Death and Taxes

[Woolen Horde]

Just wanted to gauge the reaction to Paul Krugman's 10-page attack on the Bush tax cuts...

http://www.nytimes.com/2003/09/14/magazine/14TAXES.html

Bueler? Bueler? Bueler? Get those knives out!

[Lizard_King]

Just wanted to gauge the reaction to Paul Krugman's 10-page attack on the Bush tax cuts...

http://www.nytimes.com/2003/09/14/magazine/14TAXES.html

Bueler? Bueler? Bueler? Get those knives out!

Krugman is a lot like Coulter, except he uses deception by numbers rather than words alone. Not to mention that NYT registration...no thanks.

[Jason McCullough]

You shouldn't believe what National Review tells you.....

The article's an excellent summary of the state of the tax wars.

[Lizard_King]

You shouldn't believe what National Review tells you.....

Krugman told me himself. Exhibit A being his body of work since like 1995.

[Jason McCullough]

Sigh. Like the time he pointed out that CA's energy crisis was due to market manipulation, got attacked for it, and then FERC admitted he was right a year later?

[Lizard_King]

Sigh. Like the time he pointed out that CA's energy crisis was due to market manipulation, got attacked for it, and then FERC admitted he was right a year later?
"Sigh"?

His assertions on the surface, like saying the CA energy crisis is caused by market manipulation, are true to the point of being obvious. It's what he infers from them that make him look stupid.

EDIT: in any case, like I've said before comparing other people's talking points, the resulting apologia, etc are not really all that interesting to me in any extended timeframe. I'm pretty sure that our perceptions of Krugman's work will come down to fundamental ideological points, and I'd much rather address those on their own terms as they come up. You agree with him, I don't. Fair enough?

Plus it's Friday, man.

[Jason McCullough]

Yes, it's Friday! :D

Seriously, I can see disagreeing with ideology, but other than some rare occasions like him screwing up description of the Bush stadium deal (it was still crony capitalism; he was paid lots of money strictly for his name and connections. It wasn't as uncommon as Krugman said to have an unequal partner, though) his facts are right.

[bmulligan]

So here's the picture: Americans pay low taxes by international standards. Most people's taxes haven't gone up in the past generation; the wealthy have had their taxes cut to levels not seen since before the New Deal. Even before the latest round of tax cuts, when compared with citizens of other advanced nations or compared with Americans a generation ago, we had nothing to complain about -- and those with high incomes now have a lot to celebrate. Yet a significant number of Americans rage against taxes, and the party that controls all three branches of the federal government has made tax cuts its supreme priority. Why?



Why compare us with other countries? If only to justify the level of taxation which is unarguably higher in the rest of the world. It's a ridiculous assumption to say that because the rest of the world pays a higher % of GDP in taxes, that we are taxed too low. This whole piece is a liberal slant to make us feel guilty for not paying enough of our 'fair share'.

We have the lowest rates since the new deal? Yeah, and look at the amount of revenue that comes from these 'lower' rates. The highest revenue since the new deal, contradicting his premise. Then he says we'll have to sacrifice government as we know it by either raising taxes or cutting services. Cut the Freaking services then. Spending is out of control with no recourse, no representation, and no thought of reduction.

This entire article is an attempt to blur the distinction between Republican political rhetoric and the principle of cutting taxes. I'll agree that Republicans are as bad if not worse than Democrats when it comes to budget irresponsibility, but to imply we are undertaxed and thwarting our responsibility as americans is insulting. Government waste only accounts for 3% or a rounding off error? Give me a fucking break!

[Jason McCullough]

He never says we're undertaxed. He says it's strange that everyone's so convinced their taxes are higher than ever, because they clearly aren't, and haven't been this low for a long, long time.

B, find me some government waste that's more than 3% of the federal budget. "Waste" being defined as "entirely pointless endeavor", like the helium reserve; that the government is naturally more inefficient than the private sector isn't what people are thinking of with the term "waste."

[Brian Koontz]

B, find me some government waste that's more than 3% of the federal budget. "Waste" being defined as "entirely pointless endeavor", like the helium reserve; that the government is naturally more inefficient than the private sector isn't what people are thinking of with the term "waste."

Sheesh... you should write polls for biased news channels or something.

The issue is not so much "entirely pointless endeavor" as "less important endeavor".

There are also duel issues... one is how efficient the government is at doing a task (compared to the same task being part of the private sector) and the other is challenging the very tasks that comprise the government. Like maybe a governmental task shouldn't exist AT ALL in which case its totally wasteful.

Most of this is a moot point anyway since the government does things the private sector cannot or will not do due to a lack of a business model. But this issue usually explores just what governmental tasks can be taken over by the private sector and what the difference would be if they were. Do you fear this kind of debate with your machination called the "entirely pointless endeavor"?

[voltaic]

B, find me some government waste that's more than 3% of the federal budget. "Waste" being defined as "entirely pointless endeavor", like the helium reserve; that the government is naturally more inefficient than the private sector isn't what people are thinking of with the term "waste."
I'm not "B", but the US Postal Service is your answer. It is not a waste en toto, but most of it is a severe waste that should be privatized and/or de-monopolized. It may reach 3% of the budget even.

[Jason McCullough]

The postal service is a mess, but I'm not sure if it could really be privitized. Anyway, it's only .05% (1/2000th) of the budget.

http://www.govexec.com/dailyfed/0302/031402w1.htm
http://www.whitehouse.gov/omb/budget/fy2004/ (Check out 8-1 in the 2004 historical tables)

Defense, SS, and Medicaid are 81% of the budget.

[Ben Sones]

The US Postal Service doesn't even appear on the federal budget, voltaic. It's considered an "off-budget" item because it's self-sufficient, and has been for years. The costs of running the operation are paid for entirely by postal fees. The money that it gets from the federal government is technically reimbursement for implementing assorted federal mandates. It's a piddly amount, though.

I consider Social Security to be a massive waste. And it's the single largest line item in the federal budget. Start by cutting that.

[Midnight Son]

I consider Social Security to be a massive waste. And it's the single largest line item in the federal budget. Start by cutting that.

I see. Do you have any relatives on Social Security? Did anyone you know pay into it all their life and now you just want to take it away? Did you bother to think how this would affect millions of elderly?

[Lizard_King]

I see. Do you have any relatives on Social Security? Did anyone you know pay into it all their life and now you just want to take it away? Did you bother to think how this would affect millions of elderly?

Too many people have been conned into the pyramid scheme already! We have to keep the ball rolling...THINK OF THE CHILDREN, MY GOD, WON'T SOMEONE THINK OF THE CHILDREN!

[Jason McCullough]

It's only a pyramid scheme if people stop having kids.

You can argue that social security is something the government shouldn't be doing because its not their responsibility or whatever, but the program isn't wasteful. SS has a fraction of the overhead of comparable private retirement programs.

[Ben Sones]

I see. Do you have any relatives on Social Security? Did anyone you know pay into it all their life and now you just want to take it away?

MS, you are riding high on the "jumping to conclusions" express today. I didn't say that we should deprive anyone of money that they paid into the program, or just shut it down like we're flipping off a light switch. It's a huge program that taxpayers have paid significant money into, and it would obviously need to be phased out over a lengthy period time.


Did you bother to think how this would affect millions of elderly?

In the long term? Yeah. That's why I'd like to see it eliminated.


SS has a fraction of the overhead of comparable private retirement programs.

And it pays out a fraction of the returns. And the government regularly raids the Social Security surplus to pay for other stuff--something it wouldn't be able to do if people were allowed to manage their retirement savings without government intervention.

[Lizard_King]

It's only a pyramid scheme if people stop having kids.
Yeah, and have you looked at the reproduction rates of the affluent Americans that fund it? Unless, of course, you are planning to fund SS on the backs of Hispanics and other proportionately poorer minorities....


You can argue that social security is something the government shouldn't be doing because its not their responsibility or whatever, but the program isn't wasteful. SS has a fraction of the overhead of comparable private retirement programs.
Says who? It's very easy in a vast government program to conceal hidden costs and deadweight losses. Especially if you aren't looking for them.

[Midnight Son]

It's a sad grim country we are going to live in if ya'll have your way. You think there's too much crime and poverty NOW?

[Ben Sones]

But you have all the answers, right? How does forcing seniors to live on a fixed income that's often less than what they needs for subsistence, and way less than what they'd have if they had been allowed to invest the same money into a private fund (hell, even bonds pay higher returns than Social Security!), combat poverty?

[Midnight Son]

Silly idea. Do you know that the savings rate in the USA hovers around 4%? Do you know how glad many seniors are to have social security? Without it many would have nothing. We can't all be dot.com millionaires.

[Ben Sones]

You say that as though the money they get is a gift to them from the government, rather than merely money that was already theirs to begin with. And why should I feel sorry for someone that has nothing because they chose to save nothing? If I pushed my car off a cliff, would you feel sorry for me if I then complained about how lame it is to have no car?

People don't have to be dot.com millionaires. A minimum wage-earner can take the same money that they would have put into Social Security and instead invest in in a private 401K plan. And when they retire, they'll be a lot better off. What's grim or sad about that?

[Midnight Son]

I have no problem with giving people a choice where their SS money goes as long as:

1) They can't touch it until they retire or need it for disability. You know most folks can't or won't save if they can get their hand on money.

2) You have to make these changes gradually.

3) The funds need to be insured by the Feds in case of fraud or business problems of the financial institutions.

[Jason McCullough]

But you have all the answers, right? How does forcing seniors to live on a fixed income that's often less than what they needs for subsistence, and way less than what they'd have if they had been allowed to invest the same money into a private fund (hell, even bonds pay higher returns than Social Security!), combat poverty?

If those seniors had just invested in private accounts instead of Social Security, who would pay for their parents Social Security benefits? You're comparing the rate of return if you don't have to pay your parents' benefits vs. the rate of return if you do.

Today's social security taxes fund today's recipients. If you want to go to a privatized system, ok, but a) the efficiency gains will be barely noticable and b) the transition costs will be in the neighborhood of 3 trillion. Someone has to effectively pay for retirement twice.




It's only a pyramid scheme if people stop having kids.
Yeah, and have you looked at the reproduction rates of the affluent Americans that fund it? Unless, of course, you are planning to fund SS on the backs of Hispanics and other proportionately poorer minorities....


Wait a minute, I thought anyone could get rich in america, regardless of who their parents were? And you know Social Security taxes stop at ~86k of income, right?


You can argue that social security is something the government shouldn't be doing because its not their responsibility or whatever, but the program isn't wasteful. SS has a fraction of the overhead of comparable private retirement programs.
Says who? It's very easy in a vast government program to conceal hidden costs and deadweight losses. Especially if you aren't looking for them.[/quote]

Can you provide just a *little* evidence? Every audit that's ever been run on the program says it has lower overhead than the private sector.

[Ben Sones]

1) They can't touch it until they retire or need it for disability. You know most folks can't or won't save if they can get their hand on money.

Well, they obviously can, because under a forced investment program like SS, they do. I agree that some people might choose not to save; I just disagree that it's the government's place to do anything about it. I view this in the same way that I view seatbelt laws, or laws against suicide, or laws against subscribing to AOL: if a person chooses to do something foolish that hurts only themselves, it's not the government's place to intervene. Laws that regulate these sorts of private choices are a can of worms that I'd rather leave closed, or at least not open any further.


2) You have to make these changes gradually.

Yes.


3) The funds need to be insured by the Feds in case of fraud or business problems of the financial institutions.

Why? Most retirement plans are already insured against fraud and embezzelment. They aren't insured against losses like bank investments are, but if people want that kind of insurance, they can already put their money in a bank (and even then, they'd earn a larger return than they'd get out of SS).

I guess what you really want is for the government to safeguard all people against all risks--even ones they choose to take willingly. I think that's silly. More to the point, it's impossible.

[Jason McCullough]

Ben, Social Security is effectively a risk-pooling retirement insurance program; no matter how bad your investments turn out/you get hit by a bus/whatever, you won't starve in retirement. Something like 10% of outlays go to people who are disabled, too.

[Midnight Son]

That's a hard world you live in, man! No compassion, no caring, no lending a helping hand... or am I misunderstanding you? (Ben)

[quatoria]

That's a hard world you live in, man! No compassion, no caring, no lending a helping hand... or am I misunderstanding you? (Ben)

You're getting kind of prone to hyperbole, my man. Maybe tone it down a bit, eh?

[Lizard_King]

Wait a minute, I thought anyone could get rich in america, regardless of who their parents were? And you know Social Security taxes stop at ~86k of income, right?
Anyone can, but not everyone is at the moment. In any case, as a group becomes more affluent it tends to reproduce less, so I think it is safe to say that it is a trend that will carry on as more fertile groups become better established. Most people don't make anywhere near 86k, so that's hardly the issue, now is it?


Can you provide just a *little* evidence? Every audit that's ever been run on the program says it has lower overhead than the private sector.

Yeah, I'd love to see the sorts of disinterested auditors you are talking about. Like I said, it is easy to ignore the problems if you aren't looking for them, or using a relatively vague parameter like overhead to define the debate.
http://www.nber.org/papers/w5413
A briefer version of Feldstein's views (plus I know you'll love the source)
http://www.cato.org/pubs/ssps/ssp7.html

[Midnight Son]

That's a hard world you live in, man! No compassion, no caring, no lending a helping hand... or am I misunderstanding you? (Ben)

You're getting kind of prone to hyperbole, my man. Maybe tone it down a bit, eh?

If I understand him correctly that's what he is saying.

[Lizard_King]

If I understand him correctly that's what he is saying.

There are many who don't equate compassion with modern brands of feudal patronage. Moreso if it is not sustainable in the long term, which I believe is where Ben and I have some common ground. Then it becomes a simple case of who is willing to deceive themselves the most; does it really make a man more humane to promise things he can't deliver?

Either way, to cast any debate in those terms, especially on economic issues, is not conducive to results, simply because it tends to devolve into ad hominems. They are fun, and certainly have their place, but not as a substitute for a concrete argument (in my opinion). That's what the analogy of Godwin's law in the other thread was meant to imply.

[Midnight Son]

It's not like I have all or any of the answers. But the simple solution to budget problems is not "Let's get rid of Social Security." Someone could just as easily say "Let's get rid of western water and pasturage rights." or "Lets get rid of the postal service and let UPS run it..."

[Ben Sones]

If those seniors had just invested in private accounts instead of Social Security, who would pay for their parents Social Security benefits?

Yeah, it sucks. But it cracks me up that you can simultaneously admit what a scam the whole system is--you can't even stop it without screwing people over!--and advocating that the best course of action is to keep it going. Someone has to be the last block in the pyramid scheme, and forward their $5 for no return. That's what makes it a scam, and it's why pyramid schemes are normally illegal.


You're comparing the rate of return if you don't have to pay your parents' benefits vs. the rate of return if you do.

Yes. Once SS is completely eliminated, however, people won't be paying their parents' benefits any more. I agree that the rate of return for people in the transition period will be less.


the efficiency gains will be barely noticable

By "efficiency," I assume you mean "returns." If so, you are mistaken.


Can you provide just a *little* evidence? Every audit that's ever been run on the program says it has lower overhead than the private sector.

Who cares what the overhead is? What does that have to do with the cost of tea in China? The only worthwhile metric is the rate of return on investment, which is less than two percent and has been falling every year for quite some time now. It's substantially lower for the poor, by the way, since they typically spend less time in retirement and thus draw fewer payments from SS. I don't care if the government doesn't have to spend a lot of money to manage my practically stagnant SS investment. That has no bearing on whether or not the system benefits its recipients.

[Ben Sones]

It's not like I have all or any of the answers. But the simple solution to budget problems is not "Let's get rid of Social Security." Someone could just as easily say "Let's get rid of western water and pasturage rights." or "Lets get rid of the postal service and let UPS run it..."

Someone could say that, but neither of those things are a significant amount of the budget (the Post Office, in fact, is not even on the budget), and neither of those things has such an obvious and better alternative available. The Post Office, for instance, is remarkably efficient, and its service is inexpensive (though that's largely because they are exempt from paying taxes that competing businesses such as UPS have to pay).

[Jason McCullough]

LK, "population-wide demographics might lead in the future to a decreasing population, which could lead to problems with the SS system" isn't equivalent to "Yeah, and have you looked at the reproduction rates of the affluent Americans that fund it?"

Feldstein's views on efficiency loss - which I'm not contradicting, I haven't examined them closely - are not "waste" as normal people define it. When people talk about "wasteful government" they're not really referring to deadweight loss triangles, they're talking about pointless things (like the helium reserve) and government featherbedding (tons of bureaucrats that do nothing). If you compare social security to a private retirement program, it has lower accounting overhead. Full stop.


Yeah, it sucks. But it cracks me up that you can simultaneously admit what a scam the whole system is--you can't even stop it without screwing people over!--and advocating that the best course of action is to keep it going. Someone has to be the last block in the pyramid scheme, and forward their $5 for no return. That's what makes it a scam, and it's why pyramid schemes are normally illegal.

It's *not* a pyramid scheme. A pyramid scheme collapses when there's no one else who can get into the system - SS doesn't have that issue.

Here's a better summary of what's wrong with the rate of return comparision argument:

http://www.wws.princeton.edu/~pkrugman/socsec.html

Social Security is a hybrid investment and insurance plan; you're more or less guarenteed a rate of return equivalent to economic growth, with no risk.

By "efficiency" I meant SS's long-run effects on productivity growth, as mentioned in the Feldstein paper.

[Ben Sones]

That's a hard world you live in, man! No compassion, no caring, no lending a helping hand... or am I misunderstanding you? (Ben)

Whatever. As quatoria says, this is just a bunch of hyperbole, unless you think that the money that the government automatically removes from my paycheck each week (whether I want it to or not) somehow equals compassion.

It's easy to lend a helping hand when most of the money comes out of other people's pockets. I'm not against charity or compassion. I'm just against government-enforced charity for people that are in bad straights solely by choice. We're not talking about folks that are penniless through happenstance, here. Did you even read my car example? Would you feel charitable towards me in that situation? Would you buy me a new car to replace the one I pushed off a cliff? What if the government passed a law that said that everyone has to chip in and buy a new car for anyone that pushes their car off a cliff? Sounds silly, doesn't it?

[Jason McCullough]

Ben, your arguments about charity/other peoples pockets apply to Social Security about as much as they do to, say, homeowner's insurance.

[Ben Sones]

It's *not* a pyramid scheme. A pyramid scheme collapses when there's no one else who can get into the system - SS doesn't have that issue.

If the ratio of retirees to workers remains constant, or only increases in the retirees' favor, then that's true. But that's not the case. Which is why SS taxes keep going up while the rate of return declines.

SS differs from most pyramid schemes in that it doesn't promise impossibly high returns, but it does rely on money from later investors to pay earlier investors, which is pretty much the defining trait of a pyramid scheme.


Ben, your arguments about charity/other peoples pockets apply to Social Security about as much as they do to, say, homeowner's insurance.

How so?

[Lizard_King]

LK, "population-wide demographics might lead in the future to a decreasing population, which could lead to problems with the SS system" isn't equivalent to "Yeah, and have you looked at the reproduction rates of the affluent Americans that fund it?"
Well then, I should have been clearer about both points. I don't think they are the OHMYGOD reversals you seem to portraying them as, but whatever. Do you have a rebuttal or just a critique of my phrasing?


Feldstein's views on efficiency loss - which I'm not contradicting, I haven't examined them closely - are not "waste" as normal people define it. When people talk about "wasteful government" they're not really referring to deadweight loss triangles, they're talking about pointless things (like the helium reserve) and government featherbedding (tons of bureaucrats that do nothing). If you compare social security to a private retirement program, it has lower accounting overhead. Full stop.

Right. And in rhetoric class you'd learn that's called a straw man. I specifically said deadweight loss, no?
In any case, I would be very interested in seeing some figures for these accounting savings you cite. I'd be even more interested in how such a level of efficiency can be obtained that it outweighs, say, the ridiculously low rate of return.



It's *not* a pyramid scheme. A pyramid scheme collapses when there's no one else who can get into the system - SS doesn't have that issue.

Because a pyramid scheme has an unusual level of force to back it up and a guaranteed pool of scamees does not make it any less of a con.


Here's a better summary of what's wrong with the rate of return comparision argument:

http://www.wws.princeton.edu/~pkrugman/socsec.html

Social Security is a hybrid investment and insurance plan; you're more or less guarenteed a rate of return equivalent to economic growth, with no risk.

By "efficiency" I meant SS's long-run effects on productivity growth, as mentioned in the Feldstein paper.

Well, there in a nutshell is the sort of reasoning that is the formal cause of my lack of respect for Krugman's views.

Ben summed it up nicely above: To defend social security on the basis of the costs incurred incurred in getting rid of it, created by the very corruption that makes it bad in the first place, is madness. That means one should come up with creative, long-term means of paying for the transition as soon as possible, but it is no argument for continuing to prolong the agony and further swell the costs. The longer you wait, the worse it's going to be, and the closer we come to that moment when there are far more people retiring than paying into the system. The Baby Boomer generation expedited matters, but it is a problem that is bound to happen. Ask Europe.

[Jason McCullough]

Right. Social security, a public program with polling in the 70% range - is actually a con enforced on people against their will!

I'm not defending social security because of the costs it'll take to transition to a private system; if you want to pay them, go right ahead. But *pretending those costs don't exist*, and then *pretending that you can get a higher rate of return in a private system based on that*, is dishonest.

And what "corruption" are you talking about?

[Jason McCullough]

It's *not* a pyramid scheme. A pyramid scheme collapses when there's no one else who can get into the system - SS doesn't have that issue.

If the ratio of retirees to workers remains constant, or only increases in the retirees' favor, then that's true. But that's not the case. Which is why SS taxes keep going up while the rate of return declines.

And when the system started up, the ratio of workers to retirees was about 1000/1. So? There's no reason you couldn't fund a social security system in society with zero population growth; the "final" generation before population flatline will get back what it put in plus productivity growth.



SS differs from most pyramid schemes in that it doesn't promise impossibly high returns, but it does rely on money from later investors to pay earlier investors, which is pretty much the defining trait of a pyramid scheme.

Using this expansive definition, buying stock that doesn't pay a dividend is a pyramid scheme.



Ben, your arguments about charity/other peoples pockets apply to Social Security about as much as they do to, say, homeowner's insurance.

How so?

Why, if you'd just take that money you spend on homeowner's insurance and invest it - after all, it's unlikely that your house will burn down - you'll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!

The closest analogy is actually annuities, I think; you pay them some money and they pay you back a fraction of it per month as time goes on. Invididuals who invest into the annuity get different "rates of return" depending on how long they live, but the group as a whole has the same rate of return. Sure, you can not invest in it and dump it all into stocks instead, but you're taking on a lot of risk.

[Midnight Son]

I'm not against charity or compassion. I'm just against government-enforced charity for people that are in bad straights solely by choice. We're not talking about folks that are penniless through happenstance, here.

"People that are in bad straights solely by choice?" What does that mean? What % of SS recipients would you say are in bad straights by choice? Bad things never happen?

[Lizard_King]

Right. Social security, a public program with polling in the 70% range - is actually a con enforced on people against their will!
Complacency based on ignorance is hardly a strong indicator of the system's support. Of course, not all of the people who support it are unaware of the hidden costs in its continued existence, but I'd be willing to bet a large number of them don't really give it much thought. I'm sure if you'd asked medieval serfs if they wanted their master's patronage taken away from them without explaining possible alternatives you'd have gotten much the same reply.


I'm not defending social security because of the costs it'll take to transition to a private system; if you want to pay them, go right ahead. But *pretending those costs don't exist*, and then *pretending that you can get a higher rate of return in a private system based on that*, is dishonest.
Ok, then what are you defending social security on? Because it seems to me that you are saying in the long run it will never be a serious source of deficit, in addition to the continuously building opportunity cost losses and the absence of wealth creation with all that stagnant money shuffling.


And what "corruption" are you talking about?
You know what I am talking about. You don't think it's a pyramid scheme, I do, etc etc.


And when the system started up, the ratio of workers to retirees was about 1000/1. So? There's no reason you couldn't fund a social security system in society with zero population growth; the "final" generation before population flatline will get back what it put in plus productivity growth.
Right, which is why the impending baby boomer retirement, for instance, will break the bank.

Like I said, that payment in=payment out way of rationalizing the long term prospects of SS, even if it were a reliable prediction of future situations, misses the point: the overall costs of the operation, and what they mean in the long term for an economy.


Using this expansive definition, buying stock that doesn't pay a dividend is a pyramid scheme.
I really find it hard to believe you mean this as a serious point of debate. You can tell me with a straight...err..face that you can't tell the difference?


Why, if you'd just take that money you spend on homeowner's insurance and invest it - after all, it's unlikely that your house will burn down - you'll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!
The difference is that homeowner's insurance is optional. Thus, the deadweight loss from such an investment in insurance is not a systemic guarantee. Also, there is an easily discernible difference in the value of homes as opposed to human lives, which make such calculations easy for the people that want to exchange a higher level of returns for greater security.
The situation changes radically when it is a mandatory scheme enforced from above, because such an approach is inherently less efficient than people making their own decisions. Simply because you do not approve of other people's judgement with regard to the money they have earned is not sufficient justification for the hidden costs you've made me repeat myself about numerous times.

[Jason McCullough]

A public retirement program with zero population growth won't result in people getting back what they put in; it'll result in them getting back what they put in plus productivity growth - their kids will be richer due to technical innovation, which lets them pay their parents more. It's not payments in = payments out.


The difference is that homeowner's insurance is optional.

For people who've paid off their mortgage, anyway - but the point is that it's an extraordinarly bad idea to opt out of it. You're taking on an enormous risk for a marginal gain in income. Same deal with SS; if your investments go south or you become disabled, you're going to be begging on the street, all for a small gain in income.


Using this expansive definition, buying stock that doesn't pay a dividend is a pyramid scheme.

I really find it hard to believe you mean this as a serious point of debate. You can tell me with a straight...err..face that you can't tell the difference? "



I'm serious, what's the difference? If you define a pyramid scheme as "anything where the rate of growth in the supply of new joiners drops off", it qualifies just as well as Social Security when population growth goes south. Just because you don't like it doesn't mean it's a scam.

Anyway, my basic argument here is in opposition to Sones's "it's free money" bit - SS doesn't have a lower rate of return than a private system. It does cause some deadweight loss - although economists disagree about how much - but switching to a private system won't magically fix the demographic retirement crunch; it just shifts the cost of that crunch into a different accounting line.

If you want to argue that it causes long-run deadweight losses, go right ahead, but that's no what anyone else in the debate here (or in the popular media) is talking about. It's all misinformed assertions that we can have money for free.

[Lizard_King]

A public retirement program with zero population growth won't result in people getting back what they put in; it'll result in them getting back what they put in plus productivity growth - their kids will be richer due to technical innovation, which lets them pay their parents more. It's not payments in = payments out.

So the costs of living won't rise (at least) proportionately? The costs of medical care? No wonder everyone's a millionaire since the industrial revolution took off.



For people who've paid off their mortgage, anyway - but the point is that it's an extraordinarly bad idea to opt out of it. You're taking on an enormous risk for a marginal gain in income. Same deal with SS; if your investments go south or you become disabled, you're going to be begging on the street, all for a small gain in income.
Extraordinarily bad idea to you, so I say, more power to you, buy all the insurance you like for that .0001% chance of using it. Better get some terrorism insurance etc as well.
Like I said, I have no problem with such decisionmaking if you do it for yourself. If you are buying it in a market restrained by supply and demand and rational incentives. But that is not the case in SS, and, come to think of it, one of the reasons the insurance industry is such a fucked up amalgam of privatization and corporate welfare.



I'm serious, what's the difference? If you define a pyramid scheme as "anything where the rate of growth in the supply of new joiners drops off", it qualifies just as well as Social Security when population growth goes south. Just because you don't like it doesn't mean it's a scam.
I didn't define it like that, and I think you would have to be taking some serious liberties with Ben's statement relative the context he placed it in to take it to mean that. If you really want me to restate my reasoning for it being a pyramid scheme, I guess I can, but I think at this point we're hitting raw semantic fruitiness irrelevant to the matter at hand.


Anyway, my basic argument here is in opposition to Sones's "it's free money" bit - SS doesn't have a lower rate of return than a private system. It does cause some deadweight loss - although economists disagree about how much - but switching to a private system won't magically fix the demographic retirement crunch; it just shifts the cost of that crunch into a different accounting line.
Well, for one thing it will turn those assets into wealth creating or at the very least not stagnant funds, which is a significant improvement. SS does have a lower rate of return; I can't think of very many private investments that could come close to having such a paltry return, and those would likely be things that have a compelling, unusual reason behind them like war bonds.
Are you saying that even a minimal rate of risk such as that incurred in the long run by a 401k automatically outweighs any difference in return? Your portfolio must be something to see!


If you want to argue that it causes long-run deadweight losses, go right ahead, but that's no what anyone else in the debate here (or in the popular media) is talking about. It's all misinformed assertions that we can have money for free.
I am, and I think you really have to be creative with numbers not to see that as an important factor. Also, if anything, the libertarian advocates of SS reform are the opposite of promoters of free money; I don't think that even enters into their conceptual framework as a possibility. I am sure somewhere you can find figureheads and fringe acts that soft-pedal or ignore the costs of the transition, but as I understand it the consensus on this side, if such a thing can be said to exist, is that in the long run that transition cost will be justified by the greater rate of return.

[Jason McCullough]

That must be why Cato states that the rate of return of a privatized system is higher than of the current system, right?

http://www.socialsecurity.org/pubs/articles/bp-040es.html


Well, for one thing it will turn those assets into wealth creating or at the very least not stagnant funds, which is a significant improvement. SS does have a lower rate of return; I can't think of very many private investments that could come close to having such a paltry return, and those would likely be things that have a compelling, unusual reason behind them like war bonds.
Are you saying that even a minimal rate of risk such as that incurred in the long run by a 401k automatically outweighs any difference in return? Your portfolio must be something to see!

Arrggggh, this is exactly what I'm talking about! What do you think the rate of a return of a privatized system - including transition costs - would be? You're comparing the rate of return of private investment vs. public investment and paying the existing beneficiaries.

If social security didn't have to pay the existing beneficiares, it'd have a damn high rate of return too.

[Lizard_King]

That must be why Cato states that the rate of return of a privatized system is higher than of the current system, right?

http://www.socialsecurity.org/pubs/articles/bp-040es.html


Well, for one thing it will turn those assets into wealth creating or at the very least not stagnant funds, which is a significant improvement. SS does have a lower rate of return; I can't think of very many private investments that could come close to having such a paltry return, and those would likely be things that have a compelling, unusual reason behind them like war bonds.
Are you saying that even a minimal rate of risk such as that incurred in the long run by a 401k automatically outweighs any difference in return? Your portfolio must be something to see!

Arrggggh, this is exactly what I'm talking about! What do you think the rate of a return of a privatized system - including transition costs - would be? You're comparing the rate of return of private investment vs. public investment and paying the existing beneficiaries.

Oy vey. The difference is that in the shift to the private scheme it is a one-time cost, rather than a continually occurring one. I haven't really seen much to support your assertion that it is an infinitely sustainable system as it stands now; you will have to pay the piper eventually. The opportunity lies in ensuring that when that payment is made we take advantage of it to convert to a system that is not eventually bankrupt again. I think the transition cost, while certainly much larger than a simple stopgap payment, would be manageable if combined with fiscal responsibility in other areas (a big if).



If social security didn't have to pay the existing beneficiares, it'd have a damn high rate of return too.

So if social security wasn't social security it would make more money? Look, the privatized option doesn't cease to provide financial security to the existing beneficiaries. There wouldn't be much of a point if it did. It does so, at a much higher rate of return, with none of the massive deadweight costs of the former system. The "existing beneficiaries" cost you are talking about is a one-time payment to wean people off the previous system. Costly, but far better sooner than later, as it will come eventually in some form. The difference is whether we budget for it or allow it to become a crisis of gargantuan proportions. If you really want to see the day when US government bonds become junk bonds, well, just wait until our parents retire if nothing is changed.

I think the fundamental conceptual issue we are divergent on is that you think the Baby Boomer retirement is manageable, and the transition costs to a private system aren't; and I see it as the opposite and don't think there is any point in reinforcing failure. If that is a fair assessment, I don't see much point in continuing to kick that back and forth.

[Jason McCullough]

Sigh. Look, if you want to privatize you have to pay off today's beneficaries. You'll need to include that cost - 3 trillion - when you talk about the "rate of return" of the new system. Produce that number and we'll talk.

And the "massive deadweight loss" isn't a done deal - there's a wide range of estimates from economists about how much loss SS imposes.

Look at that Cato article I linked; they're all like that. They pretend that the transition cost is an afterthought, not increasing the national debt by half-again.

[bmulligan]

The one time cost of 'buying out' current beneficiaries, if you estimate it a 3 trillion, sounds like a bargain. I'd buy some of that debt, guaranteed to be repaid by the governments increased tax revenue generated by resultant increase in economic growth. You don't think the government has $3 trillion of assets they could sell to pay for it?

But how would you reconcile a 'private' investment program? Mandated stock investment regulated by the feds would create an artificial overvaluation of the stock market similar to the 'dot com' bubble with similar results when people rolled over their investments into bonds or cash en masse as a result of a new regulation in the system or large group of simultaneous withdrawls(retirees). This would give Government insiders tremendous power over their own, and their 'friends' investments.

Why shouldn't SS just be abolished after the distributions? The only reason the Gov wants SS to exist in private form or it's current form is so that it can be used as a scare tactic, bargaining chip and power lever. The more money they have control over=more can be syphoned off, borrowed, mortgaged against, or re-distrubuted.

We should be allowed to keep our %15 and invest it as we see fit. Whether we want to buy gold, stocks, or a new HDTV it should be our choice because it's our money. And if we're stupid enoough to choose not to save for retirement, no one should be forced to support us in our old age.

[Ben Sones]

What % of SS recipients would you say are in bad straights by choice?

Since they have no choice other than to pay SS taxes, none of them.


"People that are in bad straights solely by choice?" What does that mean?

It means that I was replying to your argument that voluntary retirement savings is a bad idea because statistics show that many people don't save. Those would be the "People that are in bad straights solely by choice." Unless orbital mind-control lasers are making them spend all their money rather than investing some of it.


There's no reason you couldn't fund a social security system in society with zero population growth; the "final" generation before population flatline will get back what it put in plus productivity growth.

We don't live in a society with zero population growth, though. Our population fluctuates from generation to generation, which makes this sort of system inherently unstable. The current crop of retirees (and pending retirees, as the Baby Boomers leave the workforce) is far larger than the current crop of taxpayers. The chances that you or I will ever see any return at all on the money that we put into the system is exceedingly low.

Private investment, as you point out, also has risks. But at least I have a decent chance at seeing a good return on my investments in exchange for those risks. And if you don't like risks, just put your money in a bank. You'd get returns comparable to SS with a simple savings account.


Using this expansive definition, buying stock that doesn't pay a dividend is a pyramid scheme.

Care to explain that? Unless the explanation is similar to your homeowner's insurance analogy. If that's the case, I'd rather just skip it.


Why, if you'd just take that money you spend on homeowner's insurance and invest it - after all, it's unlikely that your house will burn down - you'll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!

This is not analogous, for a number of reasons. For one: unlike my income, I don't own my home--the bank does. The bank requires that I have insurance in order to protect their investment. The government has nothing to do with it--it's a contractual obligation, not a federal mandate. If I owned my house, I could opt to cancel my homeowner's insurance, if I wanted to. Some people do.


but the point is that it's an extraordinarly bad idea to opt out of it. You're taking on an enormous risk for a marginal gain in income.

It can be. If you can afford to pay for a new house out of pocket, then paying insurance may not be worth the cost. And even if you want insurance, if you are unhappy with your terms, you can shop around for a better deal. That applies even to people with mortgages. Social Security doesn't offer that option. Social Security is the equivalent of federally mandated homeowner's insurance for everyone, automatically priced at a terrible rate.


Look, if you want to privatize you have to pay off today's beneficaries. You'll need to include that cost - 3 trillion - when you talk about the "rate of return" of the new system.

I agree, but this only applies until the "hidden debt" inherent in the Social Security system is paid off. You keep talking as though SS provides equivalent returns to private investment, now and forever. For instance:


SS doesn't have a lower rate of return than a private system.

Source? Here's Alan Greenspan on the matter:


Those born in 1960, for example, are currently calculated to receive a real rate of return, on average, of less than 2 percent on their cumulative contributions. - Testimony of Chairman Alan Greenspan before the Committee on the Budget, U.S. Senate, January 28, 1999

The average rate of return on a conservative investment portfolio is more like 5%, which means that even a conservative private retirement plan has about 300% better rate of return than SS.

[Jason McCullough]

Ah, forget it. I just can't explain the math well enough. But if you assume that every generation should pay off the hidden equally - by, say, paying for the transfer cost with bonds - then you'll end up with virtually the same rate of return, forever.

The demographic crunch calculations for social security also leave out the fact that the rate of return for private investments will also drop when the worker/retiree ratio goes down.

[Midnight Son]

My brain hurts more than usual trying to sort these circular arguments out!

We do know SS will go bankrupt in the future unless changes are made. We'll have to see what the Congress Critters come up with.

[XPav]

It might cost a bit more, but that's far from going bankrupt.

[bmulligan]

Yeah, it'll be at least 2010-2015 until all the baby boomers turn 65 and start drawing benefits. We've got time to stall and manipulate public opinion until then. Why do today what you can put off until tomorrow for your own political benefit?

[Jason McCullough]

I just realized what bothers me so much about discussing Social Security after reading some comments over on Delong's.

Namely: can you recall privitization proponents *ever* talking about raising taxes, which is an absolute requirement to fund it? I'm not talking about in obscure journals where they discuss it in technical terms, I'm talking about in public. It simply doesn't happen - can you recall a public conservative ever, ever admitting we'll need to raise taxes to privitize Social Security? By contrast, raising taxes to fix Social Security is pretty much all liberals talk about when the subject comes up.

If conservatives want to argue "we're going to have to raise taxes anyway by about as much, so we might as well privitize anyway," fine, go for it. It's an honest debate. That's not what happens, though; what happens is Bush trots out and insists that $1 put into private accounts today *won't* have to be made up by equivalent tax increases elsewhere. Hey look, kids, free money! They know they'll have to pay just about as much to transition to a privatized system, but that's a cost you can reveal after tricking the voters into getting the privitaized system in the first place.

This goes back to something I said previously; there's a real distrust for the concept of deliberative democracy on the right. The conservative position on deficits is pretty much "they won't vote to cut spending like they should, so we'll just cut taxes, run deficits, and then use that to trick them into cutting spending", for example. The vein cuts across a bunch of issues; the 2000 election, LK's preferring a military dictatorship to a democratic government in Chile (albeit a stupid democratic government), Bush's tax cuts, you name it.

[Lizard_King]

That's actually a pretty decent insight on your part, I think. Especially if what you mean by deliberative democracy is what I think you mean.

In a similar vein, I think what you regard as right-wing sneakiness is actually a hell of a lot more honest than left-wing patronization and pandering. And there is the crux of the problem, when you realize what a false dichotomy it is under any deep analysis. Tactics and strategies are just as prone to switch sides so long as you look at a big enough picture.

For instance, you criticize the right for advocating the transition to privatization without mentioning the short run costs, which is an absolutely fair thing to say. But if anything, the difference is simply a matter of scale and complexity when you get to the lies of the left. "Welfare will save the poor, and we won't mention the many complex consequences this will have both from the taxation needed to fund such an endeavour to the problems that arise culturally and materially when giving money away for free."

How many leftist politicians ran on a "We'll give you shit for free, so long as you don't mind remaining an overall impoverished and marginalized segment of the population as a result"?

[voltaic]

Belated apologies, my mention of the USPS was based on the projected $20 billion bailout "loan" against a 2 trillion dollar budget, which would be 1%. While this isn't 3% is still a pretty penny.

Although in all fairness, all "bailouts" of this and the airlines and other crap would be a great place to rescue some funds for any other spending, such as paying down the deficit or whatever.

[bmulligan]

Careful King, poor people are entitled to that extra 'fair share'. They couldn't possibly better themselves or make ends meet on their own because they're helpless idiots. Remember, patronization=compassion.

And they're no longer marginalized, they're mainstream.

[Lizard_King]

And they're no longer marginalized, they're mainstream.

That's one of the more just aspects of the leftist attachment to democracy as an objective good; it is only a matter of time until they are ruled by the whims of the everyday folks for which they claim to have such compassion. Of course, what happens to them happens to all of us, so I guess it's not as amusing as I thought :(

[Jason McCullough]

What the hell do you mean, objective good? And what could possible be worse than pretending your program doesn't have a 3 trillion dollar price tag- it's zero!

[Lizard_King]

What the hell do you mean, objective good?
If it happens by any sort of democratic consensus, pluralities inclusive, it must be the right thing to do. That is, if 99/100 villagers vote to kill the 100th and take his possessions, it's the right thing to do. That's what the hell I mean, and that is why the context of democratic decisions is often more important than the vote itself.


And what could possible be worse than pretending your program doesn't have a 3 trillion dollar price tag- it's zero!

Pretending your income redistribution programs don't have negative consequences that far outweigh the short term benefits? Or pretending a pyramid scheme is a viable means to guarantee retirement benefits, like the people that initially set the stage for that 3 trillion price tag?

[Jason McCullough]

Ah. No one on the left that I know of has that opinion about democracy.

[Lizard_King]

Ah. No one on the left that I know of has that opinion about democracy.

Yeah, right. Hence the histrionics the moment I say anything along the lines of "democracy isn't a good thing in and of itself, and it isn't an end in itself, either". Hence your demand that we consider Republicans more evil because (you think) they do not operate on the prime motivation of populist goals.