Rational Action

Tonight I attended a debate about social security with my friends Matt and Karen (I doubt the names matter, but they could come in handy one day.) It was held at the NY Society for Ethical Culture (”They remind me of the unitarians,” said Karen), and the panelists were the honourable Paul Krugman, Joshua Micah Marshall of Talking Points Memo, and Michael Tanner, a proponent of Social Security Choice. The moderator was the toolish Vered Mallon, who has, I believe, appeared on some NYC broadcast network.

We all basically agreed that this debate failed to realize its potential, and we all blamed Mallon for this failure. As she introduced the issue of Social Security, it became clear that she didn’t intend to make herself a disinterested mediator — rather, as she stumbled through her lines, she pronounced the concept of privatization DOA, lacking any semblance of support from the public . What a great way to start off a debate on social security’s future: the other side’s position is politically impossible! So there!

Tanner was the first to present, and he did a pretty good job of parrying back against Mallon. He corrected her claim that he worked for the “Conservative CATO institute”: “Actually, it’s the Libertarian CATO institute.” That Mallon got the terms confused is telling.

Tanner had two primary arguments against Social Security. First that, as an investment, it got people a terrible rate of return. Putting the money in the stock market would increase the return, limiting the need to raise payroll taxes or cut effective benefits. His second point was that, as a social program, it made us all “supplicants” to the government. By taking away money from workers and redistributing it to the elderly, it pitted one generation against another, and dehumanized both. These are, respectively, the Republican and Libertarian positions (They are not mutually exclusive.)

Tanner advocated for a system where there were both a safety net and a forced savings program. Social Security, he said, attempts to do both but ends up doing neither well. This argument is intuitive and defensible. But there is a problem with it, specifically with Michael Tanner’s decision to argue it: Libertarians do not want the government providing a safety net nor a forced savings program! We felt like he was being a bit dishonest, betraying his beliefs in order to argue what was palatable in a public forum.

Krugman, in his delightful (yes, delightful) geeky-academic style, responded to Tanner comprehensively, and was extremely convincing in his tone and his message. I particularly liked his claim that saying that “social security gets a bad return” makes no sense: social security is designed to provide a safety net against misfortunate and old age, not to maximize returns for its participants. Once you show how privatization diminishes that safety net, he said, support for Bush’s vague restructuring diminishes greatly. And while the system has been in place for the past 70 years, Krugman explained that very few people have complained about feeling like they were “supplicants” to the almighty Federal Government.

Joshua Micah Marshall provided some interesting analysis at the beginning, but he really didn’t fit into the debate. His leftish stance also made the debate into a three-on-one, since Vered Mallon felt inclined to moderate by effectively telling the audience just how wrong Tanner was.

Marshall explained Bush’s problems in pushing privatization by distinguishing between the interests of the administration and those of the Congressional Republicans. On one hand, Bush has a legacy to pursue, and changing social security will put him in the history books as one of the “Great Presidents.” On the other hand, for the Senators and Representatives, fundamentally tinkering with Social Security probably won’t net them any gains in the electorate, but it has the potential to make them lose big. The mindset is, “we’ve got a good thing going, and this plan just might screw it up.”

It seemed to me that Marshall would have been an excellent moderator for the debate. While we know he’s not as econ-minded as Krugman or Tanner, he certainly understands the issues at hand and would know how to ask tough questions to both sides. At least it would have given him a role and taken away Vered Mallon, who felt the need to ask, every so often, “So Joshua, how is [current topic of discussion] playing out in the public’s eye?”

In an act which made me want Marshall as her replacement even more, Mallon decided to interrupt Tanner’s closing statement to ask the question (paraphrased), “What about Abraham Lincoln, who talked about letting the government do what the people cannot?!” Well, Mr. Tanner?! Don’t you see?! Your libertarian ethic doesn’t jibe with our great big-government President, Abraham Lincoln! So there!

The debate really should have been about ideology. Even Mallon wanted it to head in that direction, as she asked while introducing the panelists, “Do we want our children to live in a country based on FDR’s New Deal, or Ronald Reagan’s Morning in America?” Yet Krugman and Tanner were stuck responding to questions which danced around pesky ideological differences — I suspect Mallon didn’t prepare to ask anything remotely stimulating because doing so would have precluded her view of Democrat-style liberalism as a foregone conclusion. Only in his closing statement did Krugman begin to explain his ideology of strong worker rights and a stable safety net. Meanwhile, Tanner was always on the defensive, and probably a bit dishonest to beliefs to boot.

I should note that it was wonderful to finally see Paul Krugman in person, and I liked Joshua Micah Marshall’s presentation a bit more than I like his blog. The debate just had a lot of untapped potential. The experience was fun, but it lacked soul.

The Time magazine from March 14 flaunts excerpts of Jeffrey Sachs’ latest book, The End of Poverty. Sachs believes that if the rich nations of the world donate $150 billion every year to a wide range of developmental projects, the UN could meet its goal of halving world poverty by 2015. $150 billion may sound like a lot, but it only represents .7% of the output of the countries which would be doing the donating. In other words, ending world poverty would be an insanely cheap endeavor.

I stumbled across a scathing review of the book in yesterday’s Washington Post. It’s written by Bill Easterly, an econ prof at NYU who believes in taking a less ambitious approach…

Bill Easterly: A Modest Proposal [Sachs] seems unaware that his Big Plan is strikingly similar to the early ideas that inspired foreign aid in the 1950s and ’60s. Just like Sachs, development planners then identified countries caught in a “poverty trap,” did an assessment of how much they would need to make a “big push” out of poverty and into growth, and called upon foreign aid to fill the “financing gap” between countries’ own resources and needs. This legacy has influenced the bureaucratic approach to economic development that’s been followed ever since — albeit with some lip service to free markets — by the World Bank, regional development banks, national aid agencies like USAID and the U.N. development agencies. Spending $2.3 trillion (measured in today’s dollars) in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.

I saw Easterly speak last semester because Xavier was off in Africa or something. He advocated identifying specific objectives which would help to reduce poverty, then trying to achieve those objectives through methods whose success could be easily quantified (Think vaccinations against certain diseases, then measuring the incidence of those diseases in the population.) Sachs, on the other hand, wants to tackle the whole problem in one fell swoop. I’m tempted by Easterly’s position, but it seems like Sachs’ book would be a good read — if only to get me thinking about the problem of world poverty, prior to its solutions.

For some other commentary on the book, see Tyler Cowen (at Marginal Revolution) and Daniel Drezner. And on a side note, the book’s introduction is written by Bono!

Apologies to all readers of Mozilla Planet. I changed my blog so that it used permalinks, and now my old Mozilla posts are flooding the main page. This is probably due to a bug in the Planet software.

For those interested, I’ve got a thesis for a new Mozilla post bumping around the walls inside my skull. Let’s hope Tor doesn’t kick me off Moz Planet just yet.

My new op-ed is in today’s Columbia Spectator. It is titled Trusting the Trust Fund.

For the past 20 years, the Social Security system has put away a portion of its yearly revenue into what has effectively become one of the world’s richest bank accounts. This account, called the trust fund, has over 1.5 trillion dollars in assets. The latest Social Security Administration report predicts that the trust fund will only get richer for the next 15 years, and will then have sufficient funds to finance all of Social Security’s promised benefits until roughly 2042. Yet in his State of the Union address, George Bush implied that Social Security’s crisis would begin when it started to spend its savings, not when it ran out of them. “In the year 2027,” he said, “the government will somehow have to come up with an extra 200 billion dollars to keep the system afloat.”
Continue…

Found a story that I read a long time ago. Goddamn.

The dog frothed at the mouth, lying at the door, sniffing, its eyes turned to fire. It ran wildly in circles, biting at its tail, spun in a frenzy, and died. It lay in the parlor for an hour.

Two o’clock sang a voice.
Delicately sensing decay at last, the regiments of mice hummed out as softly as blown gray leaves in an electrical wind.

Two-fifteen.
The dog was gone.
In the cellar, the incinerator glowed suddenly and a whirl of sparks leaped up the chimney.

There will come soft rains

Yes, my friends, today I finally admit that Paul Krugman does not read this blog. Still, I’m going to connect the dots and claim that he takes inspiration from this fine domain. His latest op-ed column, channeled by way of Brad DeLong, explains that the long-run rate of return from diverse stock investment cannot exceed GDP. Krugman explains that unless the aggregate Price-to-Earnings ratio of stocks continually rises, stock prices must reflect profit growth. And corporate profit growth cannot, over the long-run, be geater than GDP, since that would imply the corporate sector’s eventually becoming larger than the country’s economy itself.

This logic is, in some sense, an amplification of the now-classic Sacarny post, “Conversations with Father: Part 1.” Father was happy to hear that Krugman agrees with him.

Yet the privatizers continue their attack! Former CEA chief economist Andrew Samwick has responded to Krugman’s piece, outlining a defense to Krugman’s argument. I can’t say I understand it, which is a reflection of the complexity of this argument, and thus my understanding of it, not a reflection of Samwick.

Dean Baker, with whom Krugman claims to have worked out the math for his privatization attack, replies to Samwick via MaxSpeak. Again, I am confused.

The blogosphere seems to be advancing well-reasoned arguments along quite quickly, maybe a bit too quickly for my increasingly-economically-inclined mind. Hopefully Samwick will explain himself again, in more Krugmanesque terms. If only they all could!

Dad: Adam, if i told you you could buy either a bond that was risky but would yield more, or a bond that was more assured but would yield less, which would you choose?
Me: Well, in the aggregate, won’t the riskiness of the higher yielding bond mean that the ultimate return on it will equal that of the lower yielding bond?
Dad: Yes.
Me: So that’s why you don’t support privatization?
Dad: If what he was saying made sense, no one would buy treasury bills.
Me: Why?
Dad: Because that would mean interest rates were too low
Me: What? Oh. Because people would need to see a higher return on treasury bills in order to buy then, if other bonds weren’t risky.

Dad thinks people might see a slightly higher return, but he doesn’t buy Bush’s story. Or to quote N. Gregory Mankiw, outgoing chairman of the President’s Council on Economic Advisors, “there are no free lunches here.”

The Senate Democrats have released a few documents outlining their plans for the new session…

MaxSpeak, You Listen! DEMO WONKFEST
The Senate Dems have unveiled their agenda for this year. They have released a raft of documents on election reform, fiscal policy, veterans, economic policy, Medicare, education, reproductive rights, health care, supporting the troops, terrorism, and “Keeping America’s Promise.” (These are MS Word files. Feel free to post and circulate.)

By and large the policies are sound. I’ll start with a few that I felt really hit the nail on its head.
Read the rest of this entry »

Ever since I developed an unhealthy obsession with weather forecasting freshman year of high school, I’ve kept my eye out for websites that would help me play meteorologist. To date, the most useful source has been weather.gov, which offers “forecast discussions” for every region in the country. These discussions are flat text files containing a few paragraphs of weather commentary; they are written by the National Weather Service meteorologists who create the official forecasts. Weather tends to be a bit mundate, and the discussions generally reflect this tendency.

Which brings us to the latest discussion for the New York City area. I count two — that’s right, two — exclamation points!! Then again, when a forecast lists total snow accumulation of 12 to 18 inches as one of its predictions, an exclamation point or two might be warranted.

OVERALL...EXPECT THINGS TO GET RATHER WILD LATE SAT AFTERNOON AND
ESPECIALLY THE EVENING. 35 MICROBARS IN THE BEST DENDRITE GROWTH
ZONE. THIS SHOULD GENERALLY EQUATE TO AT LEAST A COUPLE HOURS OF
2-4" PER HOUR SNOWS WITH EMBEDDED THUNDER. THERE MAY BE TOO MUCH
SHEAR IN THE COLUMN TO GET SLANTWISE CONVECTION TO REMAIN ORGANIZED
AND RESULT IN NASTY DISCRETE BANDING. USUALLY WANT UNIDIRECTIONAL
PROFILE FOR THAT SORT OF STUFF. STILL...SNOWFALL RATES WILL BE HEAVY
ENOUGH BETWEEN 21Z AND 06Z! 

WANT TO GET WORD OUT NOW. 3-5 FT DEPARTUES IN
WRN SOUND LOOK LIKELY AROUND 12Z SUNDAY. WATCH OUT EATONS NECK AND
ASHAROKEN!

GOOD THING THIS STORM WILL BE HAPPENING OVER THE WEEKEND.
OTHERWISE...WE'D BE LOOKING AT MORE WIDESPREAD PROBLEMS. FOR THOSE
SNOW LOVERS OUT THERE...ENJOY...I KNOW YOU'VE BEEN WAITING A LOOOONG
TIME. 

• Most americans know soc sec has problems (~1% think it’s perfectly solvent)
• But they are ambivalent about privatization (~50-50 split)
• Bush is convincing them to accept privatization plan
• Party must adapt
• Republicans are owning the media
• Response from traditional demcrats has been weak. They didn’t get the message out
• Bright spot: the blogs! Have provided very balanced debate
• www.ThereIsNoCrisis.com - but can Dems fight privatization by coming up with something better?
• Dems are working against the current if they try to combat Bush plan with no plan
• people know the system isn’t solvent
• Dems can propose their own plan and take advantage of privatization ambivalence
• Evidence that Bush is owning the debate
• people thinking that privatization will fix the problem
• without a wide conception of “the problem” it won’t
• Congress has a whole bunch of tools to fix the problem, Dems MUST start emphasizing them
• “Indexing” - determines the benefits a generation receives, based on how much that generation pays in
• Wage indexing
• one generation supports another
• pays in benefits from its own wages, but gets benefits “up-valued” based on the wages of the next generation.
• the problem: it assumes a constant ratio of workers-to-dependents
• as people live longer, ratio drops, resulting in overpromises
• Price indexing
• one generation pays for itself, gets back the same benefits it puts in
• Not dependent on worker-to-dependent ratio
• When the current system is changed to price indexing, it generates huge surpluses.
• (One generation “pays for another”, but the payout is only what the earlier, poorer generation “put in”.)
• Bush wants this indexing, and will use the surpluses to ultimately pay for the borrowing for his private accounts.
• What Bush isn’t saying: indexing fixes the problem, NOT THE PRIVATE ACCOUNTS
• Since the Dems don’t want private accounts, they can change the indexing to somewhere between prices and wages, maximizing benefits
• Other tools…
• Raise the retirement age slightly
• 1 year every decade?
• Must act soon! People are planning their lives around this
• Can help to keep worker-to-dependent ratio stable
• Benefit phase-in / Increase progressivity
• Workers start receiving benefits at the same age, but not full benefits
• (Is this a real plan?)
• Or reduce benefits paid out to the rich, (while increasing benefits to poor?)
• Increase revenue
• Gov’t employees don’t pay social security!
• Social security tax (FICA) is highly regressive: poor people pay a greater percentage of their income to it
• 6% by both employer and worker on income up to $90k, right now. after that, nothing!
• Make FICA apply to higher levels of income, or unearned (e.g. capital gains) income
• Can help us to stave off benefit cuts
• Maybe not the best strategy for the dems? Similar to John Kerry’s tax plan