Thursday, April 28, 2005

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.

Wednesday, April 27, 2005

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).

Tuesday, April 26, 2005

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?

Sunday, April 24, 2005

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?

Friday, April 22, 2005

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.

Wednesday, April 20, 2005

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?

Tuesday, April 19, 2005

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.

Monday, April 18, 2005

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?

Wednesday, April 13, 2005

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.

Sunday, April 10, 2005

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.

Friday, April 08, 2005

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

Wednesday, April 06, 2005

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 ...

Tuesday, April 05, 2005

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.
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."

Saturday, April 02, 2005

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."

Friday, April 01, 2005

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.