxed until the saving is later spent in essence, a consumption tax is like the sales taxes that many states now use to collect revenue. A more modest proposal is to expand eligibility for special accounts, such as Individual Retirement Accounts, that allow people to shelter some of their saving from taxation. Let's consider the effect of such a saving incentive on the market for loanable funds, as illustrated in Figure 25-2.

The Public Debt Trap

Precisely the same logic applies, of course, to the possible repayment or retirement of an existing public debt. The participant in ordinary politics may recognize that debt retirement now will benefit the whole community in the long run, but given nonfiscally constrained democratic decision processes, there is no means of guaranteeing that debt retirement now will, indeed, have the long-term effects that are preferred.

Maturity Transformation

Holders of financial assets have differing degrees of liquidity preference. Some savers may anticipate expenses in six months or a year and hold cash balances or keep their money in short-term instruments. Those saving for retirement, on the other hand, have a longer investment horizon, allowing banks or fund managers to invest in long-term bonds or investment projects. Borrowers often have a longer time-horizon than do lenders.

Box 152 Printing the budget deficit as a route to inflation

This situation is particularly common in the less developed economies. Such countries typically have very limited private financial markets thus the government has few, if any, alternatives to borrowing from the central bank. If the Federal Reserve System does not purchase the new securities being issued by the Department of the Treasury, they can be sold to private banks, insurance companies, pension funds, and so on, in New York, but the finance ministry of the typical developing country does not have such alternatives. In addition, developing-country governments seem to have particular difficulties in controlling budget deficits. First, their economies make it difficult to collect a sizable percentage of total incomes as taxes. Much of the economy may be informal (subsistence hunting, fishing, and farming), which cannot be taxed easily. Even the market economy may be based in part on barter, which is hard to tax. When money is used, records may be incomplete, making it almost...

Opportunity Costs Of Workers Time

Living standards will also rise if a greater fraction of the population works or if those who already have jobs begin working longer hours. In either case, there will be more output to divide among the same population.7 But this increase in living standards comes at a cost a decrease in time spent in nonmarket activities. For example, with a greater fraction of the population working, a smaller fraction is spending time at home. This might mean that more students have summer jobs instead of studying, more elderly workers are postponing their retirement, or more previously nonworking spouses are entering the labor force. Similarly, an increase in average working hours means that the average worker will have less time for other activities less time to watch television, read novels, garden, fix up the house, teach his or her children, or do volunteer work.