December 7, 2004

#169: To become free of the scare machine...

P. Krugman

Paul Krugmans's special column today, Inventing a Crisis (12/07/04), interrupts a mini-sabbatical taken right after the election to finish his textbook. So, the topic must be important, right? Well perhaps it is. Nothing sets Krugman's teeth on edge like a privatization initiative and when a Holy Cow of the scale of Social Security is involved, he goes absolutely ballistic.

He begins this column explaining why the Social Security program is not in immediate crisis and why the Bush administration is inventing a crisis to push through privatization. In fact, he is right about much of this. Sure, with a few tweaks here and there the current program could go on forever. We could continue slowly raising the eligibility age, end wage indexing, add a modicum of means testing, etc. So what's going on here? Why make the change? Or, why not?

We think the issue is this. To the Bush administration we could have a much BETTER retirement system IF we could transition smoothly to a system of private accounts. It would be consistent with Bush's philosophy of an ownership society. People would control their own accounts and could include them in their estates. After the transition period, the accounts would boost savings in the sense that people would reduce consumption to fund their accounts. And, over the long run they would actually earn a return. The big IF is the transition period because to finance it, the government may have to borrow. Look for Krugman to hammer away at this part of any proposal ad nauseam.

But here's what we think is really bugging Krugman – though he will never admit it. The cornerstone of modern liberalism is the nanny-state welfare entitlement of which Social Security is the quintessential example. It has kept liberals in power for years by keeping the people dependent and living in fear of losing it. Now game is starting to slip away. As people begin to see a more independent retirement, they will also become free of the liberal scare machine. If Social Security privatization succeeds, Medicare will be next.

In short, Krugman sees the rapids ahead and is paddling up-stream like hell.

The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at December 7, 2004 10:02 AM
Weblog by John Weidner