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January 25, 2005

Stupidest Man Alive Once Again...

Pandagon directs us this morning to, yes, Donald Luskin, the stupidest man alive. Today the stupidest man alive shows his deep understanding of the finances of the Social Security system by getting its total future obligations wrong by a factor of more than five: the present value of future Social Security benefits is not $306 trillion, but something more like $55 trillion:

Donald Luskin on Social Security Reform and FactCheck.org on NRO Financial: ...the Technical Panel on Assumptions and Methods — a group of actuaries, economists, and demographers appointed by the Social Security Advisory Board.... recommended that the infinite-horizon deficit figure should be presented as a percent of payroll, and next to the value of payrolls to the same infinite horizon. This was done in the Social Security trustees’ 2004 report. The deficit amount of $10.4 trillion was given as 3.5 percent of payroll and compared with $295.5 trillion of total payroll.

Doing this may have toned down that big, bad $10.4 trillion number by setting it against a big, good $295.5 trillion number. But this is misleading, too, in its own way. If payrolls are $295.5 trillion and the deficit is $10.4 trillion, that means Social Security’s anticipated payments to the infinite-horizon must, by definition, be $305.9 trillion — which is a really big, bad number. But we didn’t hear any panels or committees or FactCheck.org demanding that number be shown. No, the public must only be shown good numbers....

Yep. Stupidest man alive. In the infinite-horizon present-value framework used by that section of the Trustees' Report, the present value of the Social Security deficit is $10.4 trillion, the present value of future GDP--all the economic resources of the country--is $867 trillion, and the present value of all Social Security benefits is about (I'm doing this part from memory) $55 trillion.

$10.4 trillion is not a huge number compared to the $867 trillion that is the country's economic resources or the $295 trillion that is the present value of all future taxable payrolls.

And the $306 trillion that Luskin claims is the present value of Social Security benefits? He just cannot add. Or, rather, he adds the wrong things. And I cannot imagine why he thinks that (benefits) = (payroll tax base) + (deficit) rather than the correct (benefits) = (deficit) + (payroll taxes) + (value of trust fund). It's as if he doesn't know what the phrase "payroll tax base" means.

And I should spell out the implications for anyone reading National Review. Normally, one imagines that the editors of a magazine with something of a reputation exercise some quality control over what they publish. The editors of National Review don't--except, perhaps, in an ideological way to exclude things that are in some way seen as lese majeste, as too critical in some way of the Bush administration. The normal assumption of something you read in print--that a couple of people who care about correcting at least obvious howlers have looked at this--cannot be made about National Review.

Readers beware.

Posted by DeLong at January 25, 2005 08:53 AM

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» Fun With Luskin from Political Animal
FUN WITH LUSKIN....Jesse points out today that Donald Luskin doesn't know anything about economics or even simple arithmetic. I guess that's not really news, but it's remarkable that Luskin keeps getting stupider over time. Here is Luskin complaining a... [Read More]

Tracked on January 25, 2005 09:47 AM

» To Infinity And Beyond from Burnt Orange Report
Jesse tells us why Don Luskin is the "stupidest man alive" (according to Brad DeLong). Actually, my qualm is this. If you assume this crazy infinite-horizon thing is the way to measure Social Security's financial situation, then is a $10.4... [Read More]

Tracked on January 25, 2005 02:42 PM

» Exciting Update from James Wolcott
I can now report that Fox News is adding a new regular to its upcoming show Feith and Friends. The latest member of Doug Feith's new TV family is Donald Luskin, resident economist at National Review Online. In a press... [Read More]

Tracked on January 27, 2005 10:40 AM

Comments

"And I cannot imagine why he thinks that (benefits) = (payroll tax base) + (deficit) rather than the correct (benefits) = (deficit) + (payroll taxes) + (value of trust fund)."

Even that isn't quite right. Or rather, it's a bit misleading to lump in the "value of the trust fund" as if it's a real asset.

The so-called "trust fund" is nothing more than an IOU promised against future income taxes. This basically means more borrowing or more taxing, because if you think Congress is going to quietly cut spending to make up for the debt to the Social Security trust fund I have a bridge in Iraq to sell you.

jb

Posted by: Joe Blow at January 25, 2005 09:19 AM


Did you see his rant where he calls The Economists' Voice a political rag that is run by three ultra-liberals, including you, Brad, a "Krugman crony"? That's right: in addition to the left-wing extremist Krugman, your publication features those psuedo-communists Michael Boskin, Greg Mankiw, and Gary Becker, among others. Oh, wait. Seriously, would it have killed Luskin to bother to check the list of colummnists for more than two seconds? It has a lot of liberals, sure, but it also has some conservatives. It's as if he sees Paul Krugman's name and flips into nutjob mode.

[Fortunately, I did not...]

Posted by: Brian at January 25, 2005 09:24 AM


Hey joe, how is the problem of paying back treasury bonds held for the trust account any different than the problem of paying back the bonds held by the Chinese?

Reneging on either would require revoking a portion of the 14th amendment (not to mention the immediate collapse of the US economy for treating bonds like "Worthless IOUs")

Posted by: Gryn at January 25, 2005 09:29 AM


Should I be worried that I have placed all of my insubstantial retirement funds in the hands of a 17-year-old Trend Macrolytics Fund Manager from New Delhi?

[Yes!]

And that bridge just blew up.

Posted by: norbizness at January 25, 2005 09:56 AM


$295.5 trillion is the tax BASE. Now if the tax rate were 100%, Luskin's math would have credibility. But the tax rate is only 12.4%. Even Stephen Moore would not make this mistake (although I suspect Lawrence Kudlow might).

Posted by: pgl at January 25, 2005 10:19 AM


"The so-called "trust fund" is nothing more than an IOU promised against future income taxes."

The so-called "Treasury Note" is nothing more than an IOU promised against future income taxes."

Posted by: manyoso at January 25, 2005 10:37 AM


> The so called "Treasury Note

That's the same thing as all of the publicly held Treasury bonds, such as those in our President's private holdings.

All of the Treasury bonds sold by the Treasury represent promises against future taxes. When the federal government borrows money, it represents future taxation, unless we want to monetize the debt.

If the Treasury pays off publicly held debt using the Social Security surpluses between now and 2018, there will be relatively little problem redeeming those bonds in the future.

But if we borrow and spend, instead, then we've got a debt problem.

Posted by: Charlie at January 25, 2005 11:45 AM


The trustees of the Social Security Trust Fund, including the secretary of the treasury, seem to think that the general fund owes the Trust Fund the money. The president, for whom the secretary of treasury works, seems to accept the report every year. The congress, which ultimately funds everything, seems to accept the report every year.

So Joe Blow seems to think that they are all in some kind of conspiracy to hide the worthlessness of the general fund debt to the trust fund? even i don't think that little of bush and snow....

otherwise, what charlie, manyoso, and gryn said....

Posted by: howard at January 25, 2005 12:01 PM


oh, how unfortunate that he ended the piece with "Fact-check that!"

Posted by: praktike at January 25, 2005 12:04 PM


What is it with these people and their taunts? "Bring 'em on!" "Fact-check that!" I swear, there's some weird virus going around.

Posted by: NTodd at January 25, 2005 12:36 PM


[Be polite.]

Posted by: at January 25, 2005 02:05 PM


He appears to have edited out the offending statement, without, of course, mentioning that it ever existed.

Posted by: bunny at January 25, 2005 02:10 PM


And your so-called "checking account balance" is nothing more than an IOU promised against future repayment of loans to total strangers, plus a small fractional reserve.

Hope Luskin doesn't get caught trying to pass off any of that funny money in exchange for, say, common shares ... or even gold.

Posted by: RonK, Seattle at January 25, 2005 02:31 PM


Oooohhh!! I can play too: those soldiers in Iraq - they are working for an IOU against future taxes too! Silly fools, but why does the US government hate its soldiers?

And dumb Bush just accepted a second term as Preznit - I wonder if he's just realizing now that the 1.6 million salary due him for the next 4 years - that's an IOU against future taxes too! He's so screwed.

Posted by: a different chris at January 25, 2005 03:04 PM


Oh, I don't know. He may be an offensive idiot but at least he is not a prostitute:

In 2002, syndicated columnist Maggie Gallagher repeatedly defended President Bush's push for a $300 million initiative encouraging marriage as a way of strengthening families.

But Gallagher failed to mention that she had a $21,500 contract with the Department of Health and Human Services to help promote the president's proposal, reveals Howard Kurtz in Wednesday runs of the WASHINGTON POST.

"The Bush marriage initiative would emphasize the importance of marriage to poor couples" and "educate teens on the value of delaying childbearing until marriage," she wrote in National Review Online, for example, adding that this could "carry big payoffs down the road for taxpayers and children."

Posted by: a at January 25, 2005 08:19 PM


And the URL for my previous post (about NRO being a house of prostitution) is

http://www.drudgereport.com/flash3mg.htm

Posted by: a at January 25, 2005 08:51 PM


I thought Rumsfield was the stupidest man alive.

(And Condoliar Rice the stupidest woman.)

Our Glorious Leader, an austrolopithicus, does not enter these equations.

Posted by: Mark at January 25, 2005 09:39 PM


Hey, Joe Blow! The S.S. Trust Fund is funded by Ronald Reagan's FICA tax increase of 1983. So let's be clear here: Ronnie took us all for a ride when he increased the payroll tax in 1983 - he was really just increasing taxes.
Somehow I don't see Bush making the argument just this way.

Posted by: JR at January 29, 2005 03:43 PM


Dear Brad,

I sympathise and agree with you about whaling, but I fear that your Swiftian irony could be misinterpreted or selectively quoted for purposes we would all hate.

On a separate though related point let me suggest David Sampson's fisheries pages, especially his technically comprehensive, diligent and beautiful teaching files at

http://oregonstate.edu/~sampsond/WebSites.html

Of course he may be Ahab in disguise.

Regards.

Barry

Posted by: Barry at January 31, 2005 09:33 PM


[comment spam]

Posted by: at February 7, 2005 09:02 AM


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