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ECU ECON 2133 - Section 3 part 1- Entitlements

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Econ 2133 1st Edition Lecture 11 BEGINNING OF SECTION 3Outline of Current Lecture PART I: EntitlementsPART II: Fiscal Policy, the Fed, Banks, and Financial Markets (not here yet)Current LectureA. Entitlements B. Fiscal policy, the Fed, banks, and financial markets A. Entitlements: payments to eligible citizens for our “social safety net” 1935 Social Safety Net in US by FDR, wanted system of social security that protected old and disabledthat guarantees income flow so they don’t face uncertainty of bad/ negative economic outcomes Social Safety Net in 3rd World Countries = children Intergenerational transfer program = social security (not private retirement fund) Social security is a social contract we have with each other- Promise we made that older generations taken care of by younger generations - When it comes time for Dr. Parker for retire, we and our children’s generation will pay for his social security - Transfers income from males to females because women live longer - Transfers income from smokers to nonsmokers because cigarettes kill smokers and thus nonsmokers collect on their social security payments - Transfers income from druggies to non druggies because of bad combos of drugs and alcoholWhen Social Security started it would be a supplemental retirement account for elderly and disabled- At beginning, life expectancy = 62- FDR sets retirement age @ 65 - Called it a “Jack Pot” program because if you could make it to 65 then you hit the jack pot! Old people started collecting while they didn’t even pay into the system - Mrs. Fuller first to collect and got over 88,000$ and only paid in 25$ - Not a lot of people will be paid after 65 and won’t even be around for too long - Most men didn’t live to see 90 let alone 65 - FDR borrowed 65 concept from Chancellor Bismarck in Germany in 1870However now life expectancy is 82- Because of childhood obesity and will cause premature death through the diseases it raises - Retirement at 67 now - Can take 75% at 62 though - Take SS at 62 then if you keep working the for every 2$ you have to pay SS 1$ (that’s a 50% TAX)- Go to 70 and you can get 100% plus bonus - Longer people live after retired the more money there needs to be put into social programsSo we got some issues: 1. Increased longevity = folks get paid much longer than they did beforeThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.So we need to increase the age eligibility (can’t keep system in balance on 145 year old way of thinking when clearly math and science shows we need to increase due to data) 2. Worker/ Retiree ratio - 1946 = 42 workers/ 1 Retiree - Promise of a 1% tax on employee and 1% employer forever (will never change) WHICH IS BS- However now if you’re self-employed you have to send 15% every quarter in addition to fed and state taxes - 1960 = 9/1- 2000 = 3.5/1- 2030 = 3/1- 2050 = 3/1- Demographic changes = zero popular growth - Need 2.2 live births/ female - Germany = 1.7- Spain = 1.2- France = 1.6 - Japan = 1.4 - And Russia is really


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