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March 25, 2005

Issue a Threat, Pretend It's a Warning

Elizabeth Anderson: March 25, 2005

Suppose you are on a small boat and there is a big ship moving nearby.  "Get out of the way or the ship will ram you!," someone shouts.  If that someone is not steering the ship, or under the command of its captain, he's giving you a warning.  If he's the captain of the ship, he's issuing you a threat.

President Bush is going around the country saying:

Some in our country think that Social Security is a trust fund. In other words, there's a pile of money being accumulated.  That's just simply not true . . . . There is no trust.

What's being accumulated in the Social Security trust fund is trillions of dollars worth of U.S. Treasury Bonds, universally considered the safest investment in the world.  Bush is contrasting the trust to be placed in these bonds with the trust one should place in cold, hard cash -- which is to say, trillions of dollars of U.S. Federal Reserve Notes.  Since both of these are obligations of the U.S. Government, backed by nothing but trust in the U.S. Government, the contrast is slight.

Of course, theoretically, the U.S. Government could choose to default on these obligations.  When someone not in control of government says this, he's issuing a warning.  But Bush is running the ship of state.  He's issuing a threat.

Supporters of Bush will protest that he'll be out of office in 2018, when the Social Security system is projected to start having to redeem the bonds in the Trust Fund.  So, Bush is not in a position to bind the U.S. government of the future.  Hence, he's issuing a warning, not a threat.

But it is a myth that the government cannot do things today to bind itself tomorrow.  The government today can drastically raise the cost to the government of the future of not fulfilling the present government's promises.  The original idea of the Social Security Trust Fund was a mechanism to bind the future government, by drastically raising the costs of going back on the promise to fully fund Social Security.  It's one thing to change the Social Security benefits formula, quite another to default on U.S. Treasury bonds.  If that's not enough, Bush can do more.  He can give speeches around the country, staking the honor and reputation of the U.S. Government on a sacred promise to do whatever it takes to honor that obligation.  He can proclaim that any future U.S. officeholder who dares to advocate default or vote for it deserves to be driven out of office by the voters.  He can announce that any political party in control of government in 2018 who defaulted deserves to lose the trust of the American people, and suffer the ignominy of total, permanent destruction.  He can draw up a Contract with America, including a pledge to redeem those bonds, and bully every  Republican leader to sign it.

What, you say, these are only words?  But words can come back to haunt a party, and a government, whose leader says them.  That's why politicians go around making promises that future party leaders, and future governments, will have to fulfill.  It's a way of raising the costs to the future of not doing the will of the present.

What, you say, Bush only has power over his own party members, not the Democrats?  Please.  It is not remotely plausible that the Democrats would be foolish enough to betray senior citizens, their largest, most powerful, and most quickly growing constituency, by defaulting on the trust fund if they are in control in 2018.  We would have to imagine that the Democrats would refuse to raise taxes if that's what it takes to pay off those bonds.  If Bush thinks the Democrats have become so allergic to taxes that they would refuse to raise taxes even to pay off the Government's primary obligations, he should say so, loud and clear.

So what is Bush doing, in proclaiming "There is no trust"?  He's trying to lower the cost to future governments of default, by proclaiming that there never was anything to the government's promises to begin with.

He's also telling you: "government can't be trusted."  When an outsider to government says this, it's a warning.  When a government officeholder says this, it's a threat.  The Republicans are in control of government.  He's telling you, by implication, that his own party can't be trusted.  And you know what?  For once, I believe him.


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» Shooting Ducks in a Barrel from Pseudo-Polymath
As per usual, Ms Anderson gets it exactly ... wrong. [Read More]

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» Trust And The Spontaneous Order Of Money from Catallarchy
In a series of posts on the leftwing blog Left2Right, Elizabeth Anderson and Neil Buchanan argue against the notion that we shouldn't trust Social Security Trust Fund because it is just an imaginary accounting fiction. Anderson and Buchanan don't den... [Read More]

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Deep in the comments of this characteristically puzzling Elizabeth Anderson post, David Velleman strikes back at those who deny that the state is productive: This is the fallacy that lies behind so much of the distrust of government in which... [Read More]

Tracked on Mar 28, 2005 12:46:50 PM

» Good Government : Nice, But Unnecessary from The Fly Bottle
Deep in the comments of this characteristically puzzling Elizabeth Anderson post, David Velleman strikes back at those who deny that the state is productive: This is the fallacy that lies behind so much of the distrust of government in which... [Read More]

Tracked on Mar 28, 2005 9:01:07 PM

» Good Government : Nice, But Unnecessary from The Fly Bottle
Deep in the comments of this characteristically puzzling Elizabeth Anderson post, David Velleman strikes back at those who deny that the state is productive: This is the fallacy that lies behind so much of the distrust of government in which... [Read More]

Tracked on Mar 30, 2005 6:07:52 PM

» On Senator Cornyn from bennellibrothers.com
M. Yglesias has a great writeup on Senator Cornyn's comments on the Senate Floor. Sen Cornyn stated, 4 Apr on the Senate Floor: “I don’t know if there is a cause-and-effect connection but we have seen some recent episodes of... [Read More]

Tracked on Apr 5, 2005 10:32:59 AM


Posted by: Joshua Macy

That fiend Bush! Threatening not to raise my taxes or drastically cut government services!

"What's being accumulated in the Social Security trust fund is trillions of dollars worth of U.S. Treasury Bonds, universally considered the safest investment in the world." What this carefully elides is that U.S. Treasury bonds don't pay themselves--for US Citizens they aren't IOUs, they're You-Owe-Mes. In order to pay trillions of dollars of bonds the government, no matter who is in power, is going to have raise trillions of dollars more in taxes than it spends. Anderson (and Matt Yglesias, and others who advance this line of argument) like to pretend that all the government has to do is not default and the extra money will magically be realized on schedule. Thus acknowledging this fiscal reality becomes a "threat" instead of a "warning". Honest people acknowledge that the government is going to have to do some combination of cutting Social Security benefits, raising taxes, and cutting non-SS spending. I don't know what to call the person who says "It's one thing to change the Social Security benefits formula, quite another to default on U.S. Treasury bonds." So if we change the benefit formula so that all those bonds are paid out of money that would have been paid out of Social Security, that's ok, but to suggest that we will have to do something along those lines because such bonds don't represent an asset when held by the government, that's monstrous?

Posted by: Joshua Macy | Mar 25, 2005 6:54:04 AM

Posted by: Perseus

Yet another embarrassing--and sneering--post by Prof. Anderson about Social Security. Will they never end?

The president is correct that the government cannot be trusted in this matter. If it could be trusted, there would not have been any need to create such accounting gimmicks as the SS trust fund in the first place to try to force the government to fully fund to its lavish promises. The very fact that the federal government--irrespective of partisan control--includes the SS "surpluses" in the consolidated federal budget account is proof that this particular gimmick isn't working.

As Gary Becker rightly argues, privatization of SS would improve government accounting of revenues and spending obligations. Now this would actually make the federal government more trustworthy. So if Prof. Anderson is really concerned about trust in government, she should be throwing her support behind the president's SS plan.

Posted by: Perseus | Mar 25, 2005 7:41:15 AM

Posted by: No Labels Please

"Some in our country think that Social Security is a trust fund. In other words, there's a pile of money being accumulated. That's just simply not true . . . . There is no trust."

This is a **completely** accurate statement by Mr. Bush. It's important to understand that the last use of the word "trust" is not some sort of Freudian slip - it is to be read "trust fund". There is no fund, or actual savings which is invested in productive activity. The governement has written itself IOUs and has already spent the payroll taxes -[no "lock box"!]. All this means is that when the benefits come due, payroll taxes will need to be raised or third party debt will need to be issued to fund the benefits.

This is all well understood by everyone at this point. Ms. Anderson's paranoid ravings about the President and his 'threat' to cut benefits are embarassing. I think he is being an adult [cf childish academic] by admtting well ahead of time that we need to do something to correct the structural imbalances in the system.

Bush is pointing out a real problem with the dynamics of the system, and is looking for ways to deal with the problem that are different from the extremely high tax / slow growth regimes in Europe. For more concrete examples of what happens to domestic entities that promise high benefits when demographics shift and growth slows look to our auto, steel and airline industries, all of which are essentially insolvent, or headed there shortly.

Bush is looking for ideas that will supply adequate benefits and keep the economy vigorous - is this evil, or merely responsible?

Posted by: No Labels Please | Mar 25, 2005 8:01:32 AM

Posted by: amh

Bush is looking for ideas...where are they? Where is his plan for that matter? Wasn't he the one saying just last week that he "had no plan" and wasn't sure why people kept talking about 'Bush's' plan. So if he is looking for ways to deal with the problem and not just using scare tactics...what is it then? Please explain....with quotes from the Big GB too...

Posted by: amh | Mar 25, 2005 8:40:44 AM

Posted by: john t

Can you just imagine! Someone saying you can't trust the gov't,the horror of it. The trust fund is a fraud,come pay back time one arm of gov't will simplytransfer money to another arm of gov't leaving two options;issue new T-bonds to replace the ones liquidated by SS,or pay [cover ]the liquidation out of general revenue,taxes. We could however follow the sage advice of the savants at the NY Times {the ones who aren't already in rubber rooms } and reduce benefits plus raise SS taxes. It takes a high IQ to appreciate the sophisicated nature of this. It's called a solution. Now it is a unpleasant fact,or given your politics,a pleasant one,that we have already done this,reduced benefits that is. The genius of the left and the Times is that they want to do it again. Ah trust,it's wonderful. As to raising taxes;to return to EA's example of the ship,were said ship to sink A Democratic captain would probably raise taxes before lowering the lifeboats. If freedom entails options then options and alternatives should be provided to those who would exercise them. As it is now people are hog tied to a system that has no viable financial future and no present moral base.

Posted by: john t | Mar 25, 2005 8:57:26 AM

Posted by: D.A. Ridgely

Gosh, you’d think those on the left who, not so long ago deprived of their long-standing government power and now feeling what its like to be on the other side of its arrogant abuse, might start to catch on that you really can’t trust government regardless of which side’s weasels happen to be at the helm.

By the way, if currency is a U.S. obligation, it beats me in what sense that is the case beyond the fact that the U.S. is obligated to accept its own currency to settle any debt owed to it. And the notion that the U.S. might default on treasuries is, while possible only in the trivial sense that it is a contingent universe, otherwise absurd. Perhaps Ms Anderson doesn’t understand the notion of credit-worthiness and re-financing. (And having plenary power to borrow as well as tax the largest GDP in the world makes a government pretty doggone credit-worthy.)

Beyond that, let’s be clear about what it is to break a trust (not in the technical “trust fund” sense, but the moral sense of promise or quasi-legal sense contract) by looking at the closest equivalent to social security – fixed or indexed annuities. If an annuitant is owed a certain level of benefits and the insurer attempts to lower those benefits, he has breached the contract. But the federal government changes the terms and conditions of its welfare programs all the time. Indeed, if I recall correctly, whatever this ‘trust’ is supposed to be between the government and the people, the left is perfectly comfortable with the expansion of benefits based on contemporary political consensus, so the fundamental principles remain the same; namely, there is no contract, merely a regularly changing, politically motivated agreement between politicians who wish to be re-elected and the electorate to take enough from young Peter to pay enough to old Paul to keep Paul happy, then later take enough from young Mary to pay enough to old Peter, etc. Change the electorate’s sense of the role of government by, for example, showing it that non-governmental solutions work at least as well or better and Ms Anderson’s argument falls of its own weight.

Thus, too, when Ms Anderson says it is a myth that government cannot do things today to bind itself tomorrow because it can drastically raise the cost of changing course, all she can mean is political ‘cost.’ Well, that’s politics. Establishing entitlement programs in the first place raises the political cost of reducing or eliminating them, but that’s all.

What Bush is really telling people by implication is that neither his party nor its alternative can be trusted. I believe him, too.

Posted by: D.A. Ridgely | Mar 25, 2005 9:08:20 AM

Posted by: D.A. Ridgely

Ms Anderson’s opening image reminded me of a great, but unfortunately false, story that circulated on the internet several years ago:

Transcript of a radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland.

US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

CND reply: Recommend you divert your course 15 degrees to the north to avoid a collision.

US Ship: This is the Captain of a US Navy Ship. I say again, divert YOUR course.

CND reply: No. I say again, you divert YOUR course!


CND reply: This is a lighthouse. Your call.

Posted by: D.A. Ridgely | Mar 25, 2005 10:16:51 AM

Posted by: john t

The Washington Post has an interesting editorial today "Dishonest Debate". There's a little something in there for everybody but it's focus is on social security.

Posted by: john t | Mar 25, 2005 10:18:13 AM

Posted by: mds

Wow, that's a lot of vitriol packed into such a small set of comments. But Professor Anderson demonstrates that she's no economist, so all the economists posting in this thread are justified in feeling a little testy.

As several of us here seem to agree, Social Security is a disastrous intrusion of the federal government that forcibly hijacks our money while pretending that we'll get it back someday. Hopefully, more Americans will begin to see this, and we can move toward the liberty of personal accounts invested for us by the federal government, in investments that are approved by the federal government, and from the eventual proceeds of which the federal government will claw back the original investment plus its three percent fee. But every account will definitely yield much more money than this, because it's invested in the stock market. That's a guaranteed result that a government entitlement program could only dream of. Best of all, the transition costs can be financed by the federal government borrowing even more money from future revenues. Just as long as the federal government is kept out of it, I'm happy.

Posted by: mds | Mar 25, 2005 10:27:49 AM

Posted by: Stephen Frug

"Wow, that's a lot of vitriol packed into such a small set of comments."

No kidding.

"Yet another embarrassing--and sneering--post by Prof. Anderson about Social Security. Will they never end?"

I sure hope not. They're insightful and interesting and well written. That they tend to attract libertarian trolls is a side effect that, while unfortunate, is well worth the cost.

Posted by: Stephen Frug | Mar 25, 2005 10:46:27 AM

Posted by: No Labels Please

Well the ideas that are "on the table" include:

--raising cap on income level for the payroll tax .
--reducing indexation from wage inflation to CPI.
--reducing benefits for well-off retirees
--private accounts or expanded 401K / IRA system.
--other ideas that interact with a reformed tax code

Some combination of these ideas is probably politically feasible.

Bush's private account idea is an attempt to take some portion of the payroll tax out of the general revenue base, so Congress can't immediately spend it and write meaningless IOUs back to the "trust fund". It has the added benefit of signalling that people should think about being more responsible for saving and investing for their own retirement.

I think it was probably a political mistake to lead with this idea in isolation.

Posted by: No Labels Please | Mar 25, 2005 12:40:39 PM

Posted by: Literally Retarded

Well, I'm not a libertarian, and I'm not sure what you mean by the word "troll," but Prof. Anderson does have two habits that I'm aware of: 1) She writes treatises on economic topics, and
2) She's wrong.

Possibly she (and you) don't understand that the bills and bonds issued by the Treasury represent debts owed. This includes the "money" in your wallet. Over the last decades, the Treasury has been collecting the money you earned (it's in the FICA section of your pay stub), and spending it. Let me repeat that, the money is all spent. This wouldn't cause a problem for Social Security if we all were at least as fruitful as our parents, but we haven't been.

So Prof. Anderson's underlying assumption is wrong. The money in her (and your) wallet has no value except the value that we all put in it - the full faith and credit of the U.S. government. She says that the bonds held by the SSA have the same "value" as the currency, and that is correct. When Social Security collapses, so will the currency. As well as the bonds in your money-market IRA. And our foreign trade, and pretty much the whole economy.

Now perhaps you see why the Administration thinks that this is important. For further details, go to your local college bookstore (this should be easy for Prof. Anderson), and pick up that book by Samuelson that you see freshmen toting around. Read the whole thing (it's not hard, freshmen do it), then come back and remind us of Prof. Anderson's insightfulness.

Posted by: Literally Retarded | Mar 25, 2005 12:42:45 PM

Posted by: john t

Hang in there Stephen,we might have a few followers of pharaonic economics chiming in that'll please you.

Posted by: john t | Mar 25, 2005 12:45:37 PM

Posted by: DJmatheso

I would agree with Ms. Anderson that the government (whoever happens to be in charge) cannot be "trusted" to blindly pay social security benefits when the trust fund starts to run a cash deficit, if she would agree to read the negative connotaion out of the word. This is not an ethical issue.
Ronald Reagan decided that the best way to buy bombers without raising income taxes would be to raise payroll taxes. Congress loved it because everyone agreed with hand on heart to repay the people who funded the bombers. I've never understood why anyone thought that this committment would be kept--in fact I'm convinced that most people who supported the 1983 "fix" didn't really care, because it meant that middle-income Americans like my mom and dad didn't have to let their parents move in with them.

I think everyone who is in that age range should realize they've exchanged value for value: they paid higher payroll taxes, the government funded cold-war defense budgets, and the "greatest generation" moved to Florida and didn't bother their children.
And you know what? Now that the greatest generation is beginning to die off, the regressive structure of benefit payments means that many of them-and certainly the wealthiest half of them-are leaving bequests to their children. That money wouldn't have been there if the elderly had been forced to draw down their savings in retirement.

So I think the government SHOULD start to adjust the benefit formula once the trust fund begins to run a cash deficit. When the middle class starts to have their benefits cut under a means-testing program, they should all console themselves by remembering that they got their mother's china.

One point for those who like the idea of means-testing the program: one way to measure the lifetime income of a retiree is to re-examine 45 years of income tax forms. And easier way is to create a proxy--let's call the proxy a "personal account." When you retire, the government looks to see how much you have in there. It's not really because the money in your personal account is enough to support you, it's because we know that since you were in the upper 15% of income earners for 35 years or so, maybe the handout you get from some working mother trying to feed a family on two part-time jobs (both at Walmart) should go down a little bit.

That would indeed be very sad. After all, you paid all this money and they promised you'd get it back! But you still have your mother's china.

Posted by: DJmatheso | Mar 25, 2005 12:51:44 PM

Posted by: mds

When Social Security collapses, so will the currency. As well as the bonds in your money-market IRA. And our foreign trade, and pretty much the whole economy.

Now perhaps you see why the Administration thinks that this is important.

Which must also be why the primary solution the Administration is pushing is private accounts, since those require even more debt to implement, and the Administration has admitted that they don't address the funding shortfall. Glad to know they're burning the midnight oil to stave off economic collapse. Making the Administration's tax cuts permanent to the tune of 11 trillion dollars over 75 years is a similar heroic attempt to save the world economy from the threat of insolvency.

While she's at the bookstore, perhaps Professor Anderson could also start burning the Introductory Logic textbooks, since clearly no one is reading those.

Posted by: mds | Mar 25, 2005 1:01:40 PM

Posted by: Literally Retarded

"After all, you paid all this money and they promised you'd get it back!"

Now we get to the complicated stuff. Why is the payroll deduction capped? Let's just uncap it. Except that FDR wanted SS to be an insurance program, not a tax. The benefits are entitlements: you paid into the system, now you get to reap the benefits. Except for 60+ years, Congress has been raising the benefits faster than the people have been paying in. When my Dad retired in 1982, it was estimated that he would receive back all "principal" and "interest" in just 4 years. 19 years after that, he's better off than ever, laughing all the way to the bank (but still voting Republican).

By the way, the original retirement age of 65 was set because the average life expectancy in the 1930's was 65.75 years. Get that? My Dad was not supposed to gather benefits for 23 years, not even 4 years, but 3/4 of a year. Then die. If that still worked, SS would still be fine, but...

The current Democratic leadership, which is telling us that there is no crisis, has also been telling us that those rascally Republicans are trying to kill FDR's legacy. And that legacy is that everybody gets SS, so means testing is out of the question. You'll get the same amount as Bill Gates, because that's the way it was meant to be.

The reason that private accounts may help the situation is that they actually earn money, unlike government bonds today. And I can see that this comment is getting much longer than I intended... so go back, read Samuelson, and if you are represented by a Democrat in Congress, ask them to come to the table and help fix SS. We need more and better ideas.

Despite Prof. Anderson's assertions, SS is a political problem shared by all of us and both parties (Clinton called it a crisis ten years ago). I get that she dislikes Bush, but possibly she likes children. I know I like mine. I don't want to leave them with a crushing debt that we could have fixed, but were too snotty with each other to try.

Posted by: Literally Retarded | Mar 25, 2005 1:11:31 PM

Posted by: No Labels Please

A few notes:

1. I think that using the word 'crisis' is probably the wrong way to aproach this issue.

2. Interestingly, if the average lifespan was say 65.75 years, the average lifepsan conditional on reaching 65 yrs was probably more like 5-7 yrs, not .75 yrs.

Today the average expected lifespan conditional on reaching 65 yrs is about 20 yrs.

3. However, the main point here is that the it isn't fair to burden future generations with the retirement problems of the current populations. Also these unstrucutured 'guarantees' lead to bad 'free rider' behavior patterns - reduced incentives to raise children, reduced incentives to save for retirement, etc. We see all of this in spades in the US. It's even worse in Europe.

Posted by: No Labels Please | Mar 25, 2005 1:46:05 PM

Posted by: Colin Danby

U.S. currency is a liability of the Federal Reserve and Treasury Bonds are liabilities of the U.S. Treasury. These are both matters of definition. So Anderson's point that the President's distinction is a little odd is quite valid. Neither asset (from the point of view of those who hold it) guarantees you a given amount of food or shelter, especially at a future date.

And the distinction is also beside the point. Social Security has always been essentially a pay-as-you-go program, in which current income from people with jobs is reduced by a tax and transfer payments are made to people without jobs. To talk about "paying in" in order to get paid back later may have a certain metaphorical appeal but it creates confusion, partly because it leads to fallacies of composition.

Think about it in macro terms for a given year: there's a flow of goods/services being produced, and a group of people earning current incomes from that production that let them claim a share of it. If you want some of that output to go to people like children or old people who don't earn such incomes, you need a mechanism to redirect some of that flow of goods/services away from income-earners and toward non-income-earners. The simplest mechanism is a family dinner, in which some of the output that income-earners get is literally passed to non-income-earners. If you want to redirect output in a more arms-length way, *one* way is to reduce income-earner's share of output by imposing a tax on them, and simultaneously raise the share to others by making transfer payments to them so they can buy that output instead. (It's of course not the only mechanism that can do this.)

That's all a pay-as-you-go system does. The question of why should you trust it is an excellent one, but I think the core answer is pretty simple: old people vote. A government "promise" is valuable *only* insofar as I can mobilize politically to get it carried out. But this is not simply a matter of raw self-interest: ideas matter, what people take to be a reasonable moral claim matters politically. Hence Anderson is entirely right to worry about a weakening of that moral claim.

Posted by: Colin Danby | Mar 25, 2005 1:53:10 PM

Posted by: mds

By the way, the original retirement age of 65 was set because the average life expectancy in the 1930's was 65.75 years. Get that? My Dad was not supposed to gather benefits for 23 years, not even 4 years, but 3/4 of a year. Then die. If that still worked, SS would still be fine, but...

Amazing. Even with all of these modern internets, some people keep trotting out the same false assertions over and over and over...all while lecturing others on how they should become better informed. Snottily, I will attempt to summarize again: A life expectancy at birth of 65.75 years does not equate to a life expectancy of 0.75 more years for someone who has lived to age 65. Try reading one of the statistics books that you see freshmen toting around.

Clinton called it a crisis ten years ago

Oh, now we're supposed to respect President Clinton's judgment? Clearly, he was calling it a crisis purely to distract attention from Ken Starr's investigations. Of course, ten years ago, Social Security's insolvency year was 2030. Now it's 2041. So I'll gladly accept the right's assertion of what a liar Clinton was, if it means people will stop pointing at a future "crisis" in Social Security while ignoring the current crisis in the General Fund.

I get that she dislikes Bush, but possibly she likes children. I know I like mine. I don't want to leave them with a crushing debt that we could have fixed, but were too snotty with each other to try.

Great. So we agree that fixing the 4 trillion dollar shortfall in Social Security with private accounts that cost 5 trillion dollars is off the table. Perhaps we can indeed then move past snottiness and bring the current unsustainable trends in the General Fund under control. How about the 11-trillion-dollar hole blown in the budget over 75 years by making Mr. Bush's tax cuts permanent? Or the new, massively expensive unfunded expansion in Medicare pushed through by some President not named Clinton? Why should those children I like get stuck with the tab for these, or for the Iraq war? And no, that's not a criticism of the Iraq war; it's a criticism of keeping it off-budget and not paid for by our generation. I frequently disagreed with tax-and-spend liberal policies, but the current borrow-and-spend mentality, complete with Senate Republican rejection of a return to PAYGO, is what really sticks the children with crushing debt.

Posted by: mds | Mar 25, 2005 1:57:46 PM

Posted by: D.A. Ridgely

Mr. Danby, an economist, states that U.S. currency is a liability of the Federal Reserve. True, but in what sense does that count against my observation that, being fiat money, it is a liability without risk. What, besides exchanging old presidential pictures with new presidential pictures is the Fed liable to provide?

Posted by: D.A. Ridgely | Mar 25, 2005 1:59:16 PM

Posted by: Peter Wizenberg

One of the hypocrisies of the so-called Social Security system is that it simultaneously is a welfare program while it's supposed to be an "insurance" program.

As the old Yiddish expression says, "You can't dance with one ass at two weddings!"

Posted by: Peter Wizenberg | Mar 25, 2005 3:36:30 PM

Posted by: Literally Retarded

OK, mds, I read those statistics books, and the history books. Note that I didn't say "life expectancy at birth." In 1935, over 50% of senior citizens were living in poverty - they stopped working, they stopped eating. FDR sold SS to Congress, indicating that the best statistical evidence they had at the time showed recipients would get benefits for...wait for it... 9 months! And, oh yeah, it would fund itself.

As to Clinton, I don't think he called SS a crisis because of Ms. Lewinsky - the crisis talk happened first. By the way, Nixon, Ford, and Carter called SS a crisis as well. My point, which I will happily point out to you, was that Prof. Anderson implied that the crisis talk started with Bush. Those of us in the economics field have been talking crisis for thirty years. Know why? Because it will take forever to get anything done. Note current Congressional Democrats' policy: stop changes to SS, whatever they are.

Actually, I wouldn't agree that incurring $5 trillion of debt to fix a $4 trillion problem is "off the table." There are differences in dividends, yields, productivity between the public and private sectors that may (I emphasize, may) make that a good deal.

But since we don't yet have a private account plan to analyze, picking numbers for costs and deficits is mere persiflage.

And of course, Bush's tax cuts...Well, you got me there. Keynes was right, after all (despite what Nixon said). Clearly, that's the reason why our economy lags so far behind the economies of Germany and Japan. Damn those tax cuts! Damn Reagan and Stockman! Damn JFK! They have sold us down the river.

Posted by: Literally Retarded | Mar 25, 2005 3:41:06 PM

Posted by: No Labels Please

The real point Bush is making is that owning private assets against retirement is a safer bet for an individual than redistributive government programs, which are of course subject to the vagaries of politics. Given that Ms Anderson has previously argued that an individual's right to his own income and property are subordinate to state welfare programs it is not surprising that she fails to see the distinction.

The argument about the value of different pieces of paper is not important. What would actually happen if benefits are not reduced is simply this: would the electorate accept an 18% payroll tax? How about payroll tax plus medicare tax of 25% Or would it vote to reduce benefits? Any guesses? The aging of the electorate may be able to force this type of taxation on the next generation of taxpayers.

Posted by: No Labels Please | Mar 25, 2005 3:44:42 PM

Posted by: Peter Wizenberg

Just as a side note, living here in South Florida, one can't help but notice that there are quite a few multi-multi-millionaires drawing Social Security checks. Who will go to the barricades to keep them feeding at the trough?

Posted by: Peter Wizenberg | Mar 25, 2005 3:47:09 PM

Posted by: Colin Danby

D.A. Ridgely asks: "U.S. currency is a liability of the Federal Reserve. True, but in what sense does that count against my observation that, being fiat money, it is a liability without risk. What, besides exchanging old presidential pictures with new presidential pictures is the Fed liable to provide?"

I find the phrase "liability without risk" a little murky, so I may be missing the force of your question, but I doubt we have a fundamental disagreement here: my main propositions are that the level of *real* benefits that I'll get via social security if I live another 25-odd years is a matter of politics, of political economy, and that the government's possession of debt to itself is relatively meaningless to this outcome in *real* terms, though it may have various kinds of *symbolic* importance, and symbols do matter in politics. Since said debt is more or less meaningless in real terms, it would also be meaningless if it were held in bundles of $20 bills. Let's also remember that the "trust fund" (which I agree is a an abuse of language) is just a sort of residual: it accumulates as a result of the difference between flows "in" and "out;" most flows out are matched by flows in. In fact it can be argued that the "trust fund" is little more than an excuse for regressive taxation, but let's leave that aside for now.

I like the word "trust" if it simply means a larger moral, social obligation by current income-earners to older people -- one might debate whether such an obligation is right or proper, but at least it's a meaningful term rather than a red herring.

As a monetary economist I'm tempted to pursue some of the questions of why money has value, but the question in front of us is actually one that can be understood quite well in terms of "real" analysis, that is thinking in terms of flows of actual goods/services.

Misc. notes on other points: social securlty was not intended to be a complete income, and most people intelligently accumulate a mix of real and financial assets and social cross-obligations to support themselves in their old age. There are highly interesting questions that can be raised about the appropriate role of government in supplementing this or not, but discussion is not advanced by a rhetoric of "crisis" that some folks (not D.A. Ridgely!) have employed. I'd also agree with that one does not want gov't investing in private firms, which creates all kinds of political economy problems down the road. We have more than enough contingent gov't liabilities already -- I doubt we have heard the last of problems with Fannie Mae and Freddy Mac.

Posted by: Colin Danby | Mar 25, 2005 4:44:59 PM

Posted by: mds

OK, mds, I read those statistics books, and the history books.

Great. Now read this:


which is a mild attempt at debunking the life expectancy lie that steadfastedly holds its ground in the privatization talking points.

Actually, I wouldn't agree that incurring $5 trillion of debt to fix a $4 trillion problem is "off the table." There are differences in dividends, yields, productivity between the public and private sectors that may (I emphasize, may) make that a good deal.

Okaaaay, but the 5 trillion dollar debt is assumed by the federal government to fund the transition to private accounts, regardless of how private accounts perform. So is crushing debt actually bad for your children, or not?

But since we don't yet have a private account plan to analyze, picking numbers for costs and deficits is mere persiflage.

Whoa, there's no plan? Ordinarily, one would think that those aggressively touting private accounts on the road would actually, you know, bother to work out a plan for them.

And of course, Bush's tax cuts...Well, you got me there. Keynes was right, after all (despite what Nixon said). Clearly, that's the reason why our economy lags so far behind the economies of Germany and Japan. Damn those tax cuts! Damn Reagan and Stockman! Damn JFK! They have sold us down the river.

Um, tax cuts aren't the problem. Taxes can be cut and, yes, raised as needed depending on the economic situation. So good for JFK's tax cuts. Good for Reagan, Bush I, and Clinton's tax increases. Tax cuts without fiscal balance aren't tax cuts, they're tax deferrals. An eleven trillion dollar shortfall over 75 years will have to be paid for, period. By the children you like, or by their children. Permanent growing government deficits are not even remotely what Keynes was talking about. Try reading...Nah, I sincerely hope freshmen aren't forced to read Keynes.

Who will go to the barricades to keep them feeding at the trough?

Well, the Bunning (R-KY) Amendment passed the Senate on a mostly party-line vote, repealing the extra taxes on Social Security benefits for the wealthy that were to help fund Medicare. So ask Senate Republicans.

Er, and everyone who worships private accounts because its "their" money which can't be taken away by the evil federal guvmint under any circumstances should look into (1) clawback, and (2) the existence of federal taxes. If the federal government can, by fiat, prevent the SSA from calling in its Treasury bonds in 2017, it can impose a tax on anything it wants in 2025.

Posted by: mds | Mar 25, 2005 4:46:09 PM

Posted by: D.A. Ridgely

Mr. Danby:

Understood and essentially agreed. I took your earlier comment as a correction to my earlier observation that I found Ms Anderson’s talk of currency as a liability, well, odd; but the major point I was making there was that she has used and continues to use terms like liability, trust fund, etc. in significantly, well, let’s say un-economic ways which I find misleading and unhelpful to the discussion of the underlying moral and political questions which I take to be the real objects of her attention.

I agree that the rhetorical use of “crisis” over Social Security is largely political and analytically both false and unhelpful (as I would argue is also the case in calling, say, current trade deficits a “crisis”) but, hey, that’s politics. Moreover, as others have pointed out, it isn’t as though Social Security had not been “sold” to the American public using misleading rhetoric in the first place, so there’s plenty of blame both historically and currently to spread around.

By the way, and following your correct distinction between real goods and services and "monetary" (really just accounting) issues, the ever readable Steven E. Landsburg offers his typically witty solution to the “looming crisis” of Social Security bankruptcy: cut Social Security benefits in half and start calling the other half "Geezer Pleasers."

Posted by: D.A. Ridgely | Mar 25, 2005 6:13:38 PM

Posted by: Colin Danby

Thanks D.A.R.; Landsburg makes the politics and accounting points very clearly and entertainingly. I jib a little over his last few paragraphs, because I think the savings-to-investment linkage is weaker than he does. And I haven't quite wrapped my mind around the idea that the state should force people to save so they'll support capitalism.

There's another way to address the demographic challenge, at least for another generation or so, which is immigration. There are a lot of smart hard-working people in their 20s around the world who would be happy to make lives and careers in the US of A and pay their social security taxes and add to the growth of total output.

I do think that if one understands Anderson's post as pitched at the level of cultural and political analysis, it opens up interesting questions and ways to think about what is actually going on now. I can spend a lot of time trying to work out analytical frameworks and distinctions, but come election time someone who can offer a big dramatic metaphor that collapses all those levels that I've been trying to prize apart is going to win the most votes. So we need cultural analyses of these duelling metaphors to figure out politics.

Posted by: Colin Danby | Mar 25, 2005 7:07:59 PM

Posted by: neal

Well, the tenet of this whole thread is silly, as if some government of the future could not pay off the federal receipts. But I continue to be amazed by leftists position on personal retirement accounts.

Don't leftists recognize Social Security for what it is: a huge regressive rip off of the middle and lower classes? All of the excess taxes hard working Americans paid into the trust fund were used to finance government programs. Meanwhile, wealthy individuals income taxes are lower because the government programs are financed from the future taxes of individuals. There are several reasons this is unfair.

First, wealthy individuals are then able to invest the earnings that should have been taxed in relatively tax free investments, such as stocks. Second, they gain all the earning power of that money during the "low tax years," those years during which taxes are artificially lower due to use of regressive social security dollars to fund the government. Third, unless the tax code reverses the trend of lightly taxing capital gains, that money will be protected from future taxes, and it will be paid from the income, as if that is where most wealthy people make their money. The rich are going to get a free ride on the backs of the middle class.

It really is just amazing to me that leftists do not applaud George Bush's personal savings plan. It will give a bit of corporate America, or who knows, perhaps even some overseas investment to the average Joe.

But then again, I continue to believe that leftists are the enemy of the middle class, and if one adopts that view then of course the current approach makes sense. Future middle classes will increasingly become the slaves of a government tranferring wealth around to the citizenry. Meanwhile, the leftists are powerless to get the rich to pay their fair share due to clever manipulation of capital gains tax policy.

Posted by: neal | Mar 25, 2005 8:03:23 PM

Posted by: David Velleman

neal: You get one bit right. The middle class has been ripped off by the rich, whose tax cuts were funded by selling Treasury bonds to the Social Security Trust fund. But you get the other part wrong. Private accounts will do nothing to address the rip-off: they are window-dressing on Bush's plan to make the rip-off permanent, by defaulting on the government's debt to the fund. The only way to prevent the rip-off from becoming permanent it is for the government to make good on its obligations to the trust fund -- which is what Bush is threatening not to do. What will happen to Mr. Bush's pyramid scheme when the U.S. government defaults on its Treasury bonds? At the moment, Bush's astronimical deficits are being sustained by the sale of the very same bonds.

By the way, blanket generalizations about "leftists" are now passee on this blog. We got over left-right bashing a few months ago. Get with it.

Posted by: David Velleman | Mar 25, 2005 8:35:36 PM

Posted by: David Velleman

Literally Retarded" says:

So Prof. Anderson's underlying assumption is wrong. The money in her (and your) wallet has no value except the value that we all put in it - the full faith and credit of the U.S. government. She says that the bonds held by the SSA have the same "value" as the currency, and that is correct. When Social Security collapses, so will the currency. As well as the bonds in your money-market IRA. And our foreign trade, and pretty much the whole economy.

Here he says that Anderson is wrong, and then goes on to admit that she is correct -- as of course she is. All of the remarks about the trust fund having been spent are beside the point. When you invest in a business, that money is spent, too. (The business doesn't just put your money under its mattress.) The business has an obligation to pay you back out of future receipts. When you buy a government bond, the money is spent, and the government has an obligation to pay you back out of future receipts. In neither case is the money "there". (And if you're tempted to argue that in the case of the business, the money is spent on productive capacity that generates those future receipts, I will point out that in the case of the government, the money is spent on the infrastructure, education, health, civic order, and security of our society, which will provide the tax base that yields future government receipts.)

The only reason why there is a crisis with respect to repaying the government's obligation to the Social Security trust fund is that George W. Bush has made a train-wreck of the federal budget. In saying that there's no money to repay that obligation, Bush is not warning of something that he couldn't prevent; he's pointing to damage that will eventualy be done by his own actions, and threatening to do nothing to prevent it. That is Liz Anderson's point, and none of the sneering remarks on this thread have touched it.

Posted by: David Velleman | Mar 25, 2005 8:55:07 PM

Posted by: Perseus

I believe that the sneering remarks--which Prof. Anderson also made, "for once I believe him,"--have addressed the issue, beginning with the very first comment.

To quote from the blog article on the subject by Gary Becker:

"Pay as you go systems are in trouble throughout the world in good part because of changes in the number of workers per retiree, but also because of politically determined decisions that changed the system from saving for old age to an inefficient and complicated welfare system for some of the elderly...

If we simply raised social security taxes now-say by two percentage points- consolidated federal deficits would appear much smaller, and the federal government would be under less constraint to reduce spending. Both theory and evidence indicates that a good fraction of the additional revenue would indeed be spent. “Putting aside” assets for the future is very difficult for all governments, subject as they are to immense demands for spending now from various interest groups."


So until Prof. Anderson or Prof. Velleman makes a convincing case that politicians would maintain the kind of fiscal discipline necessary to prevent "default" or cuts in benefits--and Prof. Anderson's proposals are utterly implausible and inadequate--I will treat their arguments as the typical philosopher's building castles in the air.

(And if making generalizations about the left or the right is now passe on this blog, I suggest someone inform Don Herzog since his latest series of posts is replete with such generalizations.)

Posted by: Perseus | Mar 25, 2005 10:51:26 PM

Posted by: D.A. Ridgely

Mr. Danby:

Landsburg offers only the most general sort of gloss, but he does so quite lucidly. Of course, there is no absolutely straightforward savings to investment linkage, but there is a rough and generally positive correlation in the same sense there is a generally negative correlation between current consumption and future productive capability. Since I characterize the current scheme as forcing people to redistribute wealth to support socialism, my position is that if people are to be forced at all they are better off being forced to embrace free markets. That is, of course, a political as well as an economic position and goes to, among other things, how much one does trust government, how one trades off between liberty and security, what constitutes an acceptable result (e.g., universal coverage with lower mean return on investment versus generally higher mean return for most but not all citizens, etc.) and so forth.

I understand that one can read Ms Anderson’s concerns as you describe. I repeat, however, that I find it unhelpful that she and Mr. Velleman and some others continue to equate concepts such as private insurance / government entitlement programs, taxation / investments, financial liability / political liability, involuntary “purchase” through taxation of government services / voluntary market purchases of services, etc. I don’t deny that each of these pairs have some similarities, but they have real and important differences, too, and those differences also need to be recognized and appreciated in our political discourse.

Posted by: D.A. Ridgely | Mar 25, 2005 11:56:35 PM

Posted by: Tom

David V.,

As a conservative supporter of President Bush, I must agree that fiscal policy has been a train wreck. I would have loved to have seen him veto some of those spending bills that he signed. However, let's be real about this. He came into office faced with a stock market meltdown delivered to him courtesy of people finally realizing that businesses that didn't make any profit weren't such great investments. Then came 9-11. We'd been due for an overhaul of our intelligence and homeland security capabilities ever since the '70s when the Democratic Congress started gutting the intelligence services and the military. Clinton reversed the previous spending which had sustained our ability to project military power. We simply had no choice but to spend lots of money on things that had been neglected for 10 or more years.

So the train wreck isn't all Mr. Bush's doing - just as the wonderous '90s weren't all Mr. Clinton's. All that said, I do wish that the Republican controlled Congress hadn't been quite so willing to send the bloated spending bills to the White House that they did.

Your effort to equate government spending to investment in business is breathtaking. Sure, a portion of the money that we give to the government via taxation provides infrastructure that leads to or supports growth, but you're really going a bit too far there. There is nothing produced by government which leads to economic growth. Government only consumes. Some of it worthy, much of it not. Business must produce, else they don't stay around very long. Unless of course the government is willing to bail them out like the airline industry.

Had those tax breaks not been passed, the recession we saw that started in 2000 would have been much longer and deeper.

Bush is not threatening to default on the obligations in the trust fund. Hell, he won't be President when the system rolls over and consumes more than it takes in. The minimal understanding of economics required to see that the burden will be so great as to be untenable to future taxpayers and politicians seems to escape the left. This is no different than the defined benefit pension situation that many retirees are suffering through. The businesses they worked for appropriated their pension funds (with the government's blessing) in order to finance their failures. So what happens? We get a Pension Benefit Guarantee Corp. (essentially funded by taxpayers) that bails these guys out, and we get retirees who see their pension benefits being cut. How much better off would these retirees have been if they owned the assets in their pension accounts rather than just having an essentially worthless claim on the assets of a business?

Posted by: Tom | Mar 26, 2005 12:29:00 AM

Posted by: Colin Danby

Hi D.A.R:

Re EA's post: Just to rephrase my take, I think the binding/unbinding discussion in the middle of EA's post is smart because it understands that words and symbols matter and that they are one way of connecting present and future. She also gets that "trust" is *not* inherent in gov't but created and recreated, and capable of being unmade. I actually think she's not too far from your insights there. (It's because I *don't* trust gov't that I will enthusiastically join the AARP as I approach geezerhood.) But I support all your distinctions, and I'll let EA and DV defend themselves there, as they have more voice on this blog than those of us who are squeezed into the cheap seats.

Re your first para

(1) yes there's a long-term consumption/investment tradeoff (assuming investment isn't wasted); the main question is whether saving causes investment or investment causes saving.

(2) A pay-as-you-go system is redistributive from people with income to people with less current income so it's definitionally socialist in that sense, as is public education. (One might also distinguish analytically between income and wealth.)

(3) I'm not sure what further insight is added by the phrase "*support* socialism:" it's not like social security is tantamount to nationalizing industry. If we're talking about Landsburg's slightly fanciful suggestion that gov't might force saving to build support for capitalism, it would seem that if one opposes social security on libertarian grounds, the appropriate policy is simply to phase it out over time and let people make their own decisions about how much to save.

(4) On the last two points in your first paragraph I agree that these are classic tradeoffs.

You have some interesting points about trust that I'd want to think about more. Just to try out the opposite argument, I don't think that one needs to trust gov't in order to support certain kinds of policies with resdistributive results, as long as they are transparent and relatively simple. What I learn from Hayek is that the greater the information requirements for policymakers, the more discretion they have, and the more opaque to citizens their actions are, the greater the potential for mischief.

And I'm now wondering *who* really *does* trust gov't ... more precisely, for which group of people or political ideology is it really a fair imputation to say that they "trust government" or that their views logically depend on the trustworthiness of gov't? You may have some folks in mind, but certainly all the lefty activist heroes I can think of profoundly and even bitterly mistrusted gov't, and mainstream poli sci has long tended to emphasize an "interest group" notion of politics in which people organize to protect their interests because nobody trusts politicians. A politician may say "trust me" but surely we've all learned to take that with a certain irony. Best, Colin

Posted by: Colin Danby | Mar 26, 2005 1:48:09 AM

Posted by: dbs

I'm no fan of the current President Bush, but I think I can grant all the substance of what Anderson says and still deny that Bush's threat entails that his own party can't be trusted. He certainly isn't being very clear about his long term goals, but that isn't the same as saying his party can't be trusted.

I would reinterpret Bush as endorsing the following position:

1. It may be best to cut Social Security way back at some point in the future, assuming that lower taxes are good and liberals are wrong that justice requires a strong Social Security program. The time to make those cuts might be when the trust fund runs out.

2. Since voters get very upset when someone suggests cuts in Social Security, the best policy is to (a) make it clear that the program could be cut (the warning/threat), (b) change how people think of the program so that they are more willing to consider cutting it in return for lower taxes, assuming that the way they think now makes them unduly susceptible to liberal rhetoric (the private accounts), and (c) allow a budget crisis to develop (more tax cuts, spending increases) that will make it reasonable to consider radical reforms that are now politically impossible.

So, I agree for the most part, but I think Bush isn't being dishonest so much as alluding to a substantive debate about taxes, justice, and the proper role of the state - it is the same debate addressed more directly by Anderson's (excellent) posts on taxes. Naturally, I think he's on the wrong side of that debate, but he and his party can consistently argue for that side and claim to be trustworthy.

Posted by: dbs | Mar 26, 2005 4:21:22 AM

Posted by: Literally Retarded

Let me try to walk this back a bit, without sneering. I took the meaning of Prof. Anderson's original post to be that Bush has caused the crisis in SS through his profligate spending and tax-cutting. Further, that Bush was proposing fundamental changes in SS to solve that "problem." Further, that there was no problem since the T-bonds held by SS were as solid as the dollar.

I was trying to point out that Bush's tax cuts and profligate spending had no more to do with this problem than Reagan's, or Roosevelt's or Nixon/Ford/Carter. This is a demographic time bomb that has been ticking for decades. If there is blame to be laid, it is equally laid on both sides of the aisle, since politicians find it difficult to not spend future money to ensure present votes.

I believe that Bush is trying to solve the problem by weaning the population off of this entitlement over a longish period of time. I have to say this was the obvious solution to me and my fellow Economics students back in the '70's (In fact, most of them, like myself, never believed that we would actually receive SS benefits and arranged our lives accordingly).

I don't believe that Bush (or the Republicans) are trying to kill SS, only make it smaller and permanently sustainable.

It is an economic problem, which requires a political solution. Bush is trying to start a discussion that leads to the solution.

I don't think that Prof. Anderson's post did anything to advance that discussion.

Posted by: Literally Retarded | Mar 26, 2005 9:10:18 AM

Posted by: D.A. Ridgely

Mr. Danby:

Just by way of clarification, I used “socialism” because you used “capitalism” (which, if I recall correctly, was first introduced into the economic literature by Marx and continues all too often to be used by the left as a term of implicit derision.) And, yes, in the sense I implied public education qua state run schools is also socialism and I would prefer to privatize those, too. True, no one is talking about nationalizing manufacturing industry here, but when government at all levels is consuming roughly 40% of personal income and when the sort of social ‘insurance’ program being advocated here also (at least implicitly) includes what we now euphemistically call single-payer universal health insurance, that’s close enough to socialism, broadly construed, for me.

I do support phasing out Social Security over time on libertarian grounds and personally consider ‘personal accounts’ merely a step in that direction, whether the Bush administration takes that view or not. What I learn from Hayek and price theory in general is that centralized or command economies (including government control and operation of specific economic sectors or markets) are utterly incapable of efficient allocation of resources and ultimately unresponsive to the varying needs of individuals. While I agree that one need not trust government in order to agree to properly controlled government programs, my sense of the aggrandizement of wealth and power to government as an historical trend and the inherent nature of politics suggests to me that such proper control is effectively impossible and that the more prudent policy is not to trust government whenever there are viable alternatives.

Finally, while I applaud any increase in distrust of government including the sort that appears to frighten Ms. Anderson and Mr. Velleman, I think as a psychological matter (and even taking identity politics and interest group politics into consideration), people generally do not mistrust government, per se, they only mistrust “those guys” they didn’t support. I don’t support either side; I only pick reluctantly between the lesser of two evils at any given time. The current Republican administration and Congress are giving me more and more reasons (though not including Social Security) to suspect the Democrats may soon be, for me, that lesser of two evils.

Posted by: D.A. Ridgely | Mar 26, 2005 9:10:20 AM

Posted by: john t

I'm curious about the argument that the Federal gov't creates wealth. Did it create the wealth that built any given road in the first place and if so are we in a infrastructure Kenynesian argument? We are talking about the U S gov't here I take it but if that's so it should be pointed out that most spending on education for example is provided by the states and localities. I myself pay close to $4,000 inlocal school taxes. As to health,eliminate what private individuals pay,what private insurers pay,and what is funded by the states and you might have enough left over to provide aspirin to everybody in America. I'd like to think what David V meant was that Federal spending may facilitate wealth. Comparisons between corporate borrowing and Federal borrowing are pointless. Some things to be considered; historical profit ratios,debt to worth ratios, chattel mortgages,croos corporate guarantys,personal guarantys,general security agreements,liquidity,current asset ratios,capitalization,long term debt to net worth,do you want more? Out of all of this you may conclude that corporate lenders have more than one way of getting paid back,rather than just counting on possible future earnings. And yes Bush caused the SS problem,I suspected that demographics have nothing to do with this just as I suspected that the problem began in Jan 2001. Now I know! I always felt that at heart the Democrats were financial skinflints which is why I'm puzzled that they recently beat back a modest efort to reduce Medicaid spending,with the help of a handful of moderate[?] republicans. I,along with other posters,am no fan of Bush's spending policies but does anyone seriously believe that the Dems would spend less? If so could their reduction proposals please be enumerated. Last,if a person wishes to partially opt out of SS on what moral basis does a L-----l tell him he must be forced to remain in as the L-----l demands.

Posted by: john t | Mar 26, 2005 9:44:59 AM

Posted by: D.A. Ridgely

A few more observations:

(1) The problem funding Social Security through the next 50 years is almost entirely the result of my generation being, as one demographer once said, “the pig in the python” and the unprecedented rise in the cost of health care. Neither of these are permanent conditions. Sooner or later, my generation will finally die off, much to the relief of younger generations. I am confident that medical care will eventually begin to become less and less expensive for reasons that go to why it has become so expensive in recent decades (a combination of bad public policy regarding health insurance and the fact that highly labor and technology intensive medicine that finally actually works is itself a recent phenomenon) and to the promises of genetic medicine and less expensive (and less labor intensive) medical technology. I suspect people a hundred years from now will have a hard time understanding what the fuss was all about.

(2) On the other hand, talk about burdening our children and grandchildren with massive debt is just so much rhetoric. Our grandchildren are almost certainly going to be much richer, on average, than we are. I say stick them with the bill, it’s the price they pay for inheriting the rest of the vast wealth we will be leaving them. Similarly, in rough aggregate, it doesn’t matter if we leave them more debt and more wealth to pay that debt because we didn’t tax ourselves and thus left them larger estates or less debt and less wealth because we did tax ourselves. Once again, the question isn’t one of financing; it is one of current spending and, in particular, what we are currently spending for, especially including government spending.

(3) An alternative solution, therefore, is to cut other government programs and services, which I’ll also gladly support. I have yet to hear any specific and substantive proposals from the generic left other than vague and, I think, silly calls for cuts in defense spending and elimination of corporate subsidies (with which I agree, though I don’t think corporations should pay taxes, either), but I would be happy to hear some more. Or is it the position of the left that the only sane public policy is to continue to increase government spending and raise taxes? If so, why? Finally, Mr. Danby acutely notes that immigration can go a long way to solving the near-term demographic bulge problems with Social Security. I agree. I wonder: could I get much support on this blog for the notion of selling citizenships (or at least permanent resident status) to the highest bidders?

Posted by: D.A. Ridgely | Mar 26, 2005 9:46:59 AM

Posted by: No Labels Please

1. If the government is going to guarnateee some type of minimum benefit that can't be opted out of, it needs to have the right to compel savings [or collect taxes]. The libertarian in me would like to allow people to completely opt out of the program, but that isn't really practical, as our society would provide them benefits if they became destititue no matter what piece of paper they signed. And anyway, it's just another redistributive program so the wealthy would opt out and collapse the program.

2. The main point of this thread is a political one - without private ownership can retirees expect to be paid?

3. Another way to think of this is as follows: in 50 years, you will have 66% of the >18 year old population working and 33% retired. There will be a certain amount of goods and services produced in the economy. What share should the retirees get? In a pay as you go system the benefits are determined by the political process. In an ownership society, individuals attmept to directly own a fraction of the wealth and economic output that they need to sustain themselves.

4. In either case the relative health [per capita output] of the economy determines the overall quality of living for the population in agreagate. The shuffling of paper or policy merely detemines an individuals claim on that output. That's why a lower tax, high growth, minimum government intervention policy is the best for all - **and therefore the most moral alternative**. It also has the added benefits of promoting and yes, rewarding [sorry left] personal repsonsibility.

5. Watch Europe screw this one up - it's happening.

Posted by: No Labels Please | Mar 26, 2005 10:02:00 AM

Posted by: Wild Pegasus

I'm a little surprised that social democrats aren't more interested in Social Security reform. The taxes burden the poor and middle class much more than the rich. Benefits are paid to well-off retirees as well as to the destitute. The poor tend to die sooner than the rich, and so enjoy fewer benefits. To me, the current distribution of burdens and benefits skews heavily in favour of the rich.

Personally, I'd like to abolish the programme tomorrow, and I think Bush's privatisation ideas are stupid. But I'm a bit surprised that Democrats aren't calling for benefit cuts for well-off retirees combined with increased Social Security taxes for the rich. I'd be blowing the horn for the first of those two goals, at least.

- Josh

Posted by: Wild Pegasus | Mar 26, 2005 11:28:00 AM

Posted by: Tom

Wild Pegasus,

The problem with Democrats calling for benefit cuts for well-off retirees means that they have to admit that Social Security isn't an **insurance** program, rather a massive pay-as-you-go transfer payment. That is even more untenable as the young realize that as their incomes grow, they will receive less and less from this grand social **insurance** plan.

The second issue is that by decreasing benefits for more well off retirees and increasing taxes on the 'rich', they are admitting that there is a problem that must be fixed. The only way the left knows how to fix a problem is by taxing more.

All of this mumbo jumbo about Bush spending like a drunken sailor is disingenuous. He (and the Congress) are merely keeping alive Roosevelt's programs and the Great Society created by Lyndon Johnson in the 1960s. I can't figure out what they're bitching about from a spending perspective. Why do they care so much about taxing the 'rich' as long as government keeps spending money that will never be there anyway? They had to be dragged kicking and screaming into welfare reform during the Clinton years - which has worked. As D.A. Ridgely noted earlier, about the only place they can find to cut spending is the military.

Posted by: Tom | Mar 26, 2005 11:47:56 AM

Posted by: Don Herzog

The only way the left knows how to fix a problem is by taxing more.

This is worse than tiresome. "The left" thought it a problem that the state supported and for that matter mandated racial discrimination. I don't suppose they dealt with it by raising taxes. "The left" thought it a problem for Southern states to use infamous expedients to prevent enfranchised blacks from voting. I don't suppose they dealt with it by raising taxes. "The left" thought it a problem that people couldn't legally buy contraceptives. I don't suppose they dealt with it by raising taxes. And so on and on and on and on.

Posted by: Don Herzog | Mar 26, 2005 11:54:54 AM

Posted by: Tom


I stand corrected.

The only way the left knows how to deal with a "fiscal" problem is by taxing more.

Sorry it is worse than tiresome. The truth frequently is.

Posted by: Tom | Mar 26, 2005 11:56:52 AM

Posted by: Tom


If the left is interested in fiscal restraint, why has there been so much opposition from them at the federal level to tools like the line item veto? Any veto can be overridden. At least this would force programs that had funding cut in such a manner out into the open to be debated on the merits.

What exactly did we get from the federal government spending $147B on education in FY 2002? Did they open any schools, train any teachers, mentor any students? Why is the federal government involved in education anyway?

Posted by: Tom | Mar 26, 2005 12:07:04 PM

Posted by: Don Herzog

No, that won't do either, there are fiscal problems that "the left" has met with demands for budget-cutting. "The left" has been bashing "corporate welfare" for some time now. "The left" has often chimed in on demands for slashing support for agribusiness. Some of us on the left thought the new prescription drug benefit for Medicare was a giant loser. As to tax cuts, some of us on the left worry about budget deficits in part because of the growing share of the federal budget that goes to interest payments -- if memory serves it's running around 10%.

Posted by: Don Herzog | Mar 26, 2005 12:09:33 PM

Posted by: Don Herzog

Sorry, Tom, I wrote my last one before seeing your second. I don't know that "the left" has been particularly opposed to the line-item veto. There are constitutional issues there that are thorny. As far as the politics of it goes, write your representatives today and urge them to stop cobbling together omnibus bills and sticking in indefensible proposals.

Beats me why the feds are inreasingly involved in education. But I would have thought that was a proposal brought to us by President Bush and a Republican Congress, not "the left."

Posted by: Don Herzog | Mar 26, 2005 12:11:46 PM

Posted by: Don Herzog

While you're writing your elected representatives, you might also write to President Bush and remind him that he has the power to veto bills. He seems to have forgotten about it.

The strategic possibilities for a president without a line-item veto are in some ways more powerful. He can take a giant bill stuffed with indefensible pork and also important stuff and say, sorry, I have to veto the whole damned thing. Or he can credibly threaten that he will veto such bills, and force Congress to present him with individual bills that are actually reasonably well unified. In your letter to President Bush, you might also remind him of these possibilities.

Posted by: Don Herzog | Mar 26, 2005 12:15:12 PM

Posted by: john t

Don H OK so why is criticsm of the right and their policies not tiresome? Better to relax and learn to live with it, it's an intregal part of this site and goes with any debate between right and left. As to raising taxes lets amend that to mean raising taxes on programs that require spending.

Posted by: john t | Mar 26, 2005 12:17:56 PM

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