Social Security Meta-Archive: January 2005

[Part of the Social Security Meta-Archive: December 2005]

Social Security Meta-Archive: December 2004

1/1
Confusions about Social Security
Several pages from Krugman writing about Social Security in The Economist's Voice.
David Wessel Does His Social Security Grading
DeLong survey's the Wall Street Journal reporter's grading of the Bush administration and various Democratic players in the SS debate.
1/2
Talking Points Memo
Joshua Micah Marshall on the Bush Administration's hopes to use all of those FICA taxes built up since 1983 to finance tax cuts instead of Social Security.
Social Security Crisis in 2018? Ridiculous
Economist Brad Setser on why it's the Federal "General Fund" that has to pay up in 2018, not Social Security:

Unless the US treasury cannot make good on its promises -- something that truly would change international financial system -- social security does not face a day of reckoning in 2018. When a bond you own comes due, you have the right to redeem it -- or in the case of social security, at least to collect the interest on your bonds (remember that right now social security is both taking in $68 billion more from the payroll tax than it spends on benefits and is lending the $85 billion interest it recieves on its existing holdings of bonds back to the rest of the government ... in total, social security is providing over $153 billion in financing to the rest of the government)

Don't forget that the government -- the non social security part -- has expenditures well in excess of revenues RIGHT NOW. Dick Cheney apparently thinks cash flow deficits that have to be financed by issuing tons of debt don't matter, but cash flow deficits than can be financed by drawing on the interest from your stock of existing assets are a real problem ... interesting financial logic.

An aside: Anyone writing about the social security ought to read both the Trustees and the CBO report. I do have one quibble with the CBO though: its graphics subtly suggest that social security is in much worse shape than it really is. The main graphs focus on payroll taxes v. expenditures, and the graph has been chopped off to magnify the apparent size of the shortfall (the graph starts at 3% of GDP, not 0%). The CBO also buries the key graph showing when the Trust Fund runs out -- i.e. when the gap between payroll taxes and promised benefits can no longer be financed social security's assets. Looking just at the graphs, it is not obvious that the CBO thinks the system is in better shape than the Trustees ...

In 2018, social security won't be able to lend its surplus to the rest of the government, and the rest of the government will have to adjust. That is a problem if you don't like the income tax, because the rest of the government is financed largely by the income tax. Income taxes have to rise, or non-social security spending will have to fall. But so long as the US government is not planning on defaulting, it is not a problem for social security. The payroll tax does not need to increase in 2018, retirement benefits do not need to be cut, there is no problem, let alone a day of reckoning. The Treasury just has to start paying interest on all the bonds social security has bought ...

I think part of the problem the press has is that it seems like the retirement of the baby boom should cause problems for social security. The number of retirees will grow, the numbers of workers per retirees will shrink, and social security benefits will increase from around 4.4% of GDP to about 6% of GDP. How could a constant payroll tax be able to finance the retirement of the baby boom? On the surface, it does not make sense.

The funny thing is that US government was actually responsible in the 1980s, and planned ahead for the impact of the baby boom on social security. The retirement age was increased (a de facto benefit cut), and payroll taxes were raised. Right now the payroll tax takes in more than is needed to pay for current benefits -- revenues are around 5% of GDP and expenditures are around 4.4% of GDP -- and the surplus is lent to the rest of the government. It is a loan, not a grant. The government has to pay it back.

Rather than debating the "problem" created when social security starts to redeem its bonds, we should be debating how to fix our real problem -- the fiscal deficit. Social security now takes in more than it spends. The rest of the government now spends way more than it takes in. On realistic assumptions, it will run a 3.5% of GDP deficit from now til eternity unless something changes -- and even bigger deficits from now til 2014 if you took out the social security surplus.

These ongoing fiscal deficits are the real financial problem facing the US -– not the projected gap after 2042 (or 2055) of 1.5% of GDP or so between payroll taxes and trust fund assets and social security benefits that underlies concern about social security's long-term solvency. I’ll put it differently: unless something changes, the rest of the government will go broke long before social security has any problem paying all its projected benefits.

1/3
White House Social Security Memo
By Karl Rove deputy Peter Wehner:

From: Wehner, Peter H. [mailto:Peter_H._Wehner@who.eop.gov]
Sent: Monday, January 03, 2005 2:57 PM
Subject: Some Thoughts on Social Security
I wanted to provide to you our latest thinking (not for attribution) on Social Security reform.

I don't need to tell you that this will be one of the most important conservative undertakings of modern times. If we succeed in reforming Social Security, it will rank as one of the most significant conservative governing achievements ever. The scope and scale of this endeavor are hard to overestimate.

Let me tell you first what our plans are in terms of sequencing and political strategy. We will focus on Social Security immediately in this new year. Our strategy will probably include speeches early this month to establish an important premise: the current system is heading for an iceberg. The notion that younger workers will receive anything like the benefits they have been promised is fiction, unless significant reforms are undertaken. We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course. That reality needs to be seared into the public consciousness; it is the pre-condition to authentic reform.

Given that, our aim is to introduce market reforms in Social Security and make the system permanently solvent and sustainable.

We intend to pursue the first goal by using our will and energy toward the creation of Personal Retirement Accounts. As you know, our advocacy for personal accounts is tied to our commitment to an Ownership Society -- one in which more people will own their health care plans and have the confidence of owning a piece of their retirement. Our goal is to provide a path to grater opportunity, more freedom, and more control for individuals over their own lives. That is what the personal account debate is fundamentally about -- and it is clearly the crucial new conservative idea in the history of the Social Security debate.

Second, we're going to take a very close look at changing the way benefits are calculated. As you probably know, under current law benefits are calculated by a "wage index" -- but because wages grow faster than inflation, so do Social Security benefits. If we don't address this aspect of the current system, we'll face serious economic risks.

It's worth noting that wage indexation was not part of the original design of Social Security. The current method of wage indexation was created in 1977, under (you guessed it) the Carter Administration. Wage indexation makes it impossible to "grow our way" out of the Social Security problem. If the economy grows faster and wages rise, this produces more tax revenue. But the faster wage growth also means that we owe more in Social Security benefits. This has produced a never-ending cycle of higher tax burdens, even during periods of robust economic growth. It is the classic case of the dog chasing his tail around the tree; he can run faster and faster, and never make any progress.

You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits -- therefore making no effort to address this fundamental structural problem. In my judgment, that's a bad idea. We simply cannot solve the Social Security problem with Personal Retirement Accounts alone. If the goal is permanent solvency and sustainability -- as we believe it should be --then Personal Retirements Accounts, for all their virtues, are insufficient to that task. And playing "kick the can" is simply not the credo of this President. He wants to do what needs to be done for genuine repair of Social Security.

If we duck our duty, it can have serious short-term economic consequences. Here's why. If we borrow $1-2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain-reaction: the markets go south, interest rates go up, and the economy stalls out. To ignore the structural fiscal issues -- to wholly ignore the matter of the current system's benefit formula -- would be irresponsible.

Here's a startling fact: under current law, an average retiree in 2050 would be scheduled to receive close to 40 percent more (in real terms) in benefits than an average retiree today -- and yet there are no mechanisms in place to produce the revenue to pay out those benefits. No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives.

To meet those benefit levels, one option would be to raise the age at which people receive benefits. If we followed the formula used when Social Security was first created -- make the age at which you receive Social Security benefits above the average age of mortality -- we'd be looking at raising the benefit age to around 80. That ain't gonna happen.

Another way to meet those benefit levels is through the traditional Democrat/liberal way: higher taxation. According to the latest report of the Social Security Trustees, the current system's benefit formula would require some $10 trillion in tax increases over the long term. We'd therefore need to raise the payroll tax almost 20 percent simply to provide wage-indexed benefit levels to those born this year.

This will all sound familiar. In the past, the way Congress usually addressed the built-in funding problem was by raising payroll taxes (from 2 percent in 1937 to 12.4 percent today). In fact, Congress has raised Social Security taxes more than 30 times -- but it has never addressed the underlying problem. Avoiding the core issue by raising taxes is not the modus operandi of this President.

The other key point, as you know, is that personal accounts, through the miracle of compound interest, will provide workers with higher retirement benefits than they are currently receiving from Social Security.

At the end of the day, we want to promote both an ownership society and advance the idea of limited government. It seems to me our plan will do so; the plan of some others won't.

Let me add one other important point: we consider our Social Security reform not simply an economic challenge, but a moral goal and a moral good. We have a responsibility to fulfill the promise of Social Security, not undermine it. And we have a duty to ensure that we do not create an inter-generational conflict -- which is precisely what will happen if the Social Security system is not reformed. We need to retain strong ties between the generations, which is of course a deeply conservative belief.

The debate about Social Security is going to be a monumental clash of ideas -- and it's important for the conservative movement that we win both the battle of ideas and the legislation that will give those ideas life. The Democrat Party leadership, the AARP, and many others will go after Social Security reform hammer and tongs. See today's silly New York Times editorial (its only one for the day) as one example. But Democrats and liberals are in a precarious position; they are attempting to block reform to a system that almost every serious-minded person concedes needs it. They are in a position of arguing against modernizing a system created almost four generations ago. Increasingly the Democrat Party is the party of obstruction and opposition. It is the Party of the Past.

For the first time in six decades, the Social Security battle is one we can win -- and in doing so, we can help transform the political and philosophical landscape of the country. We have it within our grasp to move away from dependency on government and toward giving greater power and responsibility to individuals.

There are of course other important issues dealing with Social Security; for now, though, I've covered quite enough ground. I wanted to let you know where things stand. If you have any questions, or if we can send you anything to clarify our plans and respond to critics, just let me know. The President remains flexible on tactics -- and rock-solid on the principles. But there's nothing new there.

In one of his last public acts of an extraordinary public life, the late Democratic Senator from New York, Daniel Patrick Moynihan, co-chaired the President's Commission to Strengthen Social Security. In the introduction of its report, Senator Moynihan (along with Richard Parsons, his co-chair) wrote, "the time to include personal accounts in such action [reforming Social Security] has, indeed, arrived. The details of such accounts are negotiable, but their need is clear.... Carpe diem!"

And so we shall.

1/4
Security Flaws
Paul Starr of the American Prospect on the threat to national security presented by owing the cost of Social Security privatization to China.
Stopping the Bum's Rush
Krugman. Did Bush say "imminent"?
The Alternative Social Security Plan Democrats Need To Push As Part Of Their Second Term Agenda
The Diamond-Orszag plan offered as a political option for Democrats by the blog The Left Coaster.
A Tale Of 2 Systems
David Brooks compares America to Europe in facing changing demographics of aging.
High-Fiber Monopoly Diet
Matthew Yglesias responds:

Someone should tell Brooks what the "dependency ratio" actually is. Or that even if we don't change Social Security at all, its cost as a share of GDP will max out at a level far lower than Germany's current rate of public pension outlays. Or that while Europe is aging faster than America, the European model is, in some ways, better-suited to deal with the transition because they have a less costly health care sector. Or that his deployment of the phrase "either way" in paragraph nine indicates that he doesn't understand Edward Prescott's argument at all.

1/5
The Social Security Party Line: Talking Points
Brad DeLong lays down the party line.
1/6
The mask comes off the Social Insecurity plan
Blogger Mark Kleiman of UCLA:

There's a case for worrying that rising OASDI tax rates will become a significant work disincentive, especially if benefit levels are only weakly correlated with taxes paid.

And there's a case for worrying that the existence of Social Security as a relatively generous indexed annunity may be contributing to low household savings rates, and thus both to low national savings rates and to the scandalous maldistribution of wealth that has the typical American dying with not much more than he needs to bury him.

For a description of these problems and a sketch of possible solutions from someone who wants to fix the program rather than wrecking it, see James Tobin's Cowles Commission discussion paper from 1987.)

Now I'm more worried about work disincentives at the bottom of the income distribution, where the current Social Security system acts as an implicit subsidy, than at the top, and I'm far from convinced that private accounts are necessary, or even the best way, to deal with the problems of undersaving and inadequate wealth accumulation.

Still, I acknolwedge that the incentive effects of Social Security are worth worrying about, and that a properly-designed private account scheme might be able to fix them.

A properly-designed system, as my friend David Boyum points out, would have private accounts but not free choice of investment vehicles, and it would be progressive: the annual contribution to the private account would be a fixed sum, not a fixed percentage of earnings. And the payout from those accounts would be in the form of indexed annuities, with individuals having the option to reinvest a portion of what would otherwise be the payout in any given year but not to draw the account down faster than the annuity rate.

And, of course, the transition would be financed with some combination of taxation and spending cuts, not by floating another couple of trillion dollars' worth of bonds; otherwise the change does nothing for the national-savings problem.

But then Boyum asks the hard question: given that there exists a private-account system superior to the current system, should Democrats say that they're for it instead of rejecting private accounts altogether? If we had a rhetorically masterful leadership cadre, effective control of the communications channels, and a set of opponents constrained by intellectual honesty, or at least ordinary honesty, in their debating approach, there might be a good case for proposing a serious alternative.

The route to real pensions reform
Robert Pozen advocates "progressive indexing" in The Economist.
1/7
The Social Security Debate Once Again
DeLong links to separate Matthew Yglesias discussions of the level of retirement security provision and savings subsidies respectively.
1/9
Select Social Security Biblio
Many links from the blog Explananda.
1/10
Readers Challenge Wisdom of Using TSP as Model for Social Security Accounts
Stephen Barr of the Washington Post.
Why is Re-Indexing So Hard to Understand?
"Adam O'Neill" of the blog The Lowest Deep:

Under the Washington Post's misconception of the re-indexing plan, benefits fall because an individuals earnings are scaled up by the CPI instead of wage growth. But since people's wages grow, er, at the rate of wage growth, a person retiring in 2009 loses about the same fraction of currently promised benefits as someone retiring in 2039 or 2069 or 2099. Instead of everyone getting 42 percent of pre-retirement wages, everyone gets, say, 39 percent.

But re-indexing the "bend points" (which were set in 1979) results in cuts that grow geometrically over time. Each year, each new wave of retirees gets a deeper cut than the year before. Look at the CBO's numbers from table 3 (from their analysis of plan 2); every year replacement rates fall further:

(Year of birth, replacement rate)
1940- 42.8
1950- 39.9
1960- 34.8
1970- 30.9
1980- 27.4
1990- 24.6
2000- 21.7
If you keep extending the series, replacement rates continue right on down, asymptotically, towards zero.

Talking Points Memo
Josh Marshall links to a Center on Budget and Policy Priorities summary demonstrating that Social Security shortfalls are dwarfed by Bush's other fiscal initiatives:

1/11
A Bloody Mess
Norma Cohen, in The American Prospect, on the UK experience.
The Iceberg Cometh
Krugman on the SS "Iceberg" and what changing direction does or doesn't do fiscally.
Bush’s Numbers Racket
Dean Baker debunks Bush’s Big Sell.
Risk, Risk, Risk
Jim Geraghty of National Review Online attacks what he sees as the AARP's aversion to risk.
The C-Word: Say It
NRO's Donald Luskin, best-known as the "Stupidest Man Alive" lives up(?) to the rep:

The opponents of reform claim that the Social Security crisis is, in fact, a crisis of general public finance — not one of the Social Security system itself. They see Social Security as an entity separate from the federal government, and maintain that its own dedicated stream of tax revenues and trust-fund assets will keep it going for more than a third of a century.

That’s a fair point of view, as far as it goes. At the same time, it is dangerously myopic to treat Social Security in isolation from the overall finances of government. That would be like finding nothing troubling about a factory that dumps pollutants into a river. That may be no problem for the factory itself, but it can be a major problem for everyone downriver. And when it comes to Social Security, we’re all downriver.

Alas, when it comes to The Stupidest Man Alive, we're all down-bandwidth.

It's not Social Security that's "dumping the pollutants." It's the General Fund.

LENINIST-OLIGARCH EXPROPRIATIONIST WATCH
Max Sawicky surveys not-as-stupid-as-Luskin right-wing webbed commentary, focusing on NRO's The Corner.
1/12
Social Security: Crisis? What crisis?
CNN coverage.
1/13
Reforming Social Security
Brookings Briefing with multimedia including William Gale, Peter Orszag, and Robert Pozen.
1/14
The British Evasion
More from Krugman on UK pension schemes.
Social Security and the New Fiscal Policy
Excellent encapsulation of the privatization issue amidst discussion of Bush's profligate fiscal proclivities by Princeton economist Alan Blinder.
“Save Social Security First”?
Byron York says Social Security needs to be saved because Bill Clinton once said so.
1/15
The No. 1 Moral Issue Is--Abortion? No, Social Security
Jonathan Rauch on the moral appeal to conservatism of downsizing the socialization of risk of retirement security.
1/16
A Question of Numbers
Roger Lowenstein's New York Times Magazine article.
1/17
NPR Talk of the Nation: The Future of Social Security
Eugene Steurle, Dean Baker and Stephen Moore guest-star. [Not in THX.]
1/18
Thoughts on Social Security Reform [PDF]
Goldman Sachs analysis.
Stocks' Payoff Myth
Newsweek's Allan Sloan.
U.S. Births, Immigration May Ease Pressures on Social Security
Bloomberg article.
That Magic Moment
Krugman on selling Social Security on the Iraq Model.
Social Security Trust Fund is built on trillion-dollar IOUs
Larry Eichel of the Philadelphia Inquirer.
1/19
Yes, There Is No [Social Security] Crisis, But...
Brad DeLong:

Yes, there is no Social Security crisis. And, yes, whatever Bush proposal makes its way out of the administration must be opposed root and branch--Andrew Samwick and Kent Smetters could design a Social Security privatization scheme that would be an improvement over our present system, but they're not in control.

But there is a long-run Social Security problem--and a reasonable probability that there will be a big long-run Social Security problem--even though it ranks fourth on our list of fiscal problems. And there is a long-run health spending crisis. And there is a short-run deficit crisis. And there is a medium-run where-are-the-resources-to-pay-back-Social-Security crisis.

There is a fiscal crisis--there are lots of fiscal crises, some of them self-generated by the Bush administration. It's just that the fiscal crisis is not a Social Security crisis:

1/20
Newt Gingrich Denies That We Face a Social Security Crisis
Commentary on DeLong's blog in response to Bloomberg coverage.
1/21
The Free Lunch Bunch
Krugman on the politics of privatization.
John Berry Is Not Happy with George W. Bush
Brad DeLong links to a Bloomberg critique of Bush’s Big Sell.
And Paul Krugman Is Not Happy This Morning Either
DeLong mulls over the Bush approach to private accounts.
1/23
ADD TO SAVINGS
Laura D'Andrea Tyson advocates add-on private accounts in a "Social Security Plus" model.
1/25
John Kay Is Shrill!
The Ancient and Hermetic Order of the Shrill links to a Financial Times column on the Bush administration's fiscal brinksmanship when it comes to financing privatization.
Before And After
Angry Bear on Donald Luskin before and after the fact-check.
1/26
David Wessel Talks to the Wise Ned Gramlich About Social Security
Brad DeLong links to a Wall Street Journal interview.
PACK OF LIES
Max Sawicky on Rick Santorum's powerpoint Social Security presentation.
1/27
Social Security Privatization in Chile
DeLong links to a New York Times article.
Pinochet’s private pensions
...While John Quiggen comments at the blog Crooked Timber.
Social Security crisis? Not if wealthy pay their way
Kevin Drum, writing in the Christian Science Monitor, sees the 1983 reform as a grand bargain between the the FICA-tax paying middle class and the income-tax paying wealthy.
Privatizing Social Security: 'Me' Over 'We'
Benjamin R. Barber on approaching SS as a consumer vs. as a citizen.
Take the Plus
Arnold Kling of Tech Central Station is willing to compromise on Gene Sperling's "Social Security Plus."
1/28
Would Social Security Reform Increase Saving?
Richard Berner of Morgan Stanley
Little Black Lies.
Krugman on Bush racial mendacity.
Krugman On Social Security - Off To The Races
Tom Maguire at JustOneMinute responds, triggering extended debate.
Social Security And Distribution
Matthew Yglesias.
1/30
Outlines of a Social Security Deal?
DeLong.
1/31
Big Black Lies
Donald Luskin:

Look up the word “vile” in the dictionary and you will find an appropriate description of Paul Krugman’s New York Times column from last Friday.

Let the Looting Begin
The Mises Economics Blog decries compromising with those who actually want to pay for Social Security reform.
Don't use FDR to undermine Social Security
James Roosevelt, Jr.

Social Security Meta-Archive: February 2005

Social Security Meta-Archive: 2005

Texas Death Penalty Archive

[Part of the Death Penalty Survey]

Online Resources

PDM - Texas
Belgium’s Amnesty International’s chapter’s Texas Death Penalty website.

Texas Coalition to Abolish the Death Penalty

Texans for Public Justice

Debate Chronology/Meta-Narrative

1998

3/1
The Death Penalty in Texas: Lethal Injustice
An Amnesty International report on the Texas Death Penalty.

2000

3/3
The Death Penalty Is Fair and Effective in Texas
Morgan Reynolds of the right-wing NCPA.
5/11
The hanging governor
Salon magazine covers the controversial execution of Gary Graham.
6/11
STATE OF EXECUTION: THE DEATH PENALTY IN TEXAS
Classic Chicago Tribune coverage.
8/28
Texas incarceration rate leads nation; crime rate lags behind other states
Another report on Texas’ lagging crime statistics
9/20
Don't Mess with Texas on Crime
Morgan Reynolds at NCPA.
10/1
Texas Tough?
"An Analysis of Incarceration and Crime Trends in The Lone Star State authored by Vincent Schiraldi and Jason Ziedenberg" from Justice Policy Institute.

Death Penalty Archive

Texas Death Penalty Survey

Online Resources

Abolish List FAQ
Archives of Abolish - The Mailing List For People Working to Abolish the Death PenaltyAbolish List FAQ
Amnesty International - The Death Penalty
The Liebman Report: "A Broken System:Error Rates in Capital Cases, 1973-1995"
Paul G. Cassell - Drafts of Working Papers and Articles
Campaign to Abolish the Death Penalty
Not to be confused with Campaign to End the Death Penalty.
Campaign to End the Death Penalty
Not to be confused with Campaign to Abolish the Death Penalty.
Capital Punishment and the Catholic Church
Clark County Prosecutor
Constitution Project
Critique of DPIC list
Death Penalty
Salon Magazine’s index of Death Penalty articles.
Death Penalty Debate
Death Penalty Issues
From truthinjustice.org
Deterrence and the Death Penalty:The Views of the Experts
Michael L. Radelet and Ronald L. Akers
DPIC
Federal Death Penalty Biased Against Whites
Focus on the Death Penalty
The Justice Project
Looking at the Death Penalty
Professor David’s death penalty resources.
Rick Halperin's DEATH PENALTY NEWS
Religion and the Death Penalty
Southern Center for Human Rights
Stephen Bright’s defendant advocacy organization.
Spotlight on the Death Penalty
A libertarian anti-Death Penalty site.
Wesley Lowe's Pro Death Penalty Webpage
What Politicians Don't Say About the High Costs of the Death Penalty
Richard C. Dieter of the Death Penalty Information Center on the Death Penalty’s impact on public finance.
Yahoo! Full Coverage US Death Penalty

Debate Chronology /Meta-Narrative


1988

10/13
The Second Bush-Dukakis Presidential Debate

SHAW: On behalf of the Commission on Presidential Debates, I am pleased to welcome you to the second presidential debate. I am Bernard Shaw of CNN, Cable News Network. My colleagues on the panel are Ann Compton of ABC NEWS; Margaret Warner of Newsweek magazine; and Andrea Mitchell of NBC NEWS. The candidates are Vice President George Bush, the Republican nominee; and Governor Michael Dukakis, the Democratic nominee. (Applause)

SHAW: For the next 90 minutes we will be questioning the candidates following a format designed and agreed to by representatives of the two campaigns. However, there are no restrictions on the questions that my colleagues and I can ask this evening, and the candidates have no prior knowledge of our questions. By agreement between the candidates, the first question goes to Gov. Dukakis. You have two minutes to respond. Governor, if Kitty Dukakis were raped and murdered, would you favor an irrevocable death penalty for the killer?

DUKAKIS: No, I don't, Bernard. And I think you know that I've opposed the death penalty during all of my life. I don't see any evidence that it's a deterrent, and I think there are better and more effective ways to deal with violent crime. We've done so in my own state. And it's one of the reasons why we have had the biggest drop in crime of any industrial state in America; why we have the lowest murder rate of any industrial state in America. But we have work to do in this nation. We have work to do to fight a real war, not a phony war, against drugs. And that's something I want to lead, something we haven't had over the course of the past many years, even though the Vice President has been at least allegedly in charge of that war. We have much to do to step up that war, to double the number of drug enforcement agents, to fight both here and abroad, to work with our neighbors in this hemisphere. And I want to call a hemispheric summit just as soon after the 20th of January as possible to fight that war. But we also have to deal with drug education prevention here at home. And that's one of the things that I hope I can lead personally as the President of the United States. We've had great success in my own state. And we've reached out to young people and their families and been able to help them by beginning drug education and prevention in the early elementary grades. So we can fight this war, and we can win this war. And we can do so in a way that marshals our forces, that provides real support for state and local law enforcement officers who have not been getting that support, and do it in a way which will bring down violence in this nation, will help our youngsters to stay away from drugs, will stop this avalanche of drugs that's pouring into the country, and will make it possible for our kids and our families to grow up in safe and secure and decent neighborhoods.

SHAW: Mr. Vice President, your one-minute rebuttal.

BUSH: Well, a lot of what this campaign is about, it seems to me Bernie, goes to the question of values. And here I do have, on this particular question, a big difference with my opponent. You see, I do believe that some crimes are so heinous, so brutal, so outrageous, and I'd say particularly those that result in the death of a police officer, for those real brutal crimes, I do believe in the death penalty, and I think it is a deterrent, and I believe we need it. And I'm glad that the Congress moved on this drug bill and have finally called for that related to these narcotics drug kingpins. And so we just have an honest difference of opinion: I support it and he doesn't.

1997

8/4
Danger of Executing the Innocent On the Rise
David Revola writes in the National Law Journal.
10/1
DEATH PENALTY AND SENTENCING INFORMATION
Dudley Sharp of prodeathpenalty.com.
11/4
New Fervor For Death Penalty
Christian Science Monitor coverage of Death Penalty resurgence.

1998

April
What do Murderers Deserve?
David Gelernter in Commentary.

2000

5/18
Death by misadventure: the death penalty in America
Kristen Edwards on the Death Penalty.
6/12
Dartmouth Chance News: Liebman v. Cassell
8/28
Paul Cassell and the Goblet of Fire
Edward Cohn profiles death penalty advocate Paul Cassell in The American Prospect.

2002

8/7
The New Abolitionism
Roger Parloff on the death penalty.

2005

A Cognitive Scientist Looks At Daubert
George Lakoff:

Politically, trial lawyers tend to be liberals; the wealthy ones tend to use their wealth to support liberal causes. Since the highest moral imperative for conservatives is to support and defend Strict Father morality itself, trial lawyers doing tort law are anathema to conservatives on the following grounds: the cases that trial lawyers win tend to support a liberal world view, the Public Interest Perspective, while conservatives tend to hold the Corporate Interest Perspective; and trial lawyers contribute money that they earn through verdicts they win to liberal causes and to the defeat of conservative causes. Daubert thus has a direct political role: it supports a conservative worldview over a liberal one, and it takes a lot of money out of liberal coffers and keeps it in conservative coffers.

Technically, Daubert ought to apply beyond tort law to scientific and other experts in criminal cases. If it did, defendants in criminal cases (some facing the death penalty) could challenge the use of expert testimony (e.g., fingerprinting "experts") by the prosecution. If Daubert could be used in this way, it would work against application of the death penalty. But the vast majority of criminal cases are not federal cases, which is where Daubert applies. The actual effect once more is to spread the influence of Strict Father morality in society. Daubert, as applied, tends to protect the wealth and influence of corporations, to lessen the protection of ordinary citizens, and to forbid an important range of challenges to the death penalty.

3/1
Roper v Simmons[PDF]
Supreme Court decision banning capital punishment for juveniles.
3/6
Decision on Juvenile Death Penalty
Suite101 article.

Social Security Meta-Archive: December 2004

[Part of the Social Security Meta-Archive: 2004]

12/5
DEAN RESPONDS TO SAMWICK
Dean Baker's test:

1) I have a test of my own that I have been trying to get economists to take (thus far unsuccessfully), in which I ask proponents of privatization to write down the set of dividend yields and capital gains that will give them the 6.5-7.0 percent real stock returns that they conventionally assume. Such returns were possible in the past because the price to earnings (PE) ratios have historically been much lower and profit growth was much faster.

The price to earnings ratio averaged about 14.5 to 1 over the last seventy years, compared to more than 20 to 1 today. This is important, because if 60 percent of profits are paid out as dividends (or used for share buybacks), this gets you a dividend yield of over 4.0 percent with a PE ratio of 14.5 to one. It gets you just 3.0 percent with a PE ratio of 20 to 1, and of course less when the PE ratio is higher.

12/7
Dean Baker Gives Us All a Social Security Test
Brad Delong takes Dean Baker's test:

Let's see... Assume a payout ratio of 60%. Earnings yield of 5% per year... That gives you a dividend yield of 3% per year... That means that the profits of currently existing and traded companies (not aggregate profits!) have to grow at 3.5%-4% per year... That means that the economy as a whole has to grow at 4.5%-5% per year forever... That's much higher than the Social Security actuaries' long-run growth assumption, which heads for productivity growth of about 1% per year and very low population growth by 2050...

In other words, the stock market can attain its 6-7% per year real payoff only if the macroeconomic news in the future is much better than Social Security is projecting, in which case there's no Social Security financing problem at all. What grade do I get?

Inventing a Crisis
Krugman on privatization's effect on Social Security financing.
The General Fund Crisis II
DeLong:

Paul Krugman points out that right now General Fund revenues cover only 68% of non-Social Security federal expenditures, and that a generation from now--when the Social Security Trust Fund balance is projected to reach zero--Social Security revenues will still cover 81% of Social Security expenditures.

We have much worse fiscal problems elsewhere than we have with Social Security.

12/8
Is the Social Security Trust Fund worth less than zero?
Jim Glass follows up the Angry Bear's discussion of Kent Smetters'2003 Trust Fund paper [PDF] which suggests that the Trust Fund has had a net negative impact on the budget.

But much of the negative impact seems to stem from LBJ's bringing Social Security into the budget combined with the move from pay-as-you-go to "partial-funding" of the Trust Fund in 1983 giving the subsequent false impression of a better General Fund stance than the reality.

The paper says the Trust Fund has been a bad deal from the late 1940s on but doesn't seem to clearly isolate the intrinsic effect of the Trust Fund itself as opposed to its shell function in fiscal shell games.
12/9
Anti-Social Security
Dean Baker writes in The Nation.
Social Security: Bush's quiet war
Christian Science Monitor coverage.
12/10
Borrow, Speculate and Hope
Krugman: Borrowing to privatize.
12/11
Real Reform for Social Security
New York Times Op-ed columnist David Brooks.
Taking a Hard Line On Social Security
The blog MyDD plots pro-Social Security strategy.
12/12
Brad DeLong Is Driven Into Shrill Unholy Madness:

The chart below shows the Gale-Orszag baseline for the federal government: current policies, with a fix of the AMT so that it does not replace the general tax system, and with the extension of those tax provisions currently scheduled to expire:

The U.S. government's fiscal problems are not in the Social Security system. The U.S. government's fiscal problems are in the General Fund. And these fiscal problems are dire indeed.

12/13
SOCIAL SECURITY DOOM MONGERING
Kevin Drum on the receding of Social Security's "doom":

WOULD BORROWING $2 TRILLION FOR INDIVIDUAL ACCOUNTS
ELIMINATE $10 TRILLION IN SOCIAL SECURITY LIABILITIES?
Jason Furman, William G. Gale, and Peter R. Orszag at the Center on Budget and Policy Priorities.
12/14
Twelve Reasons Why Privatizing Social Security is a Bad Idea
Greg Anrig, Jr., and Bernard Wasow of The Century Foundation.
THE NEW PROPOSAL TO OMIT SEVERAL TRILLION DOLLARS
IN COSTS FOR SOCIAL SECURITY PRIVATE ACCOUNTS
FROM THE FEDERAL BUDGET
TELECONFERENCE
TUESDAY, DECEMBER 14, 2004 AT 11:00 AM (ET)[PDF]
Center on Budget and Policy Priorities.
For a lockbox
Mark Kleiman:

As Kevin Drum pointed out, the Trust Fund could sell its bonds on the open market and by other assets; at that point, no one would doubt that the bond obligations were real, or that the assets were real assets of the Trust Fund.

But the problem would remain that the trustees are mere servants of the current administration, with no authority to sue if the President and the Congress refused to spend the Trust Fund assets to pay Social Security benefits. So here's Plan B:

Make the Social Security System a separate legal entity, as the Federal Reserve System is, with its own governing body and the right to sue. The trustees would be appointed by the President, of course, but they would have a fiduciary obligation to Social Security beneficiaries and the right to sue the Federal government if it tried to confiscate retirement assets to spend them for other purposes.

I'm not sure this is necessary, but it's certainly possible. And since it's possible, the argument that we can't ensure that the Social Security Trust Fund will be spent to fund the pension system is simply false. We can. We should.

12/15
Talking Points Memo
Joshua Micah Marshall's take on the Bush privatization drive and strategy for a Democratic response.
Michael Kinsley on Why Privatization Can't Work
Dallas Mavericks owner Mark Cuban cites economist Hal Varian's discussion of corporations moving from defined benefits to 401ks and the failure of the government to protect soldiers from being scammed by brokers as reasons not to privatize SS and hands over the proverbial microphone of his blog to Michael Kinsley:

1. To "work," privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees' pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap.

2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people.

3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these.

a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same.

b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital.

4. If the economy doesn't produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return.

a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds.

b) In other words, privatization means betting the nation's most important social program on a theory that cannot be true unless many people are convinced that it's false.

c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money.

d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security.

5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work.

Q.E.D.

12/16
Could Social Security Privatization Succeed?
Brad DeLong responds to Kinsley:

Marty Feldstein and company might say that Kinsley's (4c) is false: the inflow of money will bid up the price and lower the return on stocks a bit, but not enough to make long-run stock market investments by private account holders a bad deal. And he would say that taking some of the high returns earned by today's stockholding rich and transferring them to Social Security beneficiaries is the point of the exercise.

Kent Smetters and company might say that Kinsley's (3a) is wrong: that once the privatized parts of Social Security are off the books, the Republican High Politicians will have no option but to propose serious spending cuts or tax increases in order to bring the Federal Government's General Fund into long-term balance. These changes in fiscal policy triggered by the fact that the government is no longer allowed to use the Social Security surplus to pretend that it has a plan for funding general spending will raise national saving, and boost economic growth.

Andrew Samwick and company might say that we dare not raise Social Security taxes without establishing private accounts because we do not dare have the Federal Government voting for CEOs and Directors. This line of thought is that Kinsley is not wrong but incomplete: private accounts then make the policy of raising Social Security contributions a good one.

Ned Gramlich and company might say that raising Social Security contributions becomes politically possible once you have private accounts--that it is the fear that people won't see any return for their contributions that blocks raising more resources for the system. This line of thought is that Kinsley is not wrong so much as incomplete: it's not a privatization bonus, it's the tax increases that privatization will make possible.

All these arguments have, I think, some force. None of them--not even all of them taken together--make a case for whatever monstrosity is about to emerge from the Bush administration.

Imitation is the Sincerest Form of Flattery...the FT on Social Security...
Economist Nouriel Roubini on the FT editorial.
President Discusses Budget, Tax Relief at White House Conference
White House transcript: Bush discusses Social Security with former Colorado congressman Tim Penny and others.
Groups Line Up to Oppose Bush Social Security Plan
Reuters coverage.
Economic Summit Takes Up Social Security Reform
Link to NPR coverage.
On Point: Retire At Your Own Risk
Link to radio broadcast including John Shoven and Paul Krugman.
12/17
SOCIAL SECURITY AND ME....
Kevin Drum of The Washington Monthly summarizes the evolution of his views on Social Security.
Social Security: Red Ink's Benefits
Michael Mandel of Business Week slams Democrats for being against borrowing to finance Social Security - but doesn't weigh in on Bush's tax cuts
Buying Into Failure
Krugman. New York Times abstract:

“Paul Krugman Op-Ed column says Chile's and Britain's experiences with privatized retirement plans show folly of Pres Bush's plan for privatizing Social Security; says privatization dissipates large fraction of workers' contributions on fees to investment companies and leaves many retirees in poverty.”

More on Privatization
Arnold Kling mentions Krugman’s column.
Paul Krugman: Lies, Evasions or Simple Ignorance?
Tim Worstall decries Krugman’s description of UK pension reform.
Basic reading on Social Security privatisation
A nicely concise summary from the blog Technopolis.
12/19
Good-Will Is Low for Social Security Talks
New York Times coverage.
Cause for Concern
Democratic activist David Sirita speculates on the role to be played in the Social Security debate by the DLC.
Questions, Questions
Matthew Yglesias asks:

The first thing that would be nice to calculate if someone can figure out how to do it is the exact average productivity growth over the next 75 years that we need to make sure that the Trust Fund is never exhausted. We know that under the "low cost" projection, the fund stays solvent forever, but the low cost scenario is actually lower in cost than needed. Where's the tipping point? I can't begin to understand how one would do the requisite math.

The other set of questions I have in mind right now pertain to the point I made here about how they estimate producitivity growth. This is done by breaking up the past into a series of economic cycles measured peak-to-peak (with the most recent peak in 2000) calculating the average annual producivity growth for each cycle, and then averaging together the results for the last four cycles. That's obviously a pretty arbitrary method. I'd be interested in knowing what you get if you try some different methods. What happens if you use the last four business cycles measured trough to trough? Or what if you use the last five (or six or...) business cycles? What happens if, instead of using the double-averaging method, you just take average annual productivity 1966-2000? How sensitive, in other words, are the long-term projections of doom to minor changes in how the analysis is done? Has the SSA just happened to pick the most pessimistic possible way to do this? That'd be quite the coincidence.

Ask Dr. Social Security Projections
Brad DeLong answers:

The current low-cost estimate has the 75-year balance at +0.41% of taxable payroll; the intermediate estimate is at -1.89% of taxable payroll; the high-cost estimate is at -4.96% of taxable payroll. The long-run economy-wide productivity growth rates for those three projections are 1.9%, 1.6%, and 1.3% per year, respectively. The crossover point--the 75-year balance of zero--currently comes at a productivity growth rate of 1.85% per year.

The average productivity growth rate over the 40 years from 1960-2000 was 1.76% per year. Add in 2001-2004 (unless the fourth quarter of 2004 is really bizarre) and find that the average productivity growth rate over 1960-2004 is 1.85% per year. Up until the late 1990s there was a reason to project future productivity growth to be slower than the long-run past average: productivity growth did seem to be gradually slowing down. Since the late 1990s that is no longer the case: there is no longer any good reason to project that future productivity growth will be slower than in the past (unless you believe that we are going to fail to undo the Bush policy mistakes, that is).

You shouldn't try to compute averages by calculating trough-to-trough numbers. Different business cycle troughs are very different in their characteristics. By contrast, while all peaks are not identical, they are closer along a number of dimensions like capacity utilization and upward pressure on inflation than are troughs.

The 44 years since 1960 give you an average growth rate of 1.86% per year; the 39 years since 1965 give you 1.69% per year; the 34 years since 1970 give you 1.66% per year. Moving forward: since 1975, 1.58%; since 1980, 1.70%; since 1985, 1.73%; since 1990, 1.91%; since 1995, 2.37%. Personally, if I had to give an estimate of what productivity growth will be over the next 75 years, I'd guess 1.9% per year because it seems to me that 1960-2004 includes a uniquely bad period in 1973-1989 or so. I'd be really surprised if the productivity growth rate averaged less than 1.6% per year. And I'd be really surprised if it averaged more than 2.3% per year. But that probability distribution is worth exactly what you paid for it.

12/20
Crisis? What Social Security Crisis?
DeLong on on the positive impact on the end of the 1973-95 productivity slowdown on Social Security finance.
12/22
Long-Term Analysis of the Diamond-Orzsag Social Security Plan
CBO scoring.
12/23
The Bottom Line on Overhauling Social Security
Jeff Madrick:

To determine how sensitive retirement income is to the rate of investment return, Mr. Dudley worked out some calculations under Reform Model 2. The results are stunning.

If a worker earns just the respectable expected bond rate of 3 percent a year, or 2.7 percent after transactions costs, then the typical one-earner family will retire on only about 58 percent of the projected benefits under current law. If the investor earns zero over time, which may well occur for some investors, the projected retirement benefit is only a little more than 38 percent of the current benefit. These are considerably worse than the projected adjustments needed to bring the present system into balance.

And there are other costs to privatization. Consider the potential impact from borrowing as much as $2 trillion, which many experts see as the projected transition costs to cover the gap that would arise in payments to current retirees and those retiring soon once workers started diverting into private accounts some of the payroll taxes used to pay benefits. Financial markets may not absorb that debt without interest rates rising and the dollar falling.

The Economic Policy Institute on Social Security
DeLong links...
12/26
The Andrew Samwick Fraction Grows with the Defection of the Renegade Froomkin
DeLong vs. Samwick & Froomkin on government vs. private investment in equities.
If It's Right, It's Wrong
Michael Kinsley responds to DeLong and others:

Whatever its flaws, is privatization inferior to the current system, with its looming inability to keep its promises? One problem with this question is that privatization itself doesn't address this looming gap. Privatization plans call for borrowing a "transitional" gazillion dollars to close the gap. With a transition like that, any plan will work, including no plan at all.

Berkeley economist Brad DeLong and blogger Mickey Kaus, among others, challenged my argument that nothing about privatization promises to increase private investment. They cited the well-known research by economist Martin Feldstein showing that Social Security reduces personal savings. Big surprise: If you know you've got a bit of a nest egg coming from the government, you may not be as avid a saver. It follows that less Social Security should increase personal savings.

But privatization is not supposed to produce a net loss in anyone's retirement nest egg. In fact, if it worked as promised, it would enlarge the nest egg. By the Feldstein thesis, that would reduce private saving. So, once again: Privatization relies on a theory that is wrong if it's right, and right only if it's wrong.

Stephen Moore, known as "the Club for Growth" (actually, that's the name of his organization, but it fits him pretty well) is an omnipresent Washington operative and talking head, and probably the leading non-administration voice in favor of privatization. His e-mail, direct from Bush's economic conference last week, made only two fresh points.

One was that the Social Security money that people keep and invest for themselves amounts to "a big supply side tax cut." If Moore envisions reducing what people owe the government in taxes without reducing what the government owes people in benefits, if he therefore plans to solve the problem of a huge deficit by making it bigger and if he fantasizes that cutting Social Security taxes will increase Social Security revenue, we are indeed back in the dream world of supply side tax cuts, with predictable results. But if he contemplates reducing Social Security payments proportionally to the reduction in taxes -- and counting on people to make up the difference with their new investments -- people will be, and will feel, no richer than they were before and there will be no supply-side incentives.

Social Security Yet Again: A Clarification
DeLong responds:

I was actually thinking of a different line of argument that Marty makes. These days he is more likely to stress not the reduction in personal savings that may be generated by expectations of the continuation of the pay-as-you-go Social Security system, but the gap between stock and bond returns. Marty's argument these days is much more likely to be the claim (with which I have a lot of sympathy) that the stock market does a lousy job of mobilizing society's risk-bearing resources. Stocks appear to be priced as though the marginal investor is a rich 62-year old with some clogged arteries and a fifteen-year life expectancy who is not expecting to leave a fortune to his descendants. But if the stock market were working well, the marginal investor would be a 40-year old in his or her peak earning years looking out to retirement spending 40 years in the future--an investor much less averse to risk than the 62-year old.

Turning Social Security into a forced-equity-savings program would, Marty believes, not only produce huge profits for the system but also materially improve the efficiency of U.S. financial markets.

12/27
Social Insecurity: the annuity problem
Mark Kleiman on supplanting Social Security with Social Risk.
12/28
Diamond and Orszag's Social Security Plan
Commentary from the blog The Dead Parrot Society
What Social Security Reform Should Democrats Propose?
Andrew Samwick notes the failure of Democratic politicians to rally behind Diamond-Orszag.
12/30
Social Security Part I: Insurance and Risk Premiums
Angry Bear on the insurance role of Social Security.

Social Security Meta-Archive: January 2005

Social Security Meta-Archive: 2005

Social Security Meta-Archive: 2004

[Part of The Earth-Based Initiative: Social Security Meta-Archive]

1/10
A Progressive Framework for Social Security Reform
A Center for American Progress production with presentations by Gene Sperling and Dean Baker.
1/20
The Clown Show that Is Bush Administration "Social Security Reform" Opens
Brad DeLong links to Kash of the American Street, followed by extended comment.
1/29
Saving Social Security
Diamond and Orszag present Saving Social Security at AEI. With video and other multimedia.
2/27
01:23 PM
Hell Is Briefing George W. Bush on a Complicated Issue Like Social Security Reform
Brad DeLong examines the latest document in the hopper at Ron Suskind's website.
4:27 PM PT
The Free Lunch Bunch
Ron Suskind on the the "Lindsey Plan" to issue new debt financed by private plan revenues back in 2001.
2/28
Saving Social Security
DeLong examines the arguments presented in the Suskind article.
3/4
The Biggest Risk-Arb Transaction Ever
Brad Delong reports on eight estimates of the Larry Lindsey-Feldstein-Samwick plan which has influenced Bush administration thinking:

The plan, you remember, was for the federal government to sell a huge number of Treasury bonds, invest the proceeds in stocks, distribute the stocks to individuals as their Social Security Private Accounts, and use the equity premium--the average spread on the return on stocks over the return on Treasury bonds--to reap immense profits and save Social Security.

Of the eight back-of-the-envelope point estimates:

Two say zero: even though there was a substantial equity premium in the past, there is no compelling reason to think that the risk-adjusted equity premium will be large in the future. And policy should not be made on the gamble that it will.

Two more say zero: even though there is compelling evidence that the equity premium is excessively high from the government's perspective--that the government is so risk-tolerant an institution that the expected risk-adjusted profits from the government's going short Treasuries and long stocks--the Lindsey-Feldstein-Samwick plan transfers the risk that the stock market will tank from the government back to Social Security beneficiaries, and there is no compelling reason to think that beneficiaries have enough risk tolerance to make this a good tihng to do.

Two more say zero: even though there is compelling evidence that the equity premium is too high and that there is lots of profit to be earned by long-run bets that go short Treasuries and long stocks, enactment of the Lindsey-Feldstein-Samwick plan will cause an immediate jump in the stock market. Current owners of stock will profit massively as people's expectations of the massive future demand from Social Security Private Accounts. The equity premium will shrink quickly. And there will be little profit captured by beneficiaries and little money to save Social Security. (However, the falling equity premium will boost corporate investment, real profits, and real wages by eliminating the Harberger triangle currently created by the market inefficiency underlying the excessive equity premium.)

One says that you might make $2.4 trillion in present value--that price pressure from the demand for stocks for Social Security Private Accounts will eventually shrink the excess equity premium to close to zero, but that will take a generation. And in the meantime, as the excess equity premium is still there (but shrinking), you do profit from the wedge caused by the fact that the private stock market grossly overprices systematic risk.

One says $12 trillion. In his view Lindsey-Feldstein-Samwick are probably right. The world capital market of the twenty-first century will be much bigger than the U.S.-centered capital market of the twentieth century. The equity premium appears to be a persistent structural feature of the world economy. U.S. Treasury bonds will be an immensely attractive investment to the rich of industrializing Asia (as a form of political risk insurance if nothing else). Given these considerations the Lindsey-Feldstein-Samwick belief that the Treasury can go short $4 trillion of Treasuries and long $4 trillion of stocks and earn huge profits does not look unreasonable. He says that you might well make $12 trillion in present value profits on this most mammoth of risk-arbitrage transactions. And that is in the ballpark of being enough money to pay current-law Social Security benefits without increasing Social Security taxes.

My own view? I'm half in the "about $2.4 trillion of profit" camp, half in the "this is no bargain if the risk the stock market will tank is borne by beneficiaries" camp.

And further comments in the subsequent thread:

Re: "Is there someplace where a mathematically literate (but helas non-economist) individual e.g. me, can follow this conversation? Its content is more than a mere technical curiosity and I would like to be reasonably informed about it. I understand what the Lindsey-Feldstein-Samwick proposal is, but I don't have the background to judge the risk factors of the various portfolios."

There really is no place to follow this discussion, alas...

Feldstein and Samwick have written various NBER working papers on this: www.nber.org. Peter Orszag at brookings.edu has run similar numbers for his book on Social Security reform with Peter Diamond, but Orszag is in Florida right now on a no-cell-phone vacation. Bob Cumby at Georgetown explored these issues during the late Clinton Treasury, and is looking through his files. John Karl Scholz at Wisconsin and Kent Smetters at Pennsylvania are people I need to talk to about this, and haven't.

On what to do with Social Security, I favor putting Peter Orszag and Kent Smetters in a locked room without food (but with plenty of caffeinated and other beverages), and doing whatever they manage to agree on.

With subsequent commentary by Robert Waldman:

risk soudning like a broken record (and besides Brad made this point

The Lindsey-Feldstein-Samwick has two components. The first is social security private acocunts (SSPA). This might be good for participants, but would cost the SSA on the order of 1 trillion. The thought that this is the first step in saving social security is crazy. The grim fact is that Bush wasn't dishonest when he stated that thought.

The other is the SSTF investing in private assets especially stock. This appears via a tax on ss private accounts. Now it might be socially useful for the SSTF to go long in stock if there wree still a puzzling equity premium. There is no logical connection between the two aspects.

It is easy to convince people they could do better with private accounts if you "neglect" to mention the tax on returns of private accounts. I'd say Lindsey-Feldstein-Samwick are trying a major bait and switch, arguing that private accounts are a great deal for particpants because they get to take 1 trillion from the SSTF (don't mention the tax) and a great deal for the SSTF beaxue it will get to take N trillion in taxes from the participants. My sense is they plan to save the SSTF with fraud.

Why would I accept a taxed SSPA rather than keeping my social security pension and buying stock on my own ? That way all is the same except the SSA gets less from me. The SSPA would be a rational investment only for the liquidity constrained and those excluded from the stock market by borkerage fees on odd lots of index funds.

The N trillion for the SSA would come mostly from cheating people who don't understand that they are principally signing on to pay a brand new tax.

And Jim Glass:

"One says that you might make $2.4 trillion in present value--that price pressure from the demand for stocks for Social Security Private Accounts will eventually shrink the excess equity premium to close to zero, but that will take a generation."

Over the last 20 years $11 trillion additional went into private retirement accounts such as IRAs. The capitalization of markets available for that to be invested in was much smaller 20 years ago than today -- and certainly much much smaller than the world-wide markets of 20 years from now.

Why would a much smaller new "pressure" of a mere $2T in the future have a such dramaticaly greater effect on the equity premium than the much larger new pressure in the past? Nobody has ever explained this to me.

And the equity premium has existed for at least 200 years, puzzle or not. Grant that someone truly believes it must go away "sooner or later". What objective *reason* can such a someone give to explain why "sooner or later" will arrive within the next 20 years? I mean a reason that also explains why it didn't arrive in 1960 or 1920 and won't delay its arrival until 2110?

3/11
Think Again: Spinning Social Security
Matthew Yglesias, writing for the Center for American Progress on the under-reported brazen Social Security hypocrisy of Alan Greenspan.
June
The Outlook for Social Security
CBO analysis.
6/24
Reducing Budget Deficits
"Remarks by Edward M. Gramlich Member Board of Governors of the Federal Reserve System at the Concord Coalition Policy Conference Dirksen Senate Office Building Washington, D.C."
8/11
Marty Weitzman Is *Much* Smarter Than I Am
DeLong samples a paper on the equity premium.
8/13
Dazzle Them With Demographics
James Galbraith reviews The Coming Generational Storm by Laurence J. Kotlikoff and Scott Burns in the Texas Observer.
8/17
Fact vs. Fancy: The Skinny on Social Security[PDF]
Martin Feldstein, writing in The Wall Street Journal:

Reforming Social Security finances is the major domestic challenge that the president will face in the next four years...

9/29
Are There Reasons to Be in Favor of Social Security Privatization?
In response to Atrios, DeLong responds affirmatively:

There are five reasons to be in favor of Social Security privatization. They are:

1. There are large-scale financial market failures which cause the equity premium to be *way* too high: the stock market does a lousy job at mobilizing society's risk-bearing capacity as applied to investment. Privatizing Social Security and mandating that such accounts be invested in stocks rather than holding the public Social Security Trust Fund in Treasury bonds is a powerful way to try to repair this market failure by boosting demand for equities
2. Too many households are myopic: they do not save enough. Households resist increases in Social Security taxes--they see no link between the taxes and their future benefits. But if Social Security were privatized so that households saw their Social Security contributions as their own, in the future there would be much less objection to upping the contribution rate--and so creating a real and more effective forced saving program to raise the national savings rate.
3. Prefunding Social Security is moral: it is unfair to make tomorrow's young bear the entire burden of financing the retirement of the baby-boom generation. But prefunding requires raising Social Security contributions and building up huge assets in the Social Security Trust Fund--enough assets to give the Managing Trustee of the Trust Fund effective voting control over corporate America. The Managing Trustee is the Secretary of the Treasury. Do we want the Secretary of the Treasury casting the deciding votes in every election for corporate boards of directors? No. Hence privatization is a necessary first step to create the possibility of doing the moral thing--making the boomers build up the assets needed so that they can shoulder a greater share of the burden of financing their own retirement.
4. We need to raise our national savings rate. But if we just raise Social Security taxes, Congress will treat these taxes as general revenue and spend them. Only by funneling Social Security contributions into some vehicle that Congressional representatives cannot interpret as a resource available to fund current spending can we raise the national savings rate. And private accounts are the best vehicle we can find to (a) accumulate contributions without (b) allowing Congressional representatives to seize them as resources available to fund current federal spending.
5. At present, your Social Security benefits are yours only by grace of Congress: Congress could cut them if it wished. But if your privatized Social Security account were *yours*, then it would be yours not by grace of Congress but by right of property: courts would stand ready to defend it against any casual attempt to cut or confiscate it.

The problem is that I cannot see any of these as a reason for George W. Bush to be in favor of Social Security privatization. (It does seem likely to me that (1) and (3) are Marty Feldstein's and Andrew Samwick's reasons for being strong advocates of privatization, and that (4) is Kent Smetters's reason for being a strong advocate of privatization. But their reasons aren't the administration's reasons, and hence whatever plan a second Bush administration might ultimately propose would be unlikely to be crafted to achieve goals (1), (3), or (4).

9/30
Daniel Davies responds:

Christ on a bike! If you don't mind my saying so, Brad, these reasons range from "weak" to "mad".

1. The stock market is not a material source of funds for investment. There is no reason to suppose that it would become one simply if one threw a load of money at the stock market.

2. Aside from the fact that this is social engineering far more radical than the French working hours legislation, savings are fungible. It could easily go the other way; that households do not currently count SS as part of their savings and would reduce other savings if they began to do so.

3. This is insanity of a level which requires a very great degree of intelligence to achieve. In primitive societies in the Kalahari, they are aware that the duty of the young to support the old is a moral duty. This moral duty even made it into the Ten Commandments. It takes years of education to get someone to the point where they believe that it is "immoral" to believe that the old have a claim on the young for no better reason than that they gave birth to them and raised them.

4. In general, projections of catastrophe which have as one of their premises that people will do obviously crazy things, are built on sand.

5. The Labour government's first action on coming to power in 1997 was to pass a law which effectively represented a 10% windfall tax on private pension funds (they removed the tax credit on dividends). The courts didn't make a squeak.

I've never understood how anyone can end up believing that small risk pools are better than big ones, or that equities make a better matching asset for certain future liabilities than bonds. I note idly that in the USA it would be illegal to run a life annuity company on the basis suggested for Social Security; in the UK it is legal, and ask any Equitable Life policyholder how well that turned out.

The Top 10 Myths About Social Security Reform
The Heritage Foundation.
10/13
The Third Bush-Kerry Presidential Debate

SCHIEFFER: Mr. President, the next question is to you. We all know that Social Security is running out of money, and it has to be fixed. You have proposed to fix it by letting people put some of the money collected to pay benefits into private savings accounts. But the critics are saying that's going to mean finding $1 trillion over the next 10 years to continue paying benefits as those accounts are being set up.

So where do you get the money? Are you going to have to increase the deficit by that much over 10 years?

BUSH: First, let me make sure that every senior listening today understands that when we're talking about reforming Social Security, that they'll still get their checks.

I remember the 2000 campaign, people said if George W. gets elected, your check will be taken away. Well, people got their checks, and they'll continue to get their checks.

There is a problem for our youngsters, a real problem. And if we don't act today, the problem will be valued in the trillions. And so I think we need to think differently. We'll honor our commitment to our seniors. But for our children and our grandchildren, we need to have a different strategy.

And recognizing that, I called together a group of our fellow citizens to study the issue. It was a committee chaired by the late Senator Daniel Patrick Moynihan of New York, a Democrat. And they came up with a variety of ideas for people to look at.

I believe that younger workers ought to be allowed to take some of their own money and put it in a personal savings account, because I understand that they need to get better rates of return than the rates of return being given in the current Social Security trust.

And the compounding rate of interest effect will make it more likely that the Social Security system is solvent for our children and our grandchildren. I will work with Republicans and Democrats. It'll be a vital issue in my second term. It is an issue that I am willing to take on, and so I'll bring Republicans and Democrats together.

And we're of course going to have to consider the costs. But I want to warn my fellow citizens: The cost of doing nothing, the cost of saying the current system is OK, far exceeds the costs of trying to make sure we save the system for our children.

SCHIEFFER: Senator Kerry?

KERRY: You just heard the president say that young people ought to be able to take money out of Social Security and put it in their own accounts.

Now, my fellow Americans, that's an invitation to disaster.

The CBO said very clearly that if you were to adopt the president's plan, there would be a $2 trillion hole in Social Security, because today's workers pay in to the system for today's retirees. And the CBO said -- that's the Congressional Budget Office; it's bipartisan -- they said that there would have to be a cut in benefits of 25 percent to 40 percent.

Now, the president has never explained to America, ever, hasn't done it tonight, where does the transitional money, that $2 trillion, come from?

He's already got $3 trillion, according to The Washington Post, of expenses that he's put on the line from his convention and the promises of this campaign, none of which are paid for. Not one of them are paid for.

The fact is that the president is driving the largest deficits in American history. He's broken the pay-as-you-go rules.

I have a record of fighting for fiscal responsibility. In 1985, I was one of the first Democrats -- broke with my party. We balanced the budget in the '90s. We paid down the debt for two years.

And that's what we're going to do. We're going to protect Social Security. I will not privatize it. I will not cut the benefits. And we're going to be fiscally responsible. And we will take care of Social Security.

SCHIEFFER: Let me just stay on Social Security with a new question for Senator Kerry, because, Senator Kerry, you have just said you will not cut benefits.

Alan Greenspan, the chairman of the Federal Reserve, says there's no way that Social Security can pay retirees what we have promised them unless we recalibrate.

What he's suggesting, we're going to cut benefits or we're going to have to raise the retirement age. We may have to take some other reform. But if you've just said, you've promised no changes, does that mean you're just going to leave this as a problem, another problem for our children to solve?

KERRY: Not at all. Absolutely not, Bob. This is the same thing we heard -- remember, I appeared on "Meet the Press" with Tim Russert in 1990-something. We heard the same thing. We fixed it.

In fact, we put together a $5. 6 trillion surplus in the '90s that was for the purpose of saving Social Security. If you take the tax cut that the president of the United States has given -- President Bush gave to Americans in the top 1 percent of America -- just that tax cut that went to the top 1 percent of America would have saved Social Security until the year 2075.

The president decided to give it to the wealthiest Americans in a tax cut. Now, Alan Greenspan, who I think has done a terrific job in monetary policy, supports the president's tax cut. I don't. I support it for the middle class, not that part of it that goes to people earning more than $200,000 a year.

And when I roll it back and we invest in the things that I have talked about to move our economy, we're going to grow sufficiently, it would begin to cut the deficit in half, and we get back to where we were at the end of the 1990s when we balanced the budget and paid down the debt of this country.

Now, we can do that.

Now, if later on after a period of time we find that Social Security is in trouble, we'll pull together the top experts of the country. We'll do exactly what we did in the 1990s. And we'll make whatever adjustment is necessary.

But the first and most important thing is to start creating jobs in America. The jobs the president is creating pay $9,000 less than the jobs that we're losing. And this is the first president in 72 years to preside over an economy in America that has lost jobs, 1. 6 million jobs.

Eleven other presidents -- six Democrats and five Republicans -- had wars, had recessions, had great difficulties; none of them lost jobs the way this president has.

I have a plan to put America back to work. And if we're fiscally responsible and put America back to work, we're going to fix Social Security.

SCHIEFFER: Mr. President?

BUSH: He forgot to tell you he voted to tax Social Security benefits more than one time. I didn't hear any plan to fix Social Security. I heard more of the same.

He talks about middle-class tax cuts. That's exactly where the tax cuts went. Most of the tax cuts went to low- and middle-income Americans. And now the tax code is more fair. Twenty percent of the upper-income people pay about 80 percent of the taxes in America today because of how we structured the tax cuts. People listening out there know the benefits of the tax cuts we passed. If you have a child, you got tax relief. If you're married, you got tax relief. If you pay any tax at all, you got tax relief. All of which was opposed by my opponent.

And the tax relief was important to spur consumption and investment to get us out of this recession.

People need to remember: Six months prior to my arrival, the stock market started to go down. And it was one of the largest declines in our history. And then we had a recession and we got attacked, which cost us 1 million jobs.

But we acted. I led the Congress. We passed tax relief. And now this economy is growing. We added 1. 9 million new jobs over the last 13 months.

Sure, there's more work to do. But the way to make sure our economy grows is not to raise taxes on small-business owners. It's not to increase the scope of the federal government. It's to make sure we have fiscal sanity and keep taxes low.

11/1
Privatize Social Security? No
Henry Aaron of Brookings.
11/8
The Simple Arithmetic of Social Security Privatization
Brad DeLong on a workable PRIVATIZATION.
Social Security: What's Next?
Wall Street Journal ECONOBLOG debate between Tyler Cowen and John Irons.
11/12
TWO MORE QUESTIONS ABOUT PRIVATE ACCOUNTS....
Kevin Drum pursues the conversation...
11/14
Basic Facts on Social Security and Proposed Benefit Cuts/Privatization[PDF]
Dean Baker and David Rosnick.[Center for Economic and Policy Research]
11/15
Social Security Reform
A primer from the blog The Lowest Deep.
11/20
What is the Low Cost alternative? What does it mean?
The Bruce Web on the Trustees' handling of the low projections.
11/22
Is the Social Security Trust Fund Worth Anything?
The economics blog Angry Bear links to a paper by Kent Smetters in the context of Smetter's previous calculation of a $44 trillion present value debt in perpetuity as previously discussed by Bruce Bartlett.
11/23
Yet More on Social Security
DeLong:

The Social Security problem does have two parts: (i) How are Social Security's own internal accounts to be balanced? And (ii) how do we make sure that Social Security's investments are sound--that those with whom Social Security invests its balances don't lose them so that the kitty is bare when it is time to pay beneficiaries?

When Kent Smetters worries that the Social Security Trust Fund's balances are not safe because, as Angry Bear puts it, the assumption that "policymakers set spending and tax rates for the other levels of government so as to insure that the General Fund adheres to a long-run balanced budget constraint" is unwarranted, that's what he's talking about: an implicit or explicit default by the Treasury on that tranche of its bonds that are owned by the Social Security Trust Fund: the U.S. Treasury behaving like the Confederate Treasury. And I think that in Kent's mind the principal virtue of private accounts is to change the perceptions of Tom Delay, Bill Frist, and other congressional leaders in a way that makes such a default much less likely. The mechanism by which private accounts accomplish this is, however, unclear to me. The normal mechanism would be that transferring money to private accounts raises the reported budget deficit, which alarms deficit hawks and leads to tax increases and spending cuts. But Kent is now on record as saying that shifting money to private accounts shouldn't be counted as an increase in the budget deficit. There seems to be an inconsistency here...

11/28
Social Security Privatization as the Mother of All Con-Man Smoke-and-Mirrors Shell-Games
Nouriel Roubini.

Social Security Meta-Archive: December 2004