January 17, 2005
Why Oh Why Can't We have a Better Press Corps? (Dick Meyer/CBS News Edition)
This one has been outsourced to Kevin Drum and Josh Micah Marshall:
The Washington Monthly: Meyer's "Against the Grain" column at CBSnews.com yesterday is actually even more remarkable than Josh Marshall says. After several hundred words acknowledging the Bush administration's relentless use of phony crises to whip the public into a lather, he says this about Social Security:
But in defining the issues supporting an aging population so narrowly, the Democrats are every bit as disingenuous as the administration. When you put Social Security on top of Medicare, on top of rising medical costs and in the context of a shrinking workforce and expanding elderly population, you have something pretty close to a crisis. But it’s not one either party is talking much about.
Um, Dick? The Democrats aren't defining anything here. President Bush is the one who has chosen to focus exclusively on Social Security and he's also the one who chose to support a fantastically bloated and inefficient expansion of Medicare costs in 2003. Democrats just aren't the ones setting the agenda these days.
And while I'm at it, there's another rhetorical device worth noting here because I see it so often: writing about Social Security's financial problems and the shrinking workforce and the expanding elderly population. But these are all the same thing: Social Security's long-term problems, such as they are, are caused by an increase in the elderly relative to the size of the workforce. They aren't separate things....
If Social Security and Medicare were strictly demographic problems — that is, more retirees living longer — neither one would be a huge problem. You can pick your own preferred solution, but even in the worst case some modest combination of benefit cuts and revenue increases phased in over a period of decades would solve everything. The real problem isn't Social Security or Medicare per se, it's healthcare costs in general. That's the problem that needs to be solved, not healthcare for old people alone.
Posted by DeLong at January 17, 2005 09:19 AM
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one of the interesting sidelights of the social security discussion is the way it once again puts on display all of the flaws of our contemporary media: the simple-minded so-called even-handedness, the laziness with the facts, the smart-ass intelligence that says that all politicians are equally scummy that supports the pov.
You would think that with so many mea culpas on the record for the abysmal coverage of the extent of the iraq wmd capabilities, the media would have learned, but you would think wrong.
The smartest thing george bush ever said was "fool me once, shame on you, fool me twice...won't get fooled again." Too bad the media isn't collectively as smart as that remark, which is a pretty scary consideration for the future of our politics.
Posted by: howard at January 17, 2005 09:23 AM
The health care industry in America is a wonderful provider of employment, and demand for health care products and services in an economy seems to naturally increase as the economy develops. So, demand for health care in America is growing as we grow. There are balances between consumers and producers that are askew in health care, but why should we bemoan the industry? Why can we not afford health care, with a better balance between consumer and producer, since the industry employs so many of us?
Imagine if Medicare were allowed to bargain for and buy drugs for patients, as the Veterans Administration does. The Veterans Administration gains far better prices than Medicare patients will for drugs. We can afford health care with a bit more thought and less giving way to lobbying by providers.
As for Social Security, there is only a pretend crisis that much of the media has accepted for years. So, we complain and hope for better coverage.
Posted by: anne at January 17, 2005 10:25 AM
Brad: I'm still asking my question, and not finding any answer, as to why government (or SS) would ever want to purchase equities, rather than levying increased taxes on equity returns - which immediately gives the necessary revenue without the downside risk.
I tried Google Scholar and didn't find anything relevant. Do you have an answer ?
[I need to talk to Alan Auerbach downstairs, who has actually thought about this quite deeply. My feeling is that purchasing equities boosts the incentives for private investment, while taxing equities reduces them, and that this is an important difference. But I'm not sure.]
Posted by: Richard Cownie at January 17, 2005 10:30 AM
Brad: "My feeling is that purchasing equities boosts the incentives for private investment, while taxing equities reduces them, and that this is an important difference. But I'm not sure."
Glad to hear you're looking into this, I'll be glad to hear a fuller explanation.
Offhand, it seems that if government is borrowing money and purchasing equities, then the same total amount of money is chasing the same amount of total corporate earnings, and nothing changes (other than some distortions due to government buying a different mix of stocks than private investors would have done, e.g. no small companies).
In the particular case of SS, having the SS fund own stocks will expose either SS beneficiaries or workers (payers of payroll tax) to the downside risk if stocks do badly.
On the other hand, if we tax equity returns, then the upside of owning stocks is less. But we'll still have the same amount of money floating around, so it's not clear whether the effect is to reduce stock prices, or keep the prices the same but reduce the after-tax returns, or some combination of the two.
For the particular case of SS, it's clear that it leaves the downside risk with private equity investors, who after all have chosen a risky investment.
Posted by: Richard Cownie at January 17, 2005 10:58 AM
Leave aside the cost of transition. Should the economy grow about 4% with 2.5% inflation and stock dividends about 1.5%, long term returns to a stock index investor should be about 8% if price earning ratios hold. This would seem a reasonable premium over present long term bond returns. Here is a reason to invest pension funds in a comprehensive stock index.
Taxing capital gains to provide a public pension would be another way of fund raising, but so would any additional tax on income. We choose to fund Social Security directly from payrolls, however. And, the payroll tax has provided a fine surplus for Social Security. Where is the problem?
Posted by: anne at January 17, 2005 11:01 AM
"In the particular case of SS, having the SS fund own stocks will expose either SS beneficiaries or workers (payers of payroll tax) to the downside risk if stocks do badly."
Not to oversell the benefits of mean variance optimization (a trend-following exercise if there ever was one) but it does seem that over MOST longer-run periods, and many short-run ones as well, a stock-bond mix (of, say, 70% bonds to 30% stocks) has delivered a higher return with a lower standard deviation than an all-bond portfolio. Thus the infamous "comet" of the bond-stock efficient frontier.
Posted by: billmon at January 17, 2005 11:07 AM
The agenda the Democrats tried to set, given the opportunity, was the one Clinton and Gore offered.
Keep paying down the national debt. Make sure the SS trust fund assets were not put at risk because of poor fiscal discipline. Consider having the SS trust put a portion of assets into equity.
The GOP alternative: instead of running a balanced budget, we should spend a whole lot more, and bring in a whole lot less revenue. Fiscal train wreck? Who cares!
We spent $1.43 last year for every dollar of revenue brought in by the federal government.
Revenues last year were 15% lower than revenues in year 2000. That's before adjusting for inflation.
This is the first time revenues have dropped four years running since the end of WWII - when we cut expenditures almost by half. This time, we've increased expenditures, by nearly a third.
Expenditures up by a third. Revenues down by 15%. That's the GOP agenda and that's what is framing the talk of a Social Security "crisis".
Posted by: Charlie at January 17, 2005 11:45 AM
anne, billmon: your analysis is correct in that any private pension fund can benefit from holding equities rather than just bonds. My point is that the government (but not a private pension fund) has an easier way to benefit from equity returns - just tax them! If we give in to the argument that SS should behave as a private pension fund, then we're halfway down the slippery slope already.
anne: if private investors believe that they're going to get 8% returns in equities, then the interesting question is what rate you're going to have to offer to persuade enough of them to buy bonds instead, so that the government can raise the money to buy equities.
On your assumption that we get 4% growth, then you're correct that SS will be adequately funded from payroll taxes. However, Bush and his supporters are going to argue hard that SS is underfunded, and also that equity investments can help reduce the funding gap. I'm trying to point out that even if these parts of Bush's argument were correct (which they aren't), then the obvious solution would be to tax equity returns, not to buy equities.
Posted by: Richard Cownie at January 17, 2005 01:31 PM
Richard, I'd imagine any explicit tax on "equity" would simply lead business to redefine equity.
And, as Anne has said, we've chosen to fund Social Security with a payroll tax. Some people would consider funding part or all of SS with a VAT tax instead. I don't think any other source could ever be accepted to fund more than a token part of SS, except perhaps the Estate tax should be targeted to pay off the SS trust interest and principal, which is already owed back to working people who've paid in payroll taxes that have been saved.
If you'd like to tax capital, I think the correct way to do it is to make the income tax broadly based, like it used to be. The GOP has been working to try to shift the income tax base so it is closer and closer to the payroll tax base. That is evil, pure and simple. This should be a religious issue. The Pope should denounce it. Southern Babtists should denounce it. Televangelists should ... no, wait, they wouldn't, because it's part of their agenda. But the real Southern Babtists should.
Broaden the income tax base, keep the Estate tax at least until the SS bonds have been repaid, limit the exemption for dividends to something like the $2000 per year.
Get the on-budget portion of the budget back to sanity.
Posted by: Charlie at January 17, 2005 01:45 PM
Interesting comments, to be returned to. Thanks :)
Posted by: anne at January 17, 2005 06:54 PM
"Brad: I'm still asking my question, and not finding any answer, as to why government (or SS) would ever want to purchase equities, rather than levying increased taxes on equity returns"
Because we dwell in political reality world. We don't live macroeconomictopia. As it stands now Social Security does not make any direct demand on Capital, investors neither contribute or benefit. Your proposal suggests they contribute but still not benefit. That is a non-starter. On the other hand the Social Security Trust Fund (or the government) investing in equities puts money into Capital's control.
Macroeconomic world: this works out on paper. Real political world: hmm tax me or give me money. I am pretty sure I understand where holders of equities will fall on this question.
Posted by: Bruce Webb at January 18, 2005 01:36 AM
Bruce: "I am pretty sure I understand where holders of equities will fall on this question"
Yes, but how many people hold equities in taxable accounts ? And how many people either pay payroll taxes, or expect to claim SS benefits some day ? If this is still a democracy (and that's an open question) rather than a plutocracy then the proposal looks rather attractive.
When you phrase it as "tax me or give me money", that makes it clear what would be going on in Bush's scam - taking high payroll taxes from the poorest workers and giving that money to wealthy holders of equities. Try selling that proposal to the workers (or, as they call them now, the middle class).
As for the principle you seem to be postulating, that government and taxation should operate on a broad no-taxation-without-benefit principle, we don't work on that principle now. We tax the rich and provide services to the poor; we tax the blue states and subsidize the red states.
One interesting feature of the idea is that it specifically targets people with taxable equity holdings, who presumably have maxed out their 401(k)s, and are thus the winners in the retirement-savings game. Taxing the winners to provide better SS benefits as a safety net for poorer retirees doesn't seem so unreasonable.
Posted by: Richard Cownie at January 18, 2005 05:53 AM
The problem Brad points out with this article - pretending that things which belong on different sides of the same equation that actually belong on the same side - doesn't stop there. People who recite the shift from x workers funding the payments to each SS retiree to x-1 as a problem, when the potential for the Trust Fund to go into deficit has already been cited, make the same mistake. The reduced ratio of workers to recipients is another way of explaining why there might (repeat MIGHT) be a deficit some day, not a further problem on top of the possibility of a deficit. This piling up of problems, which is actually a repetition of the same problem in different words, is part of the effort to create a crisis.
Sunday's NYT points out another unsavory effort to foster a crisis mentality - the White House has insisted that the SS administration say there is a crisis. Lovely.
Posted by: kharris at January 18, 2005 08:26 AM
anne wrote, "The health care industry in America is a wonderful provider of employment, and demand for health care products and services in an economy seems to naturally increase as the economy develops. So, demand for health care in America is growing as we grow. There are balances between consumers and producers that are askew in health care, but why should we bemoan the industry? Why can we not afford health care, with a better balance between consumer and producer, since the industry employs so many of us?"
My response to these questions: why not insist that the health care sector become more efficient. On a per-GDP basis, it's grossly inefficient compared to other industrialized nations.
As for the salutary effect of employing lots of people, we can always take care of that by hiring folks to dig holes in the ground one day, fill them up the next day, ...
Posted by: liberal at January 18, 2005 09:25 AM
There can be more efficiency in health care, lots more efficiency, yet secure well-paying employment.
Posted by: anne at January 18, 2005 10:55 AM