Saturday, January 22, 2005
ECONOMIC ILLITERATES
I was on Jan Mickelson’s show yesterday discussing Social Security. In the first hour of the program, Jan interviewed Josepth Heath, a professor in the Philosophy Department at the University of Toronto. Heat, along with Andrew Potter, has just authored a new book titled “Nation of Rebels : Why Counterculture Became Consumer Culture”
Listening to Heath on Mickelson’s program, one gets a very worrisome sense of what passes for economic thought in academia these days. Early in the interview Heath let fly with this bit of reasoning:
It’s just that when everybody gets richer, it doesn’t, you know, we don’t get any bang of the buck anymore, right? Because you can’t buy a nicer house when everybody is getting richer because the people you’re bidding against for that house are just, they’ve got more money to bid for it just like you’ve got more money to bid for it. So the price of houses just goes up and up. Uh, or, you know, like houses in good school districts, right?
And a bit later:
Well, what we’re arguing in the book is that the reason happiness disappears is that basically, all of these, once you’ve covered all the basics, all the money you spend is basically, is invol, just a form of competitive consumption. You’re just bidding against other people for stuff you want. Like houses and stuff like that.
I could go on about what is wrong with, but here is challenge to readers: Can you explain what is wrong with those quotes? Do your best in the comments section.
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WILL PRODUCTIVITY SOLVE THE PROBLEM?
I got into an argument with “actus” a while back over whether increased productivity would solve the Social Security problem. I argued that it wouldn’t, to which actus replied,
If we're twice as productive, we can, with the same number of workers, provide for twice as many retirees. Snap. No demographic bomb.
The reasoning here is that if worker are twice as productive, they will earn more, since the result of higher productivity is higher wages. This will mean more in payroll taxes, since payroll taxes are a tax on wages. With more payroll taxes, it will be easier to pay benefits.
I was going to explain why increased productivity might extend Social Security’s solvency temporarily but won’t solve the problem in the long run, but then I figured, why bother? After all, we won’t be collecting more in payroll taxes since wages won’t keep pace with productivity. How do I know that wages won’t keep pace with productivity? Because actus said so:
Oh, and don't fool yourself into thinking that wages keep pace with productivity. The assault on safety nets, labor and worker's rights in this country has made sure that isn't the case. Too bad heh?
I don’t know how actus will wiggle his way out of that. But it will be fun to watch him try.
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Friday, January 21, 2005
RADIO APPEARANCE
I will be on Mickelson in the Morning at 10am Central Time today discussing the true cost of Social Security. If you live in Iowa, you can listen on AM radio 1040 WHO or 600 WMT. Otherwise, you can listen to it online after Mickelson archives it.
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Thursday, January 20, 2005
MAKING THE PERFECT THE ENEMY OF THE GOOD
Thomas Sowell has another gem of a column today (when does he not?) To wit:
Politically, the bottom line of this approach is that President Bush's plan is "not a magic bullet," in the words of Businessweek magazine. When people start talking about how this or that policy "is no panacea" or "not a magic bullet," then you know their argument is not serious.
Why don't we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet. Then we can start talking sense like adults.
If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. What is different with the private retirement accounts that the President is proposing, compared to the Social Security system as it exists now?
Read the whole thing.
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Wednesday, January 19, 2005
UNINTERESTED IN ACCURACY
In the comments section today under the post linking to my piece on Social Security, SousyHawk links to the Roger Lowenstein Social Security piece in the New York Times with the words, “For those actually interested in understanding the numbers.” Implying that I’m not interested in understanding the numbers. Well, guess I can’t argue with a good ol’ putdown, eh?
But choosing to link to Lowenstein’s piece is an odd choice since he commits the same mistake that I take reform opponents to task for in my column:
Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. [Italics added.]
Sorry, but Social Security does not face a deficit of $3.7 trillion over 75 years (nor is that what the trustees’ report says.) $3.7 trillion is the “present value” of the long-term deficit. $3.7 trillion is what the feds would have to come up with today and invest in order to cover the shortfall over 75 years in Social Security. Indeed, as I noted in my column today, the 2004 Trustees’ Report states that the shortfall “over the 75-year period is $3.7 trillion in present value.” (Page 2 of the report.)
In the 6th paragraph of his article, Lowenstein writes “After Bush’s re-election, I carefully read the 225-page annual report of the Social Security trustees.”
Did he really?
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TANNER VS. LOWENSTEIN
While we are at it, we should look at more of the paragraph in Lowenstein’s article from which I took the quote above. Here is more of it:
Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers.
There is nothing wrong with what Tanner did. (In fact, there is everything right with it.) First, eliminating the years 2004-2018 makes sense because payroll taxes collected in year 2018 will be used to pay benefits in 2018, not 2019, or 2020, or 2021, or any year after 2018. What Tanner is doing is looking at paying benefits after 2019 when the Social Security will no longer be taking in enough in payroll taxes to pay benefits. Nor is there any problem with Tanner assuming away the treasury bonds in the Social Security trust fund. Knowing Tanner as I do, when he calculates the shortfall he is looking at the Social Security crisis not from the perspective of the Social Security system but from the perspective of the taxpayers. And government bonds are only claims on future tax revenue. Nothing less, nothing more. When the Social Security system starts redeeming them in 2019, the money to pay for them will have to come from the taxpayers someway, somehow. There is really no way around that simple fact. Thus, when you look at it from the taxpayers’ perspective, the amount that they will have to come up with after 2019 is almost $26 trillion ($25.9 trillion if we wish to nitpick.) In short, Tanner gives us the truest cost of Social Security to the taxpayer.
Next, when Lowenstein complains that Tanner “ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either,” he implies that the shortfall over 75 years would be less if those things are included. That is true, but by how much less? Lowenstein doesn’t say, although I suspect that he wishes to leave the reader with the impression that if those two things were included the shortfall would shrink to “$3.7 trillion.” But I ran the numbers. Including the the good years and the trust fund only shrinks it to about $19.5 trillion.
So, either Lowenstein doesn’t know what he is talking about, or he is being deceptive. Take your pick.
. . .
AND…
In an earlier comments section, SousyHawk writes:
This is why the so-called crisis is not a "Social Security Crisis" - but a budgetary problem. If the federal government is running even keel - and solvent enough to pay debts - the bonds in the trust fund are "good", just as they were intended to be. What you're doing is bending in knots in order to say that the bonds in the trust fund shouldn't be repaid. In essence, all increases to FICA since 1983 will be for naught - and the increase put in place then will be lost to increased government spending and waste.
First, I don’t know how SH derives that I’m advocating that the “bonds in the trust fund shouldn’t be repaid” from anything I’ve written. I’ve never argued that and I never will. The reason why is pretty simple: If the government defaults on any bonds, even ones it owes itself, it would be difficult for it to ever borrow money again as every potential lender would worry that the government might default on their bonds too. And what that would do to the bond market—well, let’s not go there.
All of the bonds currently in the Social Security trust fund should and must be honored when they comes due. What I want is a reform that stops putting bonds in the trust fund and instead directs the current surplus to personal accounts. Then the borrowing that will be needed for transition costs will go into a separate fund to be repaid once the system begins taking more in taxes than it pays out in benefits in the future.
Next, the FICA increases since 1983 are already lost to increased government spending and waste. The surplus that Social Security runs each year is “borrowed” by the general fund portion of the budget, after which it is spent by the feds.
Finally, it is a bit slippery to call the Social Security crisis a “budget problem.” Ultimately it is a taxpayer problem, since it is the taxpayer who provides resources for all portions of the budget, including Social Security. Yes, if the federal government is solvent enough to pay debts that would solve the problem. What SH leaves out is how the government becomes solvent. Again, only one resource for achieving that: the taxpayers.
I’d appreciate it if the opponents of reform would stop trying to confuse the issue with talk of “trust fund assets” and “budget problems” and give it to us straight: Everything they suggest comes down to either raising taxes, cutting benefits, or some combination of both.
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NO CUTS IN BENEFITS...
...if you use the Democrats' own arguments against them. See this post by Don Luskin, especially the email from Brian Hart.
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THE TRUE COST OF SOCIAL SECURITY
It’s a lot more than $3.7 trillion.
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Tuesday, January 18, 2005
ADS YOU WON”T SEE OUTSIDE THE BELTWAY, PART III
A sign on the Metro advertising C-SPAN:
“We take you to your leaders.”
. . .
CONSERVATIVES ARE TROGLODYTES
Peter Beinart writes some great columns for the New Republic. His most recent isn’t one of them. He unpersuasively argues that the tsunami disaster shows that conservatives, in general, don’t care much about the world abroad save when American interests are involved.
The third to last paragraph has some real zingers:
None of the devastated countries threaten the United States; none are staging grounds for a conflict between the United States and a foreign power; the tragedy offers no role for the U.S. military except in delivering humanitarian supplies. And so conservatives feel compassion, as all decent people do. [Italics added]
Gee, thanks, Peter. We on the political right were real concerned about that!
But, politically, they aren't that interested. Why should they be? Sri Lanka's fate has little bearing on U.S. national interests.
Um, Sudan has little bearing on U.S. interests, but it was conservatives who took the lead on that. Since the collapse of the Cold War, Cuba no longer has much bearing on U.S. interests either. Yet conservatives have continued to show great concern for the victims in Castro’s gulag. Many on the left, if anything, have generally been apologists for Uncle Fidel.
Last thought: In a few sentences, Beinart manages to question conservatives’ compassion and comes darn close to hinting that we are jingoists. Keep that in mind the next time you hear liberals whine that the political right is questioning their patriotism.
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Sunday, January 16, 2005
IT’S OFFICIAL: SOCIAL SECURITY REFORM WILL PASS
(GO, TEDDY, GO!)
Yes, you heard it here first: Social Security reform is all but a done deal. And you have this man to thank:
The Democrats have apparently decided that the best way to defeat Bush’s reform plan is to put Ted (hic) Kennedy forward as the face of the opposition. His current efforts include a speech at the Kennedy Center on Friday and an appearance on Face the Nation this morning.
Thus begins a new feature on this blog called “Go, Teddy, Go!” This feature will update you every time the illustrious Senator from Massachusetts shows up in the news opposing Social Security reform, encouraging him to keep it up.
And I’m not joking about predicting that this means Social Security reform is a sure thing. If Kennedy is the face for the opposition to reform, then how do you spell Democratic Strategy? I-N-C-O-M-P-E-T-E-N-T. Guess Obama was too busy.
Am I being too bold in my prediction? Maybe. But when your recent track record is so damn good, you can afford to be.
Has anything ever sunk faster than the Democrats’ chances of defeating reform? Well, maybe:
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IOWA BLOGGERS ON SOCIAL SECURITY
State 29 has been blogging up a storm on Social Security. Meanwhile, over at Tusk and Talon Don Cordts has found the solution to the Social Security crisis.
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DID FEMINISM RUIN MAUREEN DOWD?
Birdnow thinks so.
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