The Cutting Edge of Social Security

The papers of Peter Diamond, a leading economist dealing with social insurance, via Dynamist Blog.

[Added, along with Martin Feldstein's papers, to the Social Security Meta-Archive]

Tonight in Manhattan

Washington Post

It's like, a Portal.

Via Abu Aardvark, the Council on Foreign Relations has a new main website.

Don't worry, the Portal is user safe.

Response timelines

Kevin Drum has compiled a list of Hurricane response timelines from around the web, including his own relatively concise one.

Katrina

Via Mark Thoma, CNN's extensive relief and information links including to the American Red Cross and the Salvation Army.

Globalization Archive

Online Resources

"Globalization" and "Neoliberalism"[PDF]
Discussion by Berkley economist Brad DeLong of critiques of globalization.

Unofficial Paul Krugman Archive: Global
Unofficial Paul Krugman Archive: International Trade
Articles mostly from the 1990s.

Globalization FAQ.
Survey of issues surrounding global economic development, emphasizing challenges to emerging markets.

IMF(International Monetary Fund)
OECD (Organization for Economic Cooperation and Development)
Penn World Tables
Country by country comparisons.
World Bank
BIS (Bank for International Settlements)
The "central bank of central banks."
Wikipedia:Globalization
Commanding Heights
Website of the PBS broadcast.
Far Eastern Economic Review
Institute for International Economics
Project Syndicate


Debate Chronology

1991

12/12
Summers Memo
Controversial World Bank memo allegedly encouraging polluters to relocate to less developed nations.

1998

11/2
The Global Fix
In The New Republic, economist Dani Rodrik formulates a plan to save the world.
12/18
Please DON"T Save Me Kathie Lee!
Suite101 discussion.

1999

4/26
Criticisms of the Index of Economic Freedom
Mike Huben compiles criticism of the right-wing Heritage Foundation’s propaganda initiative pertaining to the level of governmental intervention in emerging markets.

2000

5/1
The Meltzer Report
Brad DeLong on a major critique of the IMF.

2002

1/1

How to Judge Globalism.
In the American Prospect, Economist Amartya Sen deals with the promises and perils of globalism.
Globalism’s Discontents.
Economist Joseph E. Stiglitz, writing in the American Prospect, critiques the IMF’s one-size-fits-all policies.
9/4
Globalization Will Continue
Brad DeLong links to Martin Wolf in the Financial Times.

2003

9/4
Brink Lindsey Is Very Good Indeed
Brad DeLong on Brink Lindsey's book, Against the Dead Hand.

2004

9/9
Paul Samuelson's outsourcing "bombshell"
Daniel Drezner links to New York Times coverage.
9/9
Globalization, slow down!
Christian Science Monitor reporting on the Samuelson paper.
9/27
On Point: Paul Samuelson: Rethinking Free Trade
Radio interview.
12/6
Shaking Up Trade Theory
BusinessWeek coverage of recent events.
12/7
Shaking Up Trade Theory
Aftermath on the blog Dvorak Uncensored.

2005

9/15
BUSH AND THE MILLENNIUM....
Kevin Drum of Washington Monthly decries Bush's description of his stewardship of "millenium" goals.
10/17
Paul Krugman: The Big Squeeze
Discussing a Paul Krugman column, economist Mark Thoma offers education as a main response to the pressures of outsourcing.
10/19
The Future of American Manufacturing
Mark Thoma discusses a column by Robert Samuelson of the Washington Post.
10/20
Dallas Fed President Fisher: Cost-Pull Disinflation from Globalization
Fisher's views presented by Mark Thoma.
New York Fed President Geithner on Global Imbalances
Mark Thoma continues his series of globalization posts at his blog, Economist's View.
11/9
Progressives should be for progress
Economist Alan Blinder at TPMCafe:

People sometimes forget that international trade is just one of many forces that are changing the world--and certainly not the most important one. No one doubts, for example, that technology is more powerful, more pervasive, and more disruptive than trade. The microchip has probably displaced more American workers than China ever will. But whether driven by trade, technology, or something else, economic change typically has casualties; and we ought to have robust policies and institutions to help people over the rough spots. I think both pro- and anti-trade progressives can agree on that.

What's the alternative? We could to stop economic change--or rather to try to stop it, for such efforts almost always fail. But that is surely not the route to progress. With sufficiently rigorous (and ridiculous) policies, the U.S. could have preserved the industrial structure of the 1950s, a time when super-America was super-dominant on the world stage and international trade was a vastly smaller share of our GDP, right to the present day. In this counterfactual experiment, GM and US Steel would be bigger companies today, while Microsoft and eBay would be based in some other countries. But at what cost to U.S. standards of living? And do we really think this would have saved the jobs of all those auto and steelworkers? It has long been a mystery to economists why so many people view creative destruction that stems from technology as okay, while similar creative destruction that stems from international trade is something to be opposed.

2016

5/11
Should the Middle Class Fear the World's Poor? 
Discussion of outcomes of developed world middle classes vs developing world lower classes in the wake of Branko Milanovic's new book on global inequality.
5/18
Worlds of Inequality
Miles Corak reviews Milanovic's new book in the American Prospect.

2017

6/9
What's Wrong With Our System of Global Trade And Finance
John Judis interviews Dani Rodrik at Talking Points Memo.

7/1
The New Class War
Michael Lind, in American Affairs, on neoliberal globalization as class war.

Social Security House Calls

Carl P. Leubsdorf: Bush's Social Security plan may hinge on the House
The Dallas Morning News on the continuing privatization offensive:

Mr. Rove, speaking to college students and lobbyists before Congress went on its current recess, said the House would act next month and the Senate soon after, according to the congressional newspaper The Hill .

And Rep. Bill Thomas, R-Calif., chairman of the Ways and Means Committee and one of his party's canniest operatives, said without giving details that his panel would introduce a retirement security bill in September.

[Added to the 2005 Social Security Meta-Narrative]

It's back...

The Official Blog of the Ancient and Hermetic Order of the Shrill has resumed operation...

Income Inequality Archive

Online Resources

Policy Debate: What accounts for recent increases in income inequality?
An overview site maintained by Thomson South-Western Publishing.
Luxembourg Income Study
World Top Incomes Database
Paris School of Economics

Debate Stream

1990

6/24
Booknotes - Politics of Rich and Poor
Transcript of a discussion of Kevin Phillips' bestseller on the concentration of wealth and its effect on the political system.

1992

6/1
Ignorance and Inequality
Economist Paul Krugman defends the calculations of professional economists in the CBO, Bureau of the Census, and the Federal Reserve from right-wing polemical attacks.
9/1
The Rich, the Right, and the Facts
Paul Krugman “deconstructing” conservative arguments regarding income inequality.

1995

1/1
By Our Own Bootstraps
A Dallas Federal Reserve study which downplays inequality and emphasizes income mobility, in part based on the University of Michigan study.
6/23
How the Pie is Sliced
Economist Edward Wolff, a leading authority on income and wealth distribution, reports the latest results in the American Prospect.
September 1995
How Much Do Americans Move Up and Down the Economic Ladder?
Isabel V. Sawhill and Daniel P. McMurrer of the Urban Institute survey income immobility.
9/21
The Ideologically Invested
Johnathon Chait, writing in the American Prospect, surveys the right-wing think-tank responses to Bill Clinton’s tax policies and economist Edward Wolff’s income distribution research.
10/1
An Unequal Exchange
Berkeley economist Brad DeLong’s favorite Krugman essay contrasts Edward Wolff and Dick Armey.

1996

5/2
The Income Inequality Debate
Herbert Stein of the American Enterprise Institute grapples with implications of inequality.
June 1996
A Brief Look at Postwar U.S. Income Inequality
Daniel H. Weinberg of the Census Bureau’s Current Population Reports surveys postwar inequality, concentrating on the period since 1967.
10/29
The Spiral of Inequality
Writing in Mother Jones, Paul Krugman surveys inequality and long-range political strategies to address it:

“Most economists who study wages and income in the United States agree about the radical increase in inequality -- only the hired guns of the right still try to claim it is a statistical illusion. But not all agree about why it has happened.”

Jude Wanniski email to Mother Jones
Supply-side journalist Jude Wanniski attacks Krugman’s article – by expounding on the success of the poor at the expense of the rich, as measured by…the price of gold.
11/1
Hey Jude
Krugman responds by introducing Wanniski to the mechanics of a government program called Medicare.
12/1
Solving the New Inequality – A Debate
Krugman, James Tobin, Frances Fox Piven and others respond to Richard Freeman’s opening essay.

1997

1/31
Inequality In The United States
A summary by the San Francisco Fed.
6/11
The Market, the State and the Dynamics of Public Culture
Kevin Phillips outlines and updates his cyclical thesis from his 1990 book The Politics of Rich and Poor.
10/21
When Numbers Aren’t What They Appear [Suite101 article]
Presentation of the statistical arguments of Robert Samuelson.
When Numbers Aren’t What They Appear [discussion]
A response.
12/1
Family Income Mobility--How Much Is There and Has It Changed?
Peter Gottschalk and Sheldon Danziger
12/16
An Example of Factions [Suite101 discussion]
In a discussion of campaign finance which alludes to empirical correlations between relative economic equality and economic growth.
12/28
The Bailout Bubble
Kevin Phillips on taxpayers bailing out the Investor Class.

1999

1/29
Painting Moderates as Extremists[Suite101 discussion]
Discussion of income inequality.
7/1
Effects of Growing Wage Disparities and Changing Family Composition on the U.S. Income Distribution
Gary Burtless of Brookings examines families and wage disparities.
Common Myths about U.S. Wage and Income Inequality
The Employment Policy Foundation responds to Richard Freeman.
10/1
Economy’s Long Surge Lifts Median to New High
Merrill Goozner is featured at Northern Illinois University’s Sociology Department website.

2000

2/7
Perennial Economic Fallacies
Thomas Sowell critiques “fallacies” of poorer getting poorer and stagnation of incomes, using numbers from the Dallas Fed study, By Our Own Bootstraps.
2/10
Inventing Bootstraps
Doug Henwood of the Left Business Observer rebuts points of the Dallas Fed study, By Our Own Bootstraps, in an internet discussion of Perennial Economic Fallacies.
2/21
Perennial Sowell Fallacies
Tom Lowe, writing in the Jackson Progressive, critiques Sowell’s assertions on income distribution and income mobility.
4/1
Recent Trends in Wealth Ownership, 1983-1998
Edward Wolff updates his continuing surveys of wealth distribution in this working paper.
8/10
Rich May Get Richer, but Poor Are Also Doing Better
Virginia Postrel, writing in The New York Times, surveys economic historian Robert W. Fogel’s work on choices and leisure time and their effect on income inequality and living standards.
8/20
Most Unkindest Cuts
Paul Krugman distills the difference between the two party’s income tax proposals and counters the Wall Street Journal’s recycling of the University of Michigan study.
8/23
Al Gore’s Class Warfare
Bruce Bartlett responds to Krugman (by citing the Michigan and Dallas Fed studies.)
9/1
Any way you cut it
An Economic Policy Institute update on income inequality.
11/6
Facts Shatter Visions
Thomas Sowell renews his commentary on household statistics.

2001

2/12
The Rich Get Richer
Edward Wolff, writing in the American Prospect, enumerates proposals to alleviate the effects of income and wealth inequality.
4/1
Regional Research and Development Intensity and Earnings Inequality
Susan Dadres and Donna K. Ginther examine local links between investment and inequality.
5/31
Pathbreaking CBO Study Shows Dramatic Increases in Income Disparities in 1980s and1990s:An Analysis of the CBO Data
A Center on Budget and Policy Priorities analysis of the latest CBO income study.
6/11
Tax Burden Rising for the Rich and Not So Rich
Bruce Bartlett, writing for the Pete Dupont-founded National Center for Policy Analysis, responds in an assessment of the tax rates on the top 5%.
9/7
Why Doesn’t the U.S. Have a European-Style Welfare System?
An NBER study indicating the answer is racial animus towards African Americans; the more African Americans there are in a particular state, the less welfare spending that state will have.

2002

7/29
A Populist Phillipic
A Tech Central Station critiques the thesis of Kevin Phillips' book Wealth and Democracy.
10/20
For Richer
In a piece originally appearing in the New York Times Magazine, Paul Krugman outlines the decay of the mid-twentieth century American middle class and the threat of plutocracy. From the Unofficial Paul Krugman Archive. Here are his sources for this piece listed at his Princeton website.
Consequences of Income Distribution
Resulting debate from For Richer on Brad DeLong’s weblog.
11/7
As the Rich Get Richer, Are They Buying More?
Writing in The New York Times, Virginia Postrel focuses on the relative lack of consumption inequality amidst the consumer-driven economy.
12/13
What’s the Fate of the Great American Middle Class?
NOW with Bill Moyers on the middle class squeeze.
Transcript with commentary by Paul Krugman.
Bill Moyers on Class In America

2013

Return of the Oppressed
Peter Turchin's Aeon Magazine article on the cyclic nature of inequality.

2014

2/23
Paul Krugman won’t save us: We need a new conversation about inequality
Thomas Frank, at Salon, on the Establishment's inability/unwillingness to translate talk about inequality into action.

March
Kapital for the Twenty-First Century?
James Galbraith reviews Thomas Piketty's book Capital in Dissent: 

Under President Reagan, changes to U.S. tax law encouraged higher pay to corporate executives, the use of stock options, and (indirectly) the splitting of new technology firms into separately capitalized enterprises, which would eventually include Intel, Apple, Oracle, Microsoft, and the rest. Now, top incomes are no longer fixed salaries but instead closely track the stock market. This is the simple result of concentrated ownership, the flux in asset prices, and the use of capital funds for executive pay. During the tech boom, the correspondence between changing income inequality and the NASDAQ was exact, as Travis Hale and I show in a paper just published in the World Economic Review.

The lay reader will not be surprised. Academics, though, have to contend with the conventionally dominant work of (among others) Claudia Goldin and Lawrence Katz, who argue that the pattern of changing income inequalities in America is the result of a “race between education and technology” when it comes to wages, with first one in the lead and then the other. (When education leads, inequality supposedly falls, and vice versa.) Piketty pays deference to this claim but he adds no evidence in favor, and his facts contradict it. The reality is that wage structures change far less than profit-based incomes, and most of increasing inequality comes from an increasing flow of profit income to the very rich.

3/4
Over at Equitable Growth: Thomas Frank Doesn't Want To Be Lectured By Paul Krugman or Joe Stiglitz Anymore
Brad DeLong responds to Thomas Frank.
6/6
Tracing the Source of Income Inequality
Jim DiEugenio's review of Piketty at Consortiumnews.  
8/24
Where slavery thrived, inequality rules today
Boston Globe discussion of  how income inequality is augmented and outcomes for both whites and blacks are more negatively impacted in geographical areas where slavery was more predominant.

2015

2/2

The Rise in Inequality: A Young Lady or Gentleman's Illustrated Primer

Brad Delong.

2016

5/23
Karl Polanyi for President
Patrick Iber and Mike Konczal write in Dissent:

Recent research has shown that the way the economy is situated has been one of the major drivers in the growth of inequality since 1980: the rules matter. Financial deregulation drove the doubling of the share of finance workers in the top 1 percent. There was a major shift in the compensation of CEOs during this time, one that went with an engineered shareholder revolution that changed the nature of whom the firm works for. High marginal tax rates were cut, which led to skyrocketing high-end incomes. The resulting higher capital income from deregulation and weaker worker power is one of the main drivers of inequality.

Taxation Archive

2003 Tax Cut Survey


Online Resources

Progressive Taxes

Discussion by economist Joel Slemrod noting that the most detailed study ever done on American tax burdens, by Joseph Pechman in 1984, indicated that whether those at the top or bottom end of the income scale pay a higher percentage of their incomes in total taxes depends on the assumption used of who bears the ultimate burden of corporate taxation:

CHART1 illustrates the progressivity of the overall U.S. tax system in 1985 (the latest year for which this information is available), according to two different assumptions about the shifting of taxes. Under assumption A the average tax rate generally increased with income, suggesting a generally progressive tax. Under assumption B the average tax rate actually is lowest for families in the highest income decile. The key difference between the two results is that B assumes that half of the corporation income tax is shifted to consumers, in the form of higher prices, while A assumes that all of it is borne by shareholders, who are generally high-income taxpayers. Chart 1 illustrates both the importance of the shifting assumptions and the fact that, even though the federal income tax by itself is progressive, its progressivity is overwhelmed by less progressive levies such as sales taxes and, to a lesser extent, the payroll tax.

Chart 1. Effective Tax Rate by Income Decile, 1985

SOURCE: Graph from Stiglitz, p. 348, based on Pechman, 1985.


University of Michigan Business School Office of Tax Policy and Research
Center on Budget and Policy Priorities
Fiscal advocacy for moderate-to-lower incomes.
Citizens for Tax Justice
Tax advocacy group.
Critiques of Libertarianism
Mike Huben compiles critiques of libertarian anti-taxation arguments.
Economics 127 Public Finance: Taxation Syllabus
Dr. Deborah Garvey of Santa Clara University’s syllabus points to several useful resources.
Econ 315: Public Economics
University of Missouri.
Washington Post Tax Policy
Urban-Brookings Tax Policy Center
“Provides timely, accessible analysis and facts about tax policy to policymakers, journalists, citizens, and researchers.”
President's Advisory Panel on Federal Tax Reform
Joint Committee on Taxation
Taxing Thoughts

Debate Stream

1996

6/23
Cutting Taxes Could Also Cut Growth
William Gale of Brookings expounds on the risks of certain tax-cutting policy mixes.

1999

1/21
Information and Misinformation about Federal Tax Burdens
A Center on Budget and Policy Priorities brief rebutting Tax Foundation numbers on median family tax burdens.
2/24
Are Americans Really Overtaxed?
William Gale outlines issues of tax burdens.
March
The Case Against Tax Cuts
William Gale briefly surveys tax burdens in this Brookings Institute Policy Brief.

2000

8/20
Most Unkindest Cuts
Paul Krugman distills the difference between the two party’s income tax proposals and counters the Wall Street Journal’s recycling of the University of Michigan study.
8/23
Al Gore’s Class Warfare
Bruce Bartlett responds to Krugman (by citing the Michigan and Dallas Fed studies.)

2001

2/12
The Rich Get Richer
Edward Wolff, writing in the American Prospect , enumerates proposals to alleviate the effects of income and wealth inequality.
6/1
Tax Policy From 1990 to 2001[PDF]
A review by Eugene Steuerle of the Urban Institute.
6/11
Tax Burden Rising for the Rich and Not So Rich
Bruce Bartlett, writing for the Pete Dupont-founded National Center for Policy Analysis, responds in an assessment of the tax rates on the top 5%.

2002

4/10
Overall Federal Tax Burden on Most Families — Including Middle-Income Families — at Lowest Levels in More Than Two Decades: Income Taxes for Median Family of Four at Lowest Level in 44 Years
An update on middle-class tax burdens from the verbose Center on Budget and Policy Priorities.
9/19
Alternative Minimum Tax
Brad DeLong introduces a New York Times article outlining the effects of the Bush tax cut on the middle class.
10/31
Do Lower Taxes Mean Faster Economic Growth?
Jeff Madrick, writing in The New York Times, surveys the empirical evidence against long-run stimulative effects of tax cuts.
11/7
Whinging and Snivelling From a Democrat
Brad DeLong, writing in his Semi-Daily Journal, lays out a theoretical basis for efficacious Republican tax policy:

· ... Let me give you some marginal tax rates... a mother with two kids earning $24000: 68% (she loses the last of her food stamps, and her earned income tax credit phases out)... a doctor making $200,000: 36.4%... an executive making $1,000,000: 40%... Any decent supply-sider would say that the real place where marginal tax rates needed to be cut in 2001 was around the $25000 a year zone: the place where the phase out of the earned income credit makes marginal rates astronomical. We economist types were never able to interest Clinton and company in such a proposal--at a gut level, Clinton simply didn't get the importance of lower marginal rates so that people don't get hit in the nose by a 2 x 4 when they work more hours and the IRS snarfs most of it. Larry Lindsey is supposed to have led a charge to get a proposal to "deal with the EITC phaseout problem" into the 2001 tax bill, but he got absolutely nowhere. Bush, Cheney, and their personal staffs don't resonate with the problems of mothers of two making $12 an hour... mothers of two making $12 an hour don't give big to Republican presidential candidates, or show up at the $1000 a plate dinners that are what presidential candidates do day after day these days. So we got a tax cut that gives 40% of its notional dollars to those making more than $300,000 a year whose marginal tax rates are much lower than those of the mother of two earning $12 an hour. (Larry Lindsey keeps saying that they'll come back to it and fix it; but the word is that he's about to get "invited" to "spend more time with his family.")

12/8
If Tax History Is a Guide, the Poor Are in Trouble
Roger Altman surveys the Republican Party’s historical antipathy to tax relief for those with lower incomes, and notes that a Brookings study by Joseph Pechman in the 1980s indicated that the totality of the American tax system does not effectively change the state of income distribution.

2005

Toward Fundamental Tax Reform [PDF]
AEI publication including Joel Slemrod and others.
4/12
Guest Viewpoint: Some taxation principles, to get debate started
An Op-ed in the Register-Guard by University of Oregon economist Mark Thoma on distributive equity and its application in normative arguments about taxation.
5/5
What Should a Reconfigured Tax System Look Like?
Economist Hal Varian.
7/10
SPINNING THE MYTH....
Kevin Drum on the dearth of family farms paying the Estate tax.
8/15
A Flat Tax Recipe for Disaster
Mark Thoma, at his blog Economist's View, on the latest Steve Forbes column.
10/18
Tax Reform
Kash at the blog Angry Bear links to New York Times coverage of Bush's tax advisory commission and mulls over tax simplification.

2011

8/14
Stop Coddling the Super-Rich
Warren Buffett's classic New York Times op-ed:

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

2012

1/19
Corporate Taxes And The .01 Percent
Paul Krugman on the implications on imputing the corporate tax burden to shareholders:

On the question of how profits taxation plays into tax burdens, the CBO has already done those calculations. In particular, it did a special version of its usual tax shares analysis that looked inside the top 0.01 percent, taking the data up through 2005 (pdf). According to this analysis, in 2005 the top .01 percent paid only 17 percent of income in income taxes — but they faced an overall federal tax rate of 31.5 percent, with almost all the difference being imputed corporate taxes.

But is this really where the right wants to go? I thought corporations were people — by which Romney meant not that they eat and sleep, but that they employ people, and by being nice to corporations we’re being nice to workers. If you say instead that corporate profits benefit only the stockholders — which is what you’re implicitly saying if you impute all profits taxes to the stockholders — so much for the warm and fuzzy feelings.

2014

5/5
Unequal to the Task 
In the National Review, Joshua Hendrickson of the University of Mississippi reviews Thomas Piketty's book Capital: 

Piketty’s policy solution is logically consistent with his concern regarding the growing importance of inheritance, but it is inadequate. A better conceptual framework for devising tax policy — and one that is consistent with the theoretical literature in this field — would be the following: Some people are born to wealthy parents, and others are born to poor parents. This is what is known as an “idiosyncratic risk.” The government might want a tax policy that insures individuals against this risk; this would tend to be a policy that has high taxes on inheritance. On the other hand, high taxes would discourage the accumulation of wealth. The government therefore must balance the desire to insure individuals against the lottery of birth with the desire to encourage the most productive members of society to be as productive as possible and, in the process, accumulate wealth.

The implications of this framework are at odds with the policy solutions that Piketty suggests. Specifically, while this framework suggests that the optimal tax on inheritance should be progressive, it also implies that the marginal tax rate should be negative. In other words, the optimal tax policy for inheritance is to subsidize inheritance and to reduce the size of the subsidy with the size of the inheritance. It is easy to understand the intuition behind this conclusion: Subsidizing inheritance prevents the deterrent effect of taxation, and the greater subsidization of inheritance for children of poor parents reduces the risks associated with birth.

Not Fade Away

When FDR named Douglas MacArthur in private conversation as one of the two most dangerous men in America way back in 1932, the latter's actions earlier in the year in the attack on the Bonus Army in a manner exceeding the orders of President Hoover probably had something to do with it.

A couple of weekends ago I caught the end of a C-SPAN presentation by the authors of The Bonus Army: An American Epic. They described the Bonus Army's ultimate doom at the hands of the Roosevelt administration who stuck them in Florida tent city with no logistical hope of escape when a hurricane hit:

The events in Washington in the summer of 1932 involved men who would become three of the most famous American generals of the twentieth century, acting in roles largely forgotten today. On Douglas A. MacArthur, George S.Patton, and Dwight D. Eisenhower would fall the duty of obeying commander in chief Herbert Hoover, who ordered the expulsion of the Bonus Army from Washington. At the foot of Capitol Hill were tanks, bayonets, and tear gas. Two veterans were killed by a policeman who was murdered less than a month later. Soldiers put to the torch the sprawling main Bonus Army camp. The veterans and their families began a forced exodus.

Most accounts of the Bonus Army end with newsreel coverage of veterans marching off into obscurity. But this is not how it played out in real life. What lay ahead for many of the veterans were futile returns to New Deal Washington, dollar-a-day labor in remote federal work camps, and a hurricane unlike any ever recorded in the United States. Wind gusts estimated at two hundred miles an hour slammed into work camps in Florida’s upper Keys, turning granules of sand into tiny missiles that blasted flesh from human faces. The storm brought death to at least 259 veterans. The final indignity was mass cremation.

In many ways the legacy of the Bonus Army is still being felt. Harry Specter, who had been wounded in the Argonne, had too little money to leave Wichita, Kansas, and march to Washington. He also had a wife and four children to provide for. The youngest child was two-year-old Arlen, who as a U.S. senator from Pennsylvania said much later, “In a figurative sense I have been on my way to Washington ever since to collect my father’s bonus—to push the government to treat its citizens, the millions of hardworking Harry Specters, justly.”

Of course, MacArthur evidently got enough of his walk-on-water yayas out by wielding supreme executive power in Japan for several years to be content to "fade away" subsequent to being dismissed for insubordination to civilian authorities in the conduct of the Korean War.

What is less explainable is how the Bonus Army has faded away within American history.

Full Circle on Bankruptcy

On the brink of FDR's inauguration, straits were so desperate in Iowa as to provoke practices you won't find prescribed in any Bush bankruptcy bill:

The debt situation was becoming increasingly critical. In Iowa, the most heavily mortgaged state, nearly one-third of the value of farms was in thrall, mainly to banks and insurance companies. Sinking farm prices made it harder than ever to pay interest or taxes out of cash received for current production. With misfortune striking down the industrious equally with the idle and the incompetent, farmers grew increasingly determined not to surrender without a fight. They formed committees of action to resist tax sales and mortgage foreclosures -- unsmiling men, dressed in overalls or in corduroy, wearing old red or green sweaters, carrying clubs.

At Storm Lake, Iowa, farmers flourished a rope and threatened to hang a lawyer who was about to conduct a foreclosure. In Van Buren County, Iowa, Mrs. Otto Nau forced Sheriff Bostock off her farm at the point of a rifle. At Le Mars, five hundred men gathered in a sullen mob to watch the farm of John A. Johnson go on auction: when the agent for the New York Life Insurance company offered a sum less than the face value of the mortgage, people slapped and mauled him; a few shouted "Lynch him!" Outside of Pleasanton, Kansas, someone found the murdered body of a man who had just foreclosed on a five-hundred-acre farm. At Sidney, Nebraska, farm leaders threatened to march two hundred thousand debtors to the State Capitol at Lincoln and "tear it down" unless they got relief. At Malinta, Ohio, a noose hung ominously from Albert Roehl's barn to ward off outside bidders. In one bankruptcy proceeding after another, friends of the debtor, using unspoken intimidation to cut off other bids, bought back the property for a few cents and restored it to its owner.

[Arthur M. Schlesinger, Jr. The Age of Roosevelt:The Crisis of the Old Order, pp.459-460]

How many "thirds-of-value" is Congress "in thrall" mainly to banks and insurance companies today?

A New Hope

The Age of Roosevelt: The Crisis of the Old Order 1919-1933. Arthur M. Schlesinger, Jr. Houghton Mifflin Company, 1957. 558 pp. $11.95

The Crisis of the Old Order is the first volume of Arthur Schlesinger's Age of Roosevelt series. There are three extant volumes but Schlesinger, now 87, supposedly has been working on further volume[s] over the years/decades to cover World War II.

I bought my paperback copy new from Borders four years ago. In the meantime I’ve picked up a used copy of the third volume The Politics of Upheaval in pretty good condition at a used bookstore.

Now I need to get a copy of Volume II.

As everyone knows, The Crisis of the Old Order was made into a major science fiction blockbuster motion picture in 1977 starring Harrison Ford and Alec Guinn--- oops, wrong trilogy…

Since I've been spending some time in the last couple of months or so trying to get a handle on the Social Security issue it seemed appropriate to finally get around to reading these to get a feel for the milieu surrounding Social Security's birth. That will have to wait until later as this volume - which covers the era from 1919 to FDR's inaugural - does not provide it beyond one mention of New York State's social security initiative promulgated during his governorship.

Crisis is a combination straight-history/intellectual history/biography that actually begins at the "end" - the 1933 inaugural - before going - briefly - all the way back to the Theodore Roosevelt presidency, passing quickly over if not completely ignoring Taft and to spend more time on Wilson and the Great War. Over the first couple of hundred or so pages, Roosevelt himself often appears mainly as a side-commenter to the main events of the era not directly related to his rise. The campaign for the 1932 Democratic nomination is covered before Schlesinger finally doubles back and gives us about 70 pages of biography in time to cruise home with the summer and fall campaign and crisis of the surrounding circumstances amidst the tense and strange transition period. [So strained that it led to a constitutional amendment during Roosevelt's presidency truncating the interregnum from March to January.]

BEHOOVER MANEUVER

The emergence of Herbert Hoover as a household name for his Great War relief efforts gained him adherents on both sides of the aisle as a potential avatar/exemplar of progressive thought, the best of the modern era as signified by his engineering background as well as his managerial acumen. As he did not declare for either party prior to 1920, many Democrats, including Roosevelt, hoped he might eventually run for President on their side. He ended up as Secretary of Commerce under Harding, a tenure marked by bitter feuding with progressive Republican Secretary of Agriculture Henry C. Wallace over the fate of struggling farmers during the rural depression of the 1920s. Wallace wanted to transform the Department of Agriculture into an advocate for farmers within the federal government, Hoover considered Wallace’s embrace of protectionist legislation “fascism.” Another Secretary of Agriculture Henry Wallace would always blame his sciatica-racked father’s death in office on Hoover.

Schlesinger portrays Hoover as a tragic, obstinate, willful figure. By the end of that strained transition period following his 1932 defeat, he had gotten himself worked up to the point of believing that only his personal prescriptions could save America from the Depression and felt free to dictate terms of FDR's economic program to FDR. FDR merely termed his predecessor’s demands as "cheeky" and proceeded with the plans for the initial version of what came to be called the "New Deal."

Schlesinger's partisan approach is to basically make the case for FDR without having to making a case through argument. Example after example, anecdote after anecdote, of FDR's political skill with all of the deficiencies and inconsistencies of pleasing at least two interests at once on a particular issue showed the effectiveness of FDR's approach to political success such as his habit of saying "Yes! Yes!" to advocates of a point of view he may or may not agree with, Meaning “Yes! Yes! Keep talking” rather than “Yes! Yes! I agree!” Often leaving the latter impression whether either intentional or not. [Obviously reminiscent of another charming Presidential contender of 1990s vintage.]

LIBERAL SCHMIBERAL

The book includes a chapter on the state of American liberalism in this era and the influence of the ideas of the likes of Thorstein Veblen and John Dewey and the thrust of greater central economic planning in the wake of the success of Bernard Baruch's War Industrial Board [which Schlesinger gives short shrift to, by the way.] and the example of Russia.

Schlesinger later goes on to trace the struggles within the 1932 FDR campaign between the ["neo?"] Wilsonian "New Nationalism" outlook of embracing bigness in business and government as the inevitable outcome of modern efficiency and dealing with through greater economic and social planning vs. the Teddy Rooseveltian "New Freedom" strain of thought as exemplified by Felix Frankfurter which emphasized regulation and anti-trust.

Much of the economic thought emphasized the lack of purchasing power. Not enough of the national income was represented through wages and demand suffered [Some of that sound familiar too?]

For himself, Hoover changed his mind on what was the cause of the depression in the middle of his term. First, he thought it was domestic. Later, he thought it was international; the key was balancing the budget and shoring up the gold standard. Schlesinger implies that the reason for the change was to ward off the implications of the responsibility for lack of purchasing power on the American business community. According to Schlesinger,

In the end, Hoover, dragged despairingly along by events, decided that wherever he finally dug in constituted the limits of the permissible.

FDR, who went around campaigning in the countryside by introducing himself as a farmer, for his part had a pet notion that moving city-dwellers and some of their factories back to the countryside would give them more long-term economic independence by facilitating sideline business growing and selling food and other farm commodities. By 1932, Roosevelt, who had run for vice president on the 1920 James M. Cox ticket, had more national political experience than anyone else on his campaign team. As a result, all major campaign decisions eventually filtered up to him. He was literally his own campaign manager.

Once during the campaign FDR turned his head away from the loud voice of Huey Long emanating from his phone and mentioned to someone with him that Long was one of the two most dangerous men in America.

His companions respond: And the other?

“Douglas MacArthur.”

This was in 1932.

The moment is characteristic of a book which bristles with the choice quotes, anecdotes, references and observations that you’d expect from a guy who thinks he’s Arthur Schlesinger.

Sisyphus as Social Democrat

Brad DeLong's Foreign Affairs review of a biography of John Kenneth Galbraith.

At the beginning of the twenty-first century, it has become clear who John Kenneth Galbraith really is: Sisyphus, constantly pushing the boulder of social-democratic enlightenment up the hill. But the hill, it turns out, is too steep, and Galbraith not mighty enough.

Ah. So if the next Galbraith won't cut it then who will be the next Keynes? Hopefully we won't meet circumstances requiring another one for reasons beyond making the West more politically safe for social democracy.

Blogger bites?

I noticed last night the very end of the 2005 Social Security Meta-Narrative, which I added a couple of links to the other day, was missing. I don't think I lost more than half a sentence or so and it might have been my doing. Nonetheless, Blogger Anxiety has taken hold.

Just another day at The Initiative

The Hindustan Times highlights the perils of "e-waste" this Earth Day. While every day at the Earth-Based Initiative is Earth Day, "e-waste" here is obviously kept to a minimum...

Monopolies of Farce

An empty suit lightweight, freshman United States Senator John Cornyn,(R-Texas) stumbles, or rather tumbles, into the national spotlight and national infamy:

Finally, I don't know if there is a cause-and-effect connection, but we have seen some recent episodes of courthouse violence in this country -- certainly nothing new; we seem to have run through a spate of courthouse violence recently that has been on the news. I wonder whether there may be some connection between the perception in some quarters on some occasions where judges are making political decisions yet are unaccountable to the public, that it builds up and builds up to the point where some people engage in violence, certainly without any justification, but that is a concern I have that I wanted to share.

Does it lose something in the translation from the original McVeigh?

Josh Marshall's Start Page

Just added to links...

http://www.j-marshall.com/

Social Security Meta-Archive: February 2005

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

Social Security Meta-Archive: January 2005

2/1
Empty Promise: The Benefit to African American Men of Private
Accounts Under President Bush's Social Security Plan
Dean Baker. [Later summarized by Max Sawicky.]
Big and little black lies
A Daily Kos diary response to Luskin.
Many Unhappy Returns
Krugman on stocks and economic growth projections:

Schemes for Social Security privatization, like the one described in the 2004 Economic Report of the President, invariably assume that investing in stocks will yield a high annual rate of return, 6.5 or 7 percent after inflation, for at least the next 75 years. Without that assumption, these schemes can't deliver on their promises. Yet a rate of return that high is mathematically impossible unless the economy grows much faster than anyone is now expecting.

To explain why, I need to talk about stock returns. The yield on a stock comes from two components: cash that the company pays out in the form of dividends and stock buybacks, and capital gains. Right now, if dividends and buybacks were the whole story, the rate of return on stocks would be only 3 percent.

To get a 6.5 percent rate of return, you need capital gains: if dividends yield 3 percent, stock prices have to rise 3.5 percent per year after inflation. That doesn't sound too unreasonable if you're thinking only a few years ahead.

But privatizers need that high rate of return for 75 years or more. And the economic assumptions underlying most projections for Social Security make that impossible.

The Social Security projections that say the trust fund will be exhausted by 2042 assume that economic growth will slow as baby boomers leave the work force. The actuaries predict that economic growth, which averaged 3.4 percent per year over the last 75 years, will average only 1.9 percent over the next 75 years.

In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade.

The price-earnings ratio - the value of a company's stock, divided by its profits - is widely used to assess whether a stock is overvalued or undervalued. Historically, that ratio averaged about 14. Today it's about 20. Where would it have to go to yield a 6.5 percent rate of return?

I asked Dean Baker, of the Center for Economic and Policy Research, to help me out with that calculation (there are some technical details I won't get into). Here's what we found: by 2050, the price-earnings ratio would have to rise to about 70. By 2060, it would have to be more than 100.

In other words, to believe in a privatization-friendly rate of return, you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble - and that stock prices will nonetheless keep on rising.

Social Security privatizers usually defend their bullishness by saying that stock investors earned high returns in the past. But stocks are much more expensive than they used to be, relative to corporate profits; that means lower dividends per dollar of share value. And economic growth is expected to be slower.

Delong comment thread
Krugman's Unhappy Returns

Andrew Samwick:

The critical assumption in the Baker/Krugman example is that the dividend yield doesn't rise above a number like 3 percent, forcing the capital gains to cover the other 3.5 percent and be reinvested in the corporate sector. What if the payout ratio increased dramatically, so that capital gains accounted for only the same 1.9 percent return that matched the growth rate in profits and the economy as a whole? The inconsistency goes away, as the P/E ratio is stable…But is a high payout ratio (e.g., 50% larger than what Krugman is positing) so unrealistic?.......

The most realistic impetus to drive the payout ratio higher is that the size of the elderly cohort will increase fairly dramatically relative to the size of the working-age cohort. Over the 75-year period, the projection is for there to be 80 percent more beneficiaries relative to workers. As more and more of the equity is held by the elderly, there will be a greater demand for firms to pay dividends (or repurchase equity) so that the elderly can consume their accumulated wealth.

According to this theory, the reason the economy doesn't grow faster and P/E ratios don't explode despite the solid return to capital is that firms don't reinvest their earnings. They pay out their earnings to satisfy the consumption demands of the large cohort of elderly. That the payout ratio exceeds historical highs is supported by the projection that the relative size of that elderly cohort also exceeds historical highs. Before I hitch my wagon too firmly to this horse, I'd like to know more about the extent to which elderly have a preference for dividends as opposed to capital gains.

PRESENT AT THE CREATION
MaxSpeak coverage.
2/2
Festival of the Stock Returns!
DeLong on the aftermath of Krugman's column.
The Equity Premium Puzzle
More aftermath from the blog The Dead Parrot Society
White House Social Security Briefing
Starring Claire Buchan, White House Spokeswoman, and the infamous Senior Administration Official:

QUESTION: And am I right in assuming that in the way you describe this, because it's a wash in terms of the net effect on Social Security from the accounts by themselves, that it would be fair to describe this as having -- the personal accounts by themselves as having no effect whatsoever on the solvency issue?

SENIOR ADMINISTRATION OFFICIAL: On the second point, that's a fair inference.

Social Security dupery
The infamous Peter Ferrara.
2/3
Third Time Lucky
More aftermath/extended comment in the blog JustOneMinute.
theperfectworld
More aftermath with "pseudoerasmus" commenting on Samwick:

This is a clever argument I didn't think of earlier. The dividend payout ratio is currently about 30%. Krugman assumes a 60% payout ratio (which is also assumed by Jeremy Siegel in his optimistic projections for the stock market). But Samwick asks, why can't 90% be realistic? Such a high payout ratio means a much smaller rate of reinvestment of earnings by corporations, which would result in the very thing that the social security actuaries assume, i.e., the low growth rate in GDP. And the reason the payout ratio rises so much in the first place is that the retiree cohort, which is traditionally hungry for income-generating assets rather than growth assets, will be so huge.

Even if it turns out that the baby-boomer retirees are more willing than in the past to forego current income from stocks in favour of capital appreciation, I would have to concede that the a priori inconsistency of high stock return predictions and low growth projections no longer exists.

More:

A possible defeater to Samwick's argument is that a 90% payout ratio is inconsistent with a 1.9% growth in GDP, i.e., a 90% payout ratio might imply an even lower GDP growth rate than what the social security actuaries assume. Which is what Baker seems to be saying, but I have to look over his calculation to see whether that's right.

More:

In repeating Baker's 1999 calculations with updated projections for growth (1.9%) and a P/E ratio of 20, I reckon the highest dividend payout ratio that is consistent with a rate of corporate reinvestment that produces 1.9% GDP growth is 72% (i.e., reinvestment rate equal to 1.4% of stock prices, or 72% of the earnings yield of 5%, which is the reciprocal of the P/E ratio). That produces returns of about 5.5% (=3.6% dividend yield + 1.9% earnings growth). That's approximately what Baker said in his response to Samwick.

However, relatively small changes in a few factors could easily result in returns being around 6.5%, e.g., if the long-run P/E ratio were 17. There is also no particular reason to make the assumption, as Baker does, that growth in capital intensity (i.e., capital deepening) should account for slightly less than half of labour productivity growth. That may have been approximately true in the 1973-95 period, but it's not a long-run historical regularity. If capital deepening accounted for but a third of labour productivity growth (implying that technological improvements bear a slightly larger burden of contributing to the same rate of labour productivity growth than they did in 1973-95), then once again the return would be closer to 6.5%.

In light of the Samwick response, I don't think it's right any longer to say that high stock returns and low GDP growth projections are inconsistent, even if 5.5% is more probable than 6.5%.

Understanding The Bush Plan
A Matthew Yglesias critique.
Signs of Crisis Are Clear
Says Michael Tanner of the libertarian CATO Institute.
2/4
CEA Memo on Social Security
President Discusses Strengthening Social Security in Florida
White House transcript:

Q -- really understand how is it the new plan is going to fix that problem?

THE PRESIDENT: Because the -- all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those -- changing those with personal accounts, the idea is to get what has been promised more likely to be -- or closer delivered to what has been promised.

Does that make any sense to you? It's kind of muddled. Look, there's a series of things that cause the -- like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate -- the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those -- if that growth is affected, it will help on the red.

Okay, better? I'll keep working on it. (Laughter.)

The CEA Forecasts a *Big* Stock Market Crash
DeLong on the implications of what the CEA is and isn't saying.
Gambling With Your Retirement
Krugman on the Bush offer of retirement security as a loan.
Loan Bull
Donald Luskin responds.
Insecure Arguments
A "Special Report" from the American Spectator.
2/5
Talking Points Memo
Josh Marshall on defined benefits vs. defined contributions.
2/6
More Stock Returns
DeLong responds to Samwick:

Well, let's put GDP growth at 1.9% per year, earnings of companies in the index growing at GDP growth minus one percentage point, so we have 0.9% annual returns coming from there. If we are to have a total return of 6.5% per year, that leaves us 5.6% per year to come from dividends and stock buybacks. At current earnings yields of 3.8% per year, that means that corporate net investment would have to be negative: businesses would have to be spending almost 150% of their net earnings on cash flowing to shareholders, and running down their capital stocks. That can't be done--not if you want to maintain the profitability of the businesses. Failing to replace your capital that wears out and becomes obsolete is a really bad idea.

On The Baker Test
Matthew Yglesias on the implications of hypotheses on issues beyond Social Security.
Opportunity Costs and Notional Accounts
The Dead Parrot Society mines the implications of the 2001 Bush Commission's Model 2.
2/7
Who Would Like To Bet On Paul Krugman?
Tom MaGuire, writing at his blog Just One Minute, challenges Krugman on returns to capital.
Wall Street optimistic yet pragmatic on Social Security
Ron Scherer of the Christian Science Monitor on Wall Street's attitude toward Social Security reform.
2/8
Why Capital Gains Are Likely to Lag Economy-Wide Growth
Delong performs a "simple and embarrassingly crude calculation."
Spearing the Beast
Krugman on Social Security, the budget and the drive to privatize.
2/9
Truly Outrageous!
Jane Galt's take on Brit Hume's assertions on FDR's attitude toward private annuities supplementing Social Security triggers a long discussion on early Social Security history.
Private Accounts as a Loan from the Government to the Worker...
DeLong introduces today's Peter Orszag testimony.
The Minuteman Asks: Who Would Like To Bet On Paul Krugman?
DeLong counterbets MaGuire.
In Which I Claim The Dean Baker "No Economist's Left Behind" Cup
MaGuire reaches, dsquared comments:

What I mean here is that when Bill Miller reinvests his dividends, it doesn't necessarily have any effect on the GDP, because he is for the most part buying already existing equities on the secondary market. But "the market as a whole" can't reinvest by buying stocks on the secondary market; who would they buy them from?[1]. "The market as a whole" can only reinvest its dividends in newly issued stock; either IPOs or seasoned equity offerings.

But if you're buying stock in new companies or financing stock issuance by existing companies, then those companies are selling you shares because they want to do something with the money. Specifically, they want to buy more capital assets and use them to produce goods and services. Which means that GDP grows, hurray. This is why it's difficult to get a compound return of 6.5% without also assuming GDP growth higher than 1.9%.

And as I say, it has to be a compound return that we're interested in. The basic idea here is that you have to model the effect of reinvesting profits on the economy; to do otherwise (which I would argue you have to do in order to get the low growth/high returns outcome) is to commit something like the mirror image of James Glassman's fallacy; rather than double-counting dividends in the returns forecast, you're under-counting them in the GDP forecast.

Opinions on Shape of Earth Differ (Why Oh Why Can't We Have a Better Press Corps? Department)
Delong takes Jonathon Weisman of the Washington Post to task over his coverage of the economic growth/returns to capital debate.
AARP & Social Security: A Background Briefing[PDF]
The AARP makes its case in 17 pages.
The Days of Wine and Reagan
The Decembrist on the 1983 deal with further resources in comment.
Understanding Social Security
Elizabeth Anderson at Left2Right on the multitude of risks SS insures against.
2/10
Misunderstanding Social Security
CATO's Will Wilkinson, at his blog The Fly Bottle responds to Anderson.
America's Senior Moment
Paul Krugman reviews The Coming Generational Storm by Laurence J. Kotlikoff and Scott Burns while discussing the relative burden of Social Security, Medicare, and Medicaid:

Why Bush is right to privatize social security
"Dr Eamonn Butler" weighs in at the right-wing UK Adam Smith Institute blog.
Social Security Actuary scoring of Pozen Progressive Indexing Plan[PDF]

If there are no survivors, and the worker dies before such benefit entitlement, their estate would receive the balance in their IA at death minus an offset that would be paid to the Trust Funds to compensate for their earlier allocations of a portion of their payroll taxes to their IA.

We Move Towards The "Hummina Hummina" Moment
Tom MaGuire on Notional Offset accounts.
Now It Is Krugman Versus The Council Of Economic Advisors
Tom MaGuire on Krugman again.
The Editors on Social Security on National Review Online
Why Oh Why Can't We Have a Better Press Corps? (National Review Edition)
DeLong responds.
The Real Reason for Social Security Reform
Bruce Bartlett says Social Security isn't at risk but current income tax rates are.
2/11
Does Your Model Have HAIR?
Tom MaGuire continues.
The Privatization Tax
The Decembrist on Senate framing and Center on Budget and Policy Priorities calculating on the price of Privatization to many individual accounts.
The Amazing Disappearing Trust Fund
Washington Post ombudspersons let a liberal question from Dan Froomkin slip through:

Let's assume that it's not just a rhetorical device, or an attempt to confuse the issue. Let's assume that the president really believes that the Social Security trust fund doesn't exist. And let's just forget about the past two decades, during which workers overpaid more than a trillion dollars in payroll taxes. We'll write that off to an unfortunate misunderstanding.

But now take this one more step. Shouldn't Bush therefore call for an immediate cut in payroll taxes, effective immediately?

If Social Security is really pay-as-you-go, and any excess payroll tax revenue just goes into the general fund, why are American workers paying more than it costs to run the program? Why should they overpay Social Security payroll taxes for one more minute -- if in fact it doesn't do the Social Security system any good at all?

The latest numbers I've seen show that American workers this year will pay about $70 billion more in payroll taxes than will get paid out in benefits and administrative expenses. And it's a brutal tax. It's not the least bit progressive. In fact, because it's flat -- and capped at about $90,000 of annual income -- it's vastly tougher on the working poor than it is, say, on millionaires. Not to mention billionaires.

The only reason it's been socially acceptable to keep such a high, regressive tax on the books is that the system it was ostensibly keeping alive for the future returns money in a highly progressive way.

But if -- as of now -- that's not really the case, how can anyone defend it? A capped payroll tax is a pretty harsh way to raise $70 billion a year for the general fund.

2/12
Equity Returns and Economic Growth: Model-Building
PDF of DeLong's latest formulation:

1. A substantial decline in the stock market in the near future to push dividend yields back up to the levels they need to be.
2. Stagnant wages and a permanent jump in the profit share to push dividend yields up to the levels they need to be.
3. A large jump in firm payouts, supported by the fact that accounting earnings are massively understated.
4. A long-run trade surplus of 6% of GDP.

Now none of these are impossible exactly. But only the first is at all likely.

Thinking Things Through
Matthew Yglesias counters Milton Friedman with a thought experiment, and echoes Dean Baker's noting of Samwick & Co.'s failure to think through the problem of growth vs. returns beyond "clever arguments".
2/13
POST HOC BULLSHIT
Kevin Drum riffs off of DeLong and Yglesias to summarize the response to Maguire's argument:

However, there's an aspect to this whole thing that bothers me, and Matt Yglesias devoted a considerable amount of philosophical brainpower to it yesterday. If I can summarize for the lay audience, it's this: the problem with Tom's argument is that it's just a random post-hoc effort to explain away a problem the privatizers hadn't thought of before (or had been able to ignore). In other words, it's part of the genus bullshit.

For the last 75 years, real stock market returns have closely followed GDP growth. GDP growth is projected to decline in the future, and common sense dictates that lower growth leads to lower corporate profits which in turn leads to lower stock market growth. When someone finally pointed this out, it meant that privatizers could no longer rely on their usual lazy (but credible sounding!) explanation that stock returns for the past 75 years had been around 7% and it was therefore reasonable to use those same returns going forward. They had to make up something new.

What resulted was a bizarre series of Rube Goldberg inventions designed to figure out something — anything — that might change in the next 75 years to make the low growth/high return scenario plausible. Maybe corporations will suddenly become far more profitable than they have been. Maybe they'll start paying out enormous dividends. Maybe overseas investment will skyrocket. In other words, toss every possible piece of mud on the wall you can think of and hope that something sticks. None of these things have to make sense, after all, they just have to sound plausible enough to create a cloud of FUD — fear, uncertainty, and doubt.

Frankly, the privatizers would be better off just telling the truth: stock market returns aren't going to be 7% in the future, but there's a pretty good case to be made that they'll be higher than the 3% you get from treasury bonds. Brad buys that argument, for example, and so does Dean Baker. Stock market returns of, say, 4% or 4.5% don't provide quite the sizzle of 7%, but they still make a perfectly reasonable story. Why not stick with it?

More Intellectual Garbage Pickup (Just How Bad Were We in Our Previous Lives to Deserve This? Department)
Delong vs. Weisman continued, Luskin thrown in.
2/14
The Infernal Machine of Imre Lakatos
DeLong follows up Yglesias and Drum & summarizes Maguire.
How to Talk to a Conservative About Social Security
From Think Progress.
2/15
Treasury experts split on Social Security plan
Jonathan Kaplan on the Treasury Department split between politicos and careerists in The Hill.
2/17
Alan Greenspan Explains it All
The liberal Center for American Progress harps on some of the implications of the latest Greenspan testimony.
2/18
Save and Save and Then Save Some More
Steven Landsburg on the need to formulate savings-encouraging policies.
2/19
Bush’s Mad Cap Idea
Larry Kudlow of National Review Online opposes any consideration of raising payroll tax wage caps.
2/22
Private-Account Concept Grew from Obscure Roots
Washington Post backstory coverage.
2/24
Guest Viewpoint: Social Security is about insurance, not savings
In the Register-Guard, economist Mark Thoma of the University of Oregon on Social Security's Job One.
2/25
Social Security and the Race Factor
A link to NPR reporting by Ari Shapiro.
2/28
And Another Excellent WSJ Article--This Time by Mark Whitehouse
DeLong:

The most bizarre thing--no, it isn't the most bizarre thing, it is just one of many bizarre things that make me question the good faith or the competence--no, make that the good faith and the competence--of those designing and arguing for the Bush private accounts plan--is the 3% + inflation offset required for those who fund their private accounts. This is likely to generate a substantial increase in elderly poverty when a bunch of people reach 65 and find that their private accounts have not been worth the Social Security benefit reductions they cost.

Social Security Meta-Archive: 2005