Brad DeLong's Semi-Daily Journal: A Weblog

Phooey. This is just more conditioning, telling us that there is a crisis in Social Security when there is no crisis. Conditioning us to believe the system must be radically changed, and that promises made over decades can not be kept. Phooey.

Isn't it nice? the things you can say when you know you're not working for them much longer?
I wonder if Colin Powell will un-puppet himself too...

I have only recently caught on that, since 1973, family income in the first four quintiles has grown ONLY because of more people working more hours -- as up to 70 percentile hourly wage rates have not increaded between 1973 all the way up to 1999 (the last year for which I have figures); wages actually dropped nearly 70 cents an hour by the 1995 point (by which point per capita income for the same period grew 40%).

Since the cut-off point for FICA collections is at about 84 percentile, future collections may be lower than anticipated if projections are based an expectation of continuing moderate income pregress below that level.

Ameicans cannot work any more hours, nor can they reasonably expect a long run return -- nor, probably, any return -- of the tight labor market experienced during the dot-com boom.

Last I heard, economic output per capita grows about 4 times as fast as the population over the decades. I also hear that Social Security collections are capped so that an individual's tax payout will be proportionate to their benifits.

The latter is a can-take-it-or-leave-it kind of principal. The gross mis-distribution of the fruits of overall GDP growth should be our all consuming concern. Seems to me that eliminating the cap altogether is the only reasonable approach to keeping up with benefit outgo -- cutting benefits for the most vulnerable even as output per person doubles and redoubles over an average lifetime seems not reasonable.

I personally would like to shift the cap from above-$90,000 to below $20,000. But, you will NEVER GET THAT -- or any other reasonable policy or proportionate family income progress - until unions make their reappearence in this country in force -- and the only practical way to do that, starting from scratch (think we can practicably organize the WalMart retirees and single parents?*), is by madatory labor legislation. We have to to regulate the secutities market to prevent predatory behavior; the labor market is much more deserving of protection.

[*WalMart will now allow unions in its Chinese factories -- if not in its American stores -- are we developing a "union-gap" with Communist China?]

Denis Drew
ddrew4u@comcast.net

I'm not so sure that N. Greg is "breaking message discipline" here - it's entirely possible that since Dubya doesn't have to worry about getting re-elected, he has empowered Mankiw to announce the new message, namely "Guess what, seniors - a hard rain's a-gonna fall right on your heads."

Too bad N. Greg didn't have a chance to say this BEFORE the election...

"there's no free lunch" Gee, did he make that up himself? What a revolutionary thought.

Dear dear Brad,

The Blog is changing color and type size and margins. Oh dear. The Blog was so lovely before. I simply can not read type this small or a type color this faint, for I have sight that is troubled. Oh dear. Software worries me.

Mankiw has ZERO credibility from when he sold out. He is another of the irrelevant voices I never listen to.

Please don't make me beg. I am going away and won't be back for hours. But when the first defender of privatization (or personal accounts), shows up (and you will) would you please have the intellectual honesty to post either your best prediction for US productivity in 2005 and the out years after 2011, or at least the level of productivity needed for your plan to succeed? What level of economic growth is required to make any equity based solution work? And yes this is a trick question, and no it is not unfair: Put up some numbers.

Wait! It was my impression, perhaps over the many years I've been working, that some of my paycheck goes into Social Security every two weeks. So what's with this "free lunch" thing? I am entitled to get back the money I put in, dammit. Its not a govt give away.

There is no broken message at all. The idea is to present Social Security as a program in crisis that must be changed radically if it is to survive. Well, there is no crisis. Social Security is funded for another 38 years, and simply changing the payroll tax cap or slightly raising the payroll tax will fund the program far longer. The question should be whether we wish to honor the promises made workers who have in turn supported the system or do we wish to convince workers the system is failing.

Anne,

your comments are usually very sensible and insightful, but your view on social security is a bit too stuck on the "promises", I think. The promises about the trust fund were just excuses to pass a highly regressive tax increase (the increase in payroll taxes around 1984) to help finance the Reagan tax cut for the riches. For babyboomers as a group, we are not cheated -- all the spending that leads to the current big hole has been spent on all current living people, including us; but for the babyboomers who work and are not in the top 20 or 25 percent income bracket, we are cheated in the sense that we are duped to agree to pay a bigger share of the taxes.

The last thing we need now is another general increase in social security taxes, as some Bush trial bollons suggested. I sincerely hope people are not going to be fooled twice.

For a couple of decades the government has been borrowing from Social Security to give tax cuts to the rich. In 2042 Social Security might need to borrow for a while.

Who should pay for that? The rich who GOT the tax breaks? HELL NO! Cut the seniors!

ACTUALLY that date - 2042 - is based on an assumption of 1.9% avg growth between now and then. That's why they keep moving the date out every year. By 2010 it might be 2060. By 2030 it might be 2090.

This talk about a "Social Security crisis" is nothing more than a strategic campaign to get the public to accept the destruction of the system.

Doen't game theory tell us that, if there is a final round in an otherwise cooperative game in which players can benefit by screwing each other, then they quickly realize that they must preemptively screw each other to benefit. Cooperation goes out the window. Mankiw is smart enough to know what kind of game he is in. If he didn't screw Bush by telling the truth in earlier rounds, it's because this is not the kind of game in which there is a final round. Mankiw has said what Bush wants him to say, because Bush will reach out and put a hurt on Mankiw, or his family, or friends, long after the last round has been played. Only the O'Niell's of the world, with money already in the back and no new mountains to climb, who can afford to tell the truth.

Powell is a much better Washington player than Bush, but he has fewer powerful friends. He has managed to get "good soldier" in print dozens of times in explaining why he has supported Bush in Iraq. He has managed to seem tired during one-on-one interviews, giving knowing looks when reporters ask pointed questions, notice that things aren't going well in Iraq, without ever directly saying "Bush administration policy in Iraq is stupid." If Bush tries to put the hurt on Powell, Powell will put the hurt on Bush's legacy. Mankiw can't do that because in the grand scheme of public sympathies, Mankiw is an economist and Powell is a war-time leader.

Are we sure his remarks weren't cut off and that he actually said, "There are no free lunches here, but we are going to act like it!"?

Can we have just a leetle bit more attention to the two essentials about Social Security:

1.) It is financed by a regressive tax. The cap on contributions should obviously be removed, assuming there is to continue to be a separate Social Security tax.

2.) The employer's contribution to Social Security is a tax on employment, i.e. an encouragement to outsourcing jobs abroad. Anyone who opposes outsourcing to Asia should obviously support financing Social Security fromm general revenue as a necessary logical concomitant.

Dear Bard,

When you warned us of danger, were you ever correct. Could this be the doing of Microsoft :)

Good for Greg. If only he would start leaking...

Someone asked why any reputable economist would work for Bush. The opportunity to look at life on the inside and leak like a sieve has to be a good motivator.

Mankiw is just trying to regain a shred of self-respect prior to his return to academia, where I'm sure his professional reputation is very low indeed. Yet, he does it by fanning the flames of the non-existent social security "crisis." So his attempt to be able to look at himself in the mirror has failed.

I'm holding out hopes that Greg Mankiw is doing his two-year stint in order to write a fantastic book giving us all the insane mathematics of the Bush economics team.

Here's the title: "The Clown Show".

Just make sure that when you save for retirement, you keep enough for a bullet.

It sounds like the Administration is floating another trial balloon, much like the "we're going to screw you on state taxes and your health insurance" plan from a few weeks ago. The logic of Mankiw's position is severely undercut when you realize that Bush has already ruled out benefit changes for those "at or near retirement" and reaffirmed support for future benefits "equal to or better than ... expected [levels]." Since the cost of a Social Security realignment begins immediately, Mankiw is simply ignoring the possibly multi-trillion dollar costs and focusing on long-term costs. (Keep in mind that the Greenspan Commission had Social Security on a solid long-term footing before the deficits run-up, and that removing the income cap on withholding would have cleaned up the one-third shortfall that would begin in the 2030s.)

Dosen't this on message comment seem to be 2 - 2 = 0 in this case?

Personally, I think that there IS a government obligation to workers -- but it is not an obligation to everyone who has or worked and paid FICA taxes or will do so. Rather, I think it's an obligation to those who have been working with the expectation that it will be there. For example, I think the government is obliged to pay all of the SS that was promised to 65 year olds who are just now retiring. By contrast, I don't think that it is obliged to pay anything to 16 year olds who are just entering the labor force now when they are 65 and want to retire, regardless of how much they pay in payroll taxes. As for, say, 40 year olds... it's somewhere between the full funding and the no obligation. Of course, if the government continues to promise SS benefits as it has, by the time current 16 year olds are 65, they will have a reasonable expectation of getting full SS benefits, so the government is still obliged to pay them in full. If the government announced, today, though that 16 year olds won't be getting any SS, I think it would be within its rights to do so. It may not be good policy, but it wouldn't be renegging on a morally obligating debt as it would be if it cut benefits for current retirees.

David Lloyd-Jones: The concept that your credits are (roughly) in proportion to your contribution, and your payout will be in proportion to your credits (among the members of your cohort), is a fundamental feature of Social Security. In other words, aside from its disability and survivorship benefits, it is designed so that there is no redistribution within the system, on a per-cohort basis. I'm not arguing this is the only possible design; but when removing caps, either higher payers must be awarded more credits, or there will be cohort-internal redistribution. In the former case, you get more money today, but build higher liabilities in the future in credit terms.

As for the employer's portion, I don't believe that employers are stupid and don't price this into wages, despite all public "tax on employment" posturing. Consultants get relatively higher payrates precisely because they have to pay both halves, their own healthcare, etc. If you buy some item on a budget, you will figure sales tax into the price, and not act surprised at the cash register, right? And stores will figure the sales tax into their price structure as well.

This was essentially the same thing Kasich said in the NY Times editorial. "To preserve Social Security, we have to switch from wage indexing to price indexing. That will cut the long term cost by 55%".
What Kasich said is that we should freeze benefits at current living standards.
That's the equivalent of saying that someone retiring today should be satisfied to have paid in to Social Security all their working lives, but get benefits appropriate for a retirement in the 1930s. Inflation adjusted, of course!

Now, a strategic question. Should progressives just sit back and respond to all this crap defensively, or is there an offensive opportunity? If it's all defense, presumably, conservatives will whittle away at Social Security until they get swept out of office. So, an all-defense strategy really has to focus on getting control of Congress in 2006. How would that happen? If not, what's a progressive offense?

A defense against the nonsense and propaganda is in order.
Lately my still freeform ideas have led me to think that
a defense against "Creationism" is also in order.
Since Dr. Carl is dead I intend to enlist Dr Kaku.
(Ididn't say it would work)
A similarly well known and respected thinker in the economic field (should there be one) needs to be enlisted to DEBUNK the bunk.