February 18, 2005
Why Oh Why Can't We Have a Better Press Corps? (Slate Has a Quality Control Problem Department)
Outsourced to Matthew Yglesias:
TAPPED: February 2005 Archives: Steven Landsburg... [argues] what matters is what we do to get the national savings rate up.... Unfortunately, we end up here:
Which brings us to the president's proposal for private accounts. I like that proposal for three reasons. First, it will encourage people to save. Second, it will give people choices, and choices are good. And third, it will give more voters a stake in the capitalist system, making them more likely to vote for the sort of pro-growth policies that will improve the quality of life for us in our old age and our grandchildren.
...[T]he big, screaming, awful mistake here is that the president's proposal is good for savings. Private accounts will, of course, boost private savings. But since for every dollar saved in a private account the government is going to need to take on a new dollar of debt to finance those pesky transition costs, there will be no net effect on national savings. At least, that's what privatization advocate Alan Greenspan says. Privatization opponents point out that some people will probably look at their accounts growing and reduce contributions to 401 (k) plans, IRAs, or other savings vehicles. Thus, privatization could actually reduce the savings rate. But it certainly won't increase it.
Posted by DeLong at February 18, 2005 01:37 PM
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» THE Social Security crisis -- Steven Landsburg from PRESTOPUNDIT
gets it: the only thing we can do now to address the underlying crisis is to encourage saving, because saving means investment, and investment means that when 2020 comes... [Read More]
Tracked on February 18, 2005 10:38 PM
I guess he wrote that before he read Greenspan's response to Jack Reed's question. Or am I too generous in assuming that he reads?
Posted by: Ningun at February 18, 2005 01:43 PM
As Jason Furman pointed out, if you die before retirement your account passes to your heirs. That's good for them, but means the Gov has to borrow more than the contributions, sooner or later, to stay even. So as far as that goes the PRAs reduce nat'l saving.
Posted by: Max at February 18, 2005 01:53 PM
I'd normally let this go, but when you title the post "Slate Has a Quality Control Problem", I have to ask - who's this Mike Yglesias guy?
Posted by: Devin McCullen at February 18, 2005 02:02 PM
A rather paternalistic column for Landsberg there. So we save now for more goods in the future? Why? Are people not behaving optimally now? Rather funny conclusion for Landsberg. Or are they not behaving as Landsberg would like? So what other things should we force people to do then? He also acts like distribution of goods is completely arbitrary in the future which is bogus. Saving decisions today affects dsitribution of goods tomorrow. Even a microtheorist should understand that.
Of course I'm still waiting for Landsberg to decry Bush's racism due to his tarriffs.
Posted by: Rob at February 18, 2005 02:03 PM
Of course, now that Slate is owned by the Washignton Post, we should expect quality to decline even further.
Posted by: Charles Kinbote at February 18, 2005 02:22 PM
"First, it will encourage people to save."
i don't understand how privatizing social security gets me to save more?
[You are not alone]
First, if it weren't for social security (or, i guess, if it weren't for FICA taking a chunk of my paycheck), i'd have no retirement savings at all.
Second, if instead of going into a Social Security Trust Fund, my FICA paycheck earmarks went to a "private account, i'd still have no retirement savings beyond what was government mandated.
Third, if instead of FICA taking a chunk of change out of my paycheck, i had the _option_ of investing into a private social security fund like an IRA or whatnot, i'd have NO retirement savings at all.
Is there a scenario i'm missing?
Or is his logic only supposed to be applied to Americans who aren't carrying credit card debt?
Posted by: arkabee at February 18, 2005 02:25 PM
The implicit theory here is that the government will always borrow as much as it can. So if it borrows to put the money in private accounts, then that is better for the savings rate than if it borrows to finance current spending.
[I don't think Landsburg has an implicit theory--even one as silly as the one you think he has.]
Posted by: Gareth at February 18, 2005 03:15 PM
Yglesias blogs at his own site (Google Matthew Yglesias) and at The American Prospect's group blog (Google TAPPED). Landsburg's piece was published in Slate; Yglesias was commenting on it.
Posted by: Tyrone Slothrop at February 18, 2005 03:20 PM
The second point will probably go unchallenged; it's common wisdom that the more choice the better. But here's some interesting research:
"WHEN IT COMES TO retirement planning, less can be more. Companies have long debated whether it is better to offer employees lots of mutual funds -- or a more limited number of choices -- in their 401(k) plans. During the boom years, investors clamoring for the latest hot tech funds pushed for ever-more options. But now there is an emerging sense that employees may actually be more inclined to put money in their retirement plans if they have fewer choices. "
"A recent study by economists at Columbia University found that 401(k) participation is higher when employees are offered fewer fund choices. In plans that give workers only two investment options, 75% of workers sign up for their 401(k) plans. When faced with 60 investment choices, enrollment is only 60%. Every additional 10 investment choices, on average, reduces expected participation rates by 2%."
Posted by: chrisg at February 18, 2005 03:22 PM
Slate buys into the Cato free lunch presto magic. Here is how it works. You have 2 $5 bills in your left pocket and nothing in your right pocket. You pretend to take out your ten dollars and put it in your right pocket. Magic: your right pocket has a $20 bill in it. And better still, there is still a $5 bill in your left pocket. Yes, we have seen this magic act many times before but it's like all magic acts - it is a delusion.
Posted by: pgl at February 18, 2005 03:24 PM
Of course, the supply-side argument here is that money in the private accounts would be invested and thus spur economic growth and create more taxes, to help offset the losses from transition.
[And the money the government borrows to put in the private accounts would diminish private investment and retard economic growth. Alan Greenspan says it's a wash. It's a wash or worse than a wash.
Lower the BS quotient, please.]
Posted by: muckdog at February 18, 2005 03:39 PM
May I take this forum to raise to SS questions that seem notable by their absence from current debate:
1. How come no one is talking about means testing? If social security is a safety net, why do we provide benefits to, say, Brad, or, I suspect, most of the readers of this list--who have nice hidy-holes of their own? What would be the cost of a "put option" program--guaranteeing $20,000 per year in retirement income per retiree, and providing govt funds only to the extent private means fall short of that?
2. In commending private acconts, why doesn't anyone talk about IRAs, 401ks, 403bs, Keoghs, blah blah, all of which are govt supported private savings programs?
Posted by: buce at February 18, 2005 04:20 PM
Slate is increasingly irrelevant for me. Ironic, since I used to like Slate and got into blogs and blogging through it (no, not Kaus, who I despise). Now, however, it rarely adds any value.
Posted by: praktike at February 18, 2005 04:21 PM
Savings - good, but why do you think you know more about the optimal savings rate than the populace?
Borrowing to fund savings - no net savings
Posted by: richard at February 18, 2005 04:32 PM
Dead on. Get 'em.
I have never laughed and smiled so much over a government plan. It's just downright funny.
Posted by: Movie Guy at February 18, 2005 04:38 PM
I still read Slate. I like a lot of the commentary (Kaplan's hammering on Rumsfeld has been fun and informative), and the Today's Papers and International Papers features are useful. But Landsburg has always been an idiot. I really hope Tim Noah or Daniel Gross will take the time to rebut him, either this evening or early next week.
[But why should they have to waste their time?]
Posted by: Auros at February 18, 2005 04:43 PM
buce: I think a lot of center-left types have mentioned the notion of simply making it mandatory to have one of the current types of retirement account and contribute at a minimum level... It just hasn't penetrated the mainstream media consciousness that this would be cheaper and simpler.
Posted by: Auros at February 18, 2005 04:49 PM
"Yglesias blogs at his own site (Google Matthew Yglesias)"
Methinks Devin was trying to point out that Brad calls Matthew Yglesias "Michael" -- speaking of quality control problems...
Posted by: ogmb at February 18, 2005 04:51 PM
and buce, means-testing does come up. the fact of the matter is, households headed by over-65s are just like other households: a small handful are truly wealthy, a slightly larger handful are rich, and the rest are just scufflin' at various levels of material comfort (or lack thereof).
Means testing that knocks out the small and slightly larger handful is something that i, for one, could probably live with in the context of an overall series of adjustments in social security.
But the idea that really, there's lots of money to be squeezed out of social security through means testing only holds if you want to turn social security into "welfare." Otherwise, it's a minor aspect to the potential problem....
Posted by: howard at February 18, 2005 05:47 PM
Posted by: at February 18, 2005 06:02 PM
Thanks to Howard for a useful comment, but that's my point: in a sensible world, SS would /be/ a welfare program. Ever since Roosevelt, we have pretended it is something else, to make it saleable. Just how big would the savings be if it were indeed just a welfare program? Howard might be right that the savings are small, but the point would be more persuasive with real numbers (but I recognize, the idea is a non-starter now, just as much as in 1936).
Posted by: buce at February 18, 2005 06:19 PM
I am of the opinion that "at February 18, 2005 06:02 PM" has it dead right.
But I ask, if savings goes up more that economic growth does that not effectively cut domestic spending? Where is the laugher curve on this one? Could it be because the Laffer curve is a total crock?
Posted by: bobbyp at February 18, 2005 06:22 PM
Because Social Security is not welfare? And means testing will get you near to nowhere. All it would do is send people into ways to further reduce income which for many seniors really isn't that hard to do. Just look at all the "broke" seniors in nursing homes. Many wealthy people are suddenly flat broke in order to get medicaid.
Posted by: Rob at February 18, 2005 06:32 PM
Compulsory private social security accounts make sense if we assume that the government wants you to spend less and save more.
It's the part where Elaine Chao wants to force you to buy long term treasury bonds at low interest rates that bothers me.
Posted by: walter willis at February 18, 2005 06:59 PM
Can you even conceptually talk about suppporting a pro-growth policy and supporting a Bush economic initiative? Can you really do both?
It's like saying I'm going to kill myself tomorrow and I'm going to retire to a South Sea island when I'm 70.
Posted by: KevinNYC at February 18, 2005 09:00 PM
Landsburg is one of the thimbleful of Bushies at Slate (per a pre-election poll last fall), so this doesn't surprise me. He's been hiding the last couple of months, too - not an auspicious comeback.
Posted by: grishaxxx at February 19, 2005 03:40 AM
Posted by: at February 19, 2005 06:36 AM
I'm waiting for Brad to take Greenspan on. Krugman basically called him a partisan shill after his recent comments on private accounts. Brad quotes him in defense of his criticism of Landsburg. Greenspan and our former head of the CEA, who is headed back to a safe landing at Harvard, seem to be protected species.
Posted by: nbecker at February 19, 2005 07:29 AM
What buce and others are missing in suggesting means testing or cap raising is the politics. The underlying strength of Social Security is that it makes no fundamental demand on Capital or more precisely on the individuals that control that capital. The maximum amount anyone has to pay into Social Security, even counting the employer half as part of your contribution is 12.4% of $90,000 or $11,160. This doesn't represent even a rounding error in a CEO compensation package, it costs an NBA player more than that to be suspended for a game. And if your entire income comes from investments, Social Security costs you nothing.
Social Security is a great deal for the rich. It costs them next to nothing out of their personal compensation and it lifts a huge moral burden from them. Because of it they can absolve themselves of fundamental responsibility for the disabled and the elderly and go ahead and buy that villa on the Riviera.
The investment class (and I mean the real investment class, not people who have a few grand in a 401k) are the natural allies of those who want to defend Social Security just as it is. Currently they are the ones who benefit from the benefit premium, privatizers are in effect demanding they share that with the tens of millions of future retirees. What exactly is in this for any wealthy person who is not a stockbroker?
The wealthy may be for privatization in principle, but they will naturally balk at any solution which requires them to take on a financial burden. Democrats need to avoid that inevitable alienation that results from putting forward cap increases or means testing. That affluent Arizona retiree may not absolutely need that SS check, but that doesn't mean he just will cheerfully hand it over. He earned it, he should get to keep it.
Social Security was cleverly designed so as to avoid being vulnerable to class warfare. It is not welfare, it calls for no transfer of wealth from the top 1% to the bottom 60%, it is entirely funded by workers and should stay that way.
Even if there was an actual gap pending, the preferred solution would be some combination of tax increases and an acceptance that Social Security will be able to payout benefits at depletion at whatever rate its then income allows. Even now we are talking 74% of a promised benefit better than that of current retirees. Every quarter and every year we beat current econmic projections that percentage gets ratcheted up. Long term growth over 2% restores it to 100% and more.
Which leads me to put forth two propositions:
One, don't put forth solutions until they prove the problem.
Two, don't piss a bunch of upper middle class to wealthy people off if you don't have to. We are trying to save Social Security not embark on a class-based revolution. Or at least lets agree to separate the two propositions.
Posted by: Bruce Webb at February 19, 2005 08:00 AM
Bruce, you are missing one thing. Current investor want privitization since it should push up stock prices. Meaning you get windfall returns. Future returns would be lower but if you're in the market in time to take advantage of the Social Security flood you'll do very well.
Posted by: Rob at February 19, 2005 09:27 AM
"Slate buys into the Cato free lunch presto magic. Here is how it works. You have 2 $5 bills in your left pocket and nothing in your right pocket. You pretend to take out your ten dollars and put it in your right pocket. Magic: your right pocket has a $20 bill in it. And better still, there is still a $5 bill in your left pocket. Yes, we have seen this magic act many times before but it's like all magic acts - it is a delusion."
This is an excellent desription of the current approach to Social Security....
Not saying that private accounts, as currently specified, are a great idea. But the accounting hocus pocus you describe is basically already happening...
Posted by: joeblow at February 22, 2005 02:51 PM
Posted by: at February 25, 2005 09:57 PM