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Chronicle of the Conspiracy
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Friday, March 18, 2005
WHO'S THE WANKER? Angry Leftist blogger "Atrios" nominates Joe Lieberman as "Wanker of the Day," because of his letter to the New York Times in which Lieberman asserts, totally correctly, that "every year we do nothing about Social Security's coming insolvency we add $600 billion in unfunded liabilities... Experts we've consulted at the Social Security Administration have confirmed this estimate." Atrios reproduces a section from the 2004 Annual Report of the Trustees of the Social Security Trust Funds in which the Trustee's state that "the effects of changes in data and methods more than offset this increase." So Atrios, the pseudonym for Duncan Black, an economics professor on the payroll of the Soros-backed "Media Matters" site, crows that "Between 2003 and 2004 it actually became less expensive to save social security until infinity time!" An economics professor should know better. Lieberman is no wanker -- he's absolutely right when he says that the unfunded liability rises by $600 billion a year by virtue of the sheer passage of time. As I said yesterday about this,Of course, other factors can crop up over a year that will change the value of the unfunded liability, too. Changing assumptions about birth rates, life expectancy, inflation, and economic growth can also make a difference. But all else equal, the unfunded liability rises each year by the interest rate.
As we've seen over many decades of actuarial forecasts for Social Security, these other factors change a great deal from year to year. Sometimes those factors will make things worse, sometimes better (over history, they've tended on net to strongly make things worse). But that's just noise masking a fundamental truth: the unfunded liability rises each year by the interest rate. My question for Atrios, if he is indeed an economics professor, is: How can you whore yourself like this? How can you use statistical noise in order to provide polemical cover for those who want to evade fundamental economic truth? Who knows how Atrios answers that question in the privacy of his own heart. The fact is, it works -- naive wannabes on the Left pick up garbage like this from Atrios and repeat it as gospel.
Posted by Donald L. Luskin at 11:51 AM |
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WHO'S THE BIG SPENDER AROUND HERE? Can the anti-Bush forces have it both ways? One the one hand, they seize on every opportunity to loudly amplify his defeats, and portray him as a hard-hearted scrooge. Here's Jonathan Weisman in this morning's Washington Post:
The Senate last night dealt a slap to President Bush and the Republican leadership, approving a 2006 budget that would gut much of the GOP's deficit-reduction efforts by restoring requested cuts to Medicaid, education, community development and other programs.
But when the Left and the libertarian Right come together to denounce Bush for being a "big spender," will they even glancingly reference the reality that Bush's every attempt to rein in the growth of entitlement spending is sent down to defeat by Congress, with the help of a small coterie of Left-leaning Republicans? We're talking about small steps here, folks. For the most part -- as in the case of Medicaid -- these spending "cuts" the Left is howling about are just the deceleration of spending increases -- yet the word "cuts" is given without context every time. Yet even those can't get through the Congress.
So what is a president who believes in the pro-growth power of low taxes to do, when Congress won't make the slightest step toward fiscal responsibility and leaves him to take the blame? I guess a president is to do what Bush does so well -- take the heat.
Posted by Donald L. Luskin at 9:36 AM |
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OKRENT ASLEEEP ON WHAT'S LEFT OF HIS JOB Not even the slightest reply from New York Times public figleaf Dan Okrent on these questions from a reader (who asked me for anonymity), concerning the Times' March 16 story about Paul Wolfowitz's nomination to lead the World Bank:
Dear Mr. Okrent,
Becker and Sanger relate several opinions, which are not attributed to anyone, but simply written as if they were facts, or the news in "Bush Chooses a Top Pentagon Aide to Head the World Bank" (16 March 2005).
For example:
1. "The announcement, coming on the heels of the appointment of John R. Bolton as the new American ambassador to the United Nations, was greeted with quiet anguish in those foreign capitals where the Iraq conflict and its aftermath remain deeply unpopular, and where Mr. Wolfowitz's drive to spread democracy around the world has been viewed with some suspicion. "
*who experienced " quiet anguish"?
*which foreign capitals?
*who has viewed the spreading of democracy with "suspicion"?
2. "The World Bank is the institution that allocates the resources and sets development policy for much of the third world, and Mr. Wolfowitz's appointment to succeed James D. Wolfensohn raises questions about whether Mr. Wolfowitz's ideological views will be reflected in development decisions."
*which idealogical views?
*and how does having views about the way the world works differentiate Mr. Wolfowitz from others? if the authors don't identify those views, the reader has no idea what is being discussed.
3. "Despite the displeasure of some diplomats who had hoped that the administration would appoint a person without the almost radioactive reputation of a committed ideologue, they said that they expected Mr. Wolfowitz to receive the approval of the World Bank's board of directors in time for Mr. Wolfensohn's departure in May."
*what do the writers mean by "almost radioactive reputation of a committed ideologue"? can they attribute this description to a person other than themselves?
I suspect that Becker and Sanger, like much of the media and liberal elites, just don't like Wolfowitz, and try to present these descriptions of Wolfowitz as if they were fact, which they are not. They are OPINION, and should not be on the newspage, unless they can find someone to be quoted on these topics. (And they can't quote themselves, which is basically what they've done in this "article.")
I appreciate your prompt attention to this matter. This article fails Journalism 101, and is a very poor reflection of the Times' standards.
Posted by Donald L. Luskin at 9:15 AM |
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JOE SAYS IT AIN'T SO Joe Lieberman writes an angry letter to the Times:
To the Editor:
Paul Krugman ("The $600 Billion Man," column, March 15 [link]) claims that when I say that every year we do nothing about Social Security's coming insolvency we add $600 billion in unfunded liabilities, I am "helping to spread a lie."
Nonsense. Experts we've consulted at the Social Security Administration have confirmed this estimate....Joe Lieberman
U.S. Senator from Connecticut
Washington, March 16, 2005
Yep. Just like I said.
Posted by Donald L. Luskin at 1:01 AM |
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Thursday, March 17, 2005
SOCIAL SECURITY AND GLOBAL WARMING You just knew there was a connection, didn't you? And you were right!Posted by Donald L. Luskin at 11:11 PM |
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QUESTIONING THE SUMMERS REVOLT Robert Musil, the Man Without Qualities, hasn't made a post to his blog since last December. He's posted one today, and it makes me acutely aware of how much I miss him. It's a long piece disputing the conventional wisdom about Harvard's Larry Summers -- suggesting that the politically correct dust-up surrounding his remarks about women in science is really a smokescreen for his perceived managerial failures (perhaps just as the Jayson Blair affair was little more than and excuse to eject the deeply unpopular Howell Raines from the New York Times). So maybe it's not really about political correctness -- but is it really any better the inmates are voting to run the asylum at Harvard?
My other Harvard contacts tell me...Larry Summers is driving the faculty to distraction with what they view as his (1) indiscriminate meddling in the affairs of all academic departments irrespective of whether those departments are unquestionably performing well, (2) overruling various faculty committees without providing cogent and well explained reasons, and (3) overturning decisions of his predecessor which were made with faculty input without consulting the faculty. Indeed, one might argue that no university president in his right mind thinks doing these kinds of things is not going to result in a faculty revolt.I personally neither agree or disagree with my sources on the question of Summers' supposed meddling and "abuse" of the faculty. The tendency of university presidents to surrender to faculties willing to create a row at the expense of their university's overall performance has, not surprisingly, impaired overall university performance across the country. I think Harvard may be reaping the fruits of having appointed as Mr. Summers' predecessor a man who did almost nothing but raise money - thereby allowing the faculty to get used to a much bigger role in running the university than it had in the past. Harvard's presidents before Rudenstine were always "dictators" in the eyes of many on the faculty even where they complied with more Harvard tradition than Mr. Summers has honored -- and Harvard is almost certainly better today because of those strong presidents. But the Harvard faculty now sees things differently -- and, apparently, there is a lot of evidence that they are right.
Posted by Donald L. Luskin at 11:00 PM |
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PERRY'S EXPLORATION OF THE LEFT POLE Perry Eidelbus, writing on his Eidelblog, files a remarkable 6200-word account of this week's debate between Paul Krugman, Cato's Mike Tanner, and Josh Marshall. Reporting from deep within the belly of the reality-based community (where Krugman is introduced as a "co-op columnist"), Perry ably captures the content and the spirit of the debate, and offers dozens of his own insights along the way. I highly recommend reading this. And then, posted afterward, there's the little incident of Perry's request of Krugman, after the debate, that he inscribe a copy of his book to me. Krugman refused, saying "Oh really? Well he wouldn't want that." Ever the liberal, paternalistically watching out for other people. Even me.
Posted by Donald L. Luskin at 8:24 PM |
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ECONOMICS LESSON Reader Ryan Walsh asks about Paul Krugman's $600 billion bungle -- the idea that Krugman just can't grasp, that the unfunded liability of Social Security rises each year that reform is deferred.
In your most recent column, you mention the fact that $600 billion in new liabilities will be added to Social Security every year the problem goes unaddressed. You say that that yearly increase is merely the interest we must pay on the current unfunded liability. Yet what form does this interest take? Is it the interest on the T-bonds already in the Trust Fund? I have no clue.
Help?
Help is on the way, Ryan (as they say). Suppose you borrowed $100 from a loan shark at an interest rate of 1% per week. At the end of the first week, you now owe him $101 to liquidate the debt. If you pay him then and there, that’s all you owe. If you wait another week, you now owe him $102. See how it works? The longer you wait, the more you owe.
Update... Our friend Irwin Chusid asks:
Wouldn’t the 1% weekly interest be compounded? Wouldn’t you in fact pay 1% on $101 the second week, and the added weekly interest would be more than just one more dollar?
Yes, Irwin is right. The second week's interest charge would be 1% of $101, which would be $1.01. So to pay off the loan at the end of the second week, you'd have to give the loan shark $102.01. I was rounding for simplicity.
Update 2... Irwin responds:
Needless to say, over time (and when we’re discussing billions), that extra penny, further compounded, adds up. But I understand the point about explaining the concept simply.
Update 3... Readers Mary and Gary Nelson ask:
Ryan was asking, I believe, "Who is the loan-shark?" and "Who is borrowing the money?" Is the Social Security system running a surplus or not? I think Ryan is asking about those Treasury bonds and whether they represent the debt we're talking about here. If they do, then basically that debt represented by those bonds (IOU's) is a result of massive borrowing from Social Security by the government, isn't it? Doesn't it represent years of avoiding tax increases that would normally be necessary to support our reckless spending? So basically, when it's paid back, it'll be like paying back taxes, including interest? But our federal spending is largely based on borrowing from someone, somewhere, be it a foreign entity or for example Social Security, isn't it? When we need money to pay back our debt to those nations, we either raise taxes or we borrow more money from another entity. But somehow we always pay them back. Why should we consider paying back Social Security what it is owed any differently? On the surface, at least, the most immediate problem is with federal spending, and the borrowing that accompanies it. I know if I ran my account at home like the Congress runs our government, I'd be living in a cardboard box under an underpass. Now, I'm just saying this is the way I understand it this issue so far, and I would really appreciate someone taking the time to explain/defend/attack in a clear, direct fashion, each assumption I'm making so I can get a better handle on this.
That's a lot of questions all packed into one paragraph. Let's start at the beginning, staying in the context of Ryan's original question. To "get it," you have to understand what the $10.4 trillion unfunded liability represents. It is the net between the system's assets and the system's liabilities -- you could think of it as the system's "budget" out to infinity -- but all expressed in terms of present value. Assets include the present value of all future taxes Social Security expects to get, plus the present value of the bonds in the Trust Funds (and all the interest that those bonds can be expected to earn). Liabilities are the present value of all the future benefits the system is obligated to pay based on the present schedule. Because the benefits are larger than the taxes plus the Trust Funds assets, there is a net liability. To put the system into balance, we could either say we're going to raise taxes and/or lower benefits. That would change the equation. But the simplest way to think about it is just in dollar terms: how many dollars in additional bonds (or other assets) would we have to plunk into the Trust Funds today in order to make total assets equal total liabilities? The answer is $10.4 trillion. That number rises every year because the value at any point in time assumes you act now (sort of like prepaying a mortgage), and that the Trust Fund can thus earn interest on the assets you put into it. If you wait a year, you have to pay more, because the Trust Fund missed that year of being able to earn interest on the assets you didn't contribute. So "Who is the loan-shark"? The Social Security system itself, as an entity. "Who is borrowing the money?" The rest of the economy.
Now there's a whole separate line of questioning here, above and beyond the "loan-shark" analogy. Mary and Gary raise questions about the nature of the assets in the Trust Funds, with the implicit underlying question being: "Do the assets in the Trust Funds represent any real savings, or any real economic resources, that can be used to pay benefits?" Sadly, the answer is "no." They represent moral claims held by one agency of government against the government as a whole, but the government as a whole does not have any particular "savings" set aside to ever redeem those claims. After all, those claims are Treasury bonds. What is a Treasury bond but a loan to the Treasury? And what is a loan except a way for the government to get money to spend? Believe me, every penny in the Trust Fund was spent the moment it arrived, from the very earliest days of the system. The only way it could possibly have been otherwise would have been if the Trust Funds had been invested in private assets -- stocks, corporate bonds, real estate, commodities, and so on. Mary and Gary suggest that the Trust Funds as a source of borrowing to support government spending might, all along, have kept tax rates low. Maybe, but don't forget where the money came from in the first place -- from Social Security taxes.
Posted by Donald L. Luskin at 12:13 PM |
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BABY INTELLECTUALLY BANKRUPT LYING PARTISAN HACK, MAYBE? Maureen Dowd admits she was hired as an op-ed columnist at the Times to be a "baby curmudgeon." Bruce Bartlett asks, "Makes one wonder what Krugman's assigned role is."
Posted by Donald L. Luskin at 11:21 AM |
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MAP TO LEVIATHAN Take a look at this hierarchical map of every federal government agency (sit down and get a cup of coffee first, it's a long list). This is your tax dollars and your deficit dollars at work [sic]. I'd say those dollars could use a rest. Thanks to reader Joseph Mann for the link.
Posted by Donald L. Luskin at 9:30 AM |
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KRUGMAN'S $600 BILLION BUNGLE Stop the presses! Paul Krugman, America's most dangerous liberal pundit, has taken the nearly unheard of step of criticizing a Democrat in his latest column in the New York Times!
But don't get too excited. The Democratic victim of Krugman's poison word-processor is Senator Joe Lieberman, and what earned him Krugman's wrath was the sin of making the slightest gesture of bipartisan interest in reforming Social Security. Specifically, what Lieberman did was to agree with George W. Bush that Social Security reform should come sooner rather than later, because the system's insolvency problem gets worse every year by about $600 billion. In Krugman's twisted, partisan worldview, agreeing with Bush on that simple fact is "helping to spread a lie."
Yet Lieberman and Bush -- and Social Security Administration deputy commissioner James Lockhart, whom Krugman blasted in a Times column last week for the very same thing -- are absolutely correct. All else equal, the long-term unfunded liability of the Social Security system gets bigger every year. That's because that liability is like any other debt -- each year you don't repay it, it accrues interest. In the case of Social Security's massive $10.4 trillion debt, the interest is about $600 billion a year.
It's all laid out in the latest Annual Report of the Trustees of the Social Security Trust Funds. In the somewhat opaque actuarial language of the report, "The change to the later valuation date for this report, January 1, 2004, tends to increase the measured deficit, by about $0.6 trillion." In English: let a year go by, and the debt goes up by $600 billion.
Here's how it works. $10.4 trillion is today's present value of the unfunded liability of the system. In other words, it's the value of the assets you'd have to contribute to Social Security today to make it perfectly solvent forever. But you'd have to do it now, so that the $10.4 trillion could start earning interest immediately. If you wait a year, the system will have missed earning a year's worth of interest. Assuming an approximately 6% interest rate (as the Trustees did), that year will cost the system 6% of $10.4 trillion -- or about $600 billion. It's that simple.
Now of course other factors can crop up over a year that change the value of the unfunded liability, too. Changing assumptions about birth rates, life expectancy, inflation, and economic growth can make a difference, too. But all else equal, the unfunded liability rises each year by the interest rate.
So why has Krugman, in his two most recent columns, said the $600 billion number is "bogus" and "fake," and called it a "lie" and a "misrepresentation" when Bush, Lieberman and Lockhart accurately quote this accurate statistic? You'd think a Princeton economics professor like Krugman could make his case by more rigorous means than name-calling -- but no: not one word of explanation. Krugman merely sniffs that the Trustee's statement about the $600 billion concerned "a technical discussion of accounting issues" -- which apparently ordinary New York Times readers couldn't possibly be expected to understand -- and "which has nothing to do with the cost of delaying changes in the retirement program."
Let me try to make the case that Krugman didn't bother to make, based on conversations I've had with serious economists and actuaries who ask some intelligent questions about that $600 billion. I've heard the argument that you don't ultimately lose $600 billion in interest earnings on $10.4 trillion by waiting a year to make up Social Security's unfunded liability. Instead of the Social Security system earning that interest, the rest of the economy earns it. So yes, next year the liability will be $600 billion higher -- but the economy will be $600 billion wealthier, so it won't matter.
True enough, but if the point is to strengthen the Social Security system itself, the reality remains that each year we wait the system falls $600 billion deeper into the hole, requiring ever larger claims on private assets in the future. Besides, it's easy to see why Krugman wouldn't make the case that $600 billion in the economy is as good as $600 billion in the Social Security system. Since when has Krugman ever wanted to see one lousy dollar in private hands that could instead be sent to the government to spend on his liberal agenda?
Case in point: Krugman has written literally dozens of columns (for example, here) blasting the Bush tax cuts for leaving wealth in private hands while the government is running deficits. If Krugman pursued this line of reasoning, next thing you know he'd be a supply-sider, arguing that we should cut taxes to help the economy grow its way out of Social Security's problems.
Another argument is that while Social Security's unfunded liability may indeed rise by $600 billion over a year, GDP and the taxable payroll base are growing, too. So the unfunded liability isn't really growing each year, when measured as a fraction of the economy rather than in raw dollars. But unless interest rates are systematically lower than economic growth rates -- which would violate some pretty fundamental theories of modern macroeconomics -- the unfunded liability will always grow faster than the economy. The only question is how much faster.
Besides, here again, it's easy to see why Krugman wouldn't dare articulate this case. Before you know it, he'd have to recant all those columns (for example, here) in which he called budget deficits under the Bush administration "record deficits" -- when they were far from it when measured as a fraction of the economy, rather than in dollar terms.
But I suspect the real reason for Krugman's failure to explain the $600 billion is sheer rear guard politics. The President has been very successful, according to polls, in convincing voters that there is a profound problem with Social Security's finances -- one that has to be dealt with right away. He's completely steamrolled the claims by Democrats -- claims that Krugman championed -- that there is no crisis.
Now it's only (only!) a matter of bringing Democrats to the negotiating table to hammer out the specifics of reform -- and as Bush said in a speech in Louisiana last week,
"I believe when the people figure out we have a problem...woe to the politician who doesn't come to the table. Woe to the person who tries to block this for partisan reasons."
So what else can the intellectual leader of the failed "there is no crisis" movement do now but resort to the tired old "Bush lied" rallying cry? Or if that doesn't work, how about that reliable last refuge of scoundrels -- patriotism? Krugman can always, once again (for example, here), accuse Bush of desecrating the sacred legacy of Franklin D. Roosevelt.
Or, on the other hand -- here's an idea! -- why doesn't Krugman direct his economic talents toward trying to solve Social Security's problems for the sake of all Americans? Krugman Truth Squad member Matthew Hoy has been running a banner on his blog for weeks, counting the days since Krugman promised in his January 4, 2005 column,
"In the next few weeks, I'll...suggest steps to strengthen the program."
So how about it, professor? Enough name-calling. Where are your answers? We're waiting.
Posted by Donald L. Luskin at 1:20 AM |
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Wednesday, March 16, 2005
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"nonbinding measure declaring that Congress should reject any Social Security plan that would require 'deep benefit cuts or a massive increase in debt.'
"Five Republicans [Olympia Snowe and Susan Collins of Maine, Mike DeWine of Ohio, Arlen Specter of Pennsylvania and Lindsey Graham of South Carolina] joined the Senate's 44 Democrats and one independent in voting for the resolution, a symbolic effort to demonstrate opposition to Mr. Bush's plan to allow workers to invest part of their taxes in private retirement accounts. Although the measure failed with one vote short of a majority, Senator Charles E. Schumer, the New York Democrat who has been a leading opponent of the plan, later said it was a 'significant vote.'"
But there's not one word in the Times story about another vote yesterday -- a Republican-sponsored resolution declaring that not addressing Social Security's financing problems would trigger "massive debt, deep benefit cuts and tax increases." That resolution was carried by 56 to 43, garnering "aye" votes from every Republican except Snowe and George Voinovich of Ohio, and picking up Democrats Bill Nelson of Florida, Ben Nelson of Nebraska and Robert Byrd of West Virginia. As the Wall Street Journal's Political Diary email alert points out, "all of whom are up for re-election next year."
Posted by Donald L. Luskin at 1:00 PM |
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MAUREEN DOWD: MEAN GIRL Kay S. Hymowitz has Maureen Dowd's number -- she exploits her protected status as a woman, yet reaches from behind that shield to claw your eyes out:
In 1999, during the high school drama that was the second Clinton administration, when Dowd had ascended to Mean Girl heaven -- even receiving a Pulitzer Prize for her talents -- she bumped into Monica Lewinsky at a D.C. restaurant. “Do you mind if I ask you something?” Monica asked. “Why do you write such scathing articles about me?” After sorting through some possible answers, Dowd, to her credit, hesitated. “‘I don’t know,’ I shrugged lamely.” It was a rare moment of true insight for the Queen Bee, the only woman with a regular column in one of the nation’s most powerful media outlets, and -- it’s painful to acknowledge -- one of the most powerful women in the country.Thanks to reader Jameson Campaigne for the link.
Posted by Donald L. Luskin at 12:25 PM |
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THE MATRIX Here's the face of New York Times "public figleaf" Dan Okrent, in a graphical matrix of the American Left smack-dab between George Soros and Martin Sheen. But somebody's missing -- where's that very special leftist whom Okrent enables by his silence and cowardice? I think I see a vacant spot between Noam Chomsky and Howard Dean that would represent perfect positional interpolation (oops, it's already taken by Hillary -- no wonder).
Thanks to reader James Crystal for the link.
Posted by Donald L. Luskin at 9:06 AM |
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ONLY 35? Brendan Miniter on the inherent injustice in the way Social Security benefits are calculated based on only 35 years of earnings, on Opinion Journal:
...by uniting against reform, Democrats are defending a system that is skewed against the workers they claim to represent--those who are handed little in life and must enter the work force early. Some of them work their way through college, but many stay in blue-collar and service-related jobs. They make less money each year, but make it up by working longer and harder. The Social Security debate is now about whether to allow these workers to capitalize on all of their hard work while saving for retirement. Isn't that what the Democratic Party is supposed to be all about?
Posted by Donald L. Luskin at 8:39 AM |
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FEAR, LOATHING AND ETHICAL CULTURE Here's the first flash report from Perry Eidelbus on last night's debate with Paul Krugman and Cato's Michael Tanner. Poor Perry had to brave not only Democrats but LaRouchites and Soros Mini-Me's to get in the door. Check it out... and Perry promises more tomorrow.
Posted by Donald L. Luskin at 2:21 AM |
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Tuesday, March 15, 2005
NO REASON OTHER THAN LIBERTY, THAT IS The Harvard Crimson staff must be primping for a gig with the New York Times after graduation. Check out this editorial:Dormaid, founded by Michael E. Kopko ’07, is a cleaning service that allows students to avoid the perennial problem of dingy, smutty, questionably-habitable rooms. ...Dormaid could potentially mess up as many rooms as it cleans. By creating yet another differential between the haves and have-nots on campus, Dormaid threatens our student unity. ...while class differences are a fact of life -- yes, there are both rich and poor people at Harvard -- there is no reason to exacerbate these differences further with a room-cleaning service.Thanks to reader Jill Olson for the link.
Posted by Donald L. Luskin at 10:10 PM |
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GREENSPAN ON THE LOCKBOX Alan Greenspan gets it -- Social Security personal accounts are the lock box mechanism that can assure that retirement savings won't be spent by government. From his Senate testimony today:
We need, in effect, to make the phantom "lock-boxes" around the trust fund real. For a brief period in the late 1990s, a common commitment emerged to do just that. But, regrettably, that commitment collapsed when it became apparent that, in light of a less favorable economic environment, maintaining balance in the budget excluding Social Security would require lower spending or higher taxes.Last year, Social Security tax revenues plus interest exceeded benefits by about $150 billion. If those funds had been removed from the unified budget and "locked up" and Congress had not made any adjustments in the rest of the budget, the unified budget deficit would have been $564 billion. A reasonable hypothesis is that the Congress would, in fact, have responded by taking actions to pare the deficit. In that case, the end result would have been lowered government dissaving and correspondingly higher national saving. A simple reshuffling from the unified accounts to the lock-boxes would not have, in itself, added to government savings; but higher taxes or lower spending would have accomplished that important objective.
The major attraction of personal or private accounts is that they can be constructed to be truly segregated from the unified budget and, therefore, are more likely to induce the federal government to take those actions that would reduce public dissaving and raise national saving. But it is important to recognize that many varieties of private accounts exist, with significantly different economic consequences. Some types of accounts are virtually indistinguishable from the current Social Security system, and the Congress would be unlikely to view them as truly off-budget. Other types of accounts actually do transfer funds into the private sector as unencumbered private assets. The Congress is much more likely to view the transfer of funds to these latter types of accounts as raising the deficit and would then react by taking measures to lower it.
Posted by Donald L. Luskin at 11:28 AM |
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Monday, March 14, 2005
DELONG HASSLES HASSETT AGAIN Why is Brad DeLong so obsessed with Kevin Hassett? Could DeLong still be sore about Hassett's devastating critique of DeLong's 1991 paper (with Larry Summers), in which Hassett showed that DeLong's findings about global economic growth completely fall apart if you remove Botswana from his data set? Oops! At any rate, the "hulking" Marxist UC Berkeley professor is after Hassett yet again, this time flailing at Hassett's National Review Online column about potential returns in Social Security personal accounts. As per usual, DeLong seeks to discredit Hassett by mistakenly citing his 1999 book Dow 36000, in which Hassett argued correctly that if the equity premium were to decline to where some academic economists say it should be, then the Dow would indeed be at 36000. But DeLong reasons as though the Dow were at 36000 now and Hassett were urging stocks for personal accounts from that level. Of course, if the Dow were at 36000 now, Hassett would be the first to say one should be very wary of owning stock -- as the equity risk premium, at that point, would have nowhere to go but up, and all the gains made during the period of its decline would already have been achieved. Today, with the Dow not at 36000, the equity risk premium is still high, so expected stock returns are high, too. To put it differently, if the Dow tripled today, the expected return after that would be much smaller. But if you buy today, then you should not use the expected return after the tripling as your expected return today. You get the tripling. The equity premium has declined somewhat over time, but that may well continue. If you expect it to, then that is an argument for buying stocks today. Since the Dow is not at 36000, the equity premium is still healthy. There is no inconsistency when Hassett argues for how the Dow could be at 36000 in the future, and yet stocks are still a good investment today. Quite the contrary. Any argument for Dow 36000 is obviously a case for owning stocks at any price lower than Dow 36000. Obvious to anyone but DeLong. But then again, revenge does tend to blind one to the obvious.Posted by Donald L. Luskin at 11:12 AM |
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NOW THIS IS A CRISIS The New York Times might think there's no problem with Social Security. But it turns out that the Times has a few unfunded liabilities of its own. Jim Glass has the story on Scrivener.net. The Times faces a $4 million shortfall in a benefits fund it runs for one of its unions -- and the way they intend to make the fund whole is to force union members to take a pay cut! Bad timing that the Times has to talk about this pay cut with its union during the same week it was disclosed that publisher Arthur Sulzberger Jr. gave himself a raise to $2.82 million in 2004 from $2.7 million 2003.
Posted by Donald L. Luskin at 12:49 AM |
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Sunday, March 13, 2005
DON'T BEAT THOSE BIBLE-BEATERS! Reader Shawn Mercer spices the stew in our debate about red states, blue states and Social Security reform (see here and here).If I might offer a late addition to the the debate on Social Security use in red states and blue states, some quick spreadsheet work with census data (1999, the most recent available) reveal that in Bush 2000 states the percent of total households receiving Social Security income is virtually identical to the figure for Gore 2000 states: 26% versus 25.32%, respectively.What's more, since the issue underlying Krugman's insult is the alleged hypocrisy of Bush state voters who favor less taxes and smaller government yet take disproportionately from government transfer payments, let's look at usage rates for SSI and other public assistance: Bush state households partake at rates of 4.33% and 3.04%, respectively. Blue staters do so at 4.42% and 3.85%, respectively. So much for the trailer park Bushies and college professor Democrats.
Finally, if you'd like to spice the stew a bit, consider this: who is Krugman and the rest of the left targeting when they attack Republican voters in red states? Whites! Hicks, Bible-beaters, rednecks, to whom the blue state sophisticates are superior, right? Turns out that isolating and comparing white voters in the states give them even less of a case. White households in Bush 2000 states use Social Security, SSI, and public assistance at rates of 27.83%, 3.62%, and 2.26%, their Blue counterparts receive at an identical 27.83%, 3.61%, and 2.48%.
Posted by Donald L. Luskin at 1:31 PM |
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MEME ON THE LOOSE Reader John Tomasso got a letter published in his local Santa Barbara News-Press, keying off my point that a Social Security personal account is "your personal lockbox":
With a personal accounts, I get to hold my portion of the lock box, as well as the key. In my lock box, my small portion of the [Social Security Trust Fund] surplus will be safe from government plunder, thus removing the need of some future worker to pay it back. What a terrific idea.
Posted by Donald L. Luskin at 12:10 PM |
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