January 18, 2005
Sawicky v Kling
Here's an interesting debate in WSJOnline between bloggers Arnold Kling and Max Sawicky on SS reform. To my mind, Sawicky isn't very persuasive. Too much: "there isn't really a problem," plus too much: "there are other big problems, so how can you justify tackling this one and not them?" (Hmmm. Where have I heard that line before?) Arnold has a good response:
...OK, Max, let's get back to one of the points in your first post. You wrote that "the right-now budget crisis stems from tax cuts, military spending increases, and unsustainable, double-digit growth in Medicare and Medicaid."
The way I would put it is that politicians have three credit cards -- three ways of buying votes today and paying later. This involves making promises that will have to be redeemed by taxes collected in the future. Those three credit cards are the general budget, Social Security and Medicare.
Changing Social Security from a transfer scheme to one with personal accounts serves to take away the politicians' Social Security Credit Card. They no longer would have the authority to promise benefits out of future Social Security taxes...
Of course you can't solve every problem at once. Duh. But when you have several problems of a similar sort, then solving ONE of them can create the momentum and believability that make solving the others possible later. And it makes sense to pick the one that's the most brittle and hit it first. (Reason#2 on my List of Ten Reasons for Invading Iraq. That's where I've heard that line before. "We can't solve ALL the world's problems!")
To generalize: If a Republican tries to solve a problem, then 1. It's not a problem. 2. It's the wrong problem. 3. Our problems are too overwhelming, we dursn't do anything.
I do NOT, by the way, agree that there is a "right-now budget crisis." The deficit is decreasing right now, beause our economy is growing strongly and tax revenues are going up. All of which has, I suspect, some mysterious karmic connection with them tax cuts Max Sawicky doesn't like.
Also, part of our budget problems come from the need to buy necessities from Congress, which should decrease as the Republican majority grows with each election. The President bought HSA's by agreeing to the Prescription Drug benefit. I think it was a smart trade, an increase in the welfare state that was probably going to happen no matter what, balanced by a plan that will start teaching people a better approach to paying for health care. Our only hope is for people to become wiser--this is a democracy, and people are going to get what they want in the end. Of course the same point goes for SS private accounts. More important than the direct economic effect is that they will teach people to think like investors and owners, instead of like helpless clients of the state.
Posted by John Weidner at January 18, 2005 07:47 PM | TrackBackSaving Social Security is a no brainer.
Congress just raises the interest rate paid on the bonds in the lockbox.
In fact if the rate was raised high enough the regressive Social Security payroll tax could be eliminated altogether.
Posted by: M. Simon at January 18, 2005 11:28 PMThis is what the left fears. Once people think like investors or owners, they have a much different view of government programs.
There would also be more honest and realistic debates.
Posted by: Aaron at January 18, 2005 11:36 PMSo, M. Simon, Congress decides to put a higher rate on government bonds and then pay itself more money - while it is "buying" those bonds at the higher rate. I saw that in Paul Krugman but surely you can see that this is nonsense. Jeez. (head shakes in despair)
Posted by: Jack at January 19, 2005 10:26 AMOkay, so help me out here. The deficit is receding where? The budget deficit appears to be receding only if you do not factor in the War in Iraq (so how are we paying for that,BTW) and some fictive Budget figures. As for tax revenue growing - where did you find that little nugget?
I also love your statement that when the electorate gets smarter, then the situation will improve. Yeah; they'll vote for real Democrats and kick the Grand Oligrachic Party out of office!
Posted by: Chris at January 19, 2005 12:25 PMChris must be a Democrat, since he's clueless about economic items that are common knowlege.
Posted by: John Weidner at January 19, 2005 01:24 PMTax revenue is growing from year over year now, but remains 15% below the level of Y2K, before adjusting for inflation.
If you adjust for inflation, you have to go all the way back to 1996 to find a year when 2004 revenues are "level". The economy has grown 28% (real) since 1996; we've had an unprecedented slashing of federal government revenue, most of it due to changes in the tax code.
Revenues should be growing now; the federal reserve has pumped in a lot of liquidity, and corporate profits have recovered to new highs. We've got large fiscal stimulus. We should have large nominal growth just to keep up with with the stimulus.
But we're still way behind where a normal recovery would have put us, for GDP, job growth, and govt revenues. And govt revenues will continue to lag far below historical levels even if we get to a more normal trajectory in the rest of the economy, because of the tax code.
We'd have to cut on-budget govt spending by about one-third to come close to matching what the current tax code can generate in revenue (Or we could leave military and interest alone and cut everything else on-budget by half).
Posted by: Buckaroo at January 19, 2005 02:52 PMI don't think this makes a "budget crisis" (My take blogged here and elesewhere) But even if it DID...
The idea that we shouldn't work on long-term problesms because we have current problems is silly. Like saying that since I have too much credit-card debt, I shouldn't move my IRA into better investments.
Fixing SS will be a very slow process, like turning a big ship. The sooner we start it the better. There are ALWAYS current problems that the change-haters can use as an excuse to do nothing.
Yeah but Social Security is NOT a current problem or even possibly a future problem.
Posted by: ed at January 20, 2005 11:05 AM"Yeah but Social Security is NOT [...] even possibly a future problem."
You're kidding, right?
Posted by: Lance Jonn Romanoff at January 20, 2005 07:39 PM"(Or we could leave military and interest alone and cut everything else on-budget by half)."
Sounds good to me...
Posted by: Ken at January 21, 2005 06:49 AMJohn, you're right. Worrying about Social Security when there is a general fund deficit is just like worrying about your IRA investments instead of your credit-card debt.
Of course, any decent financial planner will tell you that if you have credit-card debt, you shouldn't be contributing to an IRA. And given typical credit-card interest rates (18% and up), it is reasonably likely you could come out ahead even by withdrawing from your IRA to pay the credit-card debt (even considering the taxes and penalties for early withdrawal - 18% compounds a lot faster than any market return you can reasonably expect). Not that that is the best way to manage your finances - it is, of course, far better to find a way to cut your spending and/or increase your income to pay your credit card debt, but sometimes that is not possible.
And if withdrawing from your IRA is really your only option to pay your credit card debt, I will note that (under most state and federal law) IRAs are shielded in bankruptcy proceedings (at least before retirement). But that's not an option I want the federal government anywhere near contemplating...
Posted by: Ravi at January 21, 2005 02:39 PM
