September 14, 2003

Paul Krugman Depresses Kevin Drum

Kevin Drum meets Paul Krugman in lovely Del Mar and winds up depressed. How can anyone get depressed in Del Mar?

CalPundit: Why Paul Krugman is Depressing: So why did I say yesterday that Paul Krugman is depressing in person? Here's an excerpt from my interview, where he talks about what he thinks is going to happen to the U.S. economy:

We’re headed for some kind of collision, and there are three things that can happen. Just by the arithmetic, you can either have

  • big tax increases, roll back the whole Bush program plus,

  • or you can sharply cut Medicare and Social Security, because that’s where the money is,

  • or the U.S. just tootles along until we actually have a financial crisis....and we turn into Argentina.

Which one of those is most likely? What’s your best guess?

I think financial crisis....

Really? A financial crisis in the United States? Like in Argentina? Krugman admits that conventional wisdom says this is impossible, so I ask him again:

And do you think that’s a serious possibility for the United States?

Yeah, I mean, you just take the numbers as they now look, and that’s where it heads....I think we have to take seriously the possibility that things won’t work out this time.

Oh.

Here's the thing. In person you can tell that he's dead serious. And whatever you think of Krugman's politics, he's a top flight, world renowned economist whose professional specialty is international economic disasters.

And when a top flight, world renowned economist tells me that an Argentina-like financial collapse is a serious possibility in America, that's just really damn depressing.

You'll see the entire context of his remarks when I finish transcribing the interview, and it's quite true that his opinion is based on the idea that we're politically gridlocked and incapable of handling grownup economic facts right now. And obviously he could be wrong about that.

But still....

I'm not as depressed as Paul (or, now, Kevin). It's true that "Argentina" is a possible scenario for the U.S. over the next twenty years: the aging baby-boomer middle class that votes won't allow cuts in medicare and social security while the rich who pay for campaigns won't allow tax increases--just as the rich in Argentina wouldn't allow the taxes they already owed to be collected--and the result is inflation, default, governmental bankruptcies, chaos, and depression. That could happen.

Certainly the "Argentina" scenario is more likely to happen than substantial cuts in social security and medicare entitlements. If the George W. Bush administration did not dare propose "entitlement reform" at the start of 2001 (and people who claimed to have Bush's confidence like Mike Boskin were very clear in the fall of 2000 that that was what George W. Bush's main domestic policy task was, and people like Paul O'Neill joined the administration on the crystal-clear understanding that that was what the administration was going to do), no Republican administration will dare propose "entitlement reform" in 2009 or 2017 or 2025. The baby-boom generation votes, and every eight years focuses their--our--attention more and more on what they expect to receive from the government.

The most likely scenario, however, is very different. Shifts in technology and changes in ideology will, sometime, give us real political parties with real mass bases willing to contribute real money again. We won't always have our current system of roving political entrepreneurs raising money primarily by playing golf with and nodding sympathetically at the concerns of rich people. When that happens, the tax pendulum will swing back again, as Republican politicians and even those paid by Moon and Murdoch to be stupid frantically try to recall just why they are supposed to advocate that Richard Grasso pay lower marginal tax rates on his income than a firefighter with two kids in Dayton.

Remember: it required five badly-broken pieces of our political institutions--the owing-of-favors by the Republican establishment to George H.W. Bush, George H.W. Bush's belief that his eldest son ought to have a chance to run for president, too many Republican voters in too many early-primary states who respond when candidates give coded signals that they don't like Black people either, the electoral college, and Antonin Scalia--to give George W. Bush the presidency. Our political system has flaws, but it is unlikely to break this badly again.

Yes. The Bush administration has tried its hardest to ruin America--to impoverish the country, to alienate the allies whose enthusiastic cooperation we need to help manage a dangerous world, and to create the preconditions for the Middle East to breed terrorist assassins like swamps breed mosquitoes. And, yes, continued rule by these people and their future analogues would eventually ruin this country.

But we are immensely powerful. We are immensely strong. And, as the wise founder of the Republican Party said (and I hope that whatever grownups are left in the Republican Party are thinking hard about his words), "You can fool some of the people all of the time. You can fool all the people some of the time. But you can't fool all the people all the time."

Posted by DeLong at September 14, 2003 08:47 PM | TrackBack

Comments

The key part of your post, Brad, is the roving political fundraisers part. The key illnesses flow from that - the huge concentration of wealth and power in the US to a relatively small minority. And that trend is at least twenty years old. The idea that all the problems stem from Bush Jr is naive - he accelerated, deeply accelerated policies and trends that were already their. The war on (some) drugs was already stripping Americans of rights; the government was already reducing regulatory oversight of companies and destroying the regulatory infrastructure put in place by Roosevelt; and wealth was already continuing its contration.

Those trends were and are bipartisan. Without mass parties again they will not stop. And I'm less optimistic about the potential of new technologies (by which I assume you primarily have in mind the internet) to cut this out. Dean may be raising lots of money - but he's still far far behind Bush.

Posted by: Ian Welsh on September 14, 2003 09:04 PM

I agree that new technology will change the fundraising process; obviously Dean is at the forefront of that trend. I am part of a site called PayDemocracy ( http://www.paydemocracy.com ) which provides a venue for aggregating many small donations to lobby/support politicians.

Using this approach, more people will be able to participate in influencing policy decisions via donations. Right now, Dean donors are pretty much just trying to make him the nominee. In the offline world, groups with a particular agenda give but also attach an opinion to their gift. This is the missing link for online lobbying.

Posted by: Chad Williams on September 14, 2003 10:05 PM

I want to echoe Chad's comments about the Dean campaign - if you spend any time over at his blog and read the comments, you notice that people are educating each other about economic issues, and realizing that together they can make a real difference in a way which Murdoch and Moon cannot.

The real question is will the establishment Democrats, who are perhaps more addicted to the "elite doners" than Republicans, embrace Dean's model of voter engagement or try as hard as they can to beat Dean? I think you see evidence of a struggle going on over just this issue.

The Chairman of the DNC publicly supports Dean, the New Democrat network calls him an "elitist". A rather strange charge coming from them.

sz

Posted by: SZ - FairAndBalanced on September 14, 2003 10:10 PM

Brad,

"The Bush administration has tried its hardest to ruin America--to impoverish the country, to alienate the allies whose enthusiastic cooperation we need to help manage a dangerous world, and to create the preconditions for the Middle East to breed terrorist assassins like swamps breed mosquitoes."

Tell me that's hyperbole. Please. You may believe the Bush administration is inept, but to ascribe sinister motives that are the exact opposite of his stated ones, without justification, is simply in poor taste. It diminishes you.

Posted by: Kyle Markley on September 14, 2003 10:27 PM

>>to ascribe sinister motives that are the exact opposite of his stated ones, without justification<<

Do you believe that the steel tariff was supposed to get us a stronger economy? That the tax cuts are intended to increase the rate of investment? That we attacked Iraq because we had solid intelligence that Saddam Hussein's weapons of mass destruction were a threat to the United States?

The number of people who believe that the Bush Administration's stated motives are its real motives is very, very small indeed.

Posted by: Brad DeLong on September 14, 2003 10:46 PM

How can the US default on its debt? Why isn't the most likely outcome a devaluation of the dollar? A sudden devaluation and rise in interest rates could be harmful, but not the 'load up on shotgun shells, beans, and porn' type harmful that some people are implying.

Posted by: Steve on September 14, 2003 11:12 PM

Steve, if the US defaults on it's debt, the money stops flowing.

When the US is deficit spending, they aren't just printing extra money. They borrow it from banks and other lenders, essentially the same as businesses do.

If we don't pay these things off, we don't have enough money to run the programs, so the government can't pay out social security, or pay the postal workers, or pay the soldiers, or buy the next bomber, etc, etc, etc.

We have to pay the bills. If we can't, we lose a whole lot.

Posted by: JoeF on September 15, 2003 12:41 AM

Actually, you forgot a sixth badly broken piece of our political institutions -- Ralph Nader. Without dear Ralphie's publicly stated determination to destroy democracy in order to save it, Gore would have definitively taken not only Florida but New Hampshire.

As for Lincoln's famous quote, I wish I didn't remember the different version of its last sentence by the fictional politician in "Spoon River Anthology": "...And that's enough." I also wish I didn't keep thinking of Bismarck's statement that "God protects little children, drunks, and the United States of America." God, it should be remembered, always gets bored at some point.

Posted by: Bruce Moomaw on September 15, 2003 01:20 AM

> The most likely scenario, however, is very
> different. Shifts in technology and changes in
> ideology will, sometime, give us real political
> parties with real mass bases willing to
> contribute real money again.

Why is this most likely, as opposed to 'it will all turn out right in the end' wishful thinking? As Gore Vidal once wrote - a long time ago, and certainly long before his slide into paranoid dotage - I feel the urge to write 'justify' in the margin in red ink.

Posted by: Sean Matthews on September 15, 2003 01:23 AM

The professor of the dismal science comforts us by predicting that we'll fix things in the long run, which will probably be enough time to avoid the Argentinian scenario. This is cold comfort to those of us who barely expect to survive the sequence "2009 or 2017 or 2025".

As for faith in the American people, it's sobering - or depressing - to find in recent polls that while 71% of Americans support our military presence in Iraq, only 38% support funding it. "Some of the people all of the time" is frighteningly close to a majority.

Posted by: bad Jim on September 15, 2003 01:37 AM

Krugman's right. But the problem is not Bush, it's Alan G. and (yes) economists like BDL and Krugman who have led the "lower the rates" chant every time there is a sign of economic weakness. I ask the readership here: do you really think economists and the Fed have learned to finetune the business cycle? After 200 years of industrial capitalism, which has always known recessions and depressions, the U.S. at the end of the 20th century is supposed to have banished the business cycle? Because - ? Because - ? The U.S. is supposed to enjoy one of the greatest bubbles of all time, and not suffer some bad consequences? Because - ?

By trying to forestall those bad consequences, the Fed has just made things worse - by getting more people into bigger debt.

So Krugman is right, but he should be uttering one big mea culpa. He's the one who told the driver to floor it; and now he's saying, "Oh look, we're going off a cliff."

And now I do think BDL is right. Even if America does head off the economic cliff, it will recover. Eventually. And sooner than the rest of the world, which will (because the U.S. is *not* Argentina) be dragged over with it.

Posted by: Andrew Boucher on September 15, 2003 02:59 AM

I am all for Krugman developing the list of potential financial futures for the US. He has the background to do a very good job. I don't know why he, or Brad, should have a better handle on which of the potential futures he identifies is most likely. The futures he offers fall out of what he knows about the US budget, likely potential rates of growth, demographics and such. We, his readers, can pretty easily find corroberation. The future, the path taken, that is very different. Brad, too, is fascinated with the political future, but that doesn't mean his technology and socially driven shift toward some other political culture will be a shift toward something that works better. He cannot know whether Krugman is right, any more than Krugman can know which of his choices is most likely.

Economists have a place in explaining politics, because politics and economics affect each other profoundly. Economists are good at identifying policy choices that must be made and the implications of various choices. (Sometimes, however, they fall down even on that point. Greenspan's worries over surpluses as far as the eye can see was a stunning failure to understand the sources of the surplus.) That does not give them special knowledge about which policy will be chosen.

Posted by: K Harris on September 15, 2003 04:37 AM

It's not fair. It's not balanced. But I like it immensly.

Posted by: Hans Suter on September 15, 2003 05:33 AM

W was elected because Republican primary voters were convinced that W doesn't like black people but McCain does?

There were a couple ugly incidents (none as ugly as the NAACP ads against Bush, however), but I don't buy that they caused Bush's election.

Posted by: J Mann on September 15, 2003 06:12 AM

It is not hyperbole. It is the literal truth. BTW, any senior citizen, or soon-to-be senior citizen, who votes for Bush has an early death wish--attmpts to cut/do away with Social Security and Medicare. Limits on physical therapy just kicked in Sept. 1. Think that's the last of it? I don't.

Charles

Posted by: charles on September 15, 2003 06:39 AM

It is not hyperbole. It is the literal truth. BTW, any senior citizen, or soon-to-be senior citizen, who votes for Bush has an early death wish--attmpts to cut/do away with Social Security and Medicare. Limits on physical therapy just kicked in Sept. 1. Think that's the last of it? I don't.

Charles

Posted by: charles on September 15, 2003 06:41 AM

Andrew, if I have been reading Krugman correctly, he has been advocating for a different fiscal policy, one that does not include backloaded tax cuts for the wealthy but aid to the states and a frontloaded jobs stimulus. Does PK think the Fed can fix things by lowering rates? Or does PK think we are already in liquidity trap territory where monetary tinkering has little to no effect.

Brad has indicated that he thinks a drop in interest rates would have a positive effect on employment. I am not sure that PK agrees. Both have written that we would have been in better shape with an appropriate fiscal policy to complement our monetary policy.

What would have a bigger effect on domestic employment? A drop in interest rates? or money to states that are currently laying off teachers and other employees, freezing salaries and hiring, canceling infrastructure projects, etc.?

Capital can be invested to provide jobs in the US or jobs overseas. The majority of state spending creates domestic jobs. The lack of a good fiscal policy is keeping unemployment unnecessarily high.

Posted by: bakho on September 15, 2003 06:50 AM

Y'all can spin your paranoid fantasies about evil fundraisers and whatnot, but you are evading an important fact.

Fundamentally, it is the Social Security and Medicare system that is broken. Its flaws are

a) pay-as-you-go financing
b) retirement age not indexed to longevity, so that a greater portion of people's lives is spent in dependency
c) indexing of social security benefits to wages, so that benefits keep rising in real terms
d) no incentive at all for people to use health care efficiently

As Krugman points out in his NYT magazine article, the cost of entitlements is going to rise well above anything that our tax system ever generated in terms of revenue as a share of GDP. The economic case for entitlement reform is pretty overwhelming, it seems to me. What is depressing about the political environment is the reluctance of the Democratic Party to acknowledge the issue.

Posted by: Arnold Kling on September 15, 2003 06:58 AM

We need to elect Howard Dean so he can make the needed cuts in Social Security.

The longer Democrats let SS, Medicaid, and Medicare run out of control, the greater the cuts will have to be. Right now, I don't think the current tax rates impend economic growth, but at some point they do. Then increases in tax rates do indeed produce less taxes. Granted, we can increase them some from where we are at now, but the rest will come as spending cuts. The benefit levels can not be maintained. The Republicans strategy of forcing a fiscal crisis works as long as Democrats allow SS to be a financial time bomb.

Posted by: Chad Peterson on September 15, 2003 07:01 AM

You're right: it is almost impossible to get depressed in Del Mar, where a bad day is having the mist obscure the ocean in the morning.

Seriously, I don't think there is any support in the political center of this country for either humongously huge government or dramatically reduced government. But we have to witness political gamesmanship on the issue between the left and right in the course of debating what the right size and role for government is. And then our common sense saves us in the end. Still, it's a lot of work making it all come out alright.

Posted by: Jim Harris on September 15, 2003 07:01 AM

Been thinking about that Lincoln quote.

Bush probably figures that if you can fool 45% of the people once every 4 years, and can get the Supreme Court to help you out, you can still keep the Presidency.

Posted by: pyts on September 15, 2003 07:01 AM

I don't think of Mr. Bush having sinister motives as much as he has a unworkable economic model. The Bush model is to use the public treasury to reward his campaign contributors. He believes that this will eventually help the economy because his model makes no distinction between spending revenue on tax cuts for the wealthy, tax cuts for the poor, or spending on infrastructure. My guess is the multipliers they are using are way off base. That is why they often suggest that the tax cuts pay for themselves with increased revenues collected at a lower tax rate.

Similarly, his foreign policy is bent on establishing a new world order that ignores many of the lessons of the past. Mr. not a world traveler knows that abrogating treaties and unilateralism is supported by his party's base and that pursuing this policy would alienate Democrats. I suspect he underestimated how deeply it would alienate Europe and the rest of the world or believe that forgiveness is easier to get than permission. They believe that militarization under Reagan brought down the Soviet Union and Europe was grateful to the US for a more permanent solution to the tensions. They believe that their Iraq policy will produce a longer term solution to the Middle East problem and once it does, the rest of the world will be grateful. Is their model correct? Only time will tell. However, it creates a lot of short term tension and pain.

Posted by: bakho on September 15, 2003 07:03 AM

Why do I keep having the thought that writers like DeLong and Marshall are just polishing up their credentials, hoping to get a job in the next Democratic administration? (The most important credential being loyalty to the party.) Is that too sinister a motive to attribute to this overheated rhetoric?

Posted by: Eddie Thomas on September 15, 2003 07:32 AM

Why does Eddie Thomas keep thinking that DeLong and Marshall are just polishing up their credentials, hoping to get a job in the next Democratic administration?

Probably because Eddie Thomas is a political hack who doesn't bother to read what they write or think about what they say.

Posted by: zizka on September 15, 2003 07:58 AM

"[...] But you can't fool all the people all the time."

I wonder if Bob Marley and Peter Tosh knew they were quoting Abraham Lincoln when they wrote Get Up Stand Up in 1973. I guess so, but then again it's a universal message of hope in the face of demagogy.

Posted by: Jean-Philippe Stijns on September 15, 2003 08:01 AM

According to the references linked to in the comments here (note especially those by Bruce Webb):

http://maxspeak.org/gm/archives/00001204.html#comments

it seems that Arnold Kling's concerns appear to be overblown.

Posted by: Russell L. Carter on September 15, 2003 08:24 AM

If the US goes the way of Argentina, what's the best mattress to hide your money under? When the boomers retire my children will be just ready to go to college and I'd like to have some money to pay tuition with that's worth something so they can go.

Posted by: Lisa Williams on September 15, 2003 08:54 AM

If the US goes the way of Argentina, what's the best mattress to hide your money under? When the boomers retire my children will be just ready to go to college and I'd like to have some money to pay tuition with that's worth something so they can go.

Posted by: Lisa Williams on September 15, 2003 08:58 AM

If the US goes the way of Argentina, what's the best mattress to hide your money under? When the boomers retire my children will be just ready to go to college and I'd like to have some money to pay tuition with that's worth something so they can go.

Posted by: Lisa Williams on September 15, 2003 09:03 AM

If the US goes the way of Argentina, what's the best mattress to hide your money under? When the boomers retire my children will be just ready to go to college and I'd like to have some money to pay tuition with that's worth something so they can go.

Posted by: Lisa Williams on September 15, 2003 09:08 AM

"What is depressing about the political environment is the reluctance of the Democratic Party to acknowledge the issue."

Should have said Republican, Arnie. The R's have all of the reins of power now. If they wanted to address this issue, they could and no one could do anything about it.

The fact that they are not doing anything about it indicates that they are the ones not addressing the issue. It also indicates that they have not problems with the disaster that's brewing, from which one may infer that they wish that disaster to happen.

Arn, old pal, all you are doing in exposing your biases.

Posted by: Chuck Nolan on September 15, 2003 09:13 AM

"The most likely scenario, however, is very different. Shifts in technology and changes in ideology will, sometime, give us real political parties with real mass bases willing to contribute real money again. We won't always have our current system of roving political entrepreneurs raising money primarily by playing golf with and nodding sympathetically at the concerns of rich people. "

On what basis do you make these assertions, Professor?

Posted by: Chuck Nolan on September 15, 2003 09:14 AM

GWB appears to have taken his own lesson from the quoted words of the wise founder of his party. As quoted by Paul Krugman in the 4/11/01 New York Times, Bush spake thus at the Gridiron Dinner of December, 2000: “You can fool some of the people all of the time, and those are the ones you have to concentrate on.” And we thought he was joking!

Posted by: Chuck Lindeberg on September 15, 2003 09:21 AM

"On what basis do you make these assertions, Professor?"

There's the rub. BDL at first glance appears to be playing Simon to Krugman's Erlich. But the trouble is Simon was extrapolating from the data set of all of past history. And it looks like on the matter of political practicalities that Krugman is doing this, as well.

But I sure hope BDL is right.

Posted by: Russell L. Carter on September 15, 2003 09:25 AM

"Just by the arithmetic, you can either have
* big tax increases, roll back the whole Bush program plus,
* or you can sharply cut Medicare and Social Security, because that’s where the money is,
* or the U.S. just tootles along until we actually have a financial crisis....and we turn into Argentina."
~~~

A very reasonable fourth option somehow got omitted. Maybe because it *is* reasonable:

4 (a) Democrats admit that people over 60 now are the wealthiest age group in the nation -- the opposite of when SS and Medicare were created -- and are pulling up-and-away wealth-wise from the wage earners raising children who pay for their benefits, as additional trillions of dollars flow into their retirement plans and they pay off their home mortgages, etc.

Democrats also admit that FDR and LBJ never meant SS and Medicare to finance transfers from the poorer to the richer.

Thus Democrats adopt a new "progressive" position that there's no need to extend drug benefits and ever larger other transfers to Warren, Bill and the steadily growing numbers of retirees who will be well able afford to pay for their own way in the future.

Democrats also belatedly recognize the efficiencies and improvements that market mechanisms provide when administering such programs -- rather than trying to recreate the socialist state for people over 60.

All this results in a substantial reduction in future entitlement costs with savings increasing into the out years, and increased effectiveness of those programs as well.

And all this becomes politically possible as Democrats decide to stop making campaign advertisements picturing people in wheelchairs being pushed off of cliffs by Republicans whenever "entitlement reform" is mentioned.

4 (b). When real entitlement reform is seriously proposed as per the above, Republicans agree to raise taxes sufficiently to fund it.

National bankruptcy is averted by everyone being reasonable and doing the right thing. Bingo.
~~~~~

"If the George W. Bush administration did not dare propose 'entitlement reform' at the start of 2001 (and people who claimed to have Bush's confidence like Mike Boskin were very clear in the fall of 2000 that that was what George W. Bush's main domestic policy task was...) no Republican administration will dare propose "entitlement reform".

Could that failure by any chance have been caused by ...

*Democrats creating political ads showing Republicans pushing people in wheelchairs over cliffs and such when entitlement reform was mentioned?

*The likes of Prof. Krugman calling Sen Moynihan's SS reform panel "Orwellian doublethinkers"? (Considering how Moynihan in his career did more to protect and strengthen SS and related programs with his little finger than Krugman will do if he lives to be 150 with the aid of genetic engineering, that was one of PK's more noxious ad hominems.)

BTW, what did the Clinton Administration do about entitlement reform during eight years in office? I mean about the benefit/cost side.

And what are the good faith proposals for entitlement reform on the table now as proposed by Professors Krugman, Blinder, DeLong, from CBPP, etc.? I've missed them.

P.S. If entitlement financing does cause the US to go the way of Argentina, at least we'll have the fun of watching Japan and most of Western Europe go that way before us.

Posted by: Jim Glass on September 15, 2003 09:45 AM

I think the Bush electoral logic is something like

fool 48% of the people every four years
+
fool 55% of the supreme court as needed

but seriously, the best way out of this is to level with people and make them face the hard choices. Bush certainly won't do that and few Democrats have thus far, though Dean seems most likely given his fiscal record. Paul Krugman makes it clear that if the politicians don't do it in the next ten years or so, then the financial markets will.

I would prefer a mix of the following.

1) move Fed insurance obligations off the budget and under control of an independent trustee system more like the Fed
2) bring US healthcare costs down to Canadian/West European levels
3) make the SS tax progressive and without cap
4) rollback Bush's most egregious tax cuts

Posted by: John on September 15, 2003 10:07 AM

"But we are immensely powerful. We are immensely strong."

This is laying it on a bit thick isn't Brad. Sometimes it's a case of 'how are the mighty fallen'. You do have predecessors. We British used to be able to say this, and just look at us now.

Also, remember the Argentina mess was, in the end, deflationary. So maybe, why not, like Argentina.

The thing is, Paul is a clever guy. On one reading he shouldn't be saying this, since saying it begins to make it thinkable, which begins to make it happen. (We have the same problem with saying the euro may not work). Normally he wouldn't do this. But then, his opponents, in order to criticise have to allow that he is an intelligent and important economist, something they aren't going to do. So, you see, he has them.

But as with all these things, there'll be an internal and an external reading. Bush is a lot less popular outside the US than he is inside. This means that these declarations, which are really for US internal consumption, may well help shape the international consensus.

What was it they said: a country divided against itself....

Not so mighty, not so powerful.

In fact, I think things are now out of Bush's hands. Both in Iraq and on your triple deficit, you now depend on others. How ironic, that two years after 09/11, when so many said never again, things should be turning out like this.

I guess this is really what Bush will be remembered for - making the US not master of its own future.

Posted by: Edward Hugh on September 15, 2003 10:45 AM

Someone recently offered the George Bush update of Lincoln's quote: "You can fool some of the people all of the time. And I intend to concentrate on these."
I see Bruce said something similar.
Jean-Philippe, thanks for crediting Peter Tosh, he gets neglected and the stanza about God, in particular, feels like him to me. Great song. I'm sure they knew it was an American saying, I'm not sure they knew Lincoln said it, since lots of people don't.

Posted by: John Isbell on September 15, 2003 12:29 PM

Someone beat me to it, but I like this punchline better:

GWB supposedly said that an advisor told him, "You can fool some of the people all of the time...that's your base."

I clicked on these comments to see if anyone would provide a strong defense of the Bush administration. I haven't seen one yet.

Posted by: Brandonimac on September 15, 2003 12:34 PM

Someone beat me to it, but I like this punchline better:

GWB supposedly said that an advisor told him, "You can fool some of the people all of the time...that's your base."

I clicked on these comments to see if anyone would provide a strong defense of the Bush administration. I haven't seen one yet.

Posted by: Brandonimac on September 15, 2003 12:35 PM

"People over 60 are now the wealthiest age group in the nation."

I'm not sure this is true in a general sense (my little poster showing income associated with employment status has a huge lump of retired poor folks), but even if it is, it is leaving out the enormous loss in human capital which poor health and outmoded skillsets creates in the elderly.

Posted by: Kimmitt on September 15, 2003 01:12 PM

One more thing broken about our democracy: the people. As a nation, we are so stupid that Bush still stands a good chance of being reelected. Democracy requires an educated populace, or at least one with common sense, and the fact that four more years of Bush is even a possibility just shouldn't be. Arnold Schwarzenegger contemptuously said that the voters don't care about (essentially) substance, and it's quite likely that he's right.

I think we more or less have the government we deserve.

Now contemplate the fact that a nobel-prize winning economist's vote is worth as much as that of a dittohead.

Posted by: rps on September 15, 2003 01:14 PM

To Jim Glass: we've been over this before. Krugman said --at length -- in his 1996 piece on Dole's demagogic acceptance speech (in which Dole also refused to note any problem in Social Security, and blamed the country's fiscal problems entirely on egghead-devised anti-poverty programs) -- that SS and Medicare are transferring money from the poor young to the rich old, and that this needs to be changed.

As for privatizing the system: PK has pointed out repeatedly the glaringly obvious fact that any drainoff of contributions from current workers to fund their own retirements will naturally lead to a big cut in payments to current retirees, and that this needs to be acknowledged -- which Bush constantly fails to do, instead painting privatization as an all-gain no-pain solution. Krugman also thinks that the government should itself invest the SS fund in the stock market and other private markets, and that it is possible to devise a system that does this without allowing the government to game and manipulate the investment market -- which the General Accounting Office (in its 2001 report, towards which Glass himself pointed me during a more convincing attack on some of Krugman's statements) says MAY, repeat MAY, be possible.

And of course Glass is right that at some point something has to give -- SS and Medicare taxes are going to have to be extended to the rich, SS and Medicare payments to the well-off will have to be ended, and everyone's retirement age will have to be raised (with all three measures having to go further if we decide to start rediverting some of current workers' contributions toward their own retirements.) But of course this won't be done until the roof is actually starting to fall in -- democracies always wait until that moment before they start frantically racing around trying to solve a problem. Sometimes they even manage to do so at that point.

Posted by: Bruce Moomaw on September 15, 2003 01:55 PM

Can our military budget be cut? Hello? With tens of billions in Missle Defense, Congressmen using DOD budget to bring home the bacon and other boondoggles, there really is waste out there in Gruntville. We could probably knock off $100 billion without doing much harm.

Then there is soak the rich. There is no reason why the top bracket cannot go back up to 50%. After all, the rest of us have been paying more into SS than is required so it will be there when we retire. Mr. Bush is using our SS taxes to give them a tax cut now. We should be able to claim return on investment in the future and tax them to pay for our SS. Since SS benefits are now taxed, we pay them benefits then take 50% back in taxes. That is more than fair.

Soak the rich.
The backlash is out there.

Posted by: bakho on September 15, 2003 02:09 PM

I think if GWB were trying to deliver the Lincoln quote it would come out more like "People are fools. I am a people. Sometimes."

Posted by: Ben Vollmayr-Lee on September 15, 2003 02:12 PM

J-P Stijns,

Let us not forget “Buffalo Soldier”. Marley and/or Tosh had to know some Lincoln-era US history to make use of it as they did.

Posted by: K Harris on September 15, 2003 02:30 PM

"The key illnesses flow from that - the huge concentration of wealth and power in the US to a relatively small minority."

Yeah! Stinkin' rich people! How dare they earn so much money, and not give more of it to us?! Let's take it from them! (As the crowds say on South Park, "Rabblerabblerabble!")

Posted by: Mark Bahner on September 15, 2003 03:46 PM

Re:

as the wise founder of the Republican Party said (and I hope that whatever grownups are left in the Republican Party are thinking hard about his words), "You can fool some of the people all of the time. You can fool all the people some of the time. But you can't fool all the people all the time."

Another way to put Bush's take on this is the Mavarick variation:

"You can fool some of the people all of the time and all of the people some of the time and those are pretty good odds."

Posted by: Jonathan Goldberg on September 15, 2003 05:02 PM

"Yeah! Stinkin' rich people! How dare they earn so much money, and not give more of it to us?! Let's take it from them!"

Actually, Mark, that's an excellent summary of the current Democratic argument. Let us know if you ever actually find any logical or moral argument against it.

Posted by: Bruce Moomaw on September 15, 2003 05:27 PM

"To Jim Glass: ... Krugman said -- at length -- in his 1996 piece ... that SS and Medicare are transferring money from the poor young to the rich old, and that this needs to be changed."

OK, *how* does he say it needs to be changed? What is his proposal? What has he said on this since 1/1/2000? And what do other leading Democrats and the other persons I mentioned before propose as "entitlement reform"?

Somehow I've missed all these proposals. The only proposals I've actually seen have come from those whom these people lambast for making such proposals.

"As for privatizing the system: PK has pointed out repeatedly the glaringly obvious fact that any drainoff of contributions from current workers to fund their own retirements will naturally lead to a big cut in payments to current retirees ... and that this needs to be acknowledged -- which Bush constantly fails to do,"

I never mentioned privatization. But since you bring it up, Milton Friedman has pointed out that this argument is bogus (someone like Krumgan might use a stronger word) since it fails to note that the exact same shortfall exists in the status quo system. In fact the shortfall attributed to the "transition cost" *is* the shortfall of the current system. http://www.ioptout.org/articles/990111.asp

Now it is rather disingenuous (or a stronger word could apply) to label something a "transition cost" when it doesn't come from any transition but exists already. Of course, status quo defenders can't legitimately complain about privatizers not saying how they would pay this cost when they won't say how they would pay this cost themselves. This is something the status-quoers need to acknowledge, but amid all their adverts with people in wheelchairs going over cliffs they never do.

"And of course Glass is right that at some point something has to give ... But of course this won't be done until the roof is actually starting to fall in"

Personally I think it will start happening as soon as income taxes have to be raised to fund transfer payments. That will be the day that transfer payments go on general revenue -- and every other interest group that feeds from the public purse will start lobbying to protect its own share from it with the question "Why are we using income taxes to pay transfers to Bill Gates and all the other millionaires in the nation?" Which will be hard for class-warrior liberals to answer.

That'll be the day means-testing comes in. And FDR said a long time ago what means testing would do....

Posted by: Jim Glass on September 15, 2003 05:34 PM

>Rabblerabblerabble

The motto of socialists is "I'm a sensitive soul, the government should support me."

The other principle of socialism is that the government should hire half the people to tell the other half what to do.

The socialist is haunted by the fear that somewhere somebody is doing something without the permission of a governmental authority trained in the arcane rules of political correctness.

Most of all the socialist wants everybody to be alike. His model for society is the beehive, or perhaps the dairy farm.

Posted by: Joe Willingham on September 15, 2003 05:36 PM

Jim Glass wrote, "Somehow I've missed all these proposals. The only proposals I've actually seen have come from those whom these people lambast for making such proposals."

Uh...maybe you could visit (e.g.) CBPP's internet site and see what they've proposed? Most such proposals I've seen use a combination of payroll tax increases and/or increases in the age of eligibility.

"Now it is rather disingenuous (or a stronger word could apply) to label something a 'transition cost' when it doesn't come from any transition but exists already. Of course, status quo defenders can't legitimately complain about privatizers not saying how they would pay this cost when they won't say how they would pay this cost themselves."

Huh? "Status quo defenders" like Krugman talk about this cost all the time; they call it "the implicit debt". And if you look at Krugman et al's deconstruction of the proposals of Bush's commission on SS, it's quite clear that the privatizers are the ones obfuscating the issue.

Posted by: Stephen J Fromm on September 15, 2003 07:34 PM

I'd like to give a few cents (great post and thread, btw): I share Prof. DeLong's optimism. But I don't see how an Argentine style collapse is more likely than a (relatively) minor adjustment in our nation's finances.

- We have a historic deficit, but a manageable debt.

- The popularity of the war is falling - I don't believe we'll be doing anything like that anytime soon (naive?)

- The tax cuts and expenditures are not sustainable, so they won't be sustained. I don't share the belief that Medicare and Social Security are untouchable due to democratic and demographic realities. Surely, if our SS becomes a crisis, baby boomers will understand - they won't take the ship down with them. Means testing will be an easy sell (popularity-wise). Projections of solvency for SS extended 50 years just 5 years ago. We'll raise a little revenue, cut some benefits. It will be possible with slight electoral shifts like our host mentioned.

- Revenues will rise, though not from another economic boom (we will have stagnation for the next ten years, as we structurally adjust, barring another technological revolution - the hydrogen fuel cell?)...So, sorry rich people. Your taxes will rise. We have effective flat tax across incomes, including state, property and SS (between 30%-40%), this will just have to rise for the top bracket back up to about 45%. That should do it.

- But I do agree with Edward Hugh above, in acknowledging that our long term trajectory is kind of out of our hands. Think China will let it's currency appreciate while it is holding billions in our treasuries? India and China are sitting down at the table. America will not dominate the world in another 20 years, economically nor militarily. But this was coming, our boy-king perhaps only accellerated things.

Posted by: andrew on September 15, 2003 10:25 PM

To Glass (again): In that piece, Friedman proposes, as a thought experiment, instantly closing down Social Security completely: "The result would be a complete transition to a strictly private system, with every participant receiving what current law promises. Yet, aside from the cost of distributing the new obligations, the total funded and unfunded debt of the United States would not change by a dollar. There are no 'costs of transition.' The unfunded liability would simply have become funded. The compact between the generations would have left as a legacy the newly funded debt.

"How would that funded debt be paid when it comes due? By taxing, borrowing, creating money or reducing other Government spending. There are no other ways. There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part. Yet that is the implicit assumption of those who argue that the 'costs of transition' mean there can be only partial privatization."

In other words, to the extent to which you privatize SS, the payments to current retirees from current workers' payroll taxes must instead be paid for by other techniques: "by taxing, borrowing, creating money or reducing other government spending." Gosh! What a shock! As should really be obvious, both I and Krugman have always been well-aware of the rather glaring fact that you can privatize SS IF you are willing to fund its obligations to current retirees in other ways -- or, alternatively, to let the current retirees go hang (or some mixture thereof).

But -- as PK keeps saying throughout the history of his Times column in an increasingly irritated tone -- that is exactly what Bush denies: that, in order to privatize SS (and thus quite possibly improve the condition of future retirees), you have to cut the benefits of current retirees and/or fund those benefits in other ways, such as by (shudder) raising other forms of tax. Which is what PK and I both mean by referring to Bush's medicine-show attempts to describe SS privatization as all-gain, no-pain. Neither of us, so far as I know, is saying that the fact that the transition would involve some pain to somebody is by itself an adequate argument against privatization; we're simply saying that, in order to minimize that pain (by transferring it to the people who can best bear it), you have to at least be honest enough to admit the elementary fact that it will exist.

Posted by: Bruce Moomaw on September 15, 2003 11:13 PM

I think the point about code-words is an important one. But, not just in the Republican primaries - identity politics explains the core of Republican appeal. (I know all the book-readin' libertarians disagree, but I grew up in small-town Texas, and I have a different perspective). The party of the rich has a very limited natural constituency (rich people, obviously). Identity politics is the only thing that keeps them from landslide losses.

Why do blue collar burgs and trailer parks vote Republican?...(Besides the absence of unions in the south, of course)...because liberals are the party of, take your pick: blacks, immigrants, homosexuals, the arab-appeasin' french toast eatin, tree huggin, feminist intellecshuals.

Liberals aren't real Americans. This is right below the surface of half of the moderate right-wing *%#? I read. That's why we always feel like our patriotism is being impugned...IT IS.

Liberals want to take away my gun, my pickup truck (actually it's a SUV, but it could go offroad) and my barbeque pit. Hell, liberals don't even watch football (GWB gave the opening for the first game this season "Are you ready for some football?" Let's Roll.)

Even though trailer park residents pay almost no federal taxes, they believe that their problems are caused by liberals taking their money and giving it to welfare queens or immigrants.

Anyone who denies that identity politics is the core of the republican appeal among poor and lower-class whites, is oblivious or dishonest.

In American right now, Rush Limbaugh is the #1 radio show, Fox news is the #1 news show, NASCAR is the #1 sport in viewers, and a few years ago WWF - Tuesday Night Nitro was the #1 rated TV show. That's the real battle for the Democratic party, to get po' folks to stop voting against their economic interests. But the Repubs charade can't last forever, can it?

Posted by: andrew on September 15, 2003 11:16 PM

"I never mentioned privatization. But since you bring it up, Milton Friedman has pointed out that this argument is bogus (someone like Krumgan might use a stronger word) since it fails to note that the exact same shortfall exists in the status quo system. In fact the shortfall attributed to the "transition cost" *is* the shortfall of the current system. http://www.ioptout.org/articles/990111.asp

Now it is rather disingenuous (or a stronger word could apply) to label something a "transition cost" when it doesn't come from any transition but exists already. Of course, status quo defenders can't legitimately complain about privatizers not saying how they would pay this cost when they won't say how they would pay this cost themselves. This is something the status-quoers need to acknowledge, but amid all their adverts with people in wheelchairs going over cliffs they never do."

Jim, I don't think there's *anyone* out there mentioning that you'd have to raise taxes - to pay the transition costs - to shift to a privatized system. By contrast, pretty much *everyone* who talks about keeping the current system *does* talk about raising taxes to keep the transition costs.

You're right, both will cost more money. The difference is that the proponents of privitization lie about how much it will cost. If the right wants to argue that "we're going to have to raise taxes anyway, so we might as well privitize", fine. But conservatives are most definitely not making this argument. It's all smoke and mirrors to try to trick the public into thinking there's free money behind door number 2. There's simply no parallel to this on the left.

Posted by: Jason McCullough on September 16, 2003 12:52 AM

> Most of all the socialist wants everybody to be alike. His model for society is the beehive, or perhaps the dairy farm.

Any more strawmen, and you'll be donning your ruby red slippers and skipping down the Yellow Brick Road, Joe.

> Stinkin' rich people! How dare they earn so much money, and not give more of it to us?! Let's take it from them!

As opposed to "How dare the poor not pay more taxes and learn to hate government! Let's take more of their money away from them! Lucky duckies!"

I rest my case, with a brief reference to the obese ratio between CEO salaries and the median wage.

Posted by: nick sweeney on September 16, 2003 05:45 AM

Reply to Andrew

The lower class whites deserve respect for standing up for their culture and their values. They have a strong work ethic and have too much sense and too much pride to be bribed by liberal promises of a free lunch.

I am a card carrying effete snob. I take my vacations in Tuscany, like French movies, and spend a lot of time in art museums. But I have made the amazing and counterintuitive discovery that the NASCAR crowd understand a lot of important things much better than my liberal friends ever will.

Posted by: Joe Willingham on September 16, 2003 02:03 PM

In other words, to the extent to which you privatize SS, the payments to current retirees from current workers' payroll taxes must instead be paid for by other techniques: "by taxing, borrowing, creating money or reducing other government spending." Gosh! What a shock! As should really be obvious, both I and Krugman have always been well-aware of the rather glaring fact that you can privatize SS IF you are willing to fund its obligations to current retirees in other ways -- or, alternatively, to let the current retirees go hang (or some mixture thereof).

~~~~
And what you keep missing is the rather glaring fact that you are incurring the *exact same cost now* and placing it on the working poor rather than the rich. Why don't you admit that?

In Friedman's proposal the $X that must be paid for the back shift of SS benefits is financed by the rich through income taxes instead of regressive payroll taxes. So lower-income workers get positive returns on their SS contributions.

In the status quo the exact same $X to the penny is financed by lower-income workers entirely through payroll taxes -- which is why SS is 25% underfunded and will pay *negative* returns today's young workers.

Friedman's 100% privatization proposal costs *not one penny* more in taxes to fund payments to todays' retirees than the current system does. The only difference is it collects the tax on all income paid to the rich than just on a subset of income, that earned by lower-income workers.

In short it is progressive, the status quo is regressive.

Why are you and Krugman so instictively regressive?

Since Friedman admits the $X must be collected -- you can't accuse him of being dishonest about it -- why don't you embrace his progressive plan over Krugman's regressive preferences?

BTW, Moynihan's plan with 2% private accounts covered 100% of the cost of financing SS benefits for current retirees too. So what was your criticism of it??


Posted by: Jim Glass on September 17, 2003 10:57 AM

Because, Mr. Glass:

(1) Friedman doesn't utter a peep in that column about collecting the taxes for the switchover through a "progressive income tax".

(2) Friedman, during the days when he had a Newsweek column, denounced the 16th Amendment as "one of the biggest mistakes in American history".

(3) Krugman, so far as I know, has no objection to switching the current system over to one funded largely through a progressive income tax -- which, of course, is precisely what Bush is NOT proposing, any more that he's proposed paying for the transition cost to a privatized SS system through raising taxes on the wealthy.

By the way, I notice that on Sept. 15 (5:34 PM), you announced that "That'll be the day means-testing comes in. And FDR said a long time ago what means-testing [for SS] would do..." So: are you for means-tested income assistance programs or not? Are you saying, instead, that they're politically totally impractical, and that the only alternatives are non-means-tested systems (such as SS and Medicare in their current forms), or no assistance for the lower classes at all?


Posted by: Bruce Moomaw on September 17, 2003 03:51 PM

"Friedman doesn't utter a peep in that column about collecting the taxes for the switchover through a 'progressive income tax'."

Really? What taxes are used to pay off the Treasury bonds that he'd finance the switchover with?

This frequent rhetorical assertion that those with privatization proposals -- like Feldstein, Moynihan, Friedman -- never say how they'd finance the switchover cost is, in a favorite word of one who writes often on the subject, a "lie". They all said how they'd cover the cost.

To the contrary, it is those who insist on a luddite defense of the status quo who never say how they will finance the "transition cost" of keeping things the way they are, with a system that's 25% underfunded. Look it up.

What's Krugman's plan and where is it?


Posted by: Jim Glass on September 17, 2003 04:27 PM

"What taxes are used to pay off the Treasury bonds that he'd finance the switchover with?"

Damned if I know, James -- he only says that they'll have to be paid for through "taxing, borrowing, creating money or reducing other Government spending." And I repeat that Friedman, during his Newsweek column back in the Seventies, defended the then-strong move toward calling another Constitutional Convention just to pass a balanced-budget amendment (those were the days), on the grounds that such a Convention would be unlikely to successfully ram through a series of dumb new Constitutional amendments, because the Amendments actually ratified throughout US history had mostly been quite sensible -- with the glaring exception of the 16th Amendment, which he called "outrageously irresponsible".

As for PK's plan: I'll look through his columns and try to find out what it is -- but I do remember that (as I told you earlier) he's a fan of the government itself investing incoming SS contributions in the private market.

Incidentally, you haven't yet answered my other question: do you favor a means-tested SS system, or do you actually believe (as FDR did, and as you seem to indicate you do in that Sept. 15 comment) that there won't be enough political support to get it through, and that the only real choice is thus between a non-means-tested system and no assistance for the poor at all?

Posted by: Bruce Moomaw on September 17, 2003 07:07 PM
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