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January 01, 2005

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Washington Post Edition)

Max Sawicky is on the case:

MaxSpeak, You Listen!: WASHINGTON POST: Postie Jim VandeHei writes:

The only point they agree on [Republicans and Democrats -- mbs] is that Social Security faces a long-term financial problem because the U.S. population is growing older, living longer and, sometime next decade, will be taking more out of the system in benefits than it is paying in taxes that fund it. Democrats are divided over how to fix the problem. Some want to raise taxes; others want to cut benefits or delay the retirement age.

Bush and his GOP allies want to change the system by allowing some workers to put a percentage of their payroll taxes into private investment accounts.

This is an apples-to-oranges comparison, and exactly the false choice with which the Republicans would like to frame the debate. Private accounts do not "fix the problem" that benefit cuts and tax increases address. The future gap between program costs and receipts is not altered by private accounts. The gap is net of anticipated revenues. Private accounts move some of that revenue and an equivalent amount of cost out of the Trust Fund. The projected deficits in the Fund remain.

It's not rocket science. Max Sawicky's point is a very simple one. Yet Vanderhei writes as though he doesn't get it. Why?

Posted by DeLong at January 1, 2005 11:26 AM

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I'm inclined to think it's simple economic illiteracy. Most people don't actually understand economics, so they simply don't see that if someone says "we should do this to fix the problem" they should necessarily check to see if it will fix the problem.

Posted by: McDuff at January 1, 2005 11:47 AM

It is a combination of economic illiteracy, eagerness to please the Republican propagandists, and the well-established practice of reducing all policy arguments to "he said, she said, but some say" in order to make it appear as though a functioning democracy exists in the

Posted by: James E. Powell at January 1, 2005 12:02 PM

He writes as though he doesn't get it *because he doesn't get it*.

Sometimes a cigar is *really is* just a cigar....

Posted by: clem at January 1, 2005 12:32 PM

Here in West Virginia, the state government was empowered about 15 years ago to invest part of the employees pension fund in stocks. When they lost a ton of money, the state Treasurer was impeached. (In a hearing he later admitted that he didn't know anything about accounting, includding the fact that when the number at the bottom of the page is in parenthesis, it means that it is a negative number. He was later re-elected to the legislature and his nephew is the governor elect now.)

Then about 6 or seven years after that, they let them invest in stock again under stricter supervision. First they made a bit more money than they would have otherwise, then the market "corrected" in 2000 and they didn't lose their (our) shirts, but the income from stocks is no better than the other investments they used to use.

But here's the fun thing. Under the previous Republican governor Underwood somebody thought up the plan of issuing 40 billion dollars in bonds to cover the projected liabilities of the state pension funds.

They thought they could invest the cash in stock, pay off the bonds AND the pensions without having to put any more tax money into the funds. This is an idea that won't die. The current outgoing Democrat governor Wise resurrected it a few months ago. Fortunately the state supreme court ruled that they would have to put the bond issue on the ballot. The proponents had been claiming that this would not be necessary because the bonds would not be new debt, only the existing pension debt in a different form.

My point: why do people belieive that money that comes out of stocks, comes from some other place (maybe in another dimension) full of wealth where we can reach through and take as much as we want?

I think that the money from stocks is profit that comes when people buy things out of their pockets. And profit is made by holding down wages (keeping money out of the same pockets) and materials cost (again keeping money out of those pockets). Why am I happy about getting money into my front pocket that comes out of my back pocket?

Posted by: pragmatic_realist at January 1, 2005 12:39 PM

I think--after much study--that the Washington Post reporters believe that if they know something about an issue area, they will no longer be able to interact with the Republican spinmasters, and so they'll lose their jobs...

Posted by: Brad DeLong at January 1, 2005 12:49 PM

This is the power of lies, repeated often. They become conventional wisdom and people believe them. You can't shake them out of people's heads. Stocks average something-percent over time. Real estate always goes up. Free trade benefits everyone. Market solutions (which really mean one-dollar-one-vote) are better than government solution (which mean one-person-one-vote). Etc...

Posted by: Dave Johnson at January 1, 2005 12:57 PM

A few more "conventional wisdoms" that have been repeated so often that everyone believes them: Taxes hurt the economy. Environmental protections cost jobs. Government is inefficient. Business is efficient.

Posted by: Dave Johnson at January 1, 2005 01:01 PM

The WP neglected to mention the third plan for "saving social security": Convert the social security fund IOUs to roulette chips in Vegas, and put them all on Red.

Alternatively, as a way to "empower individuals", the chips can be deposited into individual accounts and each person can decide whether to put them on Red or Black.

Posted by: Read Greg at January 1, 2005 01:14 PM

Hmmmmm; I think there's something a little more subtle going on here.

I believe the writer "gets it"; he states that the Dems want to fix the problem, but notice he doesn't say that Bush and his allies want to do likewise; opting instead for the much more accurate description, ie, the GOP wants to "change the system".

I wonder if there's some editorial pressure being applied here...

Posted by: djs at January 1, 2005 01:38 PM

I've found that many print journalists don't understand the subject matter, aren't interested in finding out what is really at play (as Molly says they are a mathematically impaired lot)so what they are want do is quote experts. The game becomes one of getting them to quote your experts and not the other guys.

Posted by: Ken Melvi at January 1, 2005 01:53 PM

Pragmatic Realist

Quite an interesting and significant post. Thank you. I was completely unaware of the West Virginia experience.

Posted by: anne at January 1, 2005 02:13 PM

Counter proposal for wavering congressmen who feel it might be OK to dismantle Social Security:

The Federal Thrift investment program should be open to ANYONE with wage income, with contributions tied to their tax return and Social Security number.

By default, these accounts could collect the first $500 of an individual's tax refund, with a federal dollar for dollar match for anyone with incomes up to the 80th percentile. Individuals could "opt out" by checking the appropriate box on their return, or could opt in for a larger contribution.

This might finally get a bigger participation rate for retirement savings for the 50 million or so households that don't currently participate in individual retirement plans. It would be voluntary, so no need for heavy regulation like would be necessary for privatized Social Security. It would be accretive to national savings, unlike the borrow and spend plans proposed by the President.

And, it would leave the Social and Security in Social Security.

Posted by: Charlie at January 1, 2005 02:22 PM

I wrote to their ombudsman early this morning,
and recommend others do so. This reporter
does not present facts, only admin talking points.
It's just sad, as Perot would say.

His comment about what is to happen in the next
decade is simply not true, and private accounts
will not help any preceived problem.

Posted by: Self-Negotiator at January 1, 2005 02:29 PM

“Here in West Virginia, the state government was empowered about 15 years ago to invest part of the employees pension fund in stocks. When they lost a ton of money, the state Treasurer was impeached.”

Sounds a little like New York City in the mid 1970s, except no one got impeached. The city was living beyond its means by 1. Giving very generous raises and benefits to city workers, 2. Increasing the number of city workers, 3. Giving the most generous welfare benefits in the nation. Being good Democrats, the city raised taxes, and these tax increases did raise revenues, but not enough. The tax increases drove people and jobs from the city, including myself. I moved to New Jersey to be closer to work and saved a pile of money on taxes. I went from filing five tax returns to the city, state, and feds to filing one return. NYC was paying expenses from “tax anticipation” bond issues. Finally circa 1975 they couldn’t sell their junk anymore and the city defaulted. Of course the city called the default “a moratorium” and blamed it all on the Kulaks at CitiBank (then called First National City Bank) and that low-life Republican Ford for not bailing them out. So let’s not poke too much fun at those southern rubes, because the big city geniuses don’t know how to balance a checkbook either. Now the pols running the Golden State look like they studied finance at the Abe Beam School of Funny Money. But by coincidence I’m getting ready to leave the crime scene again. History repeats.

Posted by: A. Zarkov at January 1, 2005 04:35 PM

The US Supreme Court wouldn't let us ship the southerners back home. We had to treat them exactly like New Yorkers. Thus the large number of ethnically cleansed black welfare people in NYC. Ditto for the English as a Second Language people from Puerto Rico.
Further, the State of New York collects far more in taxes from NYC than it gives back. So does the US. Red counties suck money from Blue counties and have for generations.
Now that the Reds have managed to crush the life from the Kulaks of NYC and reduced the number of working types, they have to find some other excuse for screwing up. No doubt they will blame the people like Zarkov's kids.
When Zarkov moved to the suburbs and boosted the Red property and zoning permit variance values, they liked it well enough. But when Zarkov's kids become telecommuters from Australia they are going to say they are traitors for leaving America.

Posted by: wkwillis at January 1, 2005 05:16 PM

A. Zarkov wrote, "The city was living beyond its means by 1. Giving very generous raises and benefits to city workers, 2. Increasing the number of city workers, 3. Giving the most generous welfare benefits in the nation."

The "most generous welfare benefits" given by NYC came, and still comes, in the form of allowing landowners to capture most of Ricardian land rents.

Posted by: liberal at January 1, 2005 05:34 PM

“The "most generous welfare benefits" given by NYC came, and still comes, in the form of allowing landowners to capture most of Ricardian land rents.”

As I recall about one third of the real estate in NYC is tax exempt. This includes church property, hospitals, schools, colleges, non-profits, government buildings, and of course the UN. I’m sure whatever the feds pay NYC (if anything) for the UN property doesn’t cover the lost tax revenue. Then a large amount of the residential rental property (at that time) was rent controlled. Property tax is based on the assessed value of the building, which is a multiple of the rent. So by controlling rents NYC was losing tax revenue. In the 1970s a lot of landlords were actually trying to give away their buildings because the rent didn’t cover costs. I like to know where to find these Ricardian rents.

We know the root cause of NYC budgetary problems, it goes back to the 1930s and the administration of LaGuardia. That’s when the city started its spending spree that has never ended. That’s when the municipal unions became really powerful and could hold the city hostage. The thing that really convinced me to leave the city was a drawbridge strike. The operators walked off the job, opened the bridges, and then broke the controls. I couldn’t get to work in NJ. Did the drawbridge operators get punished for sabotaging government property? No. They got a raise.

I’m afraid you can’t blame Albany or the red states for NYC budgetary problems, it was self-inflicted. Even if NYC were somehow able to become an independent republic, it still couldn’t balance its checkbook. No amount of abstract economic jargon is going to mask this bit of financial reality. Here’s another. NYC operated its own asphalt plant. The problem was it cost three times more for the city to make asphalt it could buy on the open market. The factory building is still there; I passed it last summer while driving down the East River Drive. I was born, raised and schooled in NYC, I even worked for the city (and the UN too). I know how those guys did business.

A good history of that time can be found in the book “The streets were paved with gold” by Ken Auletta.

Posted by: A. Zarkov at January 1, 2005 09:10 PM

A. Zarkov wrote, "I like to know where to find these Ricardian rents."

The first thing you should do to "find these Ricardian rents" is to actually understand the definition of "Ricardian rent".

For example, you wrote, "Property tax is based on the assessed value of the building, which is a multiple of the rent." That's rent in the conventional sense, not Ricardian land rent, though the two are connected (but not the same). Ricardian rent accrues to a parcel because of its location (as well as other properties, such as in agriculture the quality of the soil---clearly location is the most important factor in urban land rents). For example, land held for speculative purposes with run down buildings doesn't return any "rent" in the conventional sense you use.

"So by controlling rents NYC was losing tax revenue."

Again, that's rent in the conventional sense, not Ricardian land rent.

I don't disagree that "rent control" is economically destructive, but from the what I've read, it's not as destructive as the property tax structure in New York City, which falls much more heavily on buildings (which are an improvement) than on land. (The nominal rates on land and buildings are the same, but the effective rates due to gimmicks lead to lower taxes on land.) Taxation of buildings leads to disincentives to invest in improvements, which are capital and beneficial. Decreased taxation of land leads to an incentive to hoard land for speculative purposes, which is harmful.

Of course, zoning is another problem. As far as I can tell, there's a bias in favor of smaller dwellings, which leads to gross inefficiencies and a concommitant gross increase in the price of housing. For example, at the first subway stop in Brooklyn (from Manhatten) on one of the lines I took last spring, all the buildings are low rise (two- or three-storise) and largely decrepit. Given the proximity to Manhatten, this is just a horrific misuse of land.

If you want to educate yourself, read up at the following URLs (which have a libertarian perspective that I don't share in their entirety...but they're extremely well written):



Posted by: liberal at January 2, 2005 07:13 AM

Where did anyone blame the Red Staters for the national problem of economically illiterate journalists? Except for the bit where they voted for Bush?

Posted by: McDuff at January 2, 2005 03:12 PM

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