January 04, 2005
Matthew Yglesias Watches the Bush Social Security Clown Show
And once again we ask, why oh why are we ruled by these fools?
TAPPED: January 2005 Archives: THE OTHER SHOE DROPS... what everyone already knew: The Bush plan will call for a massive cut in promised Social Security benefits by switching from "wage indexing" to "price indexing".... The true shell game only gets started, however, when the advocates of cuts get around to explaining that nothing's really being cut here because people can make up the difference with the earnings from their private accounts. As we've seen previously, the estimated level of stock market growth that could make this true depends on an underlying assumption of an economic growth rate that's high enough to keep Social Security fully solvent without any changes. Michael Kinsley's offered a similar argument to likewise show that private accounts can't make up the difference, which prompted the bizarre rebuttal from White House economic advisor Gregory Mankiw that now was not a good time "to engage in an on-the-record debate ... on the validity of [Kinsley's] economic theorems." When the White House tells you it doesn't think a debate over the logic of its proposed changes is an appropriate thing to engage in, you might start to suspect that its proposal's not such a hot idea.
Posted by DeLong at January 4, 2005 01:53 PM
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"the bizarre rebuttal from White House economic advisor Gregory Mankiw that now was not a good time 'to engage in an on-the-record debate ... on the validity of [Kinsley's] economic theorems.'"
First, we don't know what Mankiw actually wrote to Kinsley. All we know is the part Kinsley deigned to quote (with an ellipsis!).
I'm guessing Mankiw was politely telling Kinsley he was in over his head. Which he is.
Posted by: Patrick R. Sullivan at January 4, 2005 02:21 PM
Still missing from the White House's leaked "I'm not negotiating with myself" plan: a breakdown of how much benefits for this staying with traditional SS would be cut, and how much those opting for privatized accounts would be cut.
They're talking taking 4% of payroll (40$% of the old age FICA revenue) out of the system, but benefits aren't cut by 40% until around 2070.
Presumably, that means someone retiring in 2075 would have their benefits cut by the 45.9% shown in the chart plus some additional among, maybe another 40%, based on how much of their personal money was diverted:
If something approaching 40% of revenues are diverted from SS, we'd have to do a lot more than simply cut benefits by 46% 70 years from now. We'd need to immediately cut benefits by something over 50% just to get to a 75-year projected balance. Or else, we'd have to borrow something north of $5 Trillion.
For each $Trillion we borrow, a family of four sees their future tax burden to up by about $500 every year just to pay interest on the debt.
Mind you, these accounts are only supposed to be funded to a max of $1000 per year. It doesn't take a whole lot of "transitional debt" to wipe out any potential "equity premium" gains real quick.
Posted by: Charlie at January 4, 2005 02:42 PM
White House: we have a plan!
Reporter: what is it?
White House: how dare you try to trick us!
Don't they seem to suggest that since they don't actually have plan we don't need to worry our pretty little heads about what it is or how to pay for it?
Posted by: Unstable Isotope at January 4, 2005 06:20 PM
"I'm guessing Mankiw was politely telling Kinsley he was in over his head. Which he is."
Posted by: Patrick R. Sullivan
Sticking up for a fellow rose-feeder?
Posted by: Barry at January 5, 2005 05:53 AM
Interesting as Yglesias called for price indexing himself just after the election, that is assuming that a liberal were designing a new Social Security system.
Posted by: Brainster at January 5, 2005 06:28 PM