« Ward Churchill |
Main
| Primary source »
February 04, 2005
Understanding the Bush Yglesias plan
Matthew Yglesias created a three part Social Security plan in this post, and then attributed it to the President. The only problem is that the President has yet to unveil an actual plan, only a spokesman's vague attempts to lay out some principles. Nevertheless, dissecting Yglesias' post offers a good opportunity to clear up some of the muddied water and summarize the disputes so far. Click below to read on.
According to the all-knowing Yglesias, here's phase one:
The first phase is to default on the General Fund's debt to the Social Security Trust Fund in order to make room in the budget (sort of) to make the Bush tax cuts permanent.
Yglesias offers no authority for this claim, and it undermines the legitimate issues Yglesias raises later on. Building on this fairy tale, Yglesias moves on to "phase two" of his made-up plan:
Once that's done, Social Security doesn't have nearly enough revenue to cover currently promised benefits. The White House wants to resolve this through some unspecified level of benefit cuts.
Here one must concede that benefit cuts aren't out of the question, independent of what happens with the Trust Fund. Obviously benefits will be reduced as personalization increases, but there may be reductions over and above that as well. We just don't know. Then comes "phase three," the only part of Yglesias' plan that is rooted in reality:
Phase three is the proposal to allow workers to divert one third of their payroll taxes into something resembling an account under the Thrift Savings Plan.
Because Matt's FICA taxes aren't going to grandma anymore (and instead going into his personal account), the government will likely have to borrow in order to meet its obligations to grandma. Some people call this "transition costs," but they're really just getting debt to pay down debt. . .
like refinancing your mortgage. These aren't new costs at all; it's paying debt the government owes anyway, only it's financing it from a much better (predictable, efficient, and fairer) source. The best benefit is that the OASDI pyramid scheme is phased out in the process.
Then Yglesias sticks with the retracted Weisman story from yesterday by saying the money you were supposed to get for your personal account will actually still go to grandma. And, according to Weisman's now retracted article, the government would loan you the portion meant for your personal account. This was also the myth peddled in Krugman's NYT column. Weisman soon realized that the president actually proposes (according to officials and spokesmen) no such loans. That the money going to you is meant for you, would be owned by you, and would not be a loan at all. Grandma will be paid through other government debt or higher taxes. The administration then reinforced this through a memo sent to the media, and the Post corrected their story.
But Yglesias, and Brad DeLong, don't think there's much of a difference. According to them, having it as a loan, or having it owned by you is "absolutely equivalent in all respects." This is where we adamently disagree. The authority over the funds, the inheritance, and all important aspects of ownership (according to principles offered from the president so far) will remain with the personal accounts. This makes it your money, not a loan at all. The difference is important both financially and psychologically.
Update: Word Munger has more, with great criticisms of both Yglesias and the Bush plan. In the end, he worries that personalization will mean more risk, and that's apparently a bad thing. One wonders how we've survived over 200 years of capitalism.
Posted by Joshua Claybourn at February 4, 2005 01:55 PM
No one likes being exposed to risk and the willingness to accept a lower return for less risk is stronger for those with less income in the first place.
That is why a privatization isn't likely to be seen as an equitable fix in many lower-income-types eyes.
dlw
Posted by: dlw at February 4, 2005 04:11 PM | permalink
That is why a privatization isn't likely to be seen as an equitable fix in many lower-income-types eyes.
Every proposal I've seen permits risk-averse citizens to stay with the current system. This is a choice. So that seems to be a non-issue.
Posted by: Joshua Claybourn at February 4, 2005 04:12 PM | permalink
Yglesias has added a second post which (kinda) backs up his claim about how they're planning to default on the trust fund.
I need to think through what my mind is saying before I type any more.
Posted by: Balta at February 4, 2005 06:54 PM | permalink
It is an issue if it means that the "benefits" from increased choice only go to those who are better off and can risk diverting money into a fund and we all end up paying for the insurance to cover those funds that are invested.
dlw
Posted by: dlw at February 4, 2005 07:06 PM | permalink
I'm in favor of capitalism; what I'm not in favor of is gambling with an insurance program. I can see some other ways of addressing the Social Security problem that might work, such as allowing the goverment to invest some of the trust fund in stocks. However, when individuals are allowed this type of control over their insurance assets, the result will be some portion of the population in poverty. If the economy goes poorly, we'll have to bail a large number of these people out. If the money was all in one big pot, everyone could tighten their belts a bit and ride it out.
Posted by: dave munger at February 4, 2005 11:54 PM | permalink
I should say that my preferred approach would be to be honest about Social Security. Rather than a forced savings plan, just roll back the retirement age and let people make their own decisions about how to invest their money. I'd even be in favor of a cut in the payroll tax, preferably by making, say the first $10K of income exempt.
Posted by: dave munger at February 5, 2005 12:00 AM | permalink
Dave, you got it wrong. At issue is not capitalism, but rather the rules of the game of the mixed economy/polity will be. I think one could probably argue pretty consistently that permitting people to invest their money in the social security trust fund would tend to be "wealth-maximizing". Yet, wealth-maximizing inherently ignores distributional issues. Poorer people are not going to benefit from having the stock-option as they will be inherently more risk-averse and have good reason to be risk-averse in such a manner.
The real issue is one of how property-rights or decision-making gets allocated. If one holds to the current allocation of property-rights where say-so over funds paid in social-security taxes are deferred then the BushAdmin's plan is a loan. If one presupposes it is unjust/unfair to make people defer individual say-so then the BushAdmin will advocate personalism since it will hold that money is yours, yada, yada, yada...
The key issue is one of what should normatively be the def'n of rights. Josh and the BushAdmin are advocating for what they prefer.
dlw
Posted by: dlw at February 5, 2005 12:09 AM | permalink
