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April 22, 2005

Jackie Calmes on Chuck Blahous

Jackie Calmes on Charles Blahous, from the Wall Street Journal:

WSJ.com - Architect of Social Security Plan Perseveres: Blahous, Who Convinced Bush of Need for Benefit Cuts, Works Behind Scenes to Sway Skeptics. By JACKIE CALMES Staff Reporter of THE WALL STREET JOURNAL: With a never-used Ph.D. in chemistry, Mr. Blahous has instead made a career of trying to shore up and partially privatize the government's most popular program.... He also helped persuade the president to reject the arguments of some conservatives who say that creating private accounts alone can fix Social Security, without more painful changes in benefits and taxes.... While higher-ranking advisers spend more time with the president, they use Mr. Blahous's talking points. "He's our ongoing rabbi," says chief White House strategist Karl Rove.... Mr. Blahous has an instinct for bipartisanship that is rare among Bush officials and sorely needed.... After the November election, he helped pave the way for an opinion piece in a national newspaper by Republican Sen. Lindsey Graham of South Carolina and Democratic Sen. Kent Conrad of North Dakota calling for cooperation on Social Security. More recently, he pressed White House advisers to urge antitax group Club for Growth to withdraw television ads denouncing Sen. Graham for proposing a payroll-tax increase on upper-income workers as part of a potential compromise. The group declined to pull them....

When Mr. Simpson retired, Mr. Blahous was snatched up by Sen. Judd Gregg.... Once in the White House, Mr. Bush hired Mr. Blahous for his National Economic Council staff.... By the time Mr. Bush returned to Social Security last year, Mr. Blahous's side had won a crucial internal battle. Years ago, past advisers say, Mr. Bush leaned toward the "free lunch" view -- that personal accounts were the answer to Social Security's looming woes, with hard choices on benefits and taxes unnecessary. Mr. Blahous helped persuade the president that there is no free lunch.... That approach is reflected in the president's current view, which holds that personal accounts are "the dessert" to make palatable the "spinach" of benefit reductions. He argues that younger workers will be better off thanks to investment earnings.... Mr. Blahous also has been influential on potential changes to benefits and payroll taxes... lately, Mr. Bush has indicated he could support raising the wage cap, now at $90,000.

Several months ago, other administration officials were espousing an across-the-board change to the formula for workers' initial retirement benefits, which would greatly reduce future retirees' income. Mr. Pozen by 2004 had crafted a variant of the idea, called "progressive indexing," that would keep the current formula for the bottom third of workers, apply the less generous change for those at the top, and blend the two for retirees in the middle. "This is really an interesting approach," Mr. Blahous told Mr. Pozen in a phone call late last year...

From my perspective, Blahous has made at least three big mistakes if he wants to pull people like me in to support his plan:

  1. The proposal for the price-indexation of the bend points ultimately reduces the "defined benefit" Social Security check to zero. That cannot be the right policy.
  2. The private-accounts plan he has proposed--with the clawback of the defined-benefit part set at a 3% real interest rate, as opposed to floating with the Treasury borrowing rate--makes his private accounts a lousy deal for the non-rich.
  3. Nothing in Blahous's plan increases national savings, save for a hope that after his Social Security plan is passed Republican High Politicians will have a "Road to Damascus" moment and become advocates of fiscal sanity.

It's a good bet that on the first and second of these, Blahous is the only truly senior person inside the White House who understands these issues. And the third should be a deal breaker for taking the job: it's not worth it for anyone serious to be caught advocating a program that does not raise national savings.

A Social Security reform plan that does not preserve a defined benefit component, does not offer a good deal to the non-rich choosing private accounts, and does not boost national savings is not a Social Security reform plan worth proposing. There are no reasons for anybody to support this thing.

Posted by DeLong at April 22, 2005 07:08 PM