Monday, January 17, 2005

Roger Lowenstein on Social Security

Overall, I thought Roger Lowenstein's New York Times Magazine cover story on Social Security was pretty good. In particular, it rebuts the sham rhetoric coming from the Administration about the supposed Social Security crisis that calls for private accounts. This rhetoric is sham because what we actually have is an overall fiscal crisis, to which Social Security makes a modest though not entirely negligible contribution, for which private accounts do nothing and which the Administration's proposals this year, especially if you count "tax reform," are likely to make a lot worse.
My main criticisms of the Lowenstein article are:
(1) it ought to say a bit more about the broader context, in particular rising healthcare costs and Medicare/Medicaid along with private sector care. Lowenstein laudably suggests that it might be better to do something more modest and traditional about Social Security finances than to do nothing, but that would be inadequate in a larger sense, reflecting the inadequacy of the Administration's purely Social Security-based approach to sustainability.
(2) Lowenstein takes the Social Security Trust Fund a bit too seriously. This year's excess of Social Security revenues over benefit payouts may conceivably encourage Congress to spend more, mainly by making the reported unified budget deficit look smaller (assuming Congress really cares about such things), or else by lowering a bit the amount of immediate third-party borrowing that the US government engages in. But the historical trust fund is water under the bridge, except insofar as the record that is kept of it influences political decisions. So when the trust fund "runs out" is only a paper or accounting event, not a real economic event apart from through its effect on perceptions or legal default settings.
3) You don't have to be a right wing idealogue to share conservatives' fears about the situation where the government explicitly owns stock, financed by issuing more debt, as a way of supposedly capturing the benefits of stock ownership without the administrative costs and lack of risk-sharing implied by 150 million private accounts. But I really don't see the point to the issue-debt-buy-stock transaction to begin with, whether done collectively or through the accounts. Objections include (a) after all the portfolio-shifting is done, nothing may really have happened, (b) if portfolios do change and issue-debt-buy-stock is a good idea, the government should do it without regard to the funding crisis, but I suspect it is not a very good idea - or more precisely that it is an idea whose merits are well captured by its net market value of zero, (c) if the idea is portfolio diversification for non-stockholders, note that both the government and all residents who are taxpayers/future benefit claimants already hold a large implicit position in the stock market via the government's fiscal stake in the economy.
Still, kudos to Lowenstein for avoiding the peril of most news reporting on current policy, which usually is limited to reporting Administration claims with no assessment of their truth content. As in, "Vice President Cheney stated that the Sun did not rise this morning. Cheney said this shows that we must give President Bush full martial law powers immediately." Then, buried in the fourth paragraph, "Some Democrats disputed Cheney's claim that the Sun did not rise this morning, and argued that even if Cheney is right giving the President full martial law powers is not an appropriate response."
Lowenstein avoided this by daring to depart from journalistic "objectivity" by noting that the Sun did rise and that martial law wouldn't help if it didn't rise.

37 comments:

Daniel Shaviro said...

Jim - Interesting comment, raising issues I hadn't thought about before. Taxing economic rents, if one can do it, is appealing from an efficiency standpoint because taxpayers presumably create the rents anyway. And while an economist might consider them labor income at a conceptual level, they are presumably not in the payroll tax base much of the time (e.g., Bill Gates' stock appreciation from creating a mega-profitable company), whereas they should be in the income tax base.
I wouldn't give the same importance to the issue of whether a given generation invested enough, for a couple of reasons. One is that it wouldn't matter (other than via an incentive argument) from the utilitarian type of standpoint that I prefer. Another is that, say, my parents' membership in an age cohort that saw the massive destruction of World War II was certainly the fault of some people alive at that time (e.g., Hitler and his supporters), but it wasn't their fault. It's unfair or at least regrettable that anyone (everyone) has to bear the losses imposed on our world by WW I and WW II, not to mention innumerable earlier disasters, but I don't see the link to who among the living should have to bear it.
Thanks for reading and for commenting.

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