December 31, 2004
Intellectual Garbage Pickup
*Sigh.* A new quarter is about to begin, so it's time once again for me to take on my share of intellectual garbage pickup. It's an unpleasant job with no rewards. But somebody leads to lay down markers to the effect that Donald Luskin simply doesn't know what he is talking about.
In the past we have had such gems as Luskin's misunderstanding of what a real exchange rate is, Luskin's claim that David Brooks is both 100% correct and is a traitor to his party for saying that the Bush administration routinely lies, Luskin's denial that the yield on a bond is an interest rate, Luskin's accusation that Gretchen Morgenstern is a plagiarist, Luskin's claim that George Soros might try to crash the market on October 31, 2004, Luskin's false attack on the Ludwig von Mises Institute's Robert Blumen for being a Paul Krugman sympathizer, Luskin's claim that an administration whose economic growth rate ranks tenth among the last fourteen administration's is a "boom", and many others.
This time... well, let's do just the first one that I found. Go to National Review Online and find Luskin claiming that:
Donald Luskin on the Thrift Savings Plan and Social Security on NRO Financial: [the] Thrift [Savings Plan's]... [annual] administrative costs are only about six one-hundredths of 1 percent of invested assets. That compares especially favorably to Social Security, which has [annual] administrative costs that are more than five times greater, even though you’d think its vast scale would lead to significant economies...
Read this, and if you believed that Donald Luskin was telling you the truth you would think that the annual cost of Social Security's managing its asset portfolio is 0.3% of the combined balance in the Social Security Old Age and Survivors' and Disability Insurance trust funds. The trust fund balance is about $1.8 trillion. 0.3 percent of that is $5.4 billion dollars. And that is the total administrative costs of the entire Social Security system.
The total administrative costs of the entire Social Security system. Think for a second--as Luskin hasn't--about what that means.
Social Security does a lot of things that the Thrift Savings Plan doesn't. Social Security runs a nationwide Disability Insurance program. Social Security is overwhelmingly not an investment trust but a pay-as-you-go social-insurance system. The bulk of its administrative costs are the costs of paying out $400 billion in benefits, and those costs would be there--and would be unchanged--whether the Trust Fund balance was $4 trillion, $0, or -$1 trillion. Luskin is setting up an apples-to-oranges comparison: comparing the costs of managing an investment fund with the (tiny) costs of managing Social Security's trust fund plus the costs of running a nationwide disability insurance program plus the costs of running a pay-as-you go social-insurance system. He has set up his administrative costs comparison to be as unfair as possible to the current Social Security system.
If the TSP had to run a nationwide disability insurance system and pay out $400 billion a year of pay-as-you-go benefits to every retired American, would it be able to keep its costs at six-hundredths of one percent of invested assets?
If anyone editing National Review is reading this: Guys, I understand that you need partisan hacks rather than real economists writing for your magazine, because job one is justifying the unjustifiable policies of the Bush administration. But this--you should be really ashamed of yourselves.
Posted by DeLong at December 31, 2004 06:40 PM
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new year resolution, read your blog more.
meanwhile, hate to do this to you, but in the interest of accuracy...is not six one hundredths of one percent 0.0006? so five times that amount is 0.003, or 0.3%.
[Yes. Do note, however, that at least when I was at the Treasury a bunch of things that would be costs to a normal investment fund were covered by the Treasury itself as far as the TSP was concerned. The 0.0006 number is, I think, not quite real either. The TSP has $100 billion and 3 million participants--that's $3 per head per year in administrative costs. Vanguard--an extremely lean operation--has a hard time running its index funds at less than $20 per head per year.]
your point about luskin's apples to oranges comparison is well taken however.
Posted by: andy at December 31, 2004 07:10 PM
And when you are done with intellectual garbage pickup can you please come over and clean my bathroom?
You can do it in your naughty dog boxers if you want to.
Posted by: northernLights at December 31, 2004 08:10 PM
Posted by: Paul G. Brown at December 31, 2004 08:50 PM
Brad, your faith that the Right is interested in fact-based discussion based on intellectual integrity (or integrity of any kind) is touching but misplaced. Appealing to their sense of shame -- at this point? That said, keep up the good work. It's still worth correcting their misstatements -- ok, lies -- not because they'll stop but because it helps the rest of us see through them.
Best wishes to you and your family for a happy, healthy, and productive New Year!
Posted by: larry birnbaum at January 1, 2005 06:48 AM
Percentage is a ratio. Six hundreths of 1% is 0.06%
Posted by: big al at January 1, 2005 06:54 AM
Presumably the Thrift Savings Plan is doing some things SS ISN'T doing too. Speaking of apples and oranges.
[Anything comparable to mailing out $400 billion in checks to 3 million OASI beneficiaries? You are smarter than this--or you could be.]
Posted by: Patrick R. Sullivan at January 1, 2005 08:50 AM
You're a mensch.
Posted by: praktike at January 1, 2005 12:19 PM
Mr. Luskin appears to be one of the founding members of the Media Bloggers Association, whose aim is to promote themselves and their blogs (from mediabloggers.org's "about" page, as of 1/1/05); it is not concerned with issues of editorial integrity (among other things).
Posted by: Anna at January 1, 2005 03:00 PM