In his important paper on Endogenous Preferences, Samuel Bowles writes:

. . . Markets thus affect not only the demand for, but also the supply of cultural traits. Among these are reputations for trustworthiness, generosity, and vengefulness.

If markets require less trustworthiness, for instance, then you may get less of it.

. . . Thus where markets approximate the ideal complete-contracting assumptions of the standard model, the adverse consequences of lack of trustworthiness or generosity may be attenuated; but at the same time markets may militate against the evolution of these traits. Thus markets may undermine the reproduction of traits necessary for efficient market transactions in the absence of complete contracting

Notice anything peculiar about the reasoning here? Bowles follows the standard model and stipulates complete contracts, draws out a consequence of that model, and then says . . . what? That if that model both did and didn’t obtain we’d get a bad consequence, and then blames the bad consequence on the market. This is weird. Either we have complete contracts or we don’t. If we don’t, and we don’t, then we need trust. If markets enable contracts that enable gains that are impossible without markets, and trust is necessary to complete these contracts, then there may be higher payoffs to trust in market interactions than in non-market interactions, and we’d expect norms of trust to be reinforced by the presence of markets.

That members of market cultures are more trusting, by the way, seems to be a result of a set of cross-cultural experiments conducted by Bowles and others after the publication of his endogenous preferences paper.

Ygelesias, among others, is skeptical of the various pro-reform social security calculators. My colleague Tim Lee responds. Here’s a bit:

More to the point, even if you grant all of Matt’s objections, personal accounts still end up doing better. I whipped up a little calculator of my own, which does the math in a transparent fashion. Cato’s calculator says that if I start out at 25,000 at age 25, that I’ll end up with a stock portfolio of $406,000 and an annuity of $38,685. My calculator more or less duplicates that result. If we grant all of Matt’s objections and use a 4.2% rate of return (60% stocks at 5%, 40% bonds at 3%, with let’s say a higher .5% transaction cost), then my personal account still ends up being worth $310,000. And if we assume the annuity pays out a conservative 7%, instead of Cato’s assumption of 9%, I would still end up with an annual benefit of about $22,000. According to Cato’s calculator, Social Security would pay $15,748 for the same wage profile.

Check out the whole thing.

ethnographic policy analysis. I want richly described accounts of the lives of people affected by policy changes before and after the change. How do they live? How do they represent the choices open to them? If the change shifts relative prices, how do they respond to the price change? If they change behavior in the face of changing prices, how do they conceive of their change of behavior? How do they justify and rationalize it. Do their mental models of the relevant domain change significantly? If so, do these changes spill over into areas not directly affected by the policy change at issue?

Why isn’t there more of this? I guess because anthropologists don’t generally think of changes in norms and cultural meanings having much to do with shifts in relative price.

Paging Dr. McCracken.

Please cite by email or comments the best “bigthink” magazine and journal articles about social security reform. I’m especially interested in pieces that explore that claim that PRA’s, by creating a class of “worker capitalists,” will have a transformative effect on the economy, politics, society, and so forth. This is in my opinions the most interesting argument about PRA’s, but I’m not seeing anything that pays close attention to the claim, or attempts to substantiate it in detail. Please let me know if I’m missing something!

Sorry, nothing today. Today marks another year in my relentless march from womb to tomb.

Here are my results from Heritage’s Social Security Calculator:

You can expect to pay $350,881 in Social Security taxes over your working life for retirement and survivors benefits. For those taxes, you can expect to receive $2,467 a month in Social Security retirement benefits. Your rate of return under today’s Social Security is -3.56%.

However, if you had been able to invest your Social Security taxes in a Personal Retirement Account (PRA), you would have had a total of $1,401,434 when you retired. Your monthly benefits would have been $11,416. You lost $8,948 a month.

Now, what’s supposed to be the problem with this, exactly, especially when much poorer folk than me can also expect to be doing a lot better? Why are so many people so eager to oppose a program that makes almost everyone better off? I find it truly baffling.

I found this explanation of the Social Security Trust Fund and its differences from a legitimate trust fund, by Heritage’s David John, to be useful.

How the Trust Fund Operates.Workers pay their Social Security taxes through their employers. Each employer periodically sends a lump sum payment to the U.S. Treasury that includes all of the income taxes and Social Security and Medicare payroll taxes paid by both the employer and its employees.

The Treasury both receives the payroll taxes (and income taxes that higher-income retirees pay on their Social Security benefits) and pays monthly benefits on behalf of the Social Security Administration (SSA). The money stays in the Treasury’s hands until it is either paid out as Social Security benefits or otherwise spent by the government. In fact, no money ever goes into the trust fund. Instead, the trust fund balance is the result of two accounting entries by the Treasury.

First, the Treasury estimates how much of the aggregate tax receipts are Social Security taxes and “credits” the Social Security trust fund with that amount. Then the Treasury “subtracts” the total amount paid in monthly Social Security benefits from the trust fund balance. No money actually changes hands; these are strictly accounting entries.

Any “money” remaining in the trust fund is converted into special-issue Treasury bonds, which are really nothing more than IOUs. In addition, the Treasury pays interest on the trust fund’s balance by crediting the trust fund with additional IOUs. These are also strictly accounting entries, and again no money changes hands. After crediting the trust fund with the proper amount in IOUs, the government spends the extra Social Security tax collections just like any other tax revenue–to finance anything from aircraft carriers to education research.

At the end of 2002, the Social Security trust fund had a balance of $1.22 trillion. During 2003, the Treasury received $544 billion in Social Security taxes and paid out $406 billion in Social Security benefits. Therefore, the trust fund received $138 billion in these special-issue Treasury bonds, resulting in a trust fund balance of $1.36 trillion at the end of 2003.

Why the Social Security Trust Fund Differs from Real Trust Funds. Private-sector trust funds invest in real assets ranging from stocks and bonds to mortgages and other financial instruments. However, the Social Security trust funds are only “invested” in a special type of Treasury bond that can only be issued to and redeemed by the Social Security Administration. As the Congressional Research Service noted in a report on May 5, 1998:

When the government issues a bond to one of its own accounts, it hasn’t purchased anything or established a claim against another entity or person. It is simply creating a form of IOU from one of its accounts to another.

According to the Office of Management and Budget under the Clinton Administration in 1999:

These [trust fund] balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. These funds are not set up to be pension funds, like the funds of private pension plans. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. [Emphasis added.]

In short, the Social Security trust fund is really only an accounting mechanism. The trust fund shows how much the government has borrowed from Social Security, but it does not provide any way to finance future benefits. The money to repay the IOUs will have to come from taxes that are being used today to pay for other government programs. For that reason, the most important date for Social Security is 2018, when taxpayers must begin to repay the IOUs, not 2042, when the trust fund is exhausted.

The point is, if the government abolished the trust fund and threw all the special issue securities in a big pit and burned them tomorrow, the financial picture of Social Security would be exactly the same.

[Should we call those who tout the massive assets of the trust fund "trust fundamentalists"?]

Lynne Kiesling dismantles Christina Rosen’s Republic.com qualms about “egocasting.” Check it out.

The issue of informational fragmentation and social coherence is an issue I’m putting on the “to do” list. Hmm, I guess I really should have a bigthink “to do” list. No doubt it is too much, and too hard, for me to do. So think of it as a bigthink assignment desk. If you’re game, go for it!

• Rebut: unrestricted liberty to choose the content of one’s entertainment, news, art, children’s education, etc., threatens the existence of a common culture, which is necessary to maintain a viable liberal social order.
• Understand: how institutional change alters behavior by changing preferences and belief systems, and not simply by changing relative prices (i.e., get a grip on likely processes of endogenous preference change), and how to apply this rigorously and in a non-ad hoc way to policy analysis without the ability to resort to traditional notions of efficiency.
• Defend: Behavioral economics does not provide an argument for regulation or paternalism, unless we think of regulation and paternalism as the implementation of market institutions that economize on (neo-classical) “rationality.”
• Clarify: the difference between “social engineering” in the rationalistic or constructivistic sense, and institutional design in the Madisonian/Buchanan sense; how dynamic renegotiation of constitutional contract/institutional structure politically resembles “regulation,” but how, once in place, changes are robustly self-regulating, “ecologically rational.”
• Illuminate: how it is possible to distinguish between norms or social practices that have an adaptive function in preserving the main properties of a desirable social order and mere self-reinforcing equilibria, which may be opressive or illiberal, without resorting to rationalist/constructivist fallacies. The possibility of being a principled selective or progressive conservative; i.e., the inherent interdepedence of conservatism (rightly understood) and liberalism (rightly understood).
• Investigate: what, if any, are the policy implications of “happiness research”? What, if any, are the implications for implicitly or explicitly hedonist or eudaimonist theories of efficiency, or of the good?

Oh, and there’s more. I’m just not thinking of it right now. Did you not drop out of grad school? Well, you know where to come for dissertation topics!

In honor of intellectually squeamish MIT biologist Nancy Hopkins, I officially propose the following addition to the vernacular:

pull a Hopkins
intr. v.

1. to become faint or nauseated upon hearing a statement contrary to one’s ideology or dogma.
2. to leave the room, usually dramatically, because of such faintness or nausea.
3. to feign such faintness or nausea as part of a ploy to establish or reinforce a social convention about the limits of acceptable discourse.

e.g.: “I pulled a Hopkins when I heard Bob say that, even though it has never worked, communism is ‘a good idea.’”

Historical source:

“I just couldn’t breathe because this kind of bias makes me physically ill. I would’ve either blacked out or thrown up.” – Professor Nancy Hopkins, in response to Harvard President Larry Summer’s conjecture that women are scarce in certain mathematical disciplines because of genetic differences between the sexes.