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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!
Friday, February 11, 2005
CLASS WARFARE WITHOUT CLASS? Matthew Schiros has some good thoughts about whether or not there are "classes" in America (and if there are not, he asks, how can people like Paul Krugman engage in "class warfare"?).To have class warfare, you have to have actual classes, and there are no classes in America. Class implies a rigid structure, with little to no mobility, and easily defined borders. Classes are created in societies where there's a substantial difference in the access to capital, with one end able to grab it effortlessly, and the other doomed to only dream of it.
America doesn't have that, that kind of absolute setup. Think for a moment, and try to place the income levels that separate classes. Who's upper class? Those who make $200,000 a year, like the Democrats seem to think? Tell that to the family of 5 with a mortgage and two kids going to college. You want to call millionaires upper class? There are so many millionaires made and lost every year that there's not enough consistency to call them a class. Aristocratic classes tend to be static, the membership not changing much over time.
More importantly, however, is that access to capital isn't just restricted to those that already have it. Sure, you'll have your conspiracy nuts who will claim that all the money in the world is owned by 14 people and 8 banks, but those are usually the same people who wear tin-foil hats. Anyone can get money in this country, be it from a bank or a private investor. There are no institutional barriers preventing the poorest man in the country from getting a loan to start up a company and make it big for himself. There might be issues of competence or credibility, but those aren't structural issues, they're related to the individual.
Which raises an interesting question -- why, then, do Democrats so vigorously cling to class warfare arguments? If Schiros is right, then such arguments shouldn't work. Now you could say that they don't work, and that's why the Democrats are a minority party. But they keep hammering away at that message for some reason, and they seem to have at least some success with it. I suspect that's because Schiros' description of classless America is not entirely true. Individuals do experience institutional barriers to advancement in their own lives. It is theoretically possible for the poorest black man to get access to the capital required to do whatever he wishes to advance himself, but it is far harder for him than for an upper middle class white who is born networked in to where the money is. The question is not one of differential potential, but the differential costs and risks individuals face pursuing that potential. Accepting that, then the question is: what is the role of government? Sadly, one major role of government is to make these institutional barriers harder to overcome. Regulation often functions that way, because rich people can pay regulatory compliance costs more easily than poor people. So what happens is that government makes the problem worse, creating a population of voters vulnerable to the class warfare appeals of politicians whose own past efforts exacerbated the problems they now promise to solve. So for me the question is not whether there are classes in America -- it's whether there are barriers to economic mobility (there are) and who can lower those barriers (not the government that put them there in the first place).
Posted by Donald L. Luskin at 9:40 AM | link
Thursday, February 10, 2005
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WASHINGTON - Sen. Edward M. Kennedy - stirring memories of ex-Gov. Jane M. Swift's state police chopper boondoggle - ordered up a taxpayer-funded $2,490 helicopter ride home to Hyannisport last May after attending events in New Bedford, records show.
The 48-mile flight to Cape Cod cost U.S. taxpayers $51.87 per mile.
The senator's chopper ride home on May 21 to his family's famed compound allowed him to avoid the late Friday afternoon traffic congestion that clogs roadways and bridges to Cape Cod during the spring and summer weekends.
Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 10:04 PM | link
PROGRESS Alert reader Michael Saltsman points out this column in the Michigan Daily by Sam Singer. Are we beginning to make an impression even on America's liberal college campuses? Maybe it's true that young people are the natural constituency for Social Security personal accounts, even given their liberal bent. Here's Singer:
[Paul] Krugman’s attempts to debunk the investor-friendly benefit system [Social Security personal accounts] have fallen decidedly short. Each week he throws up drab, scantily researched softballs, and each week his opponents hit home runs.
February has been particularly amusing for Luskin. On the first of the month he made headlines after accepting Krugman’s “6.5 percent challenge” – a trial run for any economist projecting stock markets to yield six and a half percent invest returns over the next 75 years (the earnings rate purportedly necessary to equalize the program’s transition costs). Krugman claims current growth forecasts make that scale of expansion impossible for personal savings accounts. Luskin begged to differ. Using Krugman’s own data and some simple arithmetic, Luskin shows in plain English how steady growth in profit margins (figures that often voyage with the pace of the economy) can complement predictably rising stock dividends to generate a long-term return rate of 6.4 percent – just shy of Krugman’s target, but still worthy of victory.
Krugman’s most recent piece was worse — much worse. He spent most of his time struggling to draw equivalence between diverting payroll taxes into private savings accounts and borrowing would-be gambling cash from the federal government. ...There you have it, a pearl of wisdom from one of the greatest economic minds of our time: the stock market, Krugman concluded, can be a risky venture. Think I’m oversimplifying? Read Krugman’s column - or better yet - read Luskin’s response. If you never thought you’d live to see a world-class economist lectured on the concept of opportunity costs — usually Pgs. 1-2 of an Econ.101 textbook — you’re in for a laugh. Though his patronizing tone never fades, Luskin nonetheless nails the bottom line: Electing to direct payroll taxes into investment accounts is an opportunity cost, not a personal loan...Now to be fair, Luskin does enjoy the luxury of rebuttal when constructing his arguments, and he’s never had the burden of speaking first. But still, Krugman is a New York Times columnist... The New York Times Op-Ed page is hallowed ground in the land of political commentary. Host to some of the sharpest thinkers of our time, its margins have absorbed a brain trust unmatched in the field. It makes you wonder: If Krugman can’t finish the game, who can?
Posted by Donald L. Luskin at 9:47 PM | link
SOROS -- J'ACCUSE You'd think our allies the French would be eager to award George Soros for all the money he's thrown down the Bush-bashing rat-hole. But no -- he's still up on insider trading charges there, for some fast-and-loose investing 17 years ago. Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 8:15 PM | link
VARIAN CAUGHT FIBBING IN THE TIMES Calling "Figleaf Dan" Okrent! Here's more source distortion in the New York Times that you can ignore! Earlier today I pointed to the op-ed in today's Times by Hal Varian, in which this U. C. Berkeley economics professor authoritatively dismissed the value of Social Security private accounts by citing academic research. Varian wrote,
There are much simpler ways to increase retirement savings. For example, Brigitte Madrian, from the University of Pennsylvania, and Dennis Shea, from UnitedHealth Group, have found that making enrollment in 401(k)'s the default choice for new employees increases participation rates dramatically.
Uh, well, not exactly. Thanks to an alert reader, here's a link to that paper. And here's a link to the summary of the Madrian and Shea paper when it won the Samuelson Award for finance writing. The thrust of the paper is described thus:
The research shows that after the introduction of automatic enrollment, many new employees simply accept the automatic or “default” saving and portfolio options established by the plan administrators, rather than making another, perhaps better, choice.
Okay. Varian says "There are much simpler ways to increase retirement savings." But the truth is that the research shows that Varian's "simpler" approach keeps people from "making another, perhaps better, choice." But that truth is not what got into America's former "newspaper of record."
Posted by Donald L. Luskin at 8:12 PM | link
WE RUMOR-MONGER, YOU DECIDE Sleeper cells awakened by Democratic claims that Social Security personal accounts will be a Wall Street windfall? The Associated Press reports:
BUFFALO, N.Y. — A United Airlines pilot who also flew for the National Guard told a woman that he wanted to crash a plane into Wall Street because some people made "easy money" there, court documents allege.
Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 7:58 PM | link
I'M FROM ACADEMIA, AND I'M HERE TO HELP YOU STAY POOR Here's the latest argument from the left against personal accounts in Social Security -- this one in today's New York Times, an op-ed from Hal Varian, a professor at, yes, U. C. Berkeley. Check out these examples of sheer opinion, framed as factual pronouncements from an academic "expert" --
...such accounts offer little benefit to individuals anyway: those with little income should invest in safe assets...
Oh yeah? On what stone tablet is it carved that "those with little income should invest in safe assets"? Virtually the entire voice of modern financial theory screams otherwise. Those with little income possess nothing but their human capital -- they are precisely the ones most desperately in need of diversification through the addition of risky assets to their life portfolios. And even the most basic concept of equal opportunity screams just as loudly -- don't these people, among all people, deserve a chance at higher returns?
Ah, but no. Varian can cite what some fellow academics have "found" on this subject.
There are much simpler ways to increase retirement savings. For example, Brigitte Madrian, from the University of Pennsylvania, and Dennis Shea, from UnitedHealth Group, have found that making enrollment in 401(k)'s the default choice for new employees increases participation rates dramatically.
The problem, of course, is that those with little income can't afford to contribute to their 401(k) plan, because the Social Security payroll tax has already sucked up 100% of their savings capacity. So Varian thinks he's solved that problem by tricking these unfortunate people into default enrollment in a program they can't afford to participate in? And just what are they supposed to do with those 401(k) accounts forced upon them -- invest in equities? No, because they "should invest in safe assets."
All spoken by an arrogant academic with a high income. And all presented in the Times as fact, not opinion, because (after all) it comes from a real college professor with glasses.
Posted by Donald L. Luskin at 1:27 PM | link
Wednesday, February 09, 2005
JOKE OF THE DAYPosted by Donald L. Luskin at 10:41 PM | link
DON'T STOP, JOSH! Advocates of Social Security reform should be thankful that Joshua Marshall is supplying the Democrats with their talking points on his influential Talking Points Memo blog. In fact, if Marshall hasn't already gotten or can't get funding from George Soros, we ought to take up a collection for him just to be sure he never stops supplying the enemy troops with intellectual armaments that shoots backward. Check out the latest booby-trapped bazooka from Marshall. Citing President Bush's comments to the effect that the Social Security trust funds don't represent real net economic resources of the government as a whole, Marshall says:
President Bush lays the groundwork for defaulting on almost two trillion dollars worth of US Treasury bonds, from today at the Commerce Department... It's what they're after. Just watch.
...most of President Bush's personal wealth appears to be tied up in bonds. Do his get honored? Or is he out of luck too? ...what the president said today almost certainly violates his oath of office in which he swears to "preserve, protect, and defend the Constitution of the United States."
Yes... they call it Social Security reform. But none dare call it treason! Well, Josh Marshall does, and now you can too, Mr. and Ms. Democratic congresscreature. And wait till he tells you about how the Saudi royal family is involved...
Of course what Bush says is simply an arithmetic fact. Because the Treasury bonds in the trust fund are an asset of the Social Security program but a liability of the federal government overall, their value cancels out on the balance sheet of public finance. That's not to say they don't symbolize claims on future benefits -- but those claims can be invalidated anytime congress wishes to pass a law to that effect. In fact Democratic congresses passed laws invalidating some of those claims in the 1970s (when they switched from price indexing of the primary insurance amount to wage indexing, back when prices were growing faster than wages) and the 1980s (when they raised the retirement age). So shall we round up Tip O'Neill and try him for high crimes and misdemeanors?
Keep it up, Josh. Got a PayPal account? I'll email you a couple bucks myself. Just don't ever stop. Please.
Posted by Donald L. Luskin at 8:11 PM | link
BUT THERE'S NO LIBERAL BIAS WHATSOEVER Bob Kohn nails the New York Times -- for the second time -- for their coverage of the Hillary Clinton's fund-raising scandal. For a month the "paper of record" didn't cover it at all, and now it gets a puff-piece cover-up, complete with adoring pictures of Bill and Hillary kissing. No, that's too generous. It's more than a cover-up: the Times manages to blame the vast right wing conspiracy!
Posted by Donald L. Luskin at 2:52 PM | link
A TARGET-RICH ENVIRONMENT Like the silhouettes of bad-guys popping up at the back end of a shooting range, the left's disinformation campaign about Social Security reform continues to spring new targets for us to eliminate. The latest is a set of exaggerated pseudo-statistics about the effects of indexing the primary insurance amount (the starting point for retirement benefits) to CPI inflation rather than to wage growth. This proposal has been around for years, and President Bush mentioned it among other options in the State of the Union address.
The pseudo-statistics come from a report by the Congressional Research Service, an arm of the Library of Congress (the report is not available online at this time). The latest reform opponent to quote them is the Economic Policy Institute, a leftist think-tank funded by big-labor money. EPI begins by saying "It is hard to overstate the effect of that substitution on hypothetical future benefits" -- but then proceeds to show how easy it is, just by quoting the CRS's erroneous numbers:
Under the current wage indexation, the Social Security benefit for a person with average earnings over one's lifetime and retiring in 2005 would be $15,336 per year, replacing 42% of the average worker's income. If, however, price indexing had been used instead of wage indexing, that same 2005 retiree would receive only $6,180 per year, replacing just 17% of income. In other words, as the figure shows, a change from wage indexation to price indexation would have meant a 60% cut in Social Security benefits for today's retirees.
...CRS also determined how this change would affect the elderly (people aged 65 and older) living in poverty in 2003. ...in 2003, 3.6 million elderly, or 10.2% of the noninstitutionalized elderly, lived in poverty. If Social Security benefits had been calculated using price indexation, an additional 7 million elderly would currently be living in poverty, bringing the total to 10.5 million, or 30.4% of the elderly.
There's no question that price indexing would produce slower benefit growth
than the current wage indexing scheme. When benefits grow slower, benefits in
the future are going to be lower than otherwise. Flash! That's the whole point.
But the CRS report offers unrealistic numbers based on sloppy research and false
logic.
First, CRS quantified total growth in CPI since 1940. Then they quantified total
growth in wages since 1940. They found that total CPI growth was 58% less than
wage growth from 1940-2003. So they studied the effects of a 55% reduction in
current benefits (58% for 65-year-olds, 53% for 80-year-olds) from today’s
levels.
This method contains many basic and embarrassing statistical errors. For one
thing, CRS compared the effects of price indexing of benefits since 1940, to a
baseline assumption that benefits have been wage-indexed since 1940. But
benefits were not wage-indexed in 1940. The current wage-indexing system was put
in place in 1977. Oops!
What's worse, price-indexing would have been an increase in benefits
relative to benefits in many of the early phases of the program. For example,
average real Social Security benefits actually declined in value from 1940
through 1950, because they were not indexed, and were eroded by inflation. When
wage indexation was instituted in 1977, that was one of the few periods in our
recent economic history when real wage growth was negative. Hence, during the
years surrounding the period when wage indexing was created, price indexing
would have increased benefits.
If price indexing had been in effect since 1977, we would not now be facing the
fiscal shortfalls that are projected. And far fewer of the 1983 reforms would
have been necessary to try balance Social Security’s finances. Had price
indexing been in effect, Congress might not have needed to raise the retirement
age to attain actuarial balance in 1983. But the CRS research doesn't even
consider such important questions.
CRS assumes that benefits would be 55% lower today had price-indexing been in
effect since 1940. Putting aside the invalidity of the figure, it should be
recognized that if benefit expenditures on Social Security today were 55% lower
than is presently the case, the Social Security surplus would increase by $280
billion in 2005 and Social Security would not face an actuarial imbalance going
forward. If benefits were indeed 55% lower and Social Security were sitting on a
cash excess of more than $300 billion per year, it is reasonable to assume that
some or even most of this money would be spent to keep seniors out of poverty.
Further, it is not clearly the case that price indexing would increase elderly
poverty in the future. Federal measurements of poverty are tied to purchasing
power, from which price-indexation would provide full protection. By contrast,
wage indexation in perpetuity, if it were affordable, would cause benefits to
rise much faster than necessary to protect seniors from poverty -- if that is,
indeed, the goal of all this.
Buy hey, other than that, CRS got it exactly right. So expect more and more
liberal think-tanks like EPI to let CRS's funny numbers do their thinking for
them.
Posted by Donald L. Luskin at 1:46 PM | link
Tuesday, February 08, 2005
JOKE OF THE DAYPosted by Donald L. Luskin at 5:52 PM | link
SIGN ME UP FOR SENSITIVITY TRAINING From a reader:
It is not nice to pick on Paul Krugman's size all the time. Think of how damaging it is for his self-esteem. We should try to pull Paul up and make him feel good about himself rather than him feeling hateful toward others. As a good-faith gesture, perhaps you could refer to Princeton's puny pundit as a "giant among gnomes," "the mighty mite from MIT" or the "New York Times' dwarf star."One more thing, please let us not refer to the Krugman/DeLong pairing as Master/Blaster. It denigrates the two economists and it denigrates Beyond ThunderDome.
What Paul needs is love, baby!
Peace,
Greg
Posted by Donald L. Luskin at 2:13 PM | link
Monday, February 07, 2005
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Wolcott
entirely spared me his other trademark attack technique -- that of lampooning
people for their various unattractive physical traits. This one, I must say, I
at least find some potential expository value in. I think it's highly useful in
demystifying pundits who hold themselves out as "authorities" to poke fun at
their feet of physical clay. It's useful to make people aware that Paul
Krugman is not the Olympian that his public voice would have you imagine,
but in fact is dwarfishly short, or "gnomishly handsome"
as Newsweek
once generously put it. There's even a great putdown line in All About
Eve I can quote about it, a la Wolcott.
As to Wolcott, isn't he afraid this technique will backfire? There's a reason, to be sure, why you can't find a photograph of him on his web site, but only a cartoon caricature. Perhaps the pen, unlike the camera, takes off twenty pounds. Just how many pens did it take to draw his caricature, anyway?
Extra... Don't miss James Lileks' hilarious demolition of Wolcott.
Extra, extra... But on the other hand, there is this.
Posted by Donald L. Luskin at 11:33 PM | link
REVOLUTIONARY REFORM And liberals try to say the press is conservatively biased... check out this page-one "news analysis" from the Miami Herald. The history of the vast right wing conspiracy to destroy Social Security -- ending with an attribution to Lenin: "But then, as Lenin well knew, to be a successful revolutionary, one must be patient and consistently plan for real reform."
Thanks to reader Ann Weller for the link.
Posted by Donald L. Luskin at 2:53 PM | link
NO MORE BYRDSHIT For the third time now, the Bush administration has proposed repealing the anti-free-trade Byrd amendment. Will somebody please give this administration some credit when it does the right thing on trade?
Posted by Donald L. Luskin at 2:44 PM | link
QUOTED AND NOTED I'm quoted in this entirely sensible editorial favoring Social Security reform with personal accounts in the Oakland Press.
Posted by Donald L. Luskin at 2:58 AM | link
Sunday, February 06, 2005
LAFFER HAS THE LAST LAFF Arthur Laffer, the conceptual architect of Reaganomics, says it's a beautiful world:Since...'79...OK, let's take a look at what happened to marginal tax rates. The highest rate has gone from what -- 70 percent -- down to what, 35 percent? What's happened to inflation? What's happened to regulation restrictions? What's happened to America and the world? What's happened to the stock market? What's happened to everything you and I believe in? Do you remember what unemployment rates looked like back in 1979? Do you remember what the prime was when Ronald Reagan came into office on Jan. 20, 1981? It was 21 percent...Thanks to reader Jill Olson for the link.I cannot believe how wonderful it is. When (Nobel Prize-winning economist) Bob Mundell and I sat there at the University of Chicago in 1967, '68 and '69, we dreamt of a world. That world is now. Can you imagine a world with no inflation? Everything that's happened. It's absolutely spectacular. I'm just so happy about what's happened to this world. Don't you feel that way...?
If you looked at (House Minority Leader) Nancy Pelosi and you looked at (Senate Minority Leader) Harry Reid Wednesday night, they looked really, really uncomfortable. They were running everything in 1979. They had the president, the Senate, the Supreme Court, the Fed chairman. They had every damn position in the world. They had everything -- the states, the houses, the governors. It was a Fabian redistributionist nightmare. Now it's really beautiful. I'm an old man, and old men are supposed to be curmudgeons and hate the modern day and love the ancient. But the truth of the matter is, we've won.
Posted by Donald L. Luskin at 11:30 AM | link
A SQUABBLE AMONG BIN LADEN LOYALISTS Osama Bin Laden's documentary photographer has sued Michael Moore for unlicensed usage of footage of Bin Laden fighting the Soviets in Afghanistan in the 1980s.
He said: "Now I find that Mr Moore’s film is being distributed in America and in other countries and I have received nothing."Something tells me that Moore will suddenly be as hard to find as Roger Smith. Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 11:10 AM | link