Not Sarah Palin

[kirisutogomen]

Don't want to argue about Palin. It'll just piss me off.

So instead I'll ramble a bit about Obama and McCain's so-called "economic policies", which will also piss me off, but at least it might have some redeeming value in addition to irking me. Because I'm lazy, I'm going to use the CNN Money guide to their policies and just comment as I go, doing as little additional research as I can stand.

1. Gas Prices. The McCain/Clinton summer gas tax holiday idea is about $10 billion of stupid gimmick. The $0.54/gallon sugarcane ethanol tariff and similarly sized domestic corn ethanol subsidy are even worse, and combine to be somewhat more than $10 billion of stupid. Obama's nutty "windfall profits" tax tips the scales in McCain's favor here.

Oh, right, close loopholes blah blah blah offshore drilling blah blah blah ANWAR blah blah blah.

2. Driving. Huh? Why is this a different issue than gas prices? Whatever.

CAFE standards are dumb, and I remind treptoplax that he owes us a rant on just how dumb they are. Tax credits and subsidies for zero emission vehicles and spiffy battery technology are a little goofy, but there isn't really anything to choose between the candidates on those issues anyway.

3. Energy Security. Somehow this is confused with climate change, as if burning imported fossil fuels magically creates more CO₂ than burning domestic fossil fuels. Anyway, the main difference between them I see here is that McCain is in favor of nuclear power and Obama isn't, and if you're serious about the climate change problem you need to include nuclear power in the mix, so points for McCain.

4. Taxing Wealth. Apparently the writers at CNN Money don't know the difference between income and wealth, because everything they're talking about is income. Anyway, the carried interest tax is a tricky problem, but since it's only $2 billion or so I'm going to ignore it. Estate taxes are much less incentive-distorting than most other types of tax, so taxing the hell out of inheritance is pretty sensible. Points for Obama.

But the dividend and capital gains taxes are another matter. Discouraging investment is silly, because investment is what makes the next generation better off than their parents. At the moment we are effectively taxing dividend income twice, once when the corporation pays corporate tax and once when they pay you, and that's silly. My preferred solution would be to switch from a personal income tax to a personal consumption tax, making the question irrelevant. Almost as good would be to eliminate corporate income tax altogether and tax dividends and capital gains as ordinary income, with inflation-indexing for the capital gains cost basis. It would put investment and consumption on a level footing, and be more progressive than our current system. McCain's "leave it alone" policy is better than Obama's "distort things even worse" idea, so I'll give this one to McCain, and call the whole of point 4 a draw.

5. Fighting Foreclosure. This whole issue is a crock of shit. Some idiot borrowed more than they could afford to pay back, bought themselves a Cadillac Escalade, and is whining about "predatory lending". Bullshit. Prey doesn't sign a contract with its predator saying "yes you may eat me". If we start saving everyone from every boneheaded decision they ever make, we might as well throw in the towel and just skip straight to totalitarianism. McCain has unfortunately weakened his position recently, but he still beats the hell out of Obama's insane paternalism.

OK, OK, it's not all the result of irresponsible decisions. A lot of the foreclosures are the result of job loss, divorce, or major medical crises. Before the blossoming of the subprime mortgage market, those same things happened to the same devastating effect, except that the people who got hit by them didn't own houses, because no one would lend them money. Something that gets lost in all the "subprime lending crisis" panic is that the expansion of subprime lending extended access to the capital markets to the disadvantaged members of our society. Frankly, I'm willing to trade a few more foreclosures for many more poor people owning their own homes.

6. Mortgage Giant Rescue. OK, this one's not so cut and dried. There are some tricky nuances to this problem that require some not-at-all obvious judgment calls. To adequately address this issue I would need to devote a lot more time to discussing it, and I'm not going to. Of course, that's true for every item on this list, but fortunately there isn't much difference between Obama and McCain on this anyway.

7. Mortgage Fraud. OK, fraud is bad. Anyone disagree? No, I didn't think so. Put down your hand, Phil, you don't get a vote.

8. Social Security. I'm going to award 10 trillion points to McCain here, because opposing voluntary private investment accounts and opposing raising the retirement age are dangerously irresponsible positions. The size of this problem dwarfs all the puny little $10 billion problems I've been going through. It also closely resembles the problem of climate change, except that the parties switch roles on who is the clear-eyed soberly realistic party and who is the moronic head-in-the-sand la la la I can't hear you imbeciles.

9. Medicare. Holy crap, an even bigger problem than Social Security. Let's see, paying more for Part D makes sense, negotiating drug prices not so much, closing the doughnut hole is sensible but absurdly expensive, eliminating the payments to Medicare Advantage plans is silly (and calling them "subsidies" is even sillier. When I pay a barber for a haircut, that's not a subsidy, that's a payment of a fee for a service he provided). Importing prescription drugs is an absurd situation on the face of it and for complicated reasons is a bad solution to a problem that desperately needs some sort of solution, and even a bad answer might be better than no answer. So....honestly, none of the espoused policies are really going to be too helpful, so they both get zeroes here.

10. Personal Taxes. Eh, boring issue. Gets lots of press attention, but until someone puts together a credible consumption tax proposal they're just arguing over the color of paint to put on a burning house. Allowing the AMT to kick in for as many people as possible would be a fascinating backdoor tax reform, but unfortunately no one seems willing to suggest that.

You know, I was pretty psyched when Obama named Austan Goolsbee his chief economic adviser. Goolsbee is a very smart, very sensible, moderate Democrat with a lot of innovative thinking.

11. Corporate Taxes. Close loopholes blah blah blah promote enterprise blah blah blah.

12. Health Care. First off, anyone who tells you that they know how to fix health care is delusional. It's the single most complicated sector of the economy with all kinds of crazy convoluted intricacies. None of the suggested ideas from either candidate are much use. We're not going to get a handle on this until we understand why health care costs so much, realize that on balance it's a good thing that we spend a higher and higher portion of national income on it, figure out how to align incentives properly, and learn that you can separate questions of efficiency from questions of equity and treat them independently.

13. Bankruptcy. The 2005 bankruptcy reform was a pretty good thing with some annoying but not fatal flaws. Obama's stuff here is mostly populist garbage.

14. Savings. McCain apparently was going to "release details of his savings proposals later this summer" but I haven't been paying enough attention to notice whether he actually did. Automatic enrollment is fine if we're just talking about switching from an opt-in system to an opt-out system, and I believe that's what both of them are suggesting.

It may not seem obvious at first, but Obama's matching funds idea would actually reduce overall saving.

I should point out here that there is a fundamental problem with the idea of employers providing retirement savings plans and health insurance. Unless you work for an outfit like Fidelity or Prudential, your employer has no more reason to have relevant expertise than does your bowling team. Or rather, we have no more reason to expect them to be any good at it -- they are forced to acquire expertise by our weird laws that arbitrarily link health insurance and retirement savings to an employer. The absurdity was not so obvious when everyone had 40-hour jobs and worked for the same company for their entire lives, but with the increase in non-traditional workers, independent contractors, frequent job changes, and a large group of people simply outside the system, the problem gets more obvious. There are some good reasons why health insurance got glued onto employment, having to do with the nature of insurance and adverse selection effects, but even that doesn't apply to retirement savings.

16. Free Trade. I'm going to try hard not to start foaming at the mouth here, but politicians' statements about trade drive me up the wall, probably worse than any of the other boneheaded stuff they spew. Obama called NAFTA "devastating" and a "big mistake", but he has since admitted that it's not so bad and that he was just saying that to et some votes from the lunatic fringe of the left wing during the primaries. Beyond that, I'll confine myself to saying that everything in the McCain column is correct and everything in the Obama column is wrong except for the last item.

17. Budget Deficit. Well, neither of them is actually going to balance the budget, not least because the President doesn't control the budget. But I do know that McCain has been the chief opponent of earmarks since before Obama was entering puberty, so I believe his assertions regarding his intentions. However, while earmarks are indeed obviously stupid, the real savings will have to come from serious reform of the big entitlements, and Obama does not seem to have anything to say about that, while McCain does.

18. Jobs and Wages. I'm starting to get sick of the gobs of pablum that are instinctively emitted by politicians any time words like "jobs" are mentioned. Anyway, the minimum wage is possibly the worst anti-poverty measure ever conceived, and unions are a giant waste of space.

19. Wall Street. Boy, there are a lot of different headings. Three more to go.

OK, let's skip this one. Now there's only two more to go.

20. Small Business. You know, most of this stuff was covered in one way or another in previous headings. And for good reason, too -- small business is not qualitatively different from any other economic enterprise, so the same stuff that works for any type of commerce will probably work for small businesses, and the same stuff that's cheesy gimmicks for other types of commerce are still cheesy and still gimmicky for small businesses. Making it easier for people to run their businesses with minimal interference is good, fixing market failures is good, random complication of the tax code with yet another credit for this and deduction for that is just making a mess.

21. Hey look, there is no 21! Yay!

Comments

[bakedweasels.livejournal.com]

Hey...you're right!

[kirisutogomen.livejournal.com]

You should comment on the taxation of carry. You're objective and unbiased, right?

[bakedweasels.livejournal.com]

No, but I think treating carry as capital gains is absurd. We take it as ordinary income and it'd be hard to defend any other way.

[tirinian.livejournal.com]

opposing voluntary private investment accounts and opposing raising the retirement age are dangerously irresponsible positions

Don't we already have voluntary private investment accounts, and they're called IRAs and 401Ks? I don't really believe Obama opposes those, so I have to assume that's actually shorthand for "getting rid of Social Security benefits and replacing them with voluntary private investment accounts." I don't think that's dangerously irresponsible to oppose unless you think having lots of poverty stricken elderly in 30 years because people screwed up their investment decisions is a good result. I'll give you that the retirement age should be raised.

Budget Deficit And yet, every analysis I've seen says that McCain's proposed plans will leave us with a larger budget deficit than Obama's, since he's slashing revenue even faster than he's not-increasing-spending-as-much.

[kirisutogomen.livejournal.com]

I didn't explicitly say that I meant Social Security investment accounts, but it is under "8. Social Security". :-)

Anyway, if we trust people to have 401(k)s and IRAs without going insane and putting their entire retirement savings into jackalope farm IPOs, how would private Social Security accounts be any different? It wouldn't be hard to put some basic restrictions on how the money could be invested such that it was impossible to do anything too crazy -- we do this already with 401(k)s and to a lesser extent with IRAs.

And really, the way the money is "invested" now is about the riskiest way I can imagine -- almost certain to go to zero seems pretty risky to me, and letting a bunch of ordinary people effectively throw darts at the Wall Street Journal would be superior to that.

And in the end, it's the same as so many other places -- we let people make decisions and they enjoy the rewards or suffer the consequences, unless it gets really bad, at which point we step in and provide a safety net. Reasonable people have reasonable disagreements about where exactly "really bad" is or how robust the safety net ought to be, but the Social Security system as currently constituted is (depending on how you model it) either the biggest Ponzi scheme in history or the stupidest income redistribution program in history. We treat 67-year-old millionaires better than we treat unemployed single mothers, and no matter where you fall on the ideological spectrum, that's stupid.

Budget Deficit: I don't pay too much attention to those projections. They get made every election cycle, and none of them bear more than chance resemblance to what actually happens. Campaign-time budgets from either party are largely hallucinations that don't survive contact with either reality or Congress.

Besides, in the end what really matters isn't the budget deficit, or even the fiscal deficit, but the overall level of government spending. Given a certain level of spending, the question of how much to finance with current tax revenue and how much to finance with future tax revenue is important but secondary to the more important question of what the proper role of government is in society and how best to implement it.

[mathhobbit.livejournal.com]

"Besides, in the end what really matters isn't the budget deficit, or even the fiscal deficit, but the overall level of government spending. Given a certain level of spending, the question of how much to finance with current tax revenue and how much to finance with future tax revenue is important but secondary to the more important question of what the proper role of government is in society and how best to implement it."

I don't think you mean this the way I read it. Increasing or decreasing debt has a big effect on future finances, and that's what the deficit is. You can make the argument that more or fewer government programs will boost the economy, but you're not going to convince me that these hypothetical benefits outweigh the fact that unpaid debt increases exponentially.

Feel free to clarify!

[psychohist.livejournal.com]

An argument can be made that the proper measure of government debt is as a proportion of GNP. In that case, unpaid debt may either increase exponentially or decrease exponentially, depending on whether government bond interest rates are larger or smaller than the sum of the inflation rate and the growth rate. Often they are smaller.

I'm not saying that's the only perspective, but I think it's an interesting insight (i.e., one I hadn't realized before I read this page).

[kirisutogomen.livejournal.com]

To a first approximation, they're pretty similar, with average government bond interest rates roughly 2-3% above inflation, and annual GDP growth roughly 2-3% after inflation.

[kirisutogomen.livejournal.com]

I think I do mean it the way you read it, but obviously I can't be sure. :-)

If we assume a given level of spending, the money has to come from somewhere, and to a first approximation your choice is how much from tax revenue and how much to borrow. But borrowing creates debt, and that has to be paid off in the future using the same choice between tax revenue and rolling over the debt. Sooner or later, you're using tax revenue to pay for your present spending; the only difference is whether you're using 2008 tax revenue or 2018 tax revenue to fund your 2008 spending. Taxes aren't particularly worse in 2018 than in 2008, or vice versa -- they're always taking people's money.

Does that help?

[mathhobbit.livejournal.com]

Ah, so you're counting the deficit as future spending. I can agree with that. I'm not sure the government comprehends this the way you do, though!

[kirisutogomen.livejournal.com]

I'm certain that it doesn't. If you look at government spending as a percentage of GDP, it just steadily climbs and climbs for the last 60 years. You can't tell at all whether Democrats or Republicans are in power -- they all just enjoy spending other people's money too much.

[algorithmancy.livejournal.com]

We don't really have a lot of data about IRAs and 401ks yet. To my knowledge we haven't even seen a whole generation pass through that system, but the initial data does suggest that those mechanisms are proving to be huge IQ tests. It's too easy to make a mistake that hobbles your retirement, from choosing when to enroll, to choosing how to adjust your allocations as you age, to choosing how to take your distributions. Enron didn't look like a jackalope farm IPO when lots of rank-and-file utility workers put their retirement eggs in that basket. It seems like the argument that "companies shouldn't be expected to be retirement experts" should apply to individuals as well.

The point is that social security is supposed to be the low-risk leg of the stool, and it's going to have lower yield because of that. If we can increase the yield without increasing risk, we certainly should. But turning the safety net into an IQ test doesn't seem very fair to me.

[psychohist.livejournal.com]

Enron did look like a Jackalope farm to everyone I knew that looked at it.

That said, the private accounts part of social security could easily have some investment restrictions (e.g., 50% in government bonds). The key is changing it from defined benefit - or rather undefined benefit - to defined contribution.

[algorithmancy.livejournal.com]

Enron did look like a Jackalope farm to everyone I knew that looked at it.

Well, OK, we should clearly punish everyone who slightly dumber than the people you know.

That said, the private accounts part of social security could easily have some investment restrictions (e.g., 50% in government bonds). The key is changing it from defined benefit - or rather undefined benefit - to defined contribution.

How is the "private" part of "private accounts" good?

Ok, you'd like to have access to higher-yield investments, I get that, and you'd like to leverage the raw brain power of the USA to help allocate those investments, I get that part. But I'd like to find a way for social security to help everybody, and it sure seems like a 401k-style eat-what-you-kill investment account is only going to help the smart, not-unlucky people. There ought to be a way to incentivize people to help social security make smart investment choices, and still share the wealth. But the word "private" just implies that "it's my money and I'm keeping it," when it really ought to be society's money.

[kirisutogomen.livejournal.com]

Enron is irrelevant.

If we really want to have the Social Security conversation, it always helps to define our paradigm up front. Are we looking at SS as a retirement savings program, like a corporate defined benefit pension plan? Or are we looking at it as an income redistribution program, shifting some income from workers to retired people?

Correct me if I'm wrong, but it sounds like you're using the second model.

If not, and we want to talk about SS as a defined benefit pension plan, the fundamental issue is not the exact level of risk or control, but whether it's real money or imaginary money in the trust fund/investment accounts. Corporate defined benefit pension plans are required to actually have sufficient assets to meet future liabilities. If they don't, they are required by federal law to make up the shortfall now. By standard actuarial accounting rules, Social Security has a net present value shortfall of about a gazillion dollars. If you want to claim that the contributions workers are making now are funding the distributions they are going to receive at retirement, there's a whole lot of missing money.

If we want to treat it as an income redistribution program, and not treat the promises as actual liabilities, then that whole line of argument really doesn't apply. But if we want to consider it as a redistribution program/safety net, it's a really really bad one funded by a regressive tax, paying more to the wealthy than to the poor, and overall giving money to people who on average have three times the net worth of the people it's taking the money from. If we want to make a safety net, don't have it take money from minimum wage workers and give it to millionaires.

Unless you're a loony libertarian who wants to put North Dakota up on eBay, you're not opposed to the concept of redistribution and a safety net. Nobody wants people starving in the streets. What I object to are programs that hand out billions of dollars to people for being old or for being farmers, when what they should be doing is giving money to people who are poor.

[algorithmancy.livejournal.com]

Yes, thank you. Viewed as a "retirement program," social security is a joke. I'm more interested in it as a safety net.

I basically agree with your sentiment that we should be helping the poor, not group X that is often coincidentally poor. Though I would probably say that we should help the "disadvantaged," and I'm willing to classify "old age" as one kind of disadvantage. Not that social security does that currently.

[tirinian.livejournal.com]

By standard actuarial accounting rules, Social Security has a net present value shortfall of about a gazillion dollars.

So what is this based on? I know I've read a couple of Paul Krugman columns that basically say "If you assume that the treasury bonds held by Social Security are actually worth something, we're good to go for at least 30 years on pretty conservative economic forecasts, a lot longer on more run-of-the-mill economic forecasts, and the changes needed to be good to go indefinitely even on the conservative forecasts are fairly minor" (a small increase in the retirement age to 67, and a small decrease in the rate-of-increase of benefits).

30 years is clearly not enough time to pay back everyone who's paid into Social Security, so I support making those changes, since the whole point of a safety net is to base it on the conservative predictions. But I don't see that as "a gazillion dollar shortfall" that means the whole thing is a shell game.

Are you claiming that the treasury bonds held by the SSA are actually no good, and congress has been lying when selling them to the trust fund over the years? That there's some other flaw in his numbers? Or do you just hate Krugman and think I shouldn't trust him? :-)

[kirisutogomen.livejournal.com]

The simple answer is that Krugman is lying, and is completely untrustworthy. I don't know if I hate him, but pretty close. Unlike most of the other people spouting that crap, he unquestionably knows better, so he's just lying. While I definitely don't trust those so-called "treasury bonds", even if you pretend that they're ordinary government bonds Krugman's assertions are wrong.

Plenty of Democrats with rock-solid liberal credentials have been trying to warn people about the humongous funding shortfall. Daniel Patrick Moynihan was the first one I remember; he co-chaired one of the uncountable blue ribbon commissions on reforming Social Security (and he came out in favor of private accounts). Since then lots more ideologically unassailable Democrats (Larry Kotlikoff, Alice Rivlin, Ron Haskins, Isabel Sawhill, Robert Reischauer, etc.) have also been pointing out the asset-liability gap. And if that's not enough, the Social Security Administration itself issues annual reports detailing the several trillion dollar gap, and the GAO and CBO both do as well, using slightly different assumptions and coming to the same basic conclusion, plus or minus a trillion or two.

The fact is that if it only required minor changes to make the numbers balance for the indefinite future, we would have done it already.

[tirinian.livejournal.com]

Well, having just gone and looked at the summary of the SSA report on their webpage, it seems to say about what Krugman does - that they have funds to pay until 2041, and that they could pay for the next 75 years with a 12% reduction in benefits or a 14% increase in payroll tax revenues or some combination thereof. Presumably, increasing the retirement age qualifies as a reduction in benefits, and increasing the maximum income level that payroll taxes are collected on increase tax revenues. It seems like those are relatively minor changes, that could make things work for 75 years. They don't say anything about how things work with less-conservative economic predictions, so I can't evaluate the difference between their position and Krugman's position on that.

The thing they say is a looming problem is that soon (~2018) the Social Security taxes collected will stop being bigger than the benefits paid out, and that the rest of the budget will have to start paying money into Social Security, instead of taking money from it, and that will put a huge squeeze on the general budget. Krugman doesn't disagree with that, he just says that it's unfair and misleading to call that a "Social Security" problem, rather than a general budget problem.

[tirinian.livejournal.com]

NB: the "indefinite future" numbers require an increase in payroll revenues of 26%, or a reduction of benefits of 20%. That's a 3.2% increase in current tax rate (12.4 -> 15.6%) if you don't expand the tax base. I don't have numbers for how much Obama's "raise the limits" expands the tax base, or how much a "raise the retirement age to 67/70/whatever" reduces benefits. But really, I'm mostly ok with a 75 year time window, rather than requiring "indefinite future".

[kirisutogomen.livejournal.com]

I don't see why people find the 75 year window acceptable. If I show you a Ponzi scheme, of course it looks better if I get to truncate outflows at the same point as inflows. That's why Ponzi schemes can keep going for a while. So yes, things look not so bad if I pretend that the world is going to blow up in 2009, in 2018, in 2048, or in 2083.

[tirinian.livejournal.com]

Eh. I am mostly ok with a 75 year window, because it's further into the future than I think we can actually plausibly predict. 75 years ago, Britain was the biggest military power in the world, and we didn't have a serious standing army. 75 years from now, maybe China will be the world's policeman, and our army will have shrunk to a reasonable size again and we'll have all that extra money to play with. Or maybe the terrorists will have nuked NYC, and we'll be a theocracy where the Church takes care of old people, or who knows.

If 35 years from now, people say "ok, now we're down to a 40 year window, and things are still looking problematic, we should fix it", well, they can fix it then.

[kirisutogomen.livejournal.com]

No, no, dude, you are totally missing the point. It's cheating to choose any point in time, whether it's 75 years or 750 years. Cutting things off at a point in time leaves an entire generation who paid in all their lives but get nothing out. Sure, if you get to do that, things aren't going to look so bad, but it's a lie. (Unless you're ditching the pension plan framing and going with the redistribution paradigm, in which case our entire conversation has been irrelevant.)

If you really insist on considering a more limited set, you remove people, not years. So you would pick a group of people, say everyone born before 2020, and work out the balance between their payments in and payments out.

(Do I need to explain what a Ponzi scheme is, and why it doesn't work?)

[kirisutogomen.livejournal.com]

By the way:

"I am mostly ok with a 75 year window, because it's further into the future than I think we can actually plausibly predict."

'If 35 years from now, people say "ok, now we're down to a 40 year window, and things are still looking problematic, we should fix it", well, they can fix it then.'

Is that your position on climate change and greenhouse gas emissions, too? Because that's the exact same handwaving people like to engage in on climate change, too.

[tirinian.livejournal.com]

I actually thought about the global warming issue before you asked about it, and yeah, if someone said "here is a magic box that will hold greenhouse gas emissions for seventy-five years and then let them out", I'd say "cool, lets use it!" It is not a total fix to the problem for forever, but it's far better than the state we're in right now, and gives us a large time window to try and fix the problem in the long run.

[kirisutogomen.livejournal.com]

I'm totally unclear what your magic box translates to on the Social Security end of that analogy, but we're not too far from having it already. The very serious effects of climate change mostly don't kick in until ~100 years from now. If we are foolish enough to say "eh, who knows what might happen in 100 years", we'll ignore the problem during the exact period during which we can partially prevent it, and then in 2050 or so we'll say, "OK, that's coming up pretty soon now," but it'll be too late, because the CO₂ that melts Greenland in 2100 is already in the atmosphere in 2050.

[kirisutogomen.livejournal.com]

See below for why the 75 year numbers aren't much use. Regardless, while those numbers may sound small, whether they're 20% or 12%, see how far you get proposing any tax increase or benefit cut. Increasing the retirement age could help if we could do it faster than one month per year, but that got shot down, and while increasing the cap on the payroll tax is a fine idea and seems likely to happen, it's just too small an effect to make much difference.

The 2018 problem is indeed a big problem, and it's going to suck. I don't consider it misleading to call it a Social Security problem, though, because it's due to SS paying out more than SS takes in. In the end it doesn't matter what you call it, it's a problem caused by the uncontrolled growth of entitlement obligations. 2018 is not the moment that the Ponzi scheme collapses, but it is the moment at which the operator of the fraud starts to get nervous, renews his passport, and starts checking airline schedules to Argentina.

I don't have time today to hunt down all the numbers, but the fundamental problems are that (1) we're running a pyramid scheme, which is inherently unsustainable and (2) that the ratio of workers to retirees is constantly falling, faster than any politically acceptable increase of the retirement age can compensate for.

If you treat it as a pension plan, any CEO that tried to operate a corporate pension plan like this would be thrown in jail; if you treat it as an income redistribution program, it's taking money from the poor and giving it to the rich.

[tirinian.livejournal.com]

I don't consider it misleading to call it a Social Security problem, though, because it's due to SS paying out more than SS takes in.

Well, yes, but SS has been paying out less than it takes in for years, and has savings to cover the fact it's going to start paying out more than it takes in for a substantial period of time. It's just that the rest of the government has been using the Social Security surplus to hide how much it's *really* overbudget, and it's going to lose that ability to hide. I don't see that as a Social Security problem.

I also think it's disingenuous to say "omg, in ten years SS will be paying out more than it's taking in, that's a disaster!" when the government is *currently* paying out more than it's taking in, and you said in the budget deficit bit that you don't think that's much of a problem. If what you're *actually* saying is "omg, SS is going to keep taking up more and more of the GDP", well, yes, as long as (2) that the ratio of workers to retirees is constantly falling is true, the percent of GDP needed to support retirees is going to keep growing.

[kirisutogomen.livejournal.com]

If my personal expenses exceed my personal income, that's a problem, even if I currently have a big bank account. Yes, it's not as catastrophic as when my expenses exceed my income by a bunch more and my bank account is gone, but it's still a sign that I'm fucking up.

Did you actually read what I said about the budget deficit? I didn't say it wasn't a problem, I said that the budget deficit isn't a particularly useful way of measuring the problem.

[tirinian.livejournal.com]

I did read what you said, and you said "government percentage of gdp is a better measure than deficit", which is why the end of that paragraph is there. I still think focusing on "SS will be fucking up income vs. expenses in ten years, Oh Noes!" instead of "the whole government is fucking up income vs. expenses bigtime right now!" is focusing on SS because you don't like it as a program, rather than focusing on it because you're worried about the deficit.

[tirinian.livejournal.com]

Oh, and while I will give you that making *any* change to Social Security may be politically dead in the water, I think that "we can't get the little changes we need to make it not-a-ponzi-scheme passed, so we'll try to throw the whole thing out and do something else!" is not a politically viable strategy either. :-)

[kirisutogomen.livejournal.com]

The point isn't that it's politically impossible to get little changes passed. The point is that those are actually huge changes that only sound small out of context, and that seeing how hard they are to implement gives you an idea of how big they really are.

And those changes, by the way, still don't make it not-a-Ponzi-scheme. As long as you're playing a shell game with the money it's a Ponzi scheme, even if it currently appears indefinitely sustainable.

[tirinian.livejournal.com]

I think you are still making a poor political choice trying to make *even huger* changes. :-)

If your definition of "Ponzi scheme" doesn't include "and then it collapses", then yes, we're using different definitions of Ponzi scheme. By your definition, there's no way to make it not a Ponzi scheme, since we were making payouts in the 30's and 40's that we can't take back. At that point, your choice is "do we let it collapse, or not?" and I vote for not.

(I am totally unclear, by the way, how implementing independent retirement accounts keeps it from collapsing. It seems that at best says we should collapse the scheme now and take our lumps, because we think it will do less damage if it collapses now.)

[kirisutogomen.livejournal.com]

Who said these are huger changes? These changes don't raise taxes by a hundred billion dollars and cut benefits by another hundred billion -- they shunt a hundred billion from one type of investment to another one that grows faster. I can't really see how that qualifies as huger changes.

Fundamentally, yes, it's been doomed to be a Ponzi scheme ever since it started, but there is a third choice beyond collapse and not-collapse. We can convert it into an actual pension plan, with sufficient assets to cover its promises. It takes a long time to actually get there, because we need to grow the assets faster than the promises until they actually cover them, and that requires a lot of compounding of a rather slim margin, which is why we need to start now.

Anyway, I've had Social Security conversations over and over for years now, and I'm getting tired of them. I will admit that if we could get that tax hike and benefit cut passed it would help a lot, but it doesn't fix the fundamental mistake of having an underfunded pension plan with a constantly degenerating ratio of contributors to beneficiaries.

I have a question for you, though. Why is the opposition to individual accounts so strong? I mean, I understand that some people don't think there's a problem that needs solving, but that doesn't account for the violence of the resistance.

But regardless, I think this is the unproductive version of the Social Security conversation. It seems to me that the better version is the one I had with algorithmancy. If that conversation keeps going, we decide to stop treating SS as a pension plan at all, and just model it as an income redistribution program. Then we can dispense with drawing shaky distinctions between Social Security balance and the federal budget balance, stop labeling the payroll tax as marked for any specific purpose, and treat Social Security just like welfare or food stamps or any other transfer payment.

[psychohist.livejournal.com]

Social security is "eat what you kill" right now. Your benefits depend on your contributions.

If you want a safety net, social security is not a good place to start.

[algorithmancy.livejournal.com]

Social security is "eat what you kill" right now. Your benefits depend on your contributions.

Not strictly true. Your benefits and your contributions both depend on your earnings, but (as far as I can tell) the relation of benefits to contributions is sub-linear; the poor get a better rate of return than the rich. And (oddly) people who work for exactly 35 years get a better rate of return than people who work less, since your benefit is based on your 35 highest-earning years.

So while there are some "eat-what-you-kill" characteristics to social security, there are also some wealth redistribution characteristics. The rich are getting more money, but they are also "paying for" the poor in some handwavy sense.

[kirisutogomen.livejournal.com]

This monstrous half-monkey half-pony nature of Social Security really doesn't help the confusion that makes so many debates useless, as one person is arguing about a retirement savings plan and the other is arguing about a social safety net, and both points of view are perfectly reasonable but mutually incoherent.

Sadly I don't see this changing anytime this millennium. If you tried proposing that Social Security be integrated into the federal budget the scream would be heard out to Neptune, because the popular perception of Social Security leans heavily toward the retirement savings plan interpretation, and people would see the move as stealing "their" money. Conversely, it seems that there are enough opinion leaders and politicians whose SS paradigm is that of a social safety net that attempts to treat it even partially as a pure defined benefit plan are met with hysteria.

[kirisutogomen.livejournal.com]

As I understand it, the two biggest mistakes people are making with their 401(k)s are 1. investing too little (maybe not at all) and 2. allocating far too conservatively for their time horizon. The first is taken care of by the fact that participation in Social Security is mandatory, and the second is a far greater weakness of the current system than of any private account plan you can think of that doesn't involve mattresses.

Moreover, most suggested privatization plans involve quite a bit of restriction on investment decisions, more so than with 401(k)s (and enormously more than with IRAs). Usually what's suggested is a small menu of extremely diversified investments, offering a limited range of risk more or less appropriate for the range of people just entering the workforce up through near future retirees. They could easily be labeled as such, too -- just name them after the expected retirement year, so the 2040 fund is a bit higher risk than the 2035 fund, etc.

In addition, most proposals I'm aware of start with small percentages (5-10%) of your share of the trust fund, only for those with a while to go (10+ years?) before retirement, on a strictly voluntary basis. Requiring people to become investment experts isn't reasonable, but if it's a strictly opt-in system in which the riskier decision is probably the right decision, we don't have much to worry about.

[psychohist.livejournal.com]

IRA limits are far too low, and many, perhaps most, people are not eligible for 401(k)s.

[kirisutogomen.livejournal.com]

Amen to that. The 401(k) problem is a good illustration of the effects of our odd coupling of retirement savings with employment.

I will note that switching to a consumption tax instantly solves these problems. If you don't pay tax until you spend the money, all investments are tax-deferred, and thus everyone effectively gets uncapped IRAs and HSAs.

[marcusmarcusrc.livejournal.com]

As long as you're advocating switching to a consumption tax, can we target it at negative externality consumption? Eg, a carbon tax? (though I see more advocacy for using the proceeds of a carbon tax to reduce payroll taxes, in order to keep some progressive elements of the current tax system)

[kirisutogomen.livejournal.com]

Hi Marcus! How's the wretched hive of scum and villainy DC?

I think it makes more sense to treat separately the question of how to raise revenue and the question of how to internalize externalities. We should have a carbon tax, not because it makes money, but because it corrects a market failure. We should have a consumption tax, not because we hate consumption and want to make it stop, but because we need a trillion dollars to provide public goods.

And I think a consumption tax probably ought to be progressive. You don't need multiple rates for it to be progressive -- a big standard deduction does the trick nicely.

And even if we don't make it progressive at all, that isn't necessarily a problem as long as we compensate on the spending side by skewing government benefits towards the poor (which we really ought to be doing anyway).

Not every single government policy decision needs to be made with equity in mind, and in fact most of them shouldn't be. It's almost certainly more effective to make revenue raising about revenue raising, correction of market failures about correction of market failures, and let the anti-poverty measures be about eradicating poverty. Nothing prevents us from simply expanding a single well-constructed anti-poverty program until it exceeds the cumulative effects of all the crummy little biases we keep trying to shoehorn into everything else the government does.

[tirinian.livejournal.com]

Oh, and while I don't know enough about Medicare to really argue any of those points, why doesn't negotiating drug prices make sense?

[kirisutogomen.livejournal.com]

Even a halfway adequate answer to this question would exceed Livejournal's character limit. But briefly, the primary reason is that Medicare is such an enormous actor that they already have dangerously high levels of market power, and allowing them to negotiate drug prices would greatly exacerbate the consequences of that near-monopsony. The outcome would be nasty shrinkage of the pharmaceutical industry, which is arguably the most cost-effective part of the entire health care sector.

[psychohist.livejournal.com]

Health care costs keep increasing primarily because (1) they are pretax expenditures for most people, and (2) the tax system is set up to encourage opaqueness, by making the payments go through employers.

The Massachusetts system will fix (2) for Massachusetts, if it is actually enforced. Fixing (1) would be ... interesting (eat right and avoid disease instead of waiting until after it happens before fixing it, anyone?)

5. Fighting Foreclosure

[fredrickegerman.livejournal.com]

I generally agree that part of the mortgage mess is insufficient reflection on the part of home buyers: "Boy, given this payment, I'm going to be left with $x at the end of the month, and I'll need to find $y to stay afloat if I lose my job."

And yet... How do we know whether $x is too big or too small? Ultimately, in some form, most folks listen to what dudes who figure these things out for a living tell us. Lenders told buyers, "Yep, you've got enough money to own a house! Step right up!" Why should a buyer uncertain (over overly optimistic) about their own computations not believe them?

All that said, I'm thinking "has enough discipline to save a substantial downpayment" is a pretty good start of a measure of whether someone has realistic expectations about x and y.

This leaves me especially jumpy about 6 (mortgage giant rescue), because arguably these guys should have known better---it's what they were paid to do. But the fact that so much of our economy seems to be sitting on that foundation leaves me to wonder what if anything can be done to precent this sort of thing. It's clearly a game of whack-a-mole: impose regulation here, and speculation just pops up over there instead.

Re: 5. Fighting Foreclosure

[kirisutogomen.livejournal.com]

Yes, the bank extending the mortgage certainly has an incentive to only make loans to creditworthy people, and they're the experts on lending. But the homeowner has a lot more incentive to avoid defaulting, and has special insight into their own financial lives that no bank could ever have. Like any market, its smooth functioning depends on both buyers and sellers having at least half a clue each.

Mortgage giant rescue is even more complicated, because the mortgage giants in question aren't actually the banks that make mortgage loans, they're the pseudo-federal entities that buy mortgages from lenders, package them into securities, and sell them to investors.

That isn't to say that their problems weren't caused by colossal incompetence, because they were. It's just that the incompetence in question wasn't in making bad credit decisions, but in their financial engineering. And the question of bailing them out hinges not just on moral hazard vs. sector stability, but on their weird hybrid quasi-governmental nature.

(But in the end, yes, the whack-a-mole game is a constant feature of financial regulation, and it's why getting people's incentives properly aligned is often superior to more regulation.)