Evidence of safety nets as trampolines

There’s a spike in small-business formation when people become eligible for Medicare and don’t have to fear losing health insurance if they leave their jobs.

Just as James said, people in the U.S. become much more likely to start a small business when they become eligible for Medicare. That’s a like benefit of Obamacare that doesn’t often get mentioned.

Rick Perry’s limited, modified honesty

Perry’s op-ed on Social Security, boldly headed “I am going to be honest with the American people,” calls boldly for “a conversation” on Social Security without actually being bold or honest enough to contribute anything to that conversation but some predictable talking points.

Perry’s op-ed on Social Security, boldly headed “I am going to be honest with the American people,” calls boldly for “a conversation” on Social Security without actually being bold or honest enough to contribute anything to that conversation but some predictable talking points.

Gov. Perry never says whether he thinks that Social Security is Constitutional. In his book Fed Up – which is campaign is desperately trying to shove down the Memory Hole – he writes that the program was established “at the expense of respect for the Constitution and limited government.” If that’s right, then why is Perry talking about fixing it rather than getting rid of it? Doesn’t his oath (as Governor) to uphold the Constitution mean anything to him?

Mr. Perry also never says what he’d actually do “so today’s beneficiaries and tomorrow’s retirees really can count on Social Security for the long haul. Note that there are precisely two options: increase revenues or cut payouts. Which is it, Governor?

Footnotes

1. Actually, of course, there are three options: we could also increase the rate of economic growth so that paying benefits to future retirees will put less of a strain on future fiscal balances. But that’s something the people trying to scare younger workers with “Ponzi scheme” talk would prefer not to mention.

2. Not clear whether Perry’s ghost-writers are lying or just unclear on the concept, but the idea that if the program isn’t shored up it will only be able to pay out 76% of currently planned benefits in 2037 is not in any way equivalent to the idea that “investors” in Social Security have lost “24% of their money.”

Who is my neighbor? (reprise)

Senator Tom Coburn got into hot water with his odd town hall musings about President Obama’s intent “as an African-American male” “to create dependency because it worked so well for him.” In a delightful Freudian inversion, the Senator labeled President Obama’s political philosophy “goofy and wrong.”

I believe Senator Coburn is a good person, but his narrow social vision is quite misguided. If you want to see why, watch this two-year-old CNN clip, and then read here and here.

Periodic reminder: This is day 27,757 of the Social Security non-crisis

With all the rhetoric of Social Security in crisis, I only wish my 401(k) kept its value as well.

This month, I’ve been reading the usual rhetoric about how Social Security is in crisis. I only wish my 401(k) were in the same crisis. So it’s time to update an old column.

Seventy-six years ago this Sunday, President Roosevelt’s signed the Social Security Act into law. According to STATA’s date difference calculator, this is day 27,757 of the Social Security non-crisis. Meanwhile, my 401(k) has dropped by about twelve percent in the past month. Yeah I’m not happy about that. The only things that didn’t tank were my U.S. treasuries. At a scary economic moment like this, I’m glad my future retirement is backed by the full faith and credit of the United States. I’m glad that my parents and my disabled brother-in-law still reliably receive their monthly benefits. Continue reading “Periodic reminder: This is day 27,757 of the Social Security non-crisis”

Hirsute Politics

What’s with the American political phobia against facial hair?

Every since the death of my Mom, I’ve been following the Jewish tradition of not shaving for 30 days after the death — a practice known sensibly enough as the shloshim (which means “30” in Hebrew).  I’ve never grown a beard before, and although it’s still pretty itchy, I can see the advantages of them.

Which of course raises the political angle.

I’m trying to remember the last time a major US national political figure (viz., a Senator, a major-state Governor, or of course the President/VP) had any facial hair, and especially a beard.

The last I can think of was Hugh Scott, the Senate Republican leader in the 1970’s.  (Scott’s mustache and pipe seem classy to me, but would be dismissed as elitist today).  As for major Presidential candidates, New York Governor Thomas Dewey, from the 1940’s, was the last we’ve seen.

And that’s just mustaches.  Beards?  Fuggetaboudit.  The last national political figure with a beard was Henry Cabot Lodge, whom popular consciousness has unfairly maligned as an isolationist who prevented US entry into the League of Nations (actually, it was virtually all Woodrow Wilson’s fault).

It’s not clear to me why this would be.  Do people mistrust men with beards?  Do mustaches give someone a vaguely Snidely Whiplash-like sinister look?  (But doesn’t Inspector Fenwick have a mustache, too?).

Any good theories out there?  Am I missing people?

UPDATE: Quite a few reactions.  Most prominently, I missed former House Minority Leader David Bonior and former NJ Senator and Governor Jon Corzine (apparently, Corzine’s advisors told him to shave for a more popular look, he said no, and now we have Chris Christie.  Just sayin’). 

My bad: Keith wrote an illuminating post related to this in November.

Finally, you can get your very own Henry Waxman “Mustache of Justice” mug here.  Throw it at the television if you get fed up with the new Congress.

Social Security

If George W. Bush’s/John McCain’s views on Social Security of a couple of years ago had been national policy, your retirement could have shared in this meltdown. What’s in your 401K/IRAs?

McCain’s Social Security positions are historically quite labile, and currently incomprehensible. He recognizes that demographically the working/retired population ratio is shrinking, asserts that the taxes needed to maintain a pay-as-you-go system as this progresses would cripple the economy, won’t mess with currently expected SS benefits, and then says private accounts can save it.

Either retirees can consume a given share of the economy’s production without creating any of it and without damaging the economy “too much”,or they can’t. Even if we could arrange it safely, transferring those resources to the elderly through private accounts is not importantly different from using the government to do so: the constraint is in the ratio of the total value created by workers to the value we think retirees should be entitled to consume (and hence deny to workers).

Growing small gracefully

The discussion of rebuilding New Orleans, either where it is or in some better location, may be a special case of a problem that deserves more study. It happens occasionally that a largish region loses its economic raison d’être, something that can happen because of technological change, depletion of an extractive resource, or the rise of a more efficient competitor.

Atlantic Canada used to live on fishing, lumbering, and coal; all these are failing industries. The northern Great Plains used to be agricultural; it still is, but technology has made it possible to grow enormous quantities of grains and soybeans with hardly any labor, so Nebraska is full of dying and ghost towns. Small towns across the South used to live by making textiles; now we get that from China and the towns are dying.

If we accept that hurricanes are a regular thing, the coasts of Louisiana, Mississipi, and Alabama south of Mobile may simply not be sound business propositions for settlement, certainly not at the densities that just got scraped away by Katrina…and lots of other coastal regions maybe should be unsettled by man before nature takes a hand.

What, if anything, should be done about this? On an individual basis, I suppose bus tickets make sense—some sort of relocation subsidy. But most people (and the locals) point out that a region is not just a bunch of families, but a culture that almost certainly can’t be maintained anywhere else. It also has a patrimony of physical infrastructure with cultural value. Furthermore, the bus tickets tend to be used selectively by the young on the way to college or a big city, fracturing the families and leaving behind an aging population and a sad ambience.

The usual policy response is some combination of direct welfare from the national government, attempts to develop tourism based on the traditional culture and natural endowments if any, and industrial development subsidies that have a very poor record. Tourism creates a lot of jobs making beds and serving food, but not much real prosperity. Obviously a population can be sustained anywhere by permanent welfare, but this doesn’t seem to be treating the locals like grownups, more like hired museum exhibits, and it’s probably bad for character to know that one is consuming value without creating any in return.

Is there a way for a national government to help a region to shrink in population gracefully? Do four or fourteen generations in the same mill town give the current one some sort of claim to be enabled to remain when the mill dies? Is a local and irreplaceable accumulation of culture and tradition a resource the larger society should have an interest in preserving, and if so, how?

A village of fishermen not fishing and instead cashing welfare checks doesn’t seem to achieve this, though, and a villlage of descendants of fishermen working in a computer factory, while it might be a good outcome on other grounds, doesn’t seem to either.

Private retirement accounts

Yes, let’s have them, but not as part of Social Security. Instead, let’s spend the tax subsidy on IRAs,401(k)s, and the like to fund individual retirement accounts for every worker.

Steve Teles writes:

I was reading an article by that wizard Kevin Hassett (he of Dow 4 million or whatever) complaining that lots of other countries (including Mongolia) have individual accounts in their social security systems, and we don’t. Thus the Democrats’ resistance to individual accounts puts them to the left of the Mongolians.

But, of course, what Hassett ignores is that we currently spend about $160 billion a year subsidizing 401ks, IRAs, etc. This is, in effect, the “private” component of our pension system. Unfortunately, this huge expenditure does just about nothing, as far as we can tell, to actually increase savings, because it is terribly targeted, and thus goes to individuals who would probably save anyway.

In addition, the crazy-quilt form of the current subsidy creates very large dead-weight costs, due to the tax planning that’s required to administer the system (both at the individual level, and due to staffing at the business level). Most of these costs are off the books, but they are still real costs.

The real kick from savings incentives comes from those who do not currently save now, and they are disproportionately down the income scale. If you assume that we have about 150 million people currently in the labor force, that means that we have an average subsidy per worker of about $1000 a year.

Imagine what would happen if we made this into a flat subsidy, so that everyone got $1000 in an individual account (preferably invested in something like the federal government’s Thrift Savings Plan, to keep costs down). There is almost no question that net savings would go up, because a large part of the subsidy would be going to people with zero (or negative) savings today. In addition, of course, you’d be moving from a highly regressive system to one that was progressive. Administrative costs would drop considerably.

Such a system might be used to leverage additional voluntary savings out of current income, especially if you created a default system of tax withholding for the accounts (so that everyone would contribute some percentage of their earnings, unless they opted not to). We know from behavioral finance research that such a system dramatically increases contributions in private pensions.

The politics of this would be very complex, because there would be substantial losers: the mostly-prosperous folks who now get huge tax benefits from retirement accounts. But this would seem like the direction that the Democrats should be going, to respond to the administration’s “ownership society” rhetoric–it makes a lot more sense to try to increase savings by fixing the tax-subsidy system, which is broken (both in equity and efficiency terms) than by monkeying with the Social Security system, which is working tolerably well.

In addition, the politics of this might not be so bad, since the benefits would be very clear–everyone gets $1000 tax credit right into an individual account–while the costs would be variable and not wholly transparent.

This seems to me like a major idea, both substantively and politically.

I knew Robin Hood.
    Robin Hood was a friend of mine.
    And you, Mr. Bush, are no Robin Hood.

Yes, the poor lose less than the middle class. Is that supposed to be the good news?

Paul Krugman blows the whistle on the claim that the new-model Bush Social Insecurity plan is redistributive toward the poor.

In fact, Social Insecurity version 2.0, as announced by the President at his press conference, would reduce retirement incomes much more for the middle class than for the rich, simply because the rich don’t rely much on Social Security in the first place. Middle-class retirees in 2075 (people earning the equivalent of $35,000-$100,000) would have their retirement income cut by 10-13%. For the people who got the most out of the tax cuts which blew the Social Security surplus, the hit would be much smaller, down to 1% at the million-dollar-a-year level.

Yes, it’s true that the bottom of the income distribution (among those with enough time in the labor force to qualify for Social Security) would fare better than the middle class. But since when is hammering the middle class while doing nothing for the poor in order to pay for tax cuts for the rich “Robin Hood” behavior?

The mask comes off the Social Insecurity plan

The proposal is to cut benefits because retirees don’t deserve to share in economic growth.

The truth emerges: or at least part of it. Thank you, Mr. Wehner.

The Social Insecurity plan (I’m pleased to be told by readers that the name is catching on) was never about private accounts. It was about reducing the incomes of future retirees, who in the BushCo moral universe have no legitimate claim to share in the economic growth that takes place after they retire. Thus the plan to wreck the proudest accomplishment of the New Deal is “a moral goal and a moral good,” and the right wing should be glad that “for the first time in six decades, the Social Security battle is one we can win — and in doing so, we can help transform the political and philosophical landscape of the country.”

Here’s the key sentence:

No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives.

I suppose I must have moved off-planet without noticing it, but the justification for wage indexing seems pretty clear to me. Either benefits go up with wages, or the increasingly long-lived retiree population will become relatively poorer as it ages.

After all, unless Bushite Peronism really manages to wreck the economy long-term, a child born to the average household in 2050 will be substantially richer than a child born to the average household today, without having done a lick of work to earn it. Is that somehow morally shocking? Then why does it violate some law of nature for older people to get richer along with the rest of us?

There’s a case for worrying that rising OASDI tax rates will become a significant work disincentive, especially if benefit levels are only weakly correlated with taxes paid.

And there’s a case for worrying that the existence of Social Security as a relatively generous indexed annunity may be contributing to low household savings rates, and thus both to low national savings rates and to the scandalous maldistribution of wealth that has the typical American dying with not much more than he needs to bury him.

(For a description of these problems and a sketch of possible solutions from someone who wants to fix the program rather than wrecking it, see James Tobin’s Cowles Commission discussion paper from 1987.)

Now I’m more worried about work disincentives at the bottom of the income distribution, where the current Social Security system acts as an implicit subsidy, than at the top, and I’m far from convinced that private accounts are necessary, or even the best way, to deal with the problems of undersaving and inadequate wealth accumulation.

Still, I acknolwedge that the incentive effects of Social Security are worth worrying about, and that a properly-designed private account scheme might be able to fix them.

A properly-designed system, as my friend David Boyum points out, would have private accounts but not free choice of investment vehicles, and it would be progressive: the annual contribution to the private account would be a fixed sum, not a fixed percentage of earnings. And the payout from those accounts would be in the form of indexed annuities, with individuals having the option to reinvest a portion of what would otherwise be the payout in any given year but not to draw the account down faster than the annuity rate.

And, of course, the transition would be financed with some combination of taxation and spending cuts, not by floating another couple of trillion dollars’ worth of bonds; otherwise the change does nothing for the national-savings problem.

But then Boyum asks the hard question: given that there exists a private-account system superior to the current system, should Democrats say that they’re for it instead of rejecting private accounts altogether? If we had a rhetorically masterful leadership cadre, effective control of the communications channels, and a set of opponents constrained by intellectual honesty, or at least ordinary honesty, in their debating approach, there might be a good case for proposing a serious alternative.

In the actual situation, however, where none of those three conditions holds, I’d say that the duty of the opposition is to oppose. (Some Democrats are hedging by simply listing a set of criteria for the sort of “reform” they will endorse, making sure that no Bush plan will meet those criteria. That’s not a bad idea, as long as it doesn’t elide a question of principle into a question of detail.)

Now that Mr. Wehner has spilled the beans, opposition ought to be relatively easy. It’s not often, after all, that an idea this bad is also potentially this unpopular.

Update: Brad DeLong outlines the problem and the solutions.