Thursday, February 24, 2005

David Bradford

My regular readers, and I don't know how many or few you are, may have noticed that over the last couple of weeks this blog has fallen silent. The main reason has been pretty simple. I have not been in the mood to blog because I have been grieving over the injury and untimely death of my good friend and close professional colleague David Bradford, who was injured in a fire on Tuesday, February 8, and who unfairly, unjustly died this past Tuesday, February 22. Here is the NY Times obituary.
A piece I wrote honoring David and his accomplishments is scheduled (they tell me) to appear in the Wall Street Journal on Tuesday, March 1.
MARCH 1 UPDATE: The piece has in fact appeared, and WSJ on-line subscribers can access it here. I didn't feel I had the leeway to argue with their taking out a couple of small personal touches, my calling David a great economist "and a great human being" in the lead sentence, and my closing paragraph before they deleted it, which read: "Everyone who knew David, and I was lucky to be a close colleague, will remember not only his intellectual gifts and contributions, but his unfailing warmth, enthusiasm, kindness, and joy. We will all miss him."

Saturday, February 12, 2005

Good first sentence

From Julia Phillips' "You'll Never Eat Lunch in This Town Again," a winner in style as well as content:
"She watched herself watching her nails dry and the news washed over her, a litany of chaos, lies, and despair."

More double-talk

It's hard to say what is worst about Bush: the sheer insanity and profligacy of his policies, or his utter debasement of reasoned and logical political discourse - never a strong point of politics in a mass society at the best of times, but now approaching a sub-nursery school level.
This buffoon has been yammering about how Social Security is "flat bust, bankrupt," etc., due to a $10 trillion infinite horizon fiscal gap. Plus more self-congratulatory blather about how he doesn't leave problems for future Americans to deal with, and the people should demand this from their leaders, etc.
Meanwhile, the unfunded Medicare prescription drug benefit that he strong-armed through Congress, totally unfunded and originally estimated to cost $16.6 trillion in the infinite horizon, is already proving costlier than expected. There is talk in Congress about reducing it - refreshingly, coming in the main from Republicans, who did not want such a huge expansion of government outlays even if they held their noses and went along with it for political reasons.
So we get today the headline: BUSH VOWS VETO OF ANY CUTBACK IN DRUG BENEFIT. He's standing tall to defend what he calls, with characteristic modesty, this "landmark achievement."
The utter debasement of political discourse is shown by the complete impossibility of reconciling these two sets of things that he says within hours, or even I suppose minutes, of each other. There evidently is no need for the man's statements to be even minimally logically consistent and defensible. This is how societies crash and burn - when reasoned discourse has vanished from the decision and discussion process. (Well, maybe I am being too hyperbolic, since this is just Bush, not the totality of our political process.)
The reason he can even try to get away with this inconsistency is that the Medicare prescription drug benefit has no dedicated funding whatsoever. So he can deny that it's "bankrupt, flat bust, broke" because he lacked the minimal responsibility to even try to provide dedicated financing for it. Had he done so and thus been slightly less irresponsible, he would have to treat its condition as worse (even though it would actually have been better), if the dedicated financing proved to be insufficient. But provide zero funding, unlike the case of Social Security, and you are home free.

Wednesday, February 09, 2005

Emperors with no clothes

What a surprise. The new Medicare prescription drug benefit that the Bush Administration steamrolled through Congress is now being estimated to cost $720 billion over its first ten years in force. The Administration sold it to Congress (where some conservative Republicans, needed for the majority, were restive) on the ground that it would cost "only" $400 billion over the ten years that were being estimated. This was dishonest from the start, because the Administration knew that its own estimates had gone up to $550 billion, but it was also misleading in the sense that the earlier 10-year estimate included two years (2004 and 2005) when the benefit wouldn't even exist yet. So it was bound to rise substantially once the estimates were looking at its first ten years of operations. Some members of Congress nonetheless proclaim themselves shocked, shocked. They certainly should have known better, but the less attentive public was being gulled by the use of a ten-year forecast that was not actually representative of expected annual costs once the program was up and running.
The Medicare Trustees have already estimated the infinite-horizon fiscal gap for the Medicare prescription drug benefit at $16.6 trillion, or more than 50% greater than the infinite-horizon Social Security shortfall that the Administration is so fond of trumpeting. Possibly the $16.6 trillion forecast is alteady being exposed as too low. It would be interesting to hear the Administration explain why $10 trillion is intolerable while $16.6 trillion is just fine.
UPDATE: Oops, make that not $720 billion over ten years, but $1.2 trillion if some possibly dubious cost-saving offsets that are being claimed by the Administration fail to materialize.

Tuesday, February 08, 2005

Very sad news

Some very sad personal news involving a colleague and good friend. I am hoping everything will be okay. What happened is in the public domain but rather than post it here I invite friends who don't know the news to contact me off-line.

First CD of the year to go on my year-end best-of list

I have been playing the Fiery Furnaces' "EP" (41 minutes despite the name) pretty regularly since it came out earlier this month. The Fiery Furnaces divide the world into those who wince and those who say, "Okay, I'm done being a nice guy about this: If you don't like Blueberry Boat, I don't like you." Between the precious or precocious twenty-something sensibility, the careening around within and between songs, and the sound that somebody called early Who meets Captain Beefheart plus a chanteuse, they are not for every palate. Then again, Radiohead hasn't done much for me. Some will find "EP" irresistible even if they steered clear of the FFs' first two CDs.

An early proposal for private accounts outside of Social Security

David Brooks becomes one of the early movers in the "What do we do now?" debate arising out of the ongoing collapse of President Bush's plan to fund private accounts by diverting Social Security taxes. He suggests reviving a late-1990s proposal called KidSave, under which "the government would open tax-deferred savings accounts for each American child, making a $1,000 deposit at birth, and $500 deposits in each of the next five years. That money could be invested in a limited number of mutual funds, but it couldn't be withdrawn until retirement. Over decades, it would grow and grow, thanks to the wonders of compound interest, so that by the time workers retired, they would each have a substantial nest egg, over $100,000, waiting for them."
This type of thing - although probably not this variant - is a potential political winner for a couple of reasons. The first is that many Democrats like private account add-ons so long as they don't come out of Social Security's dedicated financing. The second is that, if there is no stated financing, it looks like free money. Everyone likes free money.
In fairness to Brooks, he offers a little bit of financing: indexing Social Security benefits to prices not wages, and agreeing not to extend the Bush tax cuts. But this would still leave the fiscal gap, at a rough guess, in excess of $60 trillion even before we consider the cost of the KidSave accounts. So this is a dubious proposal from the standpoint of fiscal sustainability.
From a generational standpoint, the proposal is a bit ironic. Younger generations are given an unfunded benefit that they of course will have to pay for in the fullness of time.
From the standpoint of increasing national saving, the proposal is likewise a dud. It doesn't increase national saving, any more than you increase your own net saving by borrowing to invest. (Not continuing the Bush tax cuts would, however, do a bit of good here.)
The proposal is potentially quite progressive within a given age cohort, however. In effect, it is a uniform transfer or demogrant that eventually would be funded, presumably, by means-related taxes such as the income or payroll tax or a VAT. (Even flat tax funding would be progressive since rich people earn and consume more but get the same-size account.) So we can give Brooks points for that, noting that he is actually willing to aid poorer people in pursuit of his "ownership society" goals, although without credible financing one wonders how much it is really worth.
I have suspected for a while that the action is going to end up in this type of territory, although more likely with accounts for current workers (who vote) than for children. That is, the most conceivable bipartisan deal involves savings accounts outside of Social Security but still without new net government funding, meaning that they are unlikely to make our overall policy more sustainable or to increase national saving or to aid younger generations relative to older ones.

Sunday, February 06, 2005

A glimmer of sunlight??

The New York Times says that President Bush is planning to seek major cuts in farm subsidies. If so, this would be absolutely the first time I can remember, after more than four years in office, that he will be actually acting on the rationally pro-market even when anti-business principles that conservatism (Chicago-style at least) has at its best. Recall by contrast four years of never vetoing a spending bill, the steel tariffs, the worst record on free trade since President Hoover (according to Bruce Bartlett), unsustainable tax cuts, ostensibly seeking to increase national saving through Social Security reform by borrowing all of the supposed new saving, etc., etc. If we are going to get conservative policy distributionally, it would be nice if we also got it economically in places where it makes sense, and this has not previously been the case under this Administration.
We're a very long way from seeing any proof that the Bush Administration is serious about cutting farm subsidies, or that it has the power to do so even assuming seriousness. But at least we have now a gesture towards a start.
UPDATE: Other blogs note that this may simply be a cynical ploy to get the credit for urging something that the Administration knows won't get through Congress, and may not even plan to push for. Worse still, they suggest that there may be a plan afoot to cut the combined Food Stamps/farm subsidies budget and then take it all out of Food Stamps. That would certainly be kind-hearted.

Friday, February 04, 2005

Tales of the weird

This from an account of President Bush's latest campaign-style stop to sell his Social Security plan:
"A Social Security couple ... on stage described their two children and their third on the way. Bush looked up and said, 'Georgia?' The room fell silent for a couple seconds until he said, 'I hope you don’t name her Georgia!' Bush laughed and the room followed suit ...
"He digressed for two or three minutes talking about how important exercise and prayer are to him.
"When a young girl asked him to recite Proverbs 17:17, he said he couldn’t, then that the question was too easy, then that she should do it, which she promptly did."
Sounds like he is channeling his famously goofy Uncle Prescott.

Hilarious idiocy, part 2

As my previous post noted, the White House's claim that people would keep every penny in their private accounts, rather than losing the amount of payroll taxes diverted into the accounts plus 3% percent annual interest, is arithmetically equivalent to their preferred description, which is that you keep the entire account but lose an identical amount via your traditional-system benefits. Despite this arithmetical equivalence between the description they dislike and what they concede is the reality, they have succeeded in getting the Washington Post to publish a retraction, headlined with the words: "An earlier version of this article incorrectly described how new private accounts would work under President Bush's Social Security plan. This article has been corrected."
What's next? If the Post reports that President Bush's second term is scheduled to last for 4 years, must it issue a retraction if the White House says no, the term is actually 48 months?
Further merry shenanigans in the "corrected" retraction article include the following:
"In effect, said Democratic economist Peter R. Orszag of the Brookings Institution, the system works like a loan, in which the government grants workers 4 percentage points of their payroll tax to invest in stocks and bonds. The loan would have to be paid back with interest out of workers' monthly Social Security checks.
"But Robert Pozen, an investment executive who served on the president's 2001 Social Security Commission disputed that characterization. A worker is simply paying less into the system so he gets less back.
"This is in no way a loan," Pozen said."
A word on Pozen. At the law firm where he was a partner when I was a young cub associate, he was most famous for reputedly screaming "I don't give a f--- about your baby!" to an associate with a young child whose help (hers not the child's) he needed over the weekend. The only time I almost worked for him (since I did tax and he didn't) was the occasion, at 6 pm on a Friday, when he asked me to do a 50-state ERISA law search over the weekend. Even at this late date, I probably ought to send a bottle of champagne to the partner I was working with at the time who very kindly got me out of the assignment. But I digress.
I'm not sure if I want Pozen as my investment executive, although I don't think I could afford him anyway. If he wants to say that something isn't a loan even though it is arithmetically equivalent to a loan, that's fine if it makes him feel good, but it's not the type of insight (or candor) that I would want from someone who was handling my money.

Thursday, February 03, 2005

Hilarious idiocy

The White House, as linked on the Drudge Report, angrily explains today what a lie it is, per sources such as my previous post (quoting a high Administration official, to say that the Bush Social Security plan would take back investment returns from private account holders up to 3% annually, based on the funds they diverted.
Au contraire, the White House says, "Reality: Under President Bush's plan, participants would get EVERY SINGLE PENNY OF THEIR RETIREMENT ACCOUNTS -- BOTH the PRINCIPAL AND INTEREST."
To quote a bit more from the White House press statement:
"--For example, a worker who decides against taking a personal account might, in the future, get $15,000 annually in benefits from the traditional system, reformed to be permanently sustainable.
"--Another young worker could choose to invest in a personal retirement account. In exchange for the right to get the account, he gives up benefits from the traditional system. For example, he might give up one-third of those future government benefits, and be entitled to receive $10,000 annually from the traditional system.
"--A personal retirement account would belong entirely to the worker. If the account earns a 3% real rate of return - the worker would be right back where he started - at $15,000 of combined benefits per year."
Hold on, boys. The system you so indignantly distinguish from the one I described is in fact arithmetically equivalent to it, under ALL possible circumstances. It cannot possible make a penny's worth of difference whether you let people (a) keep the "$15,000 annually ... reformed to be permanently sustainable," while taking away retirement-account benefits up to 3% of the diverted payroll taxes a year, or (b) ket them keep their entire retirement accounts but take away an amount of traditional benefits equal to the same 3% per year.
Still, if it makes you happier to describe this as people's keeping "EVERY SINGLE PENNY OF THEIR RETIREMENT ACCOUNTS -- BOTH the PRINCIPAL AND INTEREST," while merely losing traditional benefits, I guess that going along with your preferred description is the least we can do for you, bubbalahs.
By the way, guys, could you help me with a small matter? I know you probably don't want to pay me for this blog, despite the Administration's largesse towards various journalists, given the sorts of things I say. But if you could see your way to paying me an amount equivalent to what you would pay me if you were paying me, that would be great. You see, I got expenses. And remember: you won't actually be paying me for anything. You will just be paying me the same amount as you would pay me if you were paying me.

Wednesday, February 02, 2005

The Bush Social Security plan

The Center on Budget and Policy Priorities, admittedly a Democratic-affiliated think tank with a stake in opposing the Bush Social Security plan, has an interesting post giving details based on a briefing this afternoon by a "senior Administration official." The details are consistent with but go beyond anything Bush said tonight.
We finally see here how the Administration, if it had its way on this, actually might reduce the Social Security portion of the fiscal gap - although, with unusual candor for this Administration, the official admits that "the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government."
The idea is to let workers divert 4% out of the 12.4% payroll tax into the accounts, but to make them pay for the diversion on retirement via benefit reduction in the amount of the revenues so diverted plus 3% annual interest. Then there would be further benefit cuts on top of that, having nothing at all conceptually to do with privatization as such, although the Administration declines, at least at this point, to say what they would be. Here is where the fiscal gap would actually decline, via benefit cuts that could in principle have been imposed in any event.
What exactly is the point of this exercise? A charitable view would be that it aims to make possible the further benefit cuts by using the paid-for private accounts as a carrot or a distraction. But in fact all that the private accounts exercise does is raise hackles, make the entire thing more controversial, and induce Democrats to respond to the Administration's rhetoric by saying there is no problem. Plus it raises the specter of people who fail to earn 3% on their accounts being worse off than if the whole thing weren't undertaken to begin with, thus reducing the downside worst-case security that any rational retirement plan, private as well as public, would include.
Wouldn't it be a lot more rational to seek a principled bipartisan compromise involving revenue increases plus benefit cuts?
To paraphrase the religious right, WWRD (what would Reagan do?). We know the answer to that because he actually did it in 1983 - agreeing with the Democrats to a package of revenue increases plus benefit cuts.

Tuesday, February 01, 2005

Step up and place your bets

I was speaking to a business audience today about what to expect out of Washington these days and a fellow speaker, who has some general connections and no particular axe to grind, offered odds of 5 or 6 to 1 against enactment of President Bush's Social Security plan. He also offered 3 to 1 odds in favor of the tax cuts being made permanent, but agreed with me that "permanent" means 4 years tops.
Asked about fundamental tax reform, such as replacement of the income tax by a VAT in the next two years, I compared it to the Eagles' chances of winning the Super Bowl by five touchdowns.