Update on Graetz tax reform plan

Michael Graetz let me know he was offended by the tone of my admittedly snarky earlier post on his tax reform plan. Without meaning to make our little dispute any worse, since it’s probably better for both of us (not to mention our many mutual friends) to retain civil relations, here is a fuller critique, overlapping a bit with my earlier one but offering a different emphasis.
I feel that Michael’s plan, although presented as major tax reform, does too little to justify its worsening distribution in the zero to $100,000 range.
Michael’s replacement of an income tax by a consumption tax for people earning under $100,000 has only minor significance. People at those income levels don’t save much anyway. The really important change is his eliminating individual or household-level taxation for people in that range. He puts them purely in a business-level tax that fails to adjust for personal circumstances, other than through a sketchy proposal involving employer-administered payroll tax credits.
The income tax today has an effective zero bracket amount. And it taxes people earning $90,000 at significantly higher marginal and average rates than people earning $20,000. The opportunity to do this is why all prior tax reformers I am familiar with, other than the national sales tax proponents who don’t like progressivity to begin with, have considered retention of individual-level taxation to be essential. Are all of the other tax reform proponents, going back at least to Nicholas Kaldor in 1955, wrong? I really don’t think so.
Michael trumpets the claimed benefit of getting the IRS out of lower earners’ lives by eliminating their need to file. But just how important is this, weighed against the distributional benefits of retaining individual-level taxation?
Suppose the VAT rate is 14 percent, as Michael says it might be, but that we would like to have a zero bracket for up to $20,000 of earnings, which the flat tax but not Michael’s methodology makes possible. Consider a low-wage worker without children earning $20,000, for whom the zero bracket would eliminate $2,800 of tax liability. Michael would rather eliminate this individual’s filing requirement, even if we are just talking about W-2s that report earnings, than save him $2,800 of tax by having a zero bracket. I wonder how many people earning $20,000 would thank Michael for this. Note, by the way, that he proposes to offset the tax increase on poor people for those with children – but, not apparently, other poor people.
Unless Michael’s payroll tax credit can sufficiently do the job, he is effectively taking the position that there would be no case for tax progressivity if the top income in our society were $100,000. Given the huge economic difference between earning $100,000 and earning zero, this should rightly be questioned by anyone who believes in progressivity.
It seems to me that Michael cannot deal properly with the low-end distribution problem unless he brings back the very income measurement ideas, on an individual or household basis, that he claims to be throwing out. If he puts the measurement function in some other part of the fiscal system, then he has given up the simplification.
He suggests that employers could provide payments to low earners (as part of the regular paychecks) that are related to family size. I find this suggestion problematic. Outsourcing the distributional work of the tax system to private businesses that are not going to want to bother with it strikes me as a recipe for mischief. Are they supposed to check on the childen’s Social Security numbers? Will they be reluctant to hire workers with lots of children unless the child benefits are foregone, even if the IRS at some point would pay them back? By the way, I gather that relatively few eligible people seek monthly EITC benefits today, even though allowed under the law, in part because they don’t want to share personal information with their employers. Yet Michael seems to assume that periodic, employer-administered payments to low-wage workers will be feasible under his system.
Michael also makes a serious error to the extent that payroll tax credits do not depend on the worker’s overall circumstances apart from the claimed number of children. Once you have issues such as people with several part-time or successive jobs, or college kids working over the summer, you risk either having a badly misdirected subsidy or else being right back where you started, in terms of simplification. And if he proposes to have the government cross-check it all so that workers don’t have to file returns (although they might, depending on his plan, get letters in the mail saying that they have to pay something back), again one wonders about the feasibility. Is it really that important to eliminate filing based on simple W-2s, which would permit distributional adjustments to be made much more easily?
But let’s suppose Michael offers simplification at the low end, albeit potentially at a big equity cost in the portion of the income distribution where a dollar matters the most. Even so, I believe he has misdirected his simplification efforts, and missed 95 percent of the problem.
On the high-income and business end, he mainly limits himself to a bit of hand-waving about partial book-tax conformity, a nice idea in theory but one that is unlikely to work well in practice. I have said nice things about book-tax conformity myself recently, more or less offhand, but I do think it is hard to push this idea very far. For example, the marketplace pressure to state book income high might change if the tax system started relying on it more. And what about Congress monkeying with the tax rules so as to create ever greater divergence - or, for that matter, monkeying with the accounting rules?
So it looks as if Michael basically leaves us with the same old system, with all of the problems he decries, for everything and everyone above the $100,000 level.
Where are the dominant administrative, compliance, and tax planning burdens of the income tax? The answer is that they overwhelmingly relate to high-earners and businesses. Here people not only face complicated issues, but can throw enormous resources at them.
A properly directed tax simplification effort would focus on the billions of dollars that are being spent, but in a social sense wasted, by those groups both on lawful tax planning and on questionable tax shelters. Under Michael’s plan, you’d still have all the game-playing and line-drawing that we see today, drawing on such tax rules as the realization requirement, the myriad interest expense rules, the distinction between debt and equity, the treatment of contingent convertible bonds as opposed to debt plus a separate option, etcetera. So the billions of dollars that are being wasted today on tax planning, compliance, and administration, and the stories about outrageous scams, would continue. [To give Michael a bit of credit, he has in the past been associated with a “CBIT” proposal for corporate tax reform that would wash away the main implications of the debt-equity distinction. That doesn’t seem to be a part of his current plan.]
A progressive consumption tax, unlike Michael’s plan, would greatly simplify the taxation of business and high-earners, while also retaining equity at below $100,000 of income. It also could easily be more progressive at the high end, when we consider the tax planning opportunities that a realization income tax offers. The only virtue that Michael’s plan offers against all this is the greatly overstated benefit he ascribes to filing no tax return instead of simplified returns based on W-2s.
To suggest that progressive consumption taxes are politically unrealistic, Michael notes the failure of the Nunn-Domenici plan. But that example proves little. Although there were good progressive consumption tax prototypes out there, Nunn and Domenici, for some reason, decided to reinvent the wheel, and got it wrong. Their unfortunate detour from a sensibly designed progressive consumption tax does not establish his broader claim that such a tax is unrealistic.
Michael notes that no other country has a progressive consumption tax. That is true, and sobering for advocates of such a system. But he fails to note that no other modern, economically advanced country has his plan either. While nearly all such countries have an income tax/VAT mix, I do not know of any that comparably restricts the reach of individual or household-level taxation. Other countries, like other tax reform proponents, recognize the need to individualize tax burdens based on personal circumstances.
Michael closes his chapter by suggesting that perhaps his proposal is politically impossible. This leaves me wondering even more about his stated ground for rejecting progressive consumption taxation, since he’s now pleading guilty to the same problem.
So I don’t believe that Michael’s plan belongs on the roster of those that are seriously worth considering.

Revenge of the Sith

I must say that I found Star Wars III quite boring. Just endless battles and duels punctuated with Lucas's trademark dialogue. Even the visuals become too little by trying to be too much. But it would have been incredibly rude to say this to certain close blood relatives who live for the saga.
As for the ostensible Bush references, a reviewer somewhere noted that this isn't quite the right movie to criticize people for seeing things in black and white. But it would be a kick if we learned (a la Palpatine) that Bush actually is also Osama Bin Laden.

Musical interlude

Musical note for the likeminded: Brian Eno is releasing, on June 14, his first rock album in 25 years or so. Since I am about to head to JFK (conference in Palo Alto), I suppose his Music for Airports is what I really need, but I am bringing my own supply (have IPod & Walkman, will travel).
A strong recommendation for Belle and Sebastian's just-released Push Barman to Open Old Wounds, a collection of their last few years' singles and EP tracks, perhaps superior to any of their albums since Tigermilk. I already have all the tracks, but if you don't, then try Tigermilk followed by either If You're Feeling Sinister or this.
Also released this week were new albums by Stephen Malkmus and Sleater-Kinney, making this a pretty good week although unfortunately, in my case, not soon enough for my West Coast flight. Oh well, but at least I am still catching up on some old Captain Beefheart albums.

Sometimes a cliche is not just a cliche

"Orwellian" is one of the most overused words around - but - what else can you really say when the Bush Administration denounces Newsweek for a single-sourced story that we now know was essentially true (i.e., the incidents happened even if the military was not on the verge of confirming this officially), and blaming Newsweek for disturbances that its own on-site military officials said were totally unrelated?
When you think of all the lies and deceptions that the Administration fostered in its rush to Iraq, and the horrendous harm it has done to our country's standing in the Muslim world and elsewhere through all the torture and murder perpetrated through its deliberate policies, this one is so far beyond belief that ... I don't even know how to finish the sentence. Utterly, utterly astonishing. When people in the future look back at this, they will be dumbfounded.
The type of mindset one needs to perpetrate and accept this type of blatant hypocrisy doesn't seem compatible with respect for democratic institutions, which is one reason I worry that the forces behind the Bush Administration are unique in U.S. history.
UPDATE: Looking further through the on-line Times I see that Amnesty International has "listed the abuse of detainees at Abu Ghraib prison in Iraq, the detention of prisoners at Guantánamo Bay, Cuba, and the so-called rendition of prisoners to countries known to practice torture as evidence that the United States 'thumbs its nose at the rule of law and human rights.'"
It would be nice to be able to disagree with this. And from the self-centered perspective of an American, it would be nice if our country's leadership at least did not apply this worldview to domestic affairs.
A bit more from Amnesty International:
"'It's not because the United States is the worst human rights abuser in the world but because it's the most influential,' said Kenneth Roth, the executive director of Human Rights Watch, via phone from New York. 'United States disregard for international human rights standards is damaging those standards,' he said, referring to some governments with poor human rights records 'citing the U.S. record to justify their own.'
In a separate telephone interview, Dr. Schulz of Amnesty International USA acknowledged his organization had used 'strong language' because it felt that 'the United States has betrayed a very fundamental principle that this country stands for.'"
So this is not left wing, Jean Paul Sartre-style hypocrisy and double standards. It is a reflection of how far this country has fallen since January 20, 2001.

The wheels of the gods grind slowly ...

Grover Norquist professes puzzlement that his name is plastered all over the infamous Jack Abramoff's billing records. Despite the fact that they work closely together on lobbying and politics alike (to them there is no distinction) and have been close friends and associates since college, Grover insists: "He took the path I didn't take, which was to go make money as a consultant, and I decided to build A.T.R." Don't be so hard on yourself, Grovesterino - may I call you that? - I'm sure you've done fine, too.
If Grover does end up being driven undercover or even doing time, he does at least have a career in comedy to look forward to. Check out this hilarious passage from the above link:
"Earlier this month, Americans for Tax Reform sent letters to the Coushatta tribe of Louisiana and the Saginaw Chippewas of Michigan, saying there 'may be some confusion' about the reason some were invited into White House meetings in earlier years. 'Recent press reports appeared to suggest that some staff of your tribe's previous leadership thought that they were making a contribution to A.T.R. in order to be invited to a White House event,' the letter said."
I wonder how they could have gotten that silly idea?

Best reason yet for 70s nostalgia

William Bundy's "A Tangled Web: The Making of Foreign Policy in the Nixon Presidency" has a final sentence that I find very melancholy now, although it wasn't when Bundy published the book in 1998:
"If there is any single lesson from the Nixon era that stands out above all others, it is that a pattern of deception, of Congress and the American people, is in the end doomed to failure."
Even if bellbottom jeans were tacky, those certainly were the days.

More on the laughable Thomas Friedman

This review is not as funny as the one I linked previously here. But it does show, if you read to the next to last paragraph, that the man has written a huge doorstop on international economics, blurbed by the likes of Nobel economist Joseph Stiglitz, without understanding comparative advantage, which is the single most important idea in international economics and has been known for nearly two centuries.

David Bradford memorial at Princeton

Dave's memorial was a lovely event, albeit on a horribly cold and wet day, in which it was amazing (even for such an occasion) how completely positive everyone's feeling about him were. Apparently, he was easygoing even as an adolescent (!). Also interesting how he had several different parts of his life that people in one part didn't always know about because he was reticent about personal stuff.
Anyway, here is a copy of my remarks at the ceremony:
The first time I ever talked at any length with David will always be a bright spot in my memory. I was in New York City, because I was considering relocating from Chicago to NYU, and NYU’s law dean, John Sexton, had hooked me up with David so that we could discuss the possibility of running a tax policy colloquium together. I remember this trim, vigorous man with a shock of white hair and an amazingly warm smile plus enthusiasm to match. We took a long walk around the Central Village and Soho, and talked about what we could do. It was the beginning of a 10-year run that ought to have continued for another 10 years at least.
David was great to go to battle with, although by “battle” I just mean trying to have a good and enlightening session that everyone, including us, would learn from and enjoy. And it’s amazing to me, in retrospect, how much his enjoyment contributed to mine and that of everyone else in the room. He enjoyed the dialogue, the jokes when they came, and the attempt to understand things better. And he definitely enjoyed the food. I generally picked the restaurants where we continued the conversations with a small group, and I only realized after the terrible thing had happened how much of my own enjoyment was bound up in finding new places that I hoped David would like.
I have never known anyone as willing and interested as him when it came to discussing and pursuing disagreements in an amiable and open-minded spirit. A mutual friend from another university tells the story of how, while still quite junior, he first got to know David, who at the time was running the Public Economics program at the National Bureau of Economic Research. The colleague who tells this story had written a paper that David was strongly inclined, as an initial matter, to disagree with.
For quite a few eminent people whom I have met in academics, the next step, had they been in David’s position, would have been obvious. They would have thought: this guy’s an idiot; he’s junior and I’m not; I don’t like him; he’s certainly not presenting that paper at my forum.
David’s reaction was different. He found it interesting and noteworthy that someone else, by the appearance of things intelligent and thoughtful, viewed the issue so differently than he did. So he called this much more junior person on the phone and said: let’s get together and discuss it. I gather they hit it off personally, which was not hard to do with David, and, after a number of lengthy discussions, David decided that he agreed with the view the paper took.
Not to make him too much of a teddy bear - David was tough on sloppy thinking, and willing to argue as vigorously as he was willing to be argued with. But his enjoyment of it all, and the total absence of anything resembling anger or vanity or pretense, meant that nearly everyone took it well.
I think of David whenever I pass the coffeehouses in the West Village where we used to meet on Wednesday nights to plan the next day’s session. And of course all the restaurants. There are too many of those places. I miss him when I want to compare notes about an idea, or current events, or someone we both know. It was consistently delightful to spend time with him, and of course I learned a great deal, as I think just about everyone who spent time with him did.
We had all these jokes together, as well as a set of ongoing serious dialogues, whether about topics of professional interest, or the war in Iraq, or Daniel Dennett, or behavioral economics, or the instances where I took a skeptical view of someone’s behavior and he was just too nice to see it that way. He really couldn’t imagine, for example, that other people would ever be rude or nasty or disingenuous, because he so completely lacked any such inclinations himself.
Although obviously life is very unfair sometimes, or we wouldn’t be here today for this occasion, in terms of personal reputation you reap what you sow. Gundel has told me how amazing she and other family members found the outpouring of love and warmth and concern that came in from people around the world who knew David professionally, or even just had met him a couple of times. I myself heard from a lot of people who didn’t want to presume on the family’s time, but who felt the same way about him as do all of us here today.
For myself, the long view to take is simply that I am fortunate to have known David for as long as I did. And a feeling of celebration and joy, not sorrow however strong the grounds for it, is what I know he would have wanted people to express and to feel today. So thanks, David, and much though I will miss you I will be thinking of you in the years ahead as if you were still here.

Social Security deform

Sometimes I wonder if it makes sense to quote other blogs that are well-known enough (especially compared to mine) that most interested readers might have seen them already. But I couldn't pass up this nugget from Brad DeLong, concerning the Bush Administration's Social Security activities:
"It is a clown show, an episode of stupidity of a jaw-dropping magnitude:
"1. The administration's Social Security gurus shove Bush out there with talking points saying that we need to act now to pass the Bush plan, because starting in 2017 Social Security will start taking resources away from the rest of the government and that's a very bad thing--and then they roll out a plan in which Social Security starts taking resources away from the rest of the government in 2011.
"2. The administration's Social Security gurus shove Bush out there with talking points saying that passing the Bush plan is essential because if we don't the Social Security trust fund balance will hit zero in 2041, and big benefit cuts will then be necessary--and then they roll out a plan in which the Social Security trust fund balance hits zero in 2030.
"3. The administration's Social Security gurus shove Bush out there with talking points about the importance of restoring actuarial balance to Social Security--and then they roll out a plan which closes less than a third of the 75-year funding gap (and refuse to specify the plan in sufficient detail to allow anyone to do a longer-run analysis)."
This is what people mean when they say, a la the Paul O'Neill book, that this is the first Administration in modern U.S. history that does not have a policymaking process.

David Bradford tribute at National Tax Association meeting

These were my comments today on David at an NTA Tax Reform panel that was dedicated to him. Regular readers will note some thematic overlap with my Wall Street Journal piece.

In tax reform circles, David Bradford is best known as a leading, or really the leading, consumption tax advocate. But he was an unusual sort of advocate. In law, we think of an advocate as someone who’s paid to take a position. Thus, if you’re arguing in front of the Supreme Court, it somehow turns out that all issues and precedents favor your client.
Academics who take an advocacy stance in public policy ought to be different than this, but all too often they are not. We could all tell stories about people torturing the data until it confesses, or trimming their sails to retain political influence, or endorsing debased versions of their pet proposals in the hope of making a sale.
David could not have been more different. He was an advocate only in the best sense of having a considered view.
David first encountered tax reform when he went to the Treasury in the 1970s and developed what became Blueprints. During that time, he acquired what became a lifelong preference for consumption taxation. This preference stood on two main grounds. The first and main one was that he didn’t think it made sense to base a portion of distribution policy, as does an income tax, on whether one has a taste for sooner or later consumption. Second, as an economist who was willing to talk to tax lawyers – a trait I always found endearing – he came to see just how much complexity and tax planning come out of trying to tax the second half of the Haig-Simons income formula, change in net worth.
While a consumption tax advocate, David was one of such almost excessive intellectual scrupulousness that he absolutely refused to make quite reasonable arguments in its favor that weren’t at the core of his considered view, such as that a consumption tax might be more efficient or might increase national saving. He also objected strongly to claims that the transition to a consumption tax could result in a lump sum wealth tax that people would neither see coming nor expect to recur. He did a great deal to advance our understanding of income to consumption tax transition, which he showed amounted to wiping out income tax basis. But I think he started from the instinct that the claim of a free lunch from an efficiency standpoint was simply too convenient to be true.
David came to worry so much about transition when the rates change from year to year in a cash flow style tax that he spent much of his last few years trying to fix the problem. He actually made the X-tax a lot more complicated-looking so that rate changes wouldn’t cause big distortions or anomalies at the boundary between tax years.
Needless to say, this was not a problem that he needed to address in terms of the politics of promoting the X-tax. If anything, he was making his system a harder sell by muddying the optics, but he did it because he actually cared above all about intellectual scrupulousness and about a system that would work as well as possible in practice. He would have said: leave it to the politicians to make omissions or compromises that worsened the system but made it enactable. That wasn’t his job.
The funny thing during this period was how David kept moving towards income tax-style accounting, reflecting that a Haig-Simons income tax, or even one using accounting rules to get there approximately, doesn’t face significant transition issues from rate changes. I used to kid David that, once he finally persuaded everyone else in the world to favor a consumption tax, he would turn into the world’s last remaining income tax advocate.
It’s hard to predict the future, & I’m personally not sanguine that a progressive consumption tax, which he over time persuaded me to favor, is actually where we are headed. But if we do ever get there, David will deserve a lot of credit for laying the intellectual groundwork, both in terms of how to think about the systems and in terms of institutional design.
If you compare David to Henry Simons, who did so much to make comprehensive income taxation a dominant intellectual norm, the comparison is very much in David’s favor. Simons’ main argument for income taxation was formalistic. He argued: we have an income tax, and this is what income really is. Thus, in his book Personal Income Taxation, he disputed Irving Fisher’s advocacy of a consumption style base mainly on the ground that it wasn’t really “income.” David believed in a much more fundamental style of policy analysis.
Indeed, one of David’s greatest strengths was his insistence on breaking everything down to fundamentals. For example, whenever he heard anything about taxing capital, he would say: What’s that? There is risk. There is waiting. There are returns to labor or to having a good opportunity or a good idea. But “capital,” in the way it is often used, doesn’t mean anything, or else it means too many things.
Everyone who is interested in tax reform could learn a lot from David Bradford. If they decide to agree with him about the X-tax or the Blueprints cash flow tax, great. But I personally would settle for general acceptance not just of his level of intellectual scrupulousness but also of his insistence on careful and precise analysis.

Nuking the nuclear Doctor Frist

Why, in this blog, am I taking such an interest in the nuclear option, which isn't exactly a tax, budgetary, or entitlements topic?
Well, if I plug the Go-Betweens and Fiery Furnaces here, then why not the nuclear option. But there is another reason, bringing it closer to home professionally.
I'm currently writing a book, tentatively entitled "The Use and Abuse of Fiscal Language," that discusses the often poor relationship between fiscal terminology (taxes, spending, deficits, etc.) and underlying substance, such as the allocative and distributional effects of policies however labeled. One of my interests in the book is the long-term fiscal problem we face - in part how to think about it and devise measures for various distinct considerations (such as effects on generational distribution as opposed to policy sustainability), but also just how bad the problem may get and why our political system is letting it potentially get so bad.
Rightly or wrongly, I have discerned that a very important cause is the crazy, and in a historical sense un-American (just as Bin Ladenism and fascism are alien to our best traditions) ideology of the radical right that has taken over first the Republican Party and then, more tenuously, the country. Other instances of seeing these guys at work - lying and twisting language, insisting on total victory, turning on cue like a flock of birds, shredding any notion of cooperation with political rivals or of valuing legal and institutional norms, etc. - are therefore of professional interest, you see. There, I've explained it.
If there's one thing I look forward to, by the way, it's the day (if it comes) when I get to return to being a plague-on-both-your-houses-style political observer, rather than being so appalled by one side that I am forced to sound like I am on the other team however out of place I would actually feel there.
Anyway, after this lengthy windup, here's the pitch, a delightful excerpt from today's Senate floor debate, courtesy of the "Think Progress" website:
SEN. SCHUMER: Isn’t it correct that on March 8, 2000, my colleague [Sen. Frist] voted to uphold the filibuster of Judge Richard Paez?
SEN. FRIST: The president, the um, in response, uh, the Paez nomination - we’ll come back and discuss this further. … Actually I’d like to, and it really brings to what I believe - a point - and it really brings to, oddly, a point, what is the issue. The issue is we have leadership-led partisan filibusters that have, um, obstructed, not one nominee, but two, three, four, five, six, seven, eight, nine, ten, in a routine way.

Gee, that Frist is one smooth talker. Silver-tongued devil ...

Memorials for a good man

Tomorrow (Thursday) I will be in Washington, giving a brief memorial talk concerning David Bradford at a National Tax Association tax reform panel. The next day, I will be in Princeton giving a brief talk concerning David at a memorial service on campus. Completely different talks, of course, because one is a more professional setting and the other more personal.
I will post both talks here after giving them.

Update on the nuclear option

Norman Ornstein at AEI explains the utter lawlessness of the "nuclear option" with far more precise institutional knowledge than I could muster on this topic in my earlier post:
The Senate is on the verge of meltdown over the nuclear option, an unprecedented step that would shatter 200 years of precedent over rules changes and open up a Pandora's box of problems in the years ahead. The shaky bipartisanship that holds the Senate together--in a way that is virtually absent in the House--could be erased. Major policy problems could be caught up in the conflict. The Senate itself would never be the same.
Let us put aside for now the puerile arguments over whether judicial filibusters are unprecedented: They clearly, flatly, are not. Instead, let's look at the means used to achieve the goal of altering Senate procedures to block filibusters on judicial nominations.
Without getting into the parliamentary minutiae--the options are dizzying, including whether points of order are "nested"--one reality is clear. To get to a point where the Senate decides by majority that judicial filibusters are dilatory and/or unconstitutional, the Senate will have to do something it has never done before.
Richard Beth of the Congressional Research Service, in a detailed report on the options for changing Senate procedures, refers to it with typical understatement as "an extraordinary proceeding at variance with established procedure."
To make this happen, the Senate will have to get around the clear rules and precedents, set and regularly reaffirmed over 200 years, that allow debate on questions of constitutional interpretation--debate which itself can be filibustered. It will have to do this in a peremptory fashion, ignoring or overruling the Parliamentarian. And it will establish, beyond question, a new precedent. Namely, that whatever the Senate rules say--regardless of the view held since the Senate's beginnings that it is a continuing body with continuing rules and precedents--they can be ignored or reversed at any given moment on the whim of the current majority.
There have been times in the past when Senate leaders and presidents have been frustrated by inaction in the Senate and have contemplated action like this. Each time, the leaders and presidents drew back from the precipice. They knew that the short-term gain of breaking minority obstruction would come at the price of enormous long-term damage--turning a deliberative process into something akin to government by the Queen of Hearts in "Alice in Wonderland."
Rule XXII is clear about extended debate and cloture requirements, both for changing Senate rules (two-thirds required) and any other action by the Senate, nominations or legislation (60 Senators required). Ignored in this argument has been Senate Rule XXXI, which makes clear that there is neither guarantee nor expectation that nominations made by the president get an up-or-down vote, or indeed any action at all.
It reads: "Nominations neither confirmed nor rejected during the session at which they are made shall not be acted upon at any succeeding session without being again made to the Senate by the President; and if the Senate shall adjourn or take a recess for more than thirty days, all nominations pending and not finally acted upon at the time of taking such adjournment or recess shall be returned by the Secretary to the President, and shall not again be considered unless they shall again be made to the Senate by the President."
By invoking their self-described nuclear option without changing the rules, a Senate majority will effectively erase them. A new precedent will be in order--one making it easy and tempting to erase future filibusters on executive nominations and bills. Make no mistake about that.
The precedent set--a majority ignoring its own rules to override longstanding practice in one area--would almost inexorably make the Senate a mirror image of the House, moving the American system several steps closer to a plebiscitary model of government, and the Senate closer to the unfortunate House model of a cesspool of partisan rancor.

Silly season at the US Treasury Department

The New York Times reports that the Bush Administration, or more specifically the Treasury Department (although I suspect political input), is now yelling at China for keeping the dollar too strong against the Chinese yuan by buying hundreds of billions of dollars in Treasury securities. Indeed, we are apparently threatening unspecified retaliation.
This is pretty hilarious on several levels. One is that the Chinese are subsidizing us by enabling us to buy their imports more cheaply. But the main one is that the Chinese are contributing enormously to funding our profligate budget policy by gobbling up all those Treasuries. Who knows when the "hard landing" would start if they weren't doing it? Moreover, I would say they are being very unwise from their own financial standpoint. Not only they are probably quite under-diversified, but they are making what strikes me as a very risky bet, given the long-term U.S. budget picture and evident lack of political will to start addressing it seriously.
Imagine if the Chinese saw the error of their ways, or bowed to the threat, by changing their market stance on US Treasuries from buy to sell. The ramifications would be world-wide, but we would probably feel them the most.
How are we planning to retaliate, anyway? Maybe by defaulting on the bonds or printing money to devalue them? That's probably the best threat we have in terms of effects on them, leaving aside the effects on us.
In making these threats, the Bush Administration reminds me of the story about the scorpion that stung the frog that was carrying it across the stream. "Why did you do that?" the frog asked as it started to die and the scorpion started to drown. "It's just my nature," answered the scorpion.

A not very good idea

Michael Graetz's tax reform idea, which Graetz pushes at every possible juncture like a little kid trying to let the teacher know that he really, really needs to go to the bathroom, has been getting some play lately, so I thought I would address it.
On the plus side, I decided not to call it a "bad idea" in the heading of this entry, because that would be overstating things considerably. Bad compared to what? Surely better than present law. But bad, I would say, compared to some other prominently discussed tax reform ideas, such as the X-tax or the cash flow consumption tax.
Graetz's big idea is to combine the income tax with the consumption tax, having a flat-rate version of the latter apply to everyone while the income tax applies only to people with taxable income above $X (say, $100,000). In his 1997 book, in order to make the rates sound good, he very sneakily quoted estimates concerning revenue-neutral tax rates that were unrealistic because they had what tax analysts call a "cliff" like you wouldn't believe. To illustrate, suppose that his income tax rate was 25%, and that his version would only apply to people who earned $100,00 or more. He pitched rates that were based on the idea that someone with income of $99,999.99 would pay no income tax, while someone at $100,000 would pay $25,000. He realized that no sensible system could actually be designed this way, but wanted his sales pitch to sound good and evidently did not much care if this reflected trickery.
But on to the Graetz plan. Its main point is to eliminate, he says, 100,000,000 unneeded tax returns. After the gambit I described above, one is hardly inclined to trust him on this number. But yes, all else equal, it would be nice if fewer people, especially in the lower ranges, needed to worry about filing income tax returns.
Keep in mind, however, that poorer people would still have to figure out income, earnings, or some such thing for various other purposes, such as the earned income tax credit (whatever form it would now take), along with welfare, Food Stamps, Medicaid, rent subsidies, etc. So he's really reducing compliance burdens for the middle class, not the poor. Also, what about home mortgage interest deductions, charitable contribution deductions, etc.? Not that we necessarily need these things, the former especially, but does it really seem politically plausible that we won't still have them? So we are now probably down way below 100,000,000 fewer returns.
Thus, the benefit Graetz trumpets is being greatly oversold. How about what he doesn't do?
The really big money, in terms of administrative waste from our current system, is in business taxation and the upper income echelons, not the folks at the bottom, who may find their tax returns annoying but only spend limited resources on planning and return preparation. Think of all the billions of dollars that businesses spend on tax planning, ranging from the totally permissible to outright sheltering. A company can't even raise funds without a lot of wasteful tax planning going on in order to determine what labels to put, for federal income tax purposes, on the instruments it issues (e.g. debt, equity, options, etc.). Rich people as well as businesses spend enormous resources on tax planning and compliance, constituting waste from a societal standpoint even if it is completely above-board. All this is due far less to deliberate income tax preferences than to structural problems with the existing income tax (the realization requirement, the debt versus equity distinction in corporate tax law, etc.).
This enormous and costly mess would remain intact under Graetz's scheme, except perhaps for a minor benefit from income tax rate reduction, whereas the X-tax and the cash flow consumption tax would reduce the tax planning and compliance issues very substantially.
So Graetz's plan, which is predicated on reducing administrative and compliance costs, almost completely misses the predominant source of such costs. Good job, Michael.
Lately Graetz has been saying that the way to transition into his system politiclaly is by repealing the regular tax and letting the alternative minimum tax (AMT) take over. This suggesion is not entirely unmotivated, I would guess, by a tincture of vanity. Graetz proposed replacement of the regular tax with the AMT back in the 1980s, and thus he may think that he will look like a prophet if it actually happens now. By the way, he failed to foresee in the 1980s what a mess it would be when both systems were applying at the same time, as has been increasingly happening recently.
What he conveniently overlooks today is the fact that the AMT these days is rather a mess, and not really the system one would choose as a tax reform template. For example, it does not allow personal exemptions for dependent children, whereas family size clearly should affect tax liability. (See my recent article, posted on SSRN, entitled "Households and the Fiscal System," available here) The AMT also unreasonably denies what the Code calls "miscellaneous itemized deductions" for certain costs of earning income. And the AMT doesn't allow state and local income tax deductions to individuals. Thanks a lot, say the blue states. In truth, there is something to be said for denying these deductions, but once again this is an issue that needs to be tackled directly. We are not going to back into it just by purporting to use the AMT, and once we are adjusting the base to include elements of the regular tax it is no longer quite true, in any meaningful way, that we are keeping one tax and dropping the other.
Although I am expecting little from the Tax Reform Commission given the overall political context (otherwise I might hope for something, as there are some very good people there), I would certainly be disappointed if the Graetz plan was the best they could come up with. There are much better plans out there, and I hope they will have the good sense to say so.

The death of law and rules

One under-appreciated aspect of the ongoing "nuclear option" controversy in the U.S. Senate is what it tells us about the current health of the idea, predominant in U.S. political culture for the last couple of centuries, that laws and rules should be followed in an honest way. Apparently very few on the right believe in this idea any more (despite all the blather about "strict constructionist" judges), and without it democracy and the rule of law are in great danger.
Whatever the merits of filibusters - and certainly both sides are wildly opportunistic on this question - it is unambiguously the case that the "nuclear option" gambit is unlawful, albeit that there is no enforcement mechanism to stop it if it gets the 50 votes needed to let Cheney settle it.
The basic underlying point here is that the Senate governs itself by rules that cannot be changed without 60 or 67 votes. But interpretation of the existing rules requires only a majority vote. This is a sensible and workable way to run things. Both sides may want some measure of minority protection since they know they will occasionally be in the minority. (Call it risk aversion.) If everything required 60+ votes, then only a super-majority could ever do anything. But if everything required only 51 votes, there would be no minority protection.
So the existing distinction is a reasonable and sensible way to carve things up. But it requires some modicum of good faith behavior in interpreting what the current rules say. Inevitably there are ambiguities about whether a given motion is plausible rule interpretation or rule change, but there are also very clear cases on one side of the line or the other.
Ruling filibusters of judicial nominations improper under the current rules is unambiguously a rule change, not rule interpretation. And the argument that the existing rule is unconstitutional, because the Senate is supposed to advise & consent on nominations is so ludicrous, given the Senate's leeway to decide its internal rules that determine how it decides whether to consent, that even the National Review and Wall Street Journal (I think both, though I'm not 100% sure) have admitted as much.
Acting unlawfully, and in bad faith given the rules, used to be frowned at, but no more. Not just sleazoid politicians but conservative megaphones such as the NR & WSJ take the view that this just doesn't matter. All that matters is getting the results they want, winning the showdown, etc.
This is how Saddam Hussein used to think about law, and no doubt still does.
And of course it is no isolated instance. Think of my colleague in law teaching, John Yoo at Berkeley, treating the international anti-torture rules as merely so many loopholes to be skated through, and then proclaiming that the 2004 election had completely settled the issue. Or think more generally about the Bush Administration/neocon view that in the international realm laws and rules merely constrain the US, which can do whatever it likes since it supposedly has enough power. It never occurs to them that laws and rules can constrain others, too. But the domestic manifestations of this attitude are more troubling if you are an American and thus subject to what they do domestically.
These are not your grandfather's conservatives. Edmund Burke would be physically ill if he saw these people in action. And the question of where it stops is pretty clear - it doesn't, other than among the libertarian conservative wing that understandably (and thank goodness) is out of sympathy with a lot of what this Administration does.
Suppose a right-wing President used a Reichstag fire-type pretext to declare martial law and suspend elections, constitutional rights, etc. What portion of the conservative commentariat, or of the Republican membership in Congress (leaving aside about 5 or 6 Senators, and about 2 members of the House) would object? Is there any possible ground on which they would even consider objecting?

Actual Social Security reform

For those who want a broader and more thoughtful take on Social Security reform than either side has been providing these days, I recommend this piece by Eugene Steuerle. Even if you don't agree with it all (and I agree with most of it), it goes way beyond shrieking like a parrot either "Private accounts - private accounts" or "No change needed yet - no change needed yet."
Even so thoughtful a proposal as the Diamond-Orszag plan, described in detail here under the April 7 date, is constrained by the terms of the exercise, which, rather than attempting full optimization, largely consisted of showing how one could restore Social Security's solvency without greatly changing its policy content.

Casting idea

Perhaps these two could do A Simple Life together in 2009, now that Nicole Richie is said to be feuding with one of them (I forget which).

What a surprise

I am shocked, shocked by this latest revelation that President Bush willfully pushed for false intelligence if necessary (and it was) to support the decision he had made by summer 2002 (long before he piously declared that it was a last resort) to invade Iraq.

There is a time to be big, not petty - but the time isn't now

If the Yankees' collapse is for real, and I am increasingly thinking that perhaps it is, I must confess that I will enjoy every second of it, at least for a long while. I have begun watching their games, which I can't remember ever doing before. I am not vengeful, however. After ten or so lean years to make up for everything up to now, I will have no objection to their winning the AL pennant once every 14 years and the World Series once every 30 years (i.e., right at the major league average).

Why and what sort of Social Security

Bush's plan, everyone now understands, is to turn Social Security into a program just for the poor.
The standard liberal/left/Democratic response is offered, naturally enough, by Paul Krugman, who says:
"It's an adage that programs for the poor always turn into poor programs. That is, once a program is defined as welfare, it becomes a target for budget cuts.
You can see this happening right now to Medicaid ..."
My take on this is quite a bit different than Krugman's, although the quoted statement has some truth. (But then again, over the years Medicaid has grown quite rapidly. The latest proposed cuts do not at this point establish much of a trend. They are fairly small and contested even among Republicans. Plus Bush wants to cut Social Security for the middle class as well as Medicaid for the poor.)
Anyway, let's grant Krugman's point for the sake of argument. The problem with it, as an argument for keeping Social Security a middle class program so that it will remain progressive, is that, when we camouflage things, they sometimes become the thing we are pretending they are, rather than what we really want them to be. In other words, you universalize Social Security and Medicare, and while you're at it muddy their transfers so they are hard to see, and what you end up with is a huge program that crowds out other budget items and is not itself enormously progressive on a lifetime basis. Thus, giving the middle class a stake so the programs will endure is a bit like giving Scrooge (pre-transformation) a huge cake so that Tiny Tim will get a couple of crumbs.
There is a better rationale for keeping Social Security a universal program rather than just poor relief. The argument, a dirty word in many circles but nonetheless apt and justified here, is paternalism. People are prone to save too little of their lifetime incomes for retirement. By taxing people when they are young and giving them benefits when they are old, Social Security and Medicare in effect force them to save. They can respond by saving less on the outside, but not by zeroing out their future benefits by borrowing against them in advance. The paternalistic limit only hits people who would otherwise save too little. If you are saving enough anyway and adjust for this forced saving component, you aren't hurt at all (leaving aside the analytically distinct question of the program's transfer content).
This type of program makes a great deal of sense. And it is not only paternalism. Also moral hazard, since we would presumably rescue people who entered retirement with nothing saved, so we might as well make them save it for themselves.
Anyway, this is a rationale for a universal program, although in the upper tiers it is unlikely to make much difference.
One could say that Bush recognizes this via the private accounts element of his plan. But the problem there is that people's bedrock tier of saving oughtn't to be invested riskily. From a rational planning standpoint, you start with a fixed real life annuity, and build the 401(k)'s et al on top of that. And if the forced saving is all you have, then it should be invested safely rather than riskily.
This point is pretty familiar already to people who have been following the debate - Peter Orsag, for example, made it eloquently in his testimony before the Ways and Means Committee, which I mentioned in an earlier post. So I will close here.

Bush's press conference

As I decode Bush's Social Security gabbing at the press conference today, he is saying:
1) Private accounts today, private accounts tomorrow, private accounts forever. Of course, this could just be what he says until it's time to cut a deal. But I think he is digging himself in pretty deep on this one.
2) Other than for current and near retirees, any and all benefit cuts are on the table, so long as they don't make benefits smaller than they are today. In other words, massive cuts relative to the current law baseline are fine with him, but he isn't going to take the lead in proposing any. Indeed, without bipartisan cover all he will propose is the next item, which has the protective coloration of sounding progressive. (We know enough about his views on progressivity to realize that he is only clutching at this reed due to his weak political position.)
3) Again with a bit of code language, he likes the Pozen plan I mentioned two posts ago, in which wage indexing remains at the bottom of the distribution but it shifts up to purely price indexing at the top. I gather that this plan, at least in its present form, is oddly designed such that it hammers the folks in the middle pretty hard, but who's counting.
By the way, the Pozen plan alone would not prevent benefits from rising in both nominal and real terms, because average indexed monthly earnings, the key term in the Social Security benefits formula, will tend to be higher over time for people in the same relative income tier. (E.g., people in the same relative position in the wage distribution as those who average $30,000 today will average more than that in the future, even leaving aside inflation.)
So Bush is conceivably willing to make the benefits formula significantly less generous than it is today, even leaving aside the wage indexing aspect. But needless to say he isn't going to take the lead in saying so, and no one else is going to, so this is a purely academic point.
4) People need "real assets" to have real retirement security. But let's rephrase that more realistically. They need real assets that are bought on margin with real debt. So they need to add a net position to their portfolios that the market values at zero, despite its positive expected return (unless gobbled up by fees), due to its significant downside risk.
Does anyone remember Albert Brooks and the nest egg in "Lost in America"? Bush wants people to bet the nest egg.
All those nauseating fake smiles were hard on me, having just eaten. He has all these exaggerated mannerisms that I guess his TV coaches have given him. And I think his accent turns folksier when he knows he is fibbing more than usual.
I found the best way to watch the press conference was to switch every few seconds between channels 4 and 5 (NBC and Fox), since, in NYC at least, Fox's broadcast was a few seconds behind. So by doing this (although I refrained when he discussed Social Security) I got to hear half of what he said twice, and the other half not at all. If anything, it made more sense that way.
E.g., "I am confident/ I am confident/ As our progress continues/ As our progress continues/ Vladimir assured me/ Vladimir assured me/And we will keep talking/ And we will keep talking/ A murderous dictator/ A murderous dictator/ But it was not working/ It was not working." Etc.
The exaggerated mannerisms were especially rich when you got to see them twice in rapid suggestion. Highly recommended for all audiences.
UPDATE ON THE POZEN PLAN: Click here for Jason Furman's more knowledgeable comments. What a surprise that the Bush "progressive" plan is much more less progressive than advertised, hitting as it does the "well-off," defined as people with earnings over $20,000 per year.

Save $14.99!!

Rather than buying the new Springsteen CD, simply pretend you have. Stand up for 3 minutes of fist-pumping and air guitar, then sit down for 3 minutes of solemn silence, pretending to focus on an Artist At Work. Repeat several times. Good exercise, and you can save the money for the new Go-Betweens album that is coming out next week. (Proof that I don't always prefer 70s nostalgia to 80s nostalgia.)

Senate Finance Committee hearings on Social Security

Yesterday's Senate Finance Committee hearings on Social Security, the presentations from which are available here, had several interesting features. One was the hearing title, "Proposals To Achieve Sustainable Solvency, With and Without Personal Accounts."
The focus, in other words, is on the fiscal problem, not the Bush plan. "Sustainable solvency," by the way, is a phrase associated with the Diamond-Orszag (relatively Democratic-style) plan to restore Social Security's long-term solvency through a mix of tax increases and benefit cuts. It relates to the battle between 75-year and infinite horizon perspectives. As I have noted before, a 75-year fiscal perspective is inadequate since the out years predictably turn bad based on expected demographic trends, with the consequence that if we fixed the problem just for 75 years and there were absolutely no surprises in the next couple of decades, we would nonetheless face the financing problem all over again as soon as enough of the out years had moved inside the 75 year window. Diamond and Orszag propose 75-year sustainable solvency, i.e., at the 75 year point things are in good shape looking past a bit, and although this is less conceptually pure than the infinite horizon (which avoids arbitrary jumps in one's discount rate for the future as one moves from inside to outside the budget window), it is really good enough, for all practical purposes, if done right.
Senator Grassley, the Senate Finance Committee chair, is making it as clear as he possibly can that, as per the hearing title, the aim behind legislation he might report out is to address the fiscal gap, not to push the Bush plan.
Democrats have two reasons not to go along with this, however, one a bit crass but the other involving sensible prudence. The crass one is that they are hammering the Republicans to death on Social Security right now, so why help them out of the hole by choosing this moment for unpopular bipartisan compromise after all that the Bush-DeLay-Frist forces have been doing for years on everything else? The prudent reason for non-cooperation is that, no matter what Grassley says or indeed means, he absolutely cannot make any credible guarantee that, no matter what bill leaves the Committee and passes the Senate, it will not be amended in conference to be a pure Bush Social Security phase-out plan and nothing else. You reap what you sow, and the Republicans need a complete change in leadership before they can credibly offer good-faith compromise deals to the Democrats.
As for the hearing itself, four speakers. Michael Tanner of Cato and Peter Ferrara, formerly of Cato, simply offered the usual privatization line. Ferrara seems to think there is a free lunch via higher stock market returns, leaving aside risk, and ignoring the point that markets must be flawed, not working well as he generally tends to believe, if borrowing to hold stock (a net position that the financial markets value at zero) is actually a money machine. Tanner rightly points out that there really is a Social Security fiscal problem, whether one calls it a "crisis" or not, but condemns the current system as a one-size-fits-all cookie cutter approach to forced saving. The problem with this view, as noted by Peter Orszag in his remarks, is that anyone in his or her right mind would want a relatively secure fixed real life annuity as the bottom rung, in effect, of his or her retirement saving. The rest of one's saving, if one has the ability and the sense to save more, is where different risk-return preferences, betting preferences on the performance of different instruments, etc., have a reasonable place.
Speaker # 3 was Robert Pozen of MFS Investment Management, who has been involved in Social Security reform planning for some time. I am willing to give him two cents or so of credit for offering an idea that purports at least to increase Social Security progressivity in a manner that the Administration apparently finds acceptable. This is to continue indexing benefits to rising wage levels among low-earner beneficiaries, but gradually shift to mere price indexing (i.e., for inflation not real wage growth) as one moves up the scale towards the top. Pozen calls his proposal "progressive indexing."
The way Pozen proposes to do it has serious flaws, some of which Peter Orszag addresses in his role as Speaker # 4. For example, it hits the middle more than one might think from Pozen's description, and if done with Bush privatization endangers actual repayment of the effective loans to high earners. It also has the odd feature of cutting benefits more (relative to the current baseline) if our economy does better than expected, the contrary of what one might think makes sense. To be sure, measuring cuts relative to today's baseline is a dumb perspective, unduly privileging current law, unless one agrees that wage indexing actually makes sense. But I would say it does (in the sense that a stable, fiscally sound, and optimal program would have it), as illustrated by the considerations that (a) with just price indexing the value of retirement benefits in effect heads to zero, relative to the size of the economy, over the infinite horizon, and (b) if we think of Social Security as requiring a minimum level of forced retirement saving, on the ground that any less is likely to be irrational, we might want to think in terms of replacing some decent percentage of one's salary level just before retirement, albeit self-financed by the worker if we have no reason to make a net lifetime transfer to her through Social Security.
So I probably wouldn't include progressive indexing, even modified from the Pozen version, in my preferred Social Security fix. But, properly redesigned, it shouldn't be ruled out as part of a bipartisan compromise package down the road if Republicans find it easier to swallow than other progressive benefit adjustments.
Orszag's remarks, although in some respects I might nitpick or quibble with them, are so much more sophisticated than anything else that is being said prominently about Social Security that, as Brad DeLong puts it, "in a good world, [he] would be in the White House running Social Security reform." Compare, for example, Gregory Mankiw, loyally bleating on about the importance of "choice" in a setting where its relevance is much less than would usually be the case, and you would think Orszag had at least 50 more IQ points and a much better post-graduate education if you didn't give Mankiw credit for having to toe the Administration line (and possibly doing the nation some good by staying there, if he has helped influence the Bush Administration towards greater candor, such as in the decision to admit that private accounts are not a free lunch).

Aesthetic (?) crimes

You expect a certain amount of lying from everyone in politics, but even without ethical constraints there ought to be aesthetic ones on insulting one's readers' intelligence. Bushites are pretty lax about this principal, however. (Relativism at work??)
In the Bolton confirmation battle, several other bloggers, such as Matt Yglesias, have rightly flogged William Kristol for his ludicrous assertion that Bolton is being challenged on the ground that he "disagreed with--he even disliked!--a couple of bureaucrats." To the contrary, Yglesias notes: "The relevant point here isn't that Bolton was brusque with some lower-tier officials. It's that the behavior -- however you want to characterize it -- was aimed distorting the intelligence assessments received by the American people and by the President of the United States."
Apparently, the centralized directive that must go out from Rove headquarters or some such place (otherwise, how could all pro-Bush commentators repeatedly turn on cue like a flock of birds) is saying to take this line. As I am an American Enterprise Institute visiting scholar (believe it or not - but the fact is that AEI activities include serious analysis, not just flackery), I was tipped off to David Frum's publicly available AEI piece, entitled "The War Against Bolton." Here we learn that Colin Powell's publicly acknowledged intervention against Bolton means that Powell is "playing for the very grandest of stakes," and that "his true antagonist is the President himself." If Bolton goes down, supposedly, "nominees to foreign-policy positions will be on notice that Powell's endorsement or veto could make or break their careers," ostensibly aiding Powell financially as well as reputationally.
An aside - if you don't deliberately distort intelligence assessments and lie to direct superiors, you probably have less need than Frum suggests to "stop by Powell's office for a session of forelock-tugging before [your] Senate hearings." But that is a mere detail.
Sliming of Powell was only to be expected once he acted against Bolton. And, hey, we can't all be as ethical as Tom DeLay (I mean, exactly as ethical, neither more nor less). Frum does at least get originality points for inaugurating this angle of attack, unless others in the flock of birds have already been doing so as well.
But the laugh line for me is Frum's throwaway insistence at the end (presumably to prop up his character assassination) that "the arguments against the Bolton nomination are so flimsy and absurd that they don't even ask to be believed." After all, Frum continues, Bolton is not among the 500 worst bosses in Washington, and is charged at most with "alleged lapses in etiquette."
I guess one should expect Bush and Bolton supporters to regard distorting intelligence assessments and trying to destroy the independence and integrity of the analytical process as an etiquette violation at worst. But what about Frum's breach of etiquette in so insulting his readers' intelligence?

Recent reading and listening

Reading Charles Freeman's The Closing of the Western Mind while all this Pope stuff has been going on [6 column NY Times headline I expected to see a couple of weeks ago: "Pope Still Dead"] made for a not uninteresting juxtaposition. And William Bundy's A Tangled Web offers a convincing debunking of the Nixon foreign policy mystique. I will have to work in some mindless but well-written fiction next.
Before Elliott Smith wrote pretty music to slit one's wrists to (although,as Nixon would say, I don't condemn him for it), he was in Heatmiser, a more grunge-influenced group that is well worth hearing. On Mic City Sons, their last album, his mature style had clearly emerged but it benefited from being just part of the mix.

If Frank Luntz had worked for the Empire in the original Star Wars movie ...

... news reports would be referring to the "Freedom Star, which Democrats call the Death Star."
We have already seen the shenanigans whereby privatization, the longstanding Republican term for a proposed Social Security change, became overnight a verboten term, indicating anti-Republican bias on the part of anyone who used it.
We now, as Josh Marshall and friends have conclusively shown, have the term "nuclear option," invented and popularized by the Republicans, being called in the media the Democrats' term for what the Republicans supposedly call the "constitutional option."
Marshall and others focus on the stupid, supine, ignorant press's role in buckling to whatever the Republicans say, displaying less short-term memory than an advanced Alzheimer's victim. But I am curious about all the conservative cadres who, even if not holding a White House appointment, take their cues from the Luntz/Rove types every day in such a humiliatingly servile fashion. Are they completely lacking in pride and self-respect? Or is it just that war is peace and freedom is slavery?

Puncturing pomposity

The New York Press, a free weekly that is unusual for its Village Voice-type market segment in being conservative or libertarian rather than liberal or left, has a hilarious column today trashing Thomas Friedman's latest 500-page doorstop. I think I agree with Friedman about a lot of things, such as being pro-free trade - I say I think so, because I have always found him way too unreadable to find out for sure - but that's no defense of bad writing and mushy thinking.

Chinese restaurant-style policymaking

Chinese restaurants of yore, and I actually remember a couple from way back, would have these menus where you had to pick one from Column A and one from Column B. I actually haven't been in any such restaurant for a couple of decades, although I eat Chinese food a lot, but hopefully the metaphor isn't quite as dead yet as the dilophosaur.
Bringing this to mind was the news that President Bush is apparently planning a "major energy speech," perhaps even today, prompted, I gather, by the combination of rising gasoline prices and his falling approval rating.
At the risk of making a prediction that could be promptly falsified, we can be pretty sure that what he will do is peddle once again his "energy bill," a grab bag of goodies for oil and coal interests. There is zero chance that this legislation, even if desirable, would have any short-run effect on gasoline prices, but he will no doubt not be shy in linking the two.
Bush has always wanted to win each battle too much to try the fabled Richard Nixon strategy of old, which involved pushing a proposal in the hope that Congress wouldn't pass it, so that Congress rather than Nixon would take the blame for some intractable problem. Thus, Nixon in 1970 apparently pushed a crime bill that was consciously designed to be sufficiently anti-civil liberties for the Democrats not to pass it, thus setting them up for the blame when high crime rates continued. To the Nixon Administration's dismay, however, the Democrats were sufficiently scared of this to let the bill pass, thereby neutralizing the intended gambit.
Bush hasn't done this type of thing yet, and Republican control of Congress makes it harder for him to blame the other side for inaction, but perhaps he will be trying it soon, at least for Social Security and, if he loses on the energy bill, for gasoline prices as well.
Anyway, back to the Chinese restaurant style policymaking. Column A is whatever set of problems or crises emerge on the front page. Column B is the predetermined list of policies that Bush wants to pass. His standard strategy is to take one from Column A and one from Column B, claiming that the former necessitates the latter, even if no reasonable person (including rational and honest supporters of the Column B item) could seriously defend the claimed link. The ever-changing rationales for the tax cuts provide one example. A recent energy bill (a failed earlier version of the current one, if I recall correctly) was another. At that point, the rationale for a $31 billion (over 5 years) bonanza giving huge subsidies to the oil and coal industries was to prevent a recurrence of the major blackout that had recently occurred. (Get it? A blackout has something to do with energy, and so do subsidies for energy companies. What is more, between 1 and 2 percent of the bill's cost actually did involve upgrading the power grid.)
9/11 and Iraq may be another case of this. Likewise, consider the bogus link between Social Security's long-term fiscal gap and a private accounts proposal that on its face is revenue-neutral at best over a very long time frame. There are arguments for private accounts, but they have nothing to do with the financing problem, and the privatization (sorry) campaign therefore truly is a case of one from Column A and one from Column B.
Aesthetically speaking, I must admit some disappointment that the Administration hasn't been more imaginative about this strategy. While not requiring logical links between problems and proposed responses, it does seem to require subject matter consistency. Why not go a step further and have Bush, in his energy speech, claim that the Democrats will be to blame for higher gasoline prices if they don't pass his Social Security plan?

Two links worth reading, and one that isn't

Surely the most hilarious thing I have spotted in today's web surfing, or that for many a day, is the statement by Tom DeLay that Justice Kennedy "said in session that he does his own research on the Internet? That is just incredibly outrageous."
On a soberer note, Andrew Sullivan notes of the new Pope that he "once argued that violence against homosexuals was predictable if they kept pushing for rights.... [Also, h]e proclaims his version of the truth as God-given and therefore unalterable and undebatable.... His response to dialogue within the church is to silence those who disagree with him." I can see what they mean about the newly named Benedict's being such a subtle theologian. All the more hilarious, therefore to see a New York Times op-ed in which Michael Novak, as summarized by the Times' own lead-in on its op-ed web page, claims that "[t]he new pope's first concern is liberty, in all its facets." Yes, but is he for it or against it?

Nobody expects the Spanish Inquisition ...

The new Pope, according to this Washington Post profile, wrote a letter of advice to U.S. bishops on denying communion to politicians who support abortion rights, apparently with the aim of hurting John Kerry's campaign. He also "once called homosexuality a tendency toward 'intrinsic moral evil' and dismissed the uproar over priestly pedophilia in the United States as a 'planned campaign' against the church."
What a guy. I am always amazed by hyper-moralists who think that raping children is no big deal. I guess I must be guilty of "relativism," which I know he hates.

A paradox

If the new Pope, when selected, denied the doctrine of papal infallibility, would the doctrine itself suggest that he must be right, meaning he would be wrong, meaning he would be right, and so on?

Change of pace

I'm getting sick of seeing my previous blog as the most recent entry, as on soberer reflection it does sound a bit over the top. That's not to say it actually is over the top, as the people at the conference I described really are theofascists who imply that federal judges should be murdered and who forthrightly state that the separation of church and state is Satanic, all of which makes it alarming that they have such close ties to prominent Republican Congressional leaders starting with (but not limited to) Tom DeLay. Admittedly it is not clear who is using whom and to what degree. Certainly the Administration, despite its theocratic overtones, generally seems more interested in using the extreme evangelicals than in actually giving them what they want. In such a context, cynicism is certainly preferable to sincerity.
Given my discomfort about sounding too shrill, however, let's change gears completely for a music note. I recently got tickets to a Stephen Malkmus concert in NYC that is coming up next month, and I am looking forward to his new album that is due at about the same time. Malkmus, of course, was the leader of Pavement, whom one might call the Beatles of 90s independent/ alternative rock although not, obviously, in terms of sales or broader cultural influence.
Uberslacker/ironist/hero of college English majors though/as Malkmus is, I find his music consistently delightful. His first two solo albums, "Swedish Reggae" (as the first one was almost called until it became just "Stephen Malkmus") and "Pig Lib," although closer to being easy listening than Pavement's albums, do in my experience remain highly enjoyable after repeated play. Malkmus is also arguably the best independent/alternative lead guitarist other than Tom Verlaine. Very fluid and melodic, not stuck in blues or other cliches.
I suppose if my childhood had been worse I'd prefer Nirvana to Pavement. For some tastes Malkmus is just too sunny or glib or sarcastic without anger. But, to paraphrase Donald Rumsfeld and thus bring this entry closer to full circle, you go through adulthood with the childhood you had, not the childhood that would have been more AC (artistically correct). Perhaps I should blame my parents.

Violent criminals

A recent Washington Post column about the just-concluded conservatives' conference in Washington in which Tom DeLay (by video due to the Pope's funeral) and other borderline psychopaths in and close to the Republican leadership agreed that Justice Kennedy must be impeached forthwith made two things especially clear. The first is that these people, although they more or less run the country, not only are outside the mainstream but reject 200 years of U.S. constitutional history. Our system cannot survive if enough people are committed to its overthrow. I mean, Justice Kennedy, a moderate conservative Supreme Court justice (and part of Bush's 2000 election majority), must be impeached because he found that the Constitution bars executing minors? (So much for the "culture of life.") Let's grant, as I think we should, the possibility that one could reasonably disagree with how Justice Kennedy interprets the Constitution in regard to the execution of minors. But to call this grounds for impeachment - or worse - is closer to a Hitler or Stalin viewpoint than to that of anyone who has ever previously held power in the United States.
Do I exaggerate? Well, if it were just impeachment then maybe yes, a bit. That would show rejection of an independent judiciary, one of the basic foundations of our constititutional system, but then again a good friend of mine, Larry Kramer, the dean of Stanford Law School, has taken a similar position about the proper constitutional role of the judiciary (though without the calls for impeachment) from the left.
But the Stalin reference doesn't come initially from me. One of the leading spokesman at the conference, while criticizing Justice Kennedy for "uphold[ing] Marxist, Leninist, satanic principles drawn from foreign law," also twice approvingly quoted Joseph Stalin's famous line, "no man, no problem." The full line, of course, is "Death solves all problems: no man, no problem." The Washington Post reporter was rather charitable, I thought, in speculating that the speaker "had in mind something less extreme than Stalin did and was not actually advocating violence."
Again, this was a conference centrally involving DeLay, two other House members, two Senate aides, and numerous other prominent Republicans and conservatives.
I'm wondering, if these guys lose a couple of elections at some point, how close we will be to having our own U.S. version of the Sunni insurgency in Iraq.
I said this conference made two things especially clear. The first is that these people are committed to the overthrow, and perhaps the violent overthrow, of the U.S. constitutional system. The second is that they are really, really strange. What would be especially comical, if it weren't so menacing, is the extreme displacement of proportionate emotional response that they display. There have been a couple of recent Supreme Court opinions in which Kennedy and others have cited some foreign law or legal principle in support of a conclusion about U.S. law. I think this is fine; the likes of Justice Scalia (who I don't respect very much, but who I hope remains in a separate category) get bookishly apoplectic about it. But these folks get all worked up imagining that it is the culmination of a deadly Satanic conspiracy against them. I am reminded of the Steve Martin character in the movie "Dead Men Don't Wear Plaid" who goes on a crazed rampage whenever he hears the words "cleaning woman."
Paranoid insanity can grip an entire country, or at least its leadership (see again Berlin 1933 or Moscow 1937). But if you are confident enough that it is doomed to ineffectuality, then it is cause for pity or, among the less kind-hearted, mocking laughter.

NYU Tax Policy Colloquium - Peter Orszag on "Saving Social Security"

Yesterday's Tax Policy Colloquium at NYU featured Peter Orszag of the Brookings Institution, presenting his forthcoming Journal of Economic Perspectives paper (with Peter Diamond), entitled "Saving Social Security" and available here. With the main speakers being Orszag, Jason Furman (formerly with the Kerry campaign), and myself, one could certainly argue that not all viewpoints were equally represented. Still, we tried to have an intellectually open-minded discussion.
Points of general interest that Orszag made, or that emerged from the discussion, included the following:
--If we want to increase national saving, which seems to have been a key aim of privatization proponents such as Martin Feldstein in the late 1990s budget surplus era, then a much more straightforward and fruitful maneuver than playing with budgetary language in the hope of keeping Congress in check (i.e., by making the diverted payroll revenues look more off-limits) would be to exploit the overwhelming empirical evidence that people voluntarily save a lot more when the default rules on what happens to their paychecks require them to opt out of saving rather than to opt in. Orszag noted a study in which something like 25% would opt in to a tax-deductible savings plan, but 80% would decline to opt out if the default was changed, and 75% would remain in if they were forced to express a preference rather than having the default rule decide. I noted that, in a sense, taking advantage of this to increase national saving is a bit like a (genuine) free lunch. While not "free" in one sense, since the amount people have available for current consumption actually does decline if they save more, it would be "free" in the sense of not requiring them to depart from actual consistent preferences, insofar as these can be discerned.
--Even though some versions of the individual accounts idea have respectable supporting arguments, the Bush plan as it stands has aroused opposition from a number of leading conservative or pro-privatization economists, in particular (I might add) those who happen not to be angling for Bush Administration jobs. For example, Robert Barro views the Bush plan as simply another costly expansion of entitlements that would be harder than existing Social Security to scale back. Laurence Kotlikoff, who has strongly favored privatization for some time, thinks the Bush plan is terrible and will simply increase his bete noire, the burden being placed on younger and future generations.
--It is often argued that the government can't be given big current year positive cash flows from Social Security to play with, because if the money is there it will be spent. The argument assumes, however, something that needs to be demonstrated. So long as the government can borrow, the claim "if it is there they will spend it" misconceives how spending decisions are actually made. They can spend it whether it is there or not. And it is difficult to show convincingly that Congress's budget decisions are strongly or in a consistent way affected by Social Security's effect on the current year unified budget deficit.
For example, does anyone really think Bush wouldn't have gone to war in Iraq with zero financing but for the Social Security surplus? Or that he wouldn't have done the 2003 tax cut?
Once deficits are in the several hundred billion dollar range, we tend to think of all the big numbers as the same. Politicians get credit for a smaller deficit only when they can show a salient change relative to some arbitrary baseline ("I cut it in half") or when it crosses a salient marker. For example, a President might get much more credit from reducing a $50 billion deficit to zero than from reducing it from $600 billion to $450 billion. And this view of things tends to undermine thinking that the Social Security surplus has a strong generalizable effect on other budget decisions.
"If it is there they will spend it" seems to reflect a misguided analogy between household behavior and government behavior. Liquidity-based budget constraints don't bear on governments in quite the same way as on households, since governments have the power to levy taxes tomorrow, thus expanding their ability to borrow today.

A headline that speaks for itself

Cardinal Law, Ousted in U.S. Scandal, Is Given a Major Role in Rites

How "real" is the Social Security Trust Fund?

Debate is raging these days about how we should think about the Social Security Trust Fund. What matters, of course, is not how we think about the Trust Fund itself, but what implications for policy our thinking about it in one way or another might have. Fundamentally, if we could determine what set of future policies were best, it wouldn't matter how we thought about the Trust Fund, except insofar as such thinking created issues about the ability to make credible commitments that needed to be part of the determination.
On one side, President Bush took his clown show to West Virginia yesterday, for a photo op at the Bureau of Public Debt Office. This is the place that - to sound like Eric Idle, doing his hilarious documentary-reporter routine in the Monty Python-affiliated Beatles satire "All You Need is Cash" - one can actually visit to actually find where the actual Trust Fund is actually kept. Or at least, the office contains a file cabinet with physical evidence of the bonds that the Trust Fund holds or is deemed to hold (more on that choice of terms in a moment).
Bush, whose expressive range is limited, the poor devil, but who does jejune sneering rather well because it comes from the heart, later stated: "Imagine, the retirement security for future generations is sitting in a filing cabinet."
It is, of course, a bit amusing to have the U.S. President sneering at the reality of U.S. Treasury obligations. Is he also planning to visit the Department of Defense, find a room where weapons procurement contracts are kept, and sneer: "Imagine, the means for our country's future national defense are sitting in a filing cabinet."?
Note, by, the way, that the retirement security for future generations could indeed be sitting in a filing cabinet if, say, the cabinet held sufficient value in bonds that had been issued by foreign governments and were certain to be honored.
Aiding the Democratic side of the debate, the above-linked article notes that, "[w]hile the paper IOUs are not negotiable instruments, they still represent trust fund Treasury bonds that are backed by the full faith and credit of the United States." And Democratic Congressional veteran Charles Rangel is quoted as saying that "Americans who paid into Social Security are legally entitled to have that money fund Social Security until 2052 — as estimated by the Congressional Budget Office — just as all other investors in U.S. bonds are entitled to their return on their investments."
Rangel is wrong as well, however. Now, it is true that, as the law now stands, Social Security claimants will be entitled to receive the benefits on the books for as long as the Trust Fund is deemed to have a positive balance, or until 2052 based on current projections. But Congress could change the law tomorrow by repealing Social Security, and all as yet unaccrued legal entitlements would vanish. This would not be a literal act of legal default in the same sense as refusing to honor bonds held by investors (although it is true that Congress could decide to authorize that as well).
Those taking Rangel's position would understand this if they thought it through a bit. If the two claims were the same, then reducing Social Security benefits effective in 2040, say, would be equivalent to announcing a reduction in the return that will be paid on outstanding U.S. government bonds. Everyone realizes that these two acts would differ, because less of a putatively unbreakable promise has been made in the future benefits case, thus permitting a change without creating comparably serious credible-commitment problems for the U.S. government in the future.
As I have discussed elsewhere, the Trust Fund is neither a "sham," as the Bush side would have it, nor an actual source of paying for future benefits, as the Rangel side would have it. You can't actually finance something with self-owed obligations, or I would pay for my kids' college education by stuffing my personal IOUs into my filing cabinet. The Trust Fund is essentially a historical record of certain cash flows, kept according to a mandated set of rules. But it is meant to create some level of political pre-commitment, albeit less than that which is created by issuing a U.S. government bond to a third party. By the way, this pre-commitment is meant to have elements of a sword as well as a shield, in the sense that Congress is expected to think twice about increasing benefits if the Trust Fund, as officially measured, is not expected to be able to cover them. So it offers something to foes as well as friends of benefit expansion.
In sum, while the Trust Fund does not contain assets of the U.S. government (or equivalently, it contains precisely offsetting assets and liabilities), it does represent a set of conventions that people have agreed to treat as at least somewhat meaningful. Bush's cavalier sneering misses this, just as Rangel overstates the degree to which we have locked in our permissible set of Social Security policy choices.
All this being said, if Bush's Social Security plan (i.e., buying lots and lots of stock on margin) made any sense, I certainly wouldn't regard the defects in his way of talking about the Trust Fund as counting against the plan. He is merely trying to dramatize the crisis aspect, which would be more germane to the debate if not for the fact that, as I noted in an earlier post, his plan "is a bit like saying: 'The house is on fire, and we have responded by drawing some snazzy floor plans for a tasteful renovation.'"

Responsible conservatism

In today's New York Times, Bruce Bartlett calls for a value-added tax (VAT) to help narrow the fiscal gap. Bartlett is a genuine small-government conservative, as opposed to those who simply borrow the clothes, and he recognizes that the "starve the beast" strategy of cutting taxes to shrink the government didn't work, because the governing Republicans proved to have no genuine interest in following it (or the structure of political incentives ensured that they would not). He rightly points out that it is a matter of when and how we raise taxes, not if. And a VAT - which he notes has been less of an ever-expanding money machine in other countries than legend would have it - is indeed the best reasonably available choice from an economic efficiency standpoint.
I myself, for distributional reasons, would prefer a progressive consumption tax, such as David Bradford's X-tax, in lieu of both the proposed VAT and the existing income tax. Others, such as Kevin Drum, would prefer income tax rate increases and base-broadening, along with a gasoline tax (which I would endorse) and an inheritance tax (a tougher issue).
These are all reasonable positions. If we lived in a better political world, these would be the options getting debated. Dream on ...

Theofascism on the march

I never thought I would be posting entries about constitutional law, a topic that I consider intellectually overrated in legal circles as it falls between two stools, being neither policy nor history.
But Congressional Republicans, in addition to encouraging or at least excusing the murder of federal and state judges, as noted in my previous post, are also more mundanely seeking to undermine - or should I say overthrow? - the U.S. constitutional system. If you think that's too extreme, consider that the bill I am about to describe need not be the last step; if they had their way it might simply be the first.
Unsurprisingly, this bill, recently introduced by Brownshirt Brownback and others, has an Orwellian title, the "Constitution Restoration Act of 2005." As Elvis would say, it goes something like this:
Sec. 1260. Matters not reviewable
Notwithstanding any other provision of this chapter, the Supreme Court shall not have jurisdiction to review, by appeal, writ of certiorari, or otherwise, any matter to the extent that relief is sought against an entity of Federal, State, or local government, or against an officer or agent of Federal, State, or local government (whether or not acting in official or personal capacity), concerning that entity's, officer's, or agent's acknowledgment of God as the sovereign source of law, liberty, or government.
Sec. 1370. Matters that the Supreme Court lacks jurisdiction to review
Notwithstanding any other provision of law, the district courts shall not have jurisdiction of a matter if the Supreme Court does not have jurisdiction to review that matter by reason of section 1260 of this title.
SEC. 302. IMPEACHMENT, CONVICTION, AND REMOVAL OF JUDGES FOR CERTAIN EXTRAJURISDICTIONAL ACTIVITIES.
To the extent that a justice of the Supreme Court of the United States or any judge of any Federal court engages in any activity that exceeds the jurisdiction of the court of that justice or judge, as the case may be, by reason of section 1260 or 1370 of title 28, United States Code, as added by this Act, engaging in that activity shall be deemed to constitute the commission of--
(1) an offense for which the judge may be removed upon impeachment and conviction; and
(2) a breach of the standard of good behavior required by article III, section 1 of the Constitution.

On its face, the provision is narrow. Since no one is going to sue a public official for merely stating his or her opinion that the law comes from God, perhaps this is just about posting the Ten Commandments in courtrooms & such, which one could argue not wholly unreasonably, whether or not convincingly, should either be (a) permitted notwithstanding the First Amendment or (b) considered no big deal in the long run even if inappropriate.
What the bill does, however, is say that arguable First Amendment claims can't be reviewed by any court and that judges who "engage in any activity" involving review shall be impeached forthwith.
So, if this works, why stop here? Why not make all review of laws concerning First Amendment claims, including suing to prevent the establishment of a state religion, impermissible? Or all review of a President's claim of unlimited authority over American citizens as commander in chief? With impeachment the consequence for any attempted review?
Lest I sound too alarmist, I should say that I don't think this will work. The point of real interest is simply that, for the first time in United States history, important political players, who indeed have leadership roles in a party that controls all branches of government, want to destroy the U.S. constitutional system.

A split in the Republican Congressional ranks?

Senator John Cronyn (R-Tex.) suggests that the recent spate of violence against judges might be the judges' own fault: "[J]udges are making political decisions yet are unaccountable to the public, [so] that it builds up and builds up and builds up to the point where some people engage in violence."
But he does state that the attacks on judges are "certainly without any justification."
House Majority Leader Tom DeLay, by contrast, appears to support violence against judges, as per his post-Schiavo comment that "[t]he time will come for the men responsible for this to answer for their behavior."

Inconvenient fact

De mortius and all that, I suppose, but the fact is, as Christopher Hitchens notes, that one of the late Pope's legacies was permitting Archbishop Bernard Law to escape the legal justice system in Massachusetts by giving him a sinecure job in the Vatican. Otherwise, Archbishop Law "would have [had] to face trial for his appalling collusion in the child-rape racket that his diocese had been running. The man had knowingly reassigned dangerous and sadistic criminals to positions where they would be able to exploit the defenseless. He had withheld evidence and made himself an accomplice, before and after the fact, in the one offense that people of all faiths and of none have most united in condemning.... And it has been conclusively established that the Vatican itself - including his holiness - was a part of the coverup and obstruction of justice that allowed the child-rape scandal to continue for so long."

Fiddling around

President Bush's perpetual campaign, funded by people who no doubt are turning a profit on giving him money, is now running TV ads denouncing the Democrats for failing to come up with any Social Security proposals. At least he has a plan, the ads say, and he has asked them to contribute their own Social Security ideas, but when is the last time the national Democrats suggested any?
The ad is characteristically and comically deceitful. Given the total irrelevance, admitted by the White House, of the private accounts plan to addressing the Social Security (or broader) fiscal gap, it is a bit like saying: "The house is on fire, and we have responded by drawing some snazzy floor plans for a tasteful renovation. What have they done to fight the fire?"
A further aspect of this lame deceit is the following. Again, Bush proposes a plan that does nothing to address the fiscal gap, and then he asks the Democrats to submit their own ideas towards solving the problem. Transparently, the aim is goad them into proposing tax increases and benefit cuts, as he has been unwilling to do himself.
So perhaps it's also a bit like daring the Democrats to call in the fire department, while lying in ambush with a gun to shoot the firefighters if they arrive.
Not even to mention, of course, that he was looking to steamroller them on this issue with his vaunted but vanished "political capital," and is only asking for their input, for the first time in his Presidency, because he is stuck. So it's also a bit like gobbling up three-quarters of the food and then complaining that your table companion won't share what's left.

And on a calmer note (relating to Social Security)

One of the interesting things about this year's Social Security debate has been the relative honesty of the Administration's public position. I say relative honesty, even though I agree with what a lot of what the Krugman-DeLong-Joshua Micah Marshall camp says, in part because the baseline for comparison is so low, after, say, the Iraq war and the Medicare prescription drugs boondoggle. But still, the White House has admitted, and thus assisted the ignorantly pseudo-"objective" press corps (objective in the sense that it makes no distinction between true statements and demonstrable lies) in stating, that the private accounts idea does not address the fiscal gap.
An interesting question is why the Administration has been more forthright, when the other strategy seemed to be working so well for it in domestic politics. One theory is that in Social Security false or unsupportable statements are easier to unmask. By comparison, no one in the US outside the government really knew anything about WMD, or about the actual evidence (unlikely though it seemed) of Saddam's ties to Al Qaeda, etc. Whereas here the facts and forecasts are on the public record. But that would assume that one can't argue to reasonably good effect in public policy debate that 2 + 2 = 5, rather than 4. Hard to judge that one until it is tried.
An alternative theory is that internal Administration politics are responsible. Larry Lindsey and others now departed apparently used to tell President Bush that Social Security privatization was a complete free lunch. Greg Mankiw and others who are there today know better and tell him so, and apparently after being told enough times he has accepted it. (One would need to know a lot more than I do about the Administration's internal dynamics to explain why Karl Rove has permitted this, whether he himself listens to them, etc.)
For this I am willing to say that Mankiw, who has been taking some brutal hits lately, such as here), deserves some credit. On the other hand, his position on Social Security privatization is pretty silly, and, ignoring the constraints under which he operates, unworthy of a thoughtful leading economist. He has two main tenets. The first is that the White House plan costs nothing. Here he doesn't claim a free lunch, but rather that the plan ostensibly would offset the payroll tax diversion with future benefit cuts, permitting it to be a breakeven over time. This looks true on the face of things if you take a long-range view as I am inclined to do (ignoring the point made by Jason Furman that the loan-payback feature contemplated by the White House would require taking away more than 100% of some people's traditional benefits), but it ignores the political risk of reducing revenues now in exchange for merely promising to cut benefits in the distant future.
Mankiw's second tenet is that the White House plan increases consumer choice, ostensibly showing that it must be good given his first tenet. Now, I like choice as much as the next feller, and I certainly wouldn't want a government plan picking my car, breakfast cereal, etc. But how relevant is this point here? Consider first that the whole idea of Social Security is to reduce choice on paternalistic grounds because of (a) identifiable failures in people's planning (failure to engage in optimal lifetime consumption smoothing and/or to choose an optimal asset portfolio), and (b) a very powerful normative theory of how people should behave here if they want to maximize their own utility. Choices such as to blow it all before retirement or to blow it all on Enron stock do not advance people's subjective welfare in the same manner as picking cereal with or without dried cranberries.
If Mankiw thinks people's Social Security portfolios are sub-optimal unless they include a stock-bond mix, he is ignoring (a) the explicit portfolios people with other saving have, and (b) the implicit portfolios that all of us have as taxpayers and future benefits claimants. All of us are heavily subject, via this status, to risks concerning the US economy and stock market. So it is not clear that, say, a 60 year old with no assets other than her expected government retirement benefits is under-diversified. If anything, she is probably too heavily subject to US economy risks and, if she could add just one investment asset, ought to pick a fixed real-life annuity that is as independent of these risks as politics permits.
Investment choices would be heavily constrained under any reasonable private accounts plan anyway. About the only choices people would really have are (a) throwing darts at the wall regarding which funds to pick, with no real way of knowing which would be the right ones, and (b) a bit of choice, but not too much, concerning the risk versus return tradeoff. The big consumer choice they'd actually want - and very likely would end up getting even if today's proponents try to block it - would be the ability to borrow against the account and thus wipe out its retirement-saving value, thus undoing the fundamental goal of requiring at least a minimal level of rational retirement saving. Add in the administrative costs of all the asset-churning in small accounts, and the game is pretty much over
Choice, often good. Being knee-jerk about choice without reflecting on the context, bad.

The face of evil

How can anyone tolerate that nauseatingly toxic slimeball, Tom DeLay? Now he appears to be calling for violence against and/or impeachment of the conservative Republican judges who turned down his hypocritical efforts to meddle in the Schiavo case. This is a man who would have made a great majority leader in the Reichstag circa 1933.