Chronicle of the Conspiracy
Saturday, December 11, 2004HERE'S THE BEEF Reader Jill Olson has it right, when she says "You know things are going pretty good in this country (though it's the last thing they would admit) if the New York Times can waste a whole editorial on this":
Be Afraid. Be Very Afraid.I wonder if Hardee's would consider a libel suit against the Times for characterizing its product as "lethal"?
Posted by Donald L. Luskin at 1:11 PM | link
KRUGMAN SPIDERHOLE WATCH 7 Supposed conservative Joe Scarborough caves, and praises Paul Krugman's analysis of reforming Social Security with private accounts that could invest in the stock market. Is this idiot more dangerous on TV or in Congress? Nobody can say.
P.P.S. Here's something you don't hear me say every day. Read Paul Krugman's column on this subject today. He comes to the same conclusion that I do: Congress will borrow $2 trillion today to privatize Social Security and then borrow trillions more to cover American's poor investments in the future. Here's the link to his column.Who is that American he is talking about, I wonder?
Posted by Donald L. Luskin at 1:36 AM | link
Friday, December 10, 2004KRUGMAN SPIDERHOLE WATCH 6 Ever wonder how college professors pick textbooks? It ain't rocket science, apparently. Here's an email I got from Worth, the publishers of Paul Krugman's new economics textbook Microeconomics. It seems that the "adoption decision" is influenced by lottery prizes associated with filling out surveys with respect to the "adoption decision" itself.
If you responded to my email and provided feedback for ranking factors that affect your adoption decision, I just wanted to let you know how much we at Worth Publishers appreciate it. Thank you so much for your comments, time and expertise.Righty-o. One has to hope that Professor Gail Hoyt's students will "enjoy" Krugman's textbook as much as she will "enjoy" her "holiday spending."
Posted by Donald L. Luskin at 7:14 PM | link
But what about the other 40% of households that don't own stocks? How can we talk about an "ownership society" — or for that matter, how can we talk about equal opportunity — when almost half of our families are excluded from owning a stake in American enterprise?
These fundamental questions of fairness and opportunity are motivating the movement to transform the Social Security system into a program of private investment accounts, in which every working American can choose to invest in the stock market. Last year, President Bush told me that private accounts for Social Security would be his single highest economic priority in his second term. Based on the amount of political buzz it has gotten since the election, I really think it's going to happen.
Yes, it seems "radical" to think about tinkering with Social Security. Plenty of people depend on it, and it's the largest single program of the federal government. But remember, once upon a time it was even more "radical" to think about instituting Social Security in the first place.
Most people don't realize this, but the idea of Social Security in the United States began in the early 20th century as part of a resurgence of evangelical Christianity. The Social Gospel movement believed that sin was the product of poverty in the new industrial era. Its leaders, such as Walter Rauschenbusch, preached that it was the duty of the government to pave the way for "God's kingdom on Earth" by reining in the power of industry and redistributing wealth to all.
Most of the aims of the Social Gospel movement have been achieved through the secular state. Today we have everything the Social Gospelers advocated — Social Security, an income tax and government regulation of industry. I don't know about the status of sin, but we've come pretty close to eradicating poverty. Consider this: we define "poverty" so lavishly today that, in 1900, 90% of Americans lived below what we now call "the poverty line."
So now, 100 years after the Social Gospel movement, it's time to be "radical" again. And it's no surprise to see evangelical Christians leading the charge in "radical" ideas, just as they did 100 years ago. But now, instead of thinking of Social Security as a way to eradicate poverty, it's time to think of it as a way to distribute economic growth and opportunity more equally.
Today's Social Security system is, in many ways, manifestly unfair to the Americans most in need of opportunity. For one thing, by imposing a 12% tax on payrolls — half paid directly by workers, and half paid indirectly by employers — Social Security soaks up any capacity to save that lower-earning workers might have. If you're earning minimum wage, and more than 6% of your take-home pay gets sucked up by Social Security taxes, how much do you have left over to invest in the stock market — or even a bank account? The answer is: none.
Another problem is that Social Security is structured to provide the lowest benefits to the very people who probably need those benefits the most. Census data show that, on average, poor people live shorter lives than rich people, and that African-Americans have shorter lives than whites. Since you get Social Security benefits for as long as you live, that means that the poor and African-Americans effectively get fewer benefits, on average.
And perhaps most fundamentally, Social Security is unfair because it makes America's poorest citizens dependent on the whim of Congress for their retirement incomes. You don't have any property rights in your Social Security benefits — you don't "own" them. So if some future Congress decides to cut your benefits, there's nothing you can do about that. Can't happen, you say? Think again — it already has. Congress has already voted to raise the retirement age at which you can start receiving benefits.
A system of private accounts would change all that. Think of what it could mean if you could divert some or all of your payroll taxes into a personal account that you own and control. You would own your account, and no one could take it away from you. It would be yours as long as you live, and when you die you could bequeath it to your family. You could decide how to invest it — including the stock market, where you could get some real long-term growth potential.
For most of the readers of this column, much of this doesn't matter. You're already invested in the stock market. You already control your own destiny. But think of people less well-off than you. For them, Social Security private accounts would be the only way they can get a seat at the table of American opportunity.
I know all the objections — there are plenty of them. But they can all easily be refuted.
Some people worry that diverting money from today's system into private accounts would damage the system's solvency. Not true. The system is already in trouble, with future liabilities that outweigh assets and scheduled revenues by trillions of dollars. Without raising taxes or cutting benefits, the best hope is to get people to remove themselves as future liabilities of the system by choosing private accounts instead. The more people who have private accounts, the stronger the system becomes.
And some people worry that inexperienced investors would throw away their retirement security by making poor stock market investments (like betting it all on Enron). Well, with opportunity comes risk. But at the same time, it's simple enough to put boundaries on how people could invest their private accounts. The government could establish maximum levels to be invested in stocks, and require that stock investments be in the form of massively diversified and low-cost index funds.
It all sounds incredible. We've lived with Social Security as it is for so long, it's hard to imagine it changing so fundamentally. But mark my words, it's going to happen. And when it does, America will be a better place.
And by the way, in case this hasn't occurred to you, the stock market would suddenly become a pretty exciting place, too. Now that's a "radical" thought.
Posted by Donald L. Luskin at 5:52 PM | link
A MAP TO THE FARM YOU CAN BUY IN THE SKY I guess this has been around for a while, and I can't testify as to the validity of the science here, but this is a pretty cool photograph.
Through the viewfinder of his camera, Ensign John Gay could see the fighter plane drop from the sky heading toward the port side of the aircraft carrier Constellation. At 1,000 feet, the pilot drops the F/A-18C Hornet to increase his speed to 750 mph, vapor flickering off the curved surfaces of the plane. In the precise moment a cloud in the shape of a farm-fresh egg forms around the Hornet 200 yards from the carrier, its engines rippling the Pacific Ocean just 75 feet below, Gay hears an explosion and snaps his camera shutter once.Thanks to reader Duncan King for the link.
Posted by Donald L. Luskin at 11:53 AM | link
THE VIPER PIT OF ACADEME Is a noisy minority of Harvard Law School professors ostracizing their new colleague Jack L. Goldsmith because he is associated with legal advice to the CIA that could be seen as "justifying torture," or is it because he was a member of the Bush administration's Department of Justice?
Elizabeth Bartholet ’62, the Wasserstein professor of public interest law, was quoted yesterday in The Boston Globe saying that "the faculty was seriously at fault for not inquiring more deeply, prior to making this appointment, into any role Jack Goldsmith may have played in providing legal advice facilitating and justifying torture."...
Posted by Donald L. Luskin at 11:01 AM | link
LAST WORD ON THE SO-CALLED TRUST FUND Reader Jim Glass has just started his own blog -- and it's well worth a visit. Here's an extraordinarily valuable post on a paper by Kent Smetters of the Wharton School and NBER, putting to rest once and for all the matter of whether the Social Security trust fund represents real savings or not. Glass sums it up in one shocking sentence: "..the value of the accumulated Social Security surplus, represented by the Social Security trust fund, on national savings, is negative." Read the whole thing.
Posted by Donald L. Luskin at 8:57 AM | link
THE DIVERSITY CARD Reader Scott Butler has a simple but compelling argument for Social Security reform through private accounts:
The government, as a trustee of the Social Security scheme, is acting in the capacity of a fiduciary. A fiduciary, as you know, in the eyes of the law, must exercise extraordinary care when caring for the assets held in trust. This means exercising due care in selection of investments and proper diversification (not just US government bonds).
Posted by Donald L. Luskin at 8:54 AM | link
Thursday, December 09, 2004JOKE OF THE DAY
Posted by Donald L. Luskin at 11:28 PM | link
NEW MINORITY RIGHTS FOR DEMOCRATS How do you suppose senators of opposing parties divvy up the vast resources required to support the vast committee staffs maintained separately by both parties? According to The Hill, "Don Ritchie, associate Senate historian, said that between the mid-1970s and 2001, the majority party controlled two-thirds of committee resources." Now that they are in a distinct minority, though, that's no longer good enough for Democrats. "The Republicans want control over two-thirds of each committee’s resources, but Democrats have called that unacceptable. They want a 50-50 split in the 109th Congress or, at worst, a division reflecting the 55-44 GOP advantage... Frist said of his proposed two-thirds-to-one-third split, 'That’s the way it’s always been. That’s the way it’s been with a 55-seat majority.'... Democrats instituted the 66-33-percent division of resources favoring the majority party, Lott said. That was in place during the many, many years of Democratic tyranny,' he added."
Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 10:30 PM | link
WILL SOMEBODY PLEASE TAKE THE MONEY AWAY FROM THESE GUYS? I mean, really -- before they hurt themselves. First we learned that Al Gore was going to become an investment manager. Then that Rudy Giuliani was going to open a boutique investment bank. Now it turns out that Senate majority leader Bill Frist has been investing his campaign war chest in the stock market -- and he's lost so much of it that he can't repay some loans coming due.
Update... Reader Jason Nordwick adds: "How sad an indictment when your elected officials cannot even cheat properly. My confidence in politicians has been shot."
Posted by Donald L. Luskin at 9:28 AM | link
GOOFUS AND GALLANT Okay, war is hell:
U.S. special operations forces accused of abusing prisoners in Iraq warned defense intelligence personnel not to talk about the alleged mistreatment they saw, according to a government memo to a top adviser of Defense Secretary Donald H. Rumsfeld.And then there's this:
A massive airdrop of paper birds intended to promote peace failed to halt violence in Thailand's restive south, with a spate of new attacks Monday that targeted soldiers and local officials.
Posted by Donald L. Luskin at 8:29 AM | link
LIBERTARIAN PARADOX Milton Friedman notes sagely in today's Wall Street Journal that the rise of the post-war regulatory state coincided, ironically, with an intellectual trend in favor of smaller government. Institutional momentum, it seems, creates some strange paradoxes:
After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas (though no such battle is ever won permanently); we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion. That is the overriding non-defense task for the second Bush term -- as President Bush clearly recognizes.
Posted by Donald L. Luskin at 8:21 AM | link
WHY DID THE AL SHARPTON CROSS THE ROAD FOR JOHN KERRY? He got paid for it. Thanks to reader Perry Eidelbus for the link.
Posted by Donald L. Luskin at 8:15 AM | link
THE RANK ORDER OF SCUM Everyone thinks reporters are scum. But everyone also thinks that politicians and businessmen are even worse scum. That's why scummy reporters can make careers out of inventing exaggerated negative stories about politicians and businessmen. According to Editor and Publisher:
Once again, newspaper reporters score poorly in the annual Gallup Poll, released today, on "honesty and ethical standards" in various professions, as judged by the American public. They rank even lower than bankers, auto mechanics, elected officials, and nursing-home operators.
Posted by Donald L. Luskin at 8:05 AM | link
Wednesday, December 08, 2004KRUGMAN HOLDS BACK THE SOCIAL SECURITY TIDE (KRUGMAN SPIDERHOLE WATCH 5) Here's a fearless prediction: President Bush's vision of Social Security reform with private investment accounts will be enacted into law in his second term. It's in the bag.
What makes me so sure? Two reasons. First, I can see how much the liberal establishment fears it. And second, their arguments against it are utterly impotent.
Here's a case in point. On Tuesday, bellwether "angry liberal" pundit Paul Krugman dragged himself back from an urgently needed post-election mental health break to rail against Social Security reform in the op-ed pages of the New York Times. Krugman must see this as a battleground issue. But if this column is the best he can do, then he's not likely to be any more successful at using his column to turn back the tide of reform than using it to nominate Howard Dean, and when that failed, using it to elect John Kerry.
The core argument of Krugman's column is that Social Security is not in crisis, as he says the proponents of reform through private accounts claim it is. At most, Krugman argues, the system has small, distant and easily cured funding problems.
Only a liberal could argue that raising taxes by more than half a percent of GDP for a hundred years is "modest." But even at that, Krugman strongly misrepresents what is actually a dire message in the Congressional Budget Office report. Yes, the report found that the system's shortfall between the present value of its revenues and the present value of its expenditures projected out a hundred years is indeed 0.54% of GDP. But the report states -- and Krugman ignores -- the fact that this very calculation means that, even with new revenues of 0.54% of GDP injected into the system, the system will end up exhausted: "at the end of the 100 years, the balance would be large enough to authorize paying one year's worth of benefits." After that, the report projects that there would be a mismatch between revenues and expenditures of more than 2% of GDP.
Even that is all based on the idea that the assets in the Social Security trust fund -- Treasury bonds being accumulated during the current years while system revenues exceed system expenditures -- will be there to pay retirement benefits in the future. Of course those Treasury bonds represent nothing but IOU's, in essence promises by the government to pay itself. The same CBO report that Krugman cites points out, correctly, that "Those trust funds are mainly accounting mechanisms and contain no economic resources."
As I was told by David John, Research Fellow at the Heritage Foundation, Krugman's belief in non-existent Social Security Trust Fund assets is typical of the unrealistic way academic economists approach real-world problems. "It's like the old joke: How does the economist escape from a desert island? First, assume a rowboat." It's worse than that, though: "Here, Krugman is assuming a luxury yacht."
Not a very rosy picture, is it? Yet Krugman chose to cite the CBO report because at least it paints a rosier picture than the Annual Report of the Trustees of the Social Security Trust Fund. The Trustees say the trust fund will run out in 2044 -- eight years sooner than the CBO estimates. New Krugman Truth Squad member Victor Davis, writing on the Dead Parrot Society blog, notes that according to the CBO, the difference between the two reports is mostly in their underlying economic assumptions -- and CBO's are far more optimistic. CBO uses higher estimates for real wage growth, and lower estimates for inflation and unemployment, than the Trustees. How remarkable that Krugman -- perhaps the world's most relentlessly pessimistic economist, who has written for years about our "age of diminished expectations" and "depression economics" and how America is turning into a "banana republic" -- now finds it "more realistic" to look beyond "cautious projections."
This burst of economic optimism is all the more surprising considering that Krugman himself, in the past, has argued -- in his typically shrill style -- that the Social Security system is in crisis. For example, he wrote in the New York Times in 1996,
If there is no crisis -- as Krugman claims now -- then what motivates those who seek Social Security reform through private accounts? Krugman says,
But whom, exactly, are these destroyers that Krugman is talking about? As Krugman Truth Squad member Jon Henke points out on the Q and O blog, Krugman himself once wrote in his Times column, "There is a case for reforming Social Security; there is even a case for privatization."
Social security policy experts have even longer memories. Economist Eric Engen, resident scholar at the American Enterprise Institute, reminded me that President Clinton's hand-picked Advisory Council on Social Security spent three years investigating reform options, and in 1997 recommended to Health and Human Services Secretary Donna E. Shalala two different plans involving private accounts -- plans which received the endorsement of the majority of the Council's members.
The best Krugman can do is pretend there's no crisis -- and impugn the motives of anyone who disagrees with his deeply conventional liberal wisdom. Because he has no defense against the best arguments for Social Security reform with private accounts.
The reality is that, crisis or not, the present system is inadequate and unfair. It denies Americans choice, control, and property rights in their own retirement savings. It sucks up the entire savings and investment capacity of tens of millions of lower-income Americans. It has a terrible implicit rate of return, compared to even the worst market investments. And it is unfair to minority members whose life expectancies are lower, and thus can expect fewer payments over a lifetime.
Reform of Social Security with private accounts is an issue that shows compassionate conservatism at its best. And the more the angry liberals like Krugman sputter and fume about it, the more inevitable I am convinced that it is.
Correction [12/9/2004]... Reader David Rumney noted that in the original posting I had stated that the difference between the CBO's estimate of 2052 for trust fund exhaustion, and the SSA's estimate of 2004, was six years. In fact it is eight. The posting above has been corrected.
Posted by Donald L. Luskin at 11:22 AM | link
IT'S REALLY SO SIMPLE This is why I love Glenn Hubbard. From an op-ed in this morning's Wall Street Journal, here's tax reform and health care reform all in one neat package:
We propose a simple change to tax law that would cut unproductive health spending, reduce the number of uninsured and promote greater tax fairness. For anyone with at least catastrophic insurance coverage, all health-care expenses -- employee contributions to employer-provided insurance, individually purchased insurance and out-of-pocket spending -- would be tax-deductible. The deduction would be available to those who claim the standard deduction and to those who itemize.
Posted by Donald L. Luskin at 7:47 AM | link
Tuesday, December 07, 2004SPITZER FOR GOVERNOR! I'm all for Eliot Spitzer being governor of New York as soon as possible. No need to wait for an election. Even the suspension of democracy in this case would be a small price to pay to get him out of his current position as Grand Inquisitor to the financial services industry (besides, being from California, I'm looking forward to being able to say to my New York friends, "my governor can beat up your governor" -- while visualizing Arnold Schwarzenegger terminating that whiney little drip. And besides, think of all the new opportunities for corruption that Spitzer can avail himself of in a higher executive position. Check out this letter to the editor of Business Insurance News, from an industry executive troubled by certain matters of appearances:
Speaking of "appearances," how about Mr. Spitzer's tennis pal, campaign contributor and former boss securing a 19% sweeter, all-cash deal for his company from Marsh & McLennan Cos. Inc., after Mr. Spitzer hit Marsh with a tsunami of subpoenas. Then, Mr. Spitzer's tennis buddy ends up as CEO after Mr. Spitzer says he "can't deal" with the current Marsh CEO. Later, Mr. Spitzer says it's OK for his tennis pal, now Marsh's CEO, to pay any potential fines from their contingent commissions, which Mr. Spitzer earlier alleged were ill gotten. Isn't this like the DA indicting someone for burglary and saying they can use the proceeds to cover any fines? Yeah, "appearances" do matter, Eliot, and this does not look good.Thanks to reader Jill Olson for the link, via Tigerhawk.
Posted by Donald L. Luskin at 6:22 PM | link
A FLAG FLIES AT MECCA Thomas O. Miller happened to be in the OC, so he did a pilgrimage to the Ayn Rand Institute, where he staged this impromptu flag-raising ceremony.
Posted by Donald L. Luskin at 9:18 AM | link
NPR BEATEN BY BUSH Bush's in-your-face affirmative action program at the cabinet level -- where he diabolically hires fully qualifed minority members -- continues to mess with minds on the left. Now Tavis Smiley, the talk show host on liberal NPR, has quit -- "criticizing NPR for not doing enough to reach minority listeners." He told Time magazine:
It is ironic that a Republican President has an Administration that is more inclusive and more diverse than a so-called liberal-media-elite network.
Posted by Donald L. Luskin at 8:59 AM | link
Monday, December 06, 2004WITH ALLIES LIKE THESE (2)... A French soldier goes terrorist, and it's all because he wants to do a very unFrench thing: work.
A soldier Sunday threatened to blow up a site storing about 64 tons of munitions in eastern France, leading to the evacuation of about 400 inhabitants of three villages in the Marne region.Thanks to reader Irwin Chusid for the link.
Posted by Donald L. Luskin at 8:57 AM | link
Sunday, December 05, 2004WITH ALLIES LIKE THESE... The French police are stupid enough to make it a practice to put explosives in air travellers' luggage to train their explosive-sniffing dogs. But now they have lost track of a piece of baggage with test explosives in it -- it could have flown off to any of 90 destinations.
Thanks to reader Perry Eidelbus for the link.
Posted by Donald L. Luskin at 11:38 PM | link