Chronicle of the Conspiracy
Friday, April 21, 2006LONG LIVE SOCIAL SECURITY REFORM If Social Security reform is dead, then how come so many people are still trying to kill it?
Oh, sure, the enemies of the Bush administration on the Left and the Right pretend it's dead. In the most recent State of the Union address, when Bush acknowledged that his initiative last year to introduce private accounts into Social Security had been thwarted, every Democrat in Congress rose to his feet and applauded.
And conservative Bruce Bartlett, in a recent Bush-bashing book, acts as though Bush had never even tried to reform Social Security, writing that last year the president "generally avoided talking about stabilizing Social Security's long-term finances."
Bartlett seems to have forgotten about the myriad times last year that Bush talked about the "Social Security problem," and called the system "bankrupt" -- and his photo-op visit to a government vault in West Virginia where he exposed the non-existence of the so-called Social Security Trust Fund.
And as to those cheering Democrats, they didn't applaud because reform is actually dead. They applauded to embarrass the President of the United States, and make it harder for him to promote reform in the future.
But reform isn't dead. It can't die. Reform is inevitable, because the Social Security system really is in crisis, in the sense that the accounting mirage of the Trust Fund doesn't hold any real assets to pay off the system's obligations. Even if it did, the assets would be exhausted in a few short decades as the baby boom generation retires.
So the Left remains mobilized to keep reform off the table as long as Republicans are in power. The Left wants to be sure that their favored constituencies -- unions and minorities -- get all their entitlement goodies left intact. And the Left wants to be sure that reform doesn't diminish the size and scope of government interference in our lives, as President Bush's proposal for individual investment accounts would surely have done.
Consider the bogus scandal that the liberal New York Times has tried to stir up about the fact that the annual report of the Trustees of the Social Security and Medicare Trust Funds are late this year -- coming after the statutory deadline of April 1. An editorial three weeks ago fulminated, "…it's information Congress and the public deserve to have. Holding up the reports seems like an attempt to hide the truth."
What truth? The truth that the so-called trust funds aren't going to be able to cover promised benefits in the future? But that's precisely what the president said over and over last year -- and that's precisely what the Times consistently denied.
Besides, this marks the first time that the Bush administration has missed the deadline. And where was the Times during the Clinton presidency -- eight years in which the administration missed the deadline six times?
And the reason why the report is late is because Max Baucus -- the ranking Democrat on the Senate Finance Committee -- has held up confirmation of the Bush administration's reappointment of the two public representatives on the Board of Trustees. One of the trustees up for confirmation is a Democrat, and one's a Republican, just as law specifies -- and both were originally appointed by Bill Clinton. So what's Baucus's beef?
Yes, the committee's Republican chairman is on record preferring new faces. But Democracts are the driving force behind the hold-up, because they want a new face that will oppose reform. Baucus and Senate minority leader Harry Reid proposed to the White House a candidate for the Democratic trustee position. The names haven’t been revealed publicly, but both candidates were anti-reform -- and Baucus's was a partisan anti-reform zealot. In frustration, the president finally made "recess appointments" of both the existing trustees last week, while the Senate was off for the holidays.
At the same time, Left-leaning think tanks -- and the liberal academics who take their money in the form of "honorariums" and "fellowship grants" -- continue to churn out bogus "papers" and "studies" opposing reform. The idea is to put a slick academic veneer on partisan lies designed to preserve the status quo.
Take a look at "African Americans and Social Security: The Implications Of Reform Proposals," a paper published in January by William Spriggs (of Howard University and the union-funded Economic Policy Institute) and Jason Furman (of New York University) under the imprimatur of the Center on Budget and Policy Priorities. The thrust of the paper is to play an anti-reform race card by claiming that the president's proposal for personal investment accounts is “likely to have an adverse effect on the African American community.”
Spriggs and Furman celebrate how wonderful the Social Security status quo is for African Americans. They totally ignore that the punishing Social Security payroll tax consumes any capacity for independent retirement savings that might have been enjoyed by lower income Americans of any race, leaving them effectively wards of the state in their old age.
Instead, the authors sing the praises of how blacks benefit from the current system's "progressive" benefit formulas that are skewed in favor of lower earners; how blacks, who are more likely to become disabled, can take greater advantage of the program's disability benefits; and how blacks, thanks to their lower average life expectancy, benefit more from the program's survivor benefits.
All those things are true. But Spriggs and Furman lie when they use their academic skills to manipulate statistics to claim that Bush's proposals do anything but make all those things even more true. You can find a detailed deconstruction of all their tricks in the next post below on this blog -- just click here. Tricks aside, the simple fact is that what the president proposed last year would make the Social Security benefit formula even more "progressive"; it would increase the share of total benefits paid to the disabled; and it would increase the share of total benefits paid to survivors.
Spriggs and Furman do admit that the current system disfavors African Americans in one way. Because they live shorter lives, on average, they have fewer years in retirement in which to collect their benefits. So you'd think that they'd look favorably on the fact that the President's personal accounts could be passed on through inheritance. No, astonishingly, instead they claim that would weaken the financial strength of the system. But if true, then it's true of any feature, new or old, that favors African Americans or anyone else -- or, indeed, any feature that does anything but cut benefits or increase taxes. What they don't like about this feature is that George W. Bush proposed it.
So the battle for Social Security reform rages on -- even as the opponents of reform claim to have already won.
And it's a good thing. When the Trustees' report finally comes out in a week or two, it will undoubtedly show the existing system's continuing downward spiral into bankruptcy. When the opponents of reform are done griping that the report was late, maybe they should actually read it, and find out how deep the crisis really is. And for the good of the country, maybe they should forget their partisanship and actually do something about it.
Corrections [4/22/2006]... As originally posted, I had said that Bush often referred to the "Social Security crisis." While his critics accused him of that, in fact he almost always referred instead to the "Social Security problem."
As originally posted, I said that Harry Reid had proposed an extremist anti-reform partisan as public trustee. I have since learned from sources that it was Max Baucus's proposed trustee who was the extremist partisan; Reid's was anti-reform, but was not an extremist.
Posted by Donald L. Luskin at 6:59 PM | link
CBPP PALMS THE RACE CARD
The paper says that "African Americans benefit disproportionately from many of Social Security's features, including a progressive benefit structure and survivors and disability benefits." Last year President Bush offered a reform proposal that would increase the progressivity of the Social Security benefit structure, increase the share of the program's benefits that are paid to the disabled; and establish inheritable personal, which would greatly benefit survivors. As progressivity, disability benefits, and survivor benefits are the very features of Social Security that Spriggs and Furman argue most benefit African Americans, how do they reach their conclusion that Bush's reform proposal would have an "adverse effect" on African Americans? It takes a combination of shifting standards of reference, applying assumptions inconsistently, and making some simple errors.
Spriggs and Furman review the literature establishing that African Americans are more reliant on Social Security than are other Americans, on average. They also correctly note that African Americans tend to receive higher returns from the disability and survivor portions of Social Security.
African Americans do tend to have lower wages than other Americans. Holding all else constant, they thus benefit to a greater extent from Social Security's progressive benefit formula. But all else is not constant. Notably, if an African American and a white worker have the same lifetime wage history and contributions, the African American worker can expect less of a net return on his or her investment in the retirement portion of Social Security, due to differences in life expectancy.
Bush's proposals fully embraced the principle of progressive benefit growth of Social Security retirement benefits. Bush cited the model provided by Robert Pozen, a former member of the President's Social Security Commission, who developed a specific formula for progressive growth. Under the Pozen formula, benefits for low-wage workers would rise from 46% of those paid to high-wage workers today, to 60% by 2045, and to 79% by 2075. To the extent that African Americans benefit from the progressivity of today's benefit distribution, they would benefit even more from a more progressive benefit formula in the future.
Bush's reform proposals would increase the relative share of benefits paid to the disabled. In his support of progressive indexing, Bush did not embrace applying this formula to disabled beneficiaries. Assuming therefore that benefits for the disabled continue to grow at the rate of wages, this growth will match the faster rate shown for low-wage earners. This means that the proportion of overall benefits paid in the future both to low-wage retirees and to the disabled will increase relative to today. African Americans would benefit from both of these trends.
African Americans are more likely to receive survivor benefits than are other groups, and are more likely to be low-income survivors. Under the Pozen progressive benefit growth formula, the share of total system resources that are provided to low-income survivors would be increased. In this way, African Americans would also benefit from the Bush reform proposal.
The Social Security Administration's MINT model analyses have consistently shown that survivors are the biggest gainers from reforms that include personal accounts. That's because they have an opportunity to inherit accounts from their spouses. Inheritances would be of even greater relative benefit to child survivors, who could inherit personal account balances in addition to their traditional Social Security benefits. These inheritances would provide nest eggs that would disproportionately benefit African Americans.
Spriggs and Furman argue that there would be a "larger percentage reduction in African Americans' overall retirement income, because Social Security makes up a much bigger share of retirement income for African Americans than for whites." In fact, progressive benefit growth was explicitly designed to ensure equitable treatment in its effects upon total retirement income. Pozen, along with Syl Schieber and John Shoven, explained the origins of progressive growth in an article in American Economic Review. There, they noted that higher-wage workers are more likely to have other sources of retirement income outside of Social Security, designed their formula to account for these effects, and cited data to show that their plan addresses that concern.
Even when adopting the problematic terminology of "benefit reductions," Spriggs and Furman cannot truthfully argue that progressive growth would disproportionately diminish African Americans' Social Security benefits. In fact, their paper admits the opposite: "These percentage reductions are modestly smaller than the average benefit reductions that white workers would face," -- another way of stating that Social Security benefits for African Americans would grow somewhat more quickly under progressive benefit growth than they would, on average, for other groups.
Consequently, the Spriggs and Furman argument is subsequently made in terms of the effects on overall retirement income. This shift in the frame of reference is problematic, because their initial picture of the favorable treatment of African Americans under current law is based solely on the distribution of benefits under Social Security. Scholars who have studied the program's impact on overall retirement income have instead found that "[t]he whole [S]ocial [S]ecurity system is then regressive." In other words, Spriggs and Furman shift the ground of measurement to one that is far more likely to cause not only a reform proposal but current Social Security itself to appear to be regressive in its total effects.
Spriggs and Furman argue that personal accounts would be bad both for African Americans and for the whole Social Security system, through inconsistent application of economic assumptions. For example, they state that "Private accounts carry risk" and cite a paper by Robert Shiller which argues that many account holders would lose money. Shiller's results arise because he uses lower bond returns than the Social Security actuary, the Congressional Budget Office and other agencies project for the future. For my complete demolition of Shiller's paper, just click here.
Yet in a footnote on the following page, Spriggs and Furman assert that "The Social Security system would effectively be subsidizing the private accounts. . . the subsidies would worsen Social Security solvency." How do they find that the accounts are "subsidized" but that their holders are likely to lose money? The answer arises from an inconsistency in the bond return assumptions. If the Shiller paper is correct, then the footnote is incorrect, and vice versa. They are premised on contradictory assumptions regarding future bond rates.
In their introduction, Spriggs and Furman assert that "The risks of...private accounts would be more acute for African Americans than for whites, while the potential rewards likely would be smaller." Their picture of "downside risk" is based largely on the Shiller paper, which in turn relies on examples of "scaled earners" with typical race-neutral employment patterns developed by the Social Security Administration.
But in analyzing the upside, the authors change their picture. They cite gaps in employment patterns as reasons why African Americans will not do as well under personal accounts: "...a higher share of whites would be contributing to a private account at younger ages, when their savings would have more years to grow because of the compounding of interest over a longer period.”
These statements are contradictory. If an employment gap causes a worker to miss an early year of contributions to the account, it’s true that his opportunity for future asset compounding is diminished, but it is equally true that he has given up less from the traditional system to get the account. A worker cannot experience a smaller upside potential from this source without also having a smaller downside risk. In sum, it is impossible for African Americans to be both more dependent (when considering downside risk) and less dependent (when considering upside potential) on personal account returns, than other groups, at the same time.
Posted by Donald L. Luskin at 6:56 PM | link
STILL IN THE NEWS Things have really quieted down on the avian influenza front. But we're still getting quoted. Here's one from MSNBC.com:
Most of the companies now working on diagnostic tests, vaccines and drugs for avian flu have had at least prototype products in their pipeline for years. But Donald Luskin, TrendMacrolytics’ chief investment officer, says three things have heated up the scientific fervor over a possible pandemic in just the last few months: embarrassment of the Bush administration over its Hurricane Katrina response, resulting in a massive effort to inform the public about pandemic flu; the recent spread of avian flu to developed countries including Israel, Turkey and Scotland; and the fact that scientists now know that avian flu is likely being spread by migratory birds "which means that by the end of 2006 there will be avian flu in birds on every continent."
Posted by Donald L. Luskin at 2:21 PM | link
I FEEL BETTER ALREADY I really do. Now I know for sure that the GOP will hold its congressional majority this November, and that Bush has bottomed in the polls. It's all uphill from here. Blue skies ahead.
How do I know? Because Paul Krugman's New York Times column today proclaims that it's all over for the conservative movement. He writes, "the 2004 election looks like the high-water mark of a conservative tide that is now receding." Has Paul Krugman ever once been right at any important turning point? In politics? In the economy? In the stock market? In anything? Actually, let me put that more strongly -- has he ever once not been massively wrong?
You'd never know about Krugman's lousy record from reading Krugman, though. In today's column he brags ,
So he "always" thought that Bush would win a second term after that? Not quite. On election morning his column declared Kerry the winner.
But this time it's different. The conservative movement is dead. According to Krugman, there are "fewer than eight million residents of what's left of Red America." Yep. Everyone else hates Bush. How does he arrive at such a dramatic statistic?
First, he relies on "the polling firm Survey USA." A reader, who is an experienced media relations staffer in Washington, just wrote to me with this:
Krugman says this dubious firm has found "there are only four states in which significantly more people approve of Mr. Bush's performance than disapprove: Utah, Idaho, Wyoming and Nebraska. If we define red states as states where the public supports Mr. Bush, Red America now has a smaller population than New York City." Next he implicitly assumes that any state that does not solidly support Bush unanimously opposes him. How else to reduce the number of Bush's supporters to just eight million souls?
Update...From an August 2002 Roll Call article on Survey USA and other automated polls-by-telephone:
...a number of established news entities -including The Associated Press, The Hotline and this newspaper - have a policy of not running automated dialing polls...
Posted by Donald L. Luskin at 12:13 PM | link
Thursday, April 20, 2006JOKE OF THE DAY
Posted by Donald L. Luskin at 11:29 PM | link
Wednesday, April 19, 2006THE LIAR QUOTES A LIAR Paul Krugman in the New York Times on Monday:
Over time, the accumulation of evidence removed much of that uncertainty. Climate experts still aren't sure how much hotter the world will get, and how fast. But there's now an overwhelming scientific consensus that the world is getting warmer, and that human activity is the cause. In 2004, an article in the journal Science that surveyed 928 papers on climate change published in peer-reviewed scientific journals found that "none of the papers disagreed with the consensus position."Krugman has correctly characterized the essay in Nature. But the essay itself is a lie. Here's David Deming, associate professor of geosciences at the University of Oklahoma, who's living proof:
According to University of California professor Naomi Oreskes, the scientific consensus on global warming is unanimous. Last December, Oreskes published an essay in the prestigious journal Science wherein she claimed that not one of 928 research papers containing the key words "climate change" published between 1993 and 2003 contradicted what she called the consensus position on global warming... Personally, I had cause to scratch my head. In 1995, I had published a paper in Science where I noted that North America had undergone a modest warming over the last 100 to 150 years. But I also concluded that there was no way to determine if the warming was due to human activity or natural climatic variation.Thanks to reader Matthew Chaplin for the link.
Update [4/20/2006]... Readers Ray & Madge Van Tassle write,
I recently attended a talk by a geologist who pointed out that some 10,000 to 15,000 years ago the ancestors to the Mayans migrated into North America via what is now the Bering Strait. Back then the sea level was 400' (yes--four hundred feet!!) below current-day sea level.
Posted by Donald L. Luskin at 9:36 PM | link
IT STARTS This is the leading edge of the negative economic effects that we'll experience if the 2003 tax cuts on dividends and capital gains aren't extended immediately. From our friend Dan Clifton at the American Shareholders Association:
After remarkable growth over the past three years, S&P 500 dividend growth stalled in the first quarter. With Congress' inaction since March of 2005 in extending the lower tax rates on capital gains and dividend income, it appears companies are taking a wait and see approach before committing to increasing and initiating new dividends.
Posted by Donald L. Luskin at 8:57 PM | link
I GUESS HE JUST FORGOT TO MENTION IT... Reuters:
CAIRO (Reuters) - Sudan has found one man and five chickens infected with the bird flu virus, an official from the Health Ministry told Reuters on Tuesday... but he did not say if the virus was the deadly H5N1 strain.
Posted by Donald L. Luskin at 8:46 PM | link
Monday, April 17, 2006A SNOW CELEBRATION It's fashionable on both the Left and the Right to have a low opinion of Treasury Secretary John Snow. He's constantly rumored to be just about to be fired by President Bush. And a Wall Street Journal poll of economists last week found him not to be an effective Treasury secretary by a margin of almost two to one.
I've criticized Snow myself from time to time. But permit me to be unfashionable and say that I've come to believe that John Snow is doing a terrific job.
Since he was nominated by the President in January 2003, he's been at the center of the Bush administration's best economic initiatives.
In his first months in office, he helped push through the 2003 tax cuts on personal income, dividends and capital gains. Those tax cuts were arguably the Bush administration's single best economic policy initiative -- the catalyst for a sharp turnaround in economic growth and job creation.
Those tax cuts probably wouldn't have happened were it not for Snow's tireless salesmanship. The only time I've ever met Snow, in fact, was at a presidential briefing on the tax cuts with a small group of economists in April 2003. As soon as the meeting broke up, Snow raced up to me, grabbed me by the arm, and took me and two other economists out to the White House lawn where he whipped up a spontaneous press conference to ballyhoo the tax cuts. A month later, they were law.
If the tax cuts were the administration's finest economic hour, then probably its 2002 steel tariffs were its worst. They were implemented under Snow's predecessor, Paul O'Neill. They were rescinded in Snow's first year in office.
And Snow has been instrumental in turning back a dangerous bipartisan drift toward protectionism in Congress.
A year ago Democratic Senator Chuck Schumer and Republican Senator Lindsey Graham won a test vote -- by an overwhelming veto-proof margin -- on a bill that would slap an across-the-board 27.5% tariff on Chinese imports, unless China radically revalued its currency. Snow embarked on three months of intense shuttle diplomacy, bouncing back and forth between Beijing and Washington. When it was done, China agreed to a token revaluation, and Schumer and Graham had withdrawn their bill.
If that bill had passed, in my judgment it would have been the worst trade legislation since the Smoot Hawley Tariff Act that triggered the stock market crash of 1929 and the Great Depression of the 1930s. It would have amounted to a 27.5% sales tax on many US consumer goods, and it would have dangerously destabilized the entry of China into the community of modern nations. With the potential ripple effects of retaliatory measures from China and other nations, it's not an exaggeration to say that the Schumer Graham bill risked a global depression.
And John Snow stopped it cold. Yet I don't recall seeing his face on the cover of Time magazine then.
Perhaps John Snow's problem is that he has done too good a job. In 1999, Time magazine put Clinton Treasury secretary Robert Rubin on its cover, along with Fed chair Alan Greenspan and deputy secretary Larry Summers, and dubbed the three of them "The Committee to Save the World." This was after the collapse of several Asian economies, the default by Russia on its sovereign debt, and the failure of the giant hedge fund Long Term Capital Management.
You see, under John Snow nothing terrible like that has happened. He's kept the world from needing to be saved in the first place.
So why doesn't Snow get the respect he deserves? That's a silly question -- thanks to the bias of the mainstream media, there's no one in the Bush administration who gets the respect he or she deserves.
Snow may not be a glamorous Wall Street legend like his aristocratic Democratic predecessor Robert Rubin. He's an unglamorous former railroad executive, a short balding man who has the misfortune to rather resemble the little fellow on the Monopoly board, minus the mustache. An unfortunate mascot of capitalism, perhaps, but when it comes to pro-growth free-market economics, Snow is the real deal.
Snow is an economics Ph. D., whose work centered on the importance of deregulation. He earned his degree at the University of Virginia, where he studied under two Nobel Prize winners. He taught economics at the University of Maryland and the University of Virginia.
His economic philosophy was on brilliant display in a speech last week, in which he candidly attacked the statist anti-growth economics of "The Hamilton Project," a new undertaking at the liberal think tank The Brookings Institution.
The Hamilton Project is just the kind of thing that the media loves -- the same media that loves to hate John Snow. Its agenda is to promote wonderful new ways that government can get involved in managing the economy, under the guise of "growth" and "fiscal discipline." Robert Rubin is on the advisory board, of course, along with various other Clinton administration officials like Roger Altman, Bush-hating liberal professors like George Akerlof, and big-time Democrat donors like businessmen John Doerr and Steven Rattner.
And to name this liberal love-fest after Alexander Hamilton, the iconic Treasury secretary, is a slap in John Snow's face.
In an administration often criticized by its own supporters for failing to vigorously confront its critics, Snow minced no words on the Hamilton Project. He said last week that the Hamilton Project argues "for a deceptively simple approach…calling for both 'fiscal discipline, and for increased public investment in key growth-enhancing areas.' Well, if you do the math, growing the public sector--that is, making government bigger--and achieving fiscal discipline, can only lead to one thing: higher taxes. And higher taxes always mean a larger role for government and a smaller role for the private sector… that is antithetical to growth itself."
What more could we ask for in a Treasury secretary? He's an effective economic diplomat. He's a principled spokesman for growth and freedom. During his tenure the economy has boomed.
I like John Snow, and I hope he sticks around.
Posted by Donald L. Luskin at 7:12 AM | link
SENSATIONAL A western businessman doing business overseas is in jail, a third world economy is put at risk -- and a New York Times reporter isn't returning phone calls to explain the false charges in an award-winning story (that turned out to be all wrong) that caused it all:
In September of 2004, New York Times journalist Jane Perlez came out with an expose detailing how gold-mining giant Newmont “polluted” Buyat Bay in Indonesia and caused the deaths of innocent villagers, including a baby girl. Shortly after the article was published, Rick Ness, CEO of Newmont in Indonesia, and several other employees were arrested and some of the employees were thrown into Indonesian prisons alongside hardened criminals and recently captured terrorists...Thanks to reader J. R. Patten for the link.
Posted by Donald L. Luskin at 5:08 AM | link