If you haven’t seen it already, check out the Morgan Spurlock Watch, by my intrepid colleague Radley Balko. Who we should all thank, by the way, for doing the Lord’s work.
Monthly Archives: July 2005
The Case for Carve Outs
My brilliant colleague Jagadeesh Gokhale explains why the notion that personal accounts and Social Security solvency are unrelated is a canard.
Here’s the core of the argument:
The difference between the two projections of future benefit levels funded out of present law payroll taxes — higher ones under “add-on” personal accounts versus lower ones under a “status-quo” hike in payroll taxes — constitutes the basic case for “carve-out” personal accounts. How come? If “add-on” accounts to pay for benefits that are promised but unpayable under present law effectively increases saving and investment and preserves work incentives, the (lower) level of payable benefits under a “status quo” payroll tax hike could be financed with a less than 12.4 percent payroll tax rate under the “add-on” policy. That implies room for a “carve out” — that is, for diverting a part of present law payroll taxes into personal accounts.
How large would be the size of a feasible carve out? Would it ultimately completely do away with the need for “add-on” contributions? These are difficult questions to answer. Two considerations suggest, however, that the scope for carve-outs could be large. First, several studies report that payroll taxes add significantly to marginal tax rates — especially for households’ secondary earners — and that labor supply is quite sensitive to higher taxes. Noteworthy here is a recent study by economics Nobel laureate Edward Prescott that attributes the significant decline in European labor supply relative to the United States since the 1970s to higher European social insurance taxes.
Second, loss in annual output because of the savings-reducing impact of the current Social Security system’s pay-as-you-go financing structure is estimated to be of the same size as total current outlays on Social Security. That is, were the existing system based entirely on “add-on” personal accounts, the gain in annual output due to higher saving and capital formation would have been about as large as total current outlays on Social Security.
It’s a complicated argument, but nobody ever said getting it right is easy.
Comments Open
Something about TypeKey ain’t working right, and has been suppressing comment turnout, so I’ve re-opened non-registered comments. Speak! Speak!!!
[UPDATE: Bad idea. Spam deluge. Non-registration un-re-opened. Freedom revoked!]
The Mysterious Easterbrook Justice Detector
From Gregg Easterbrook’s The Progress Paradox:
Considering taxes, a person working full-time at the federal minimum would have to spend and entire days wages to buy a $7 Au Bon Pain sandwich combo for lunch each business week. This simply is not right.
I assume he means “each day of the business week.” Anyway, what a weird thing to say! $7 is a hell of a lot to spend each day for lunch. Not considering taxes that’s $35 a week, $140 a month, $1680 a year. Is it a baseline of justice that the daily $7 lunch be within reach of each and every one of us. $140 a month is a reasonable monthly food budget including breakfast, lunch, and dinner. My guess is that you can easily make a better than Au Bon Pain quality combo at home for way less than $3 a day. Should you be able to do it on $1.50? $.25? Where (oh where!) can one purchase an Easterbrook economic rightness-o-meter?
What else? A person working full-time at the median wage would have to spend an entire week’s wages eating every work day at the Outback Steakhouse, and that’s simply not right? Could be? But how do you tell!?
Buller in Sci-Am
There’s a nice interview with my old prof David Buller in Scientific American about his new book on evolutionary psycvhology, which serves a good short introduction to the themes of his work.
The Unnerving Risk of Being Wealthy: Becoming Slightly Less Wealthy!
So, here’s Jacob Hacker:
The big economic trends of the past 30 years–deregulation, deindustrialization, increased foreign competition, the decline of unions, the transformation of the family from single breadwinners into two-earners balancing work and kids–have all created powerful new forces pushing toward increased insecurity. Americans are richer than they were a generation ago. But they are also facing much more dramatic swings in their income, as I have argued before in these pages (“False Positive,” August 16, 2004). Over the past decade, moreover, insecurity has moved up the economic ladder. Increasingly, educated middle-class Americans are riding the economic roller coaster once reserved for the working poor.
I’ve been trying to find someone to tell me that people like Hacker are saying something that is more significant than, say, the risk of being hurt in a car accident went way up after most everyone got car. It’s just totally trivial that you can’t face the “risk” of your income dropping from $80 to $60K a year if you never made $80K. But why exactly is it that the “risk” of losing a quarter of your income is a risk anyone ought to care about if you’ll still be pretty damn rich when you hit the downside. I understand what’s going on when people want the state to guarantee a minimum, but I am totally mystified by the normative sensibility behind Hackeresque worries about increasing volatility for the upper and middle classes.
We are richer because of the possibility of swings in income. The efficiency of the economic order, and the overall rate of growth, depends on the ability of the system to dynamically allocate resources to their most valuable use. This entails a fair amount of turbulence inside the general upward trend. Our economic security requires that we be exposed to some income volatility.
If the system isn’t routinely plunging lots of folks below the threshold of sufficiency, then there is simply nothing for a sane liberal to worry about. The implied idea that people have some kind of positive entitlement to a certain level of income once they’ve achieved it, such that other citizens are on the tax-hook to keep them there, is just stupefying. Needing to trade in your Mercedes for a Honda, moving to a smaller McMansion, is not an injustice that demands compensation, nor a loss that may justly be reimbursed by “society.” (This is, it appears, the kind of idea that the left proudly holds up as a stinging retort to the charge that they don’t have any. Amazing.)
Hacker is exploiting the fact that we are subject to a tendency to loss aversion (endowment effects, status quo biases, etc.) to give credibility to the idea that income volatility entails a kind of economic “insecurity” and to thereby move the goalposts of a humane liberal social policy. And volatility certainly is a source of psychological insecurity. But so is girlfriend volatility, Nationals winning streak volatility, etc. Economic security in the good old objective New Deal CES sense meant security against the threat of economic deprivation, which is the kind of security we should care most about. And it is the dynamism of a high-growth economic system that provides it.
If people want wage insurance, then what we need the state to do is to allow the market to provide it. Then, the people who want it can get it by buying it. It’s that easy!
Magic Chaitball: Outlook Not So Good
Yglesias thinks Chait’s sermon on the irrelevance of ideas is “the definitive rebuttal of the notion that Republicans are ascendant because they have all the ideas, that Democrats need new ideas to win, that idea-quality or idea-novelty have anything to do with winning, and all such related theses.”
Now, I felt sort of uncomfortable reading the Chait piece because there’s something pretty bitter and depressed about it. To the incontrovertible datum that Democratic ideas are not winning over voters, Chait complains, at length, that voters are stupid and ideas don’t matter anyway. This does not sound like a man of ideas at peace.
He’s right: if “ideas” mean novel projects for the technocracy, then liberals are chock ful of them. I think the real complaint here is that there is nothing to be found that is not a specification of “use state power to make things better, according to our peculiar standards of better.” The problem for liberals is that if that if they give that up, then they’ll stop being who they are. But that’s what the voters, the stupid, stupid voters, aren’t resonating to. So what we’ve really got here is a crisis of identity — the threat that integrity is equivalent to obsolescence.
So how to respond to New Deal/Great Society liberalism’s mid-senescence crisis? Attack! Maybe Chait’s right, and Democrats just need prettier, taller candidates, better attack ads, and soaring rhetoric that taps into the reptilian part of the voters’ brains so that the governing philosophy that we are too stupid to understand and endorse can be imposed upon us, for which we will be grateful, I’m sure.
As Matt says in another post “the lodestar of liberal thinking has to be regaining political power through elections,” which is, I think we can all admit, really something to stir the soul.
Liberal Virtue and the Common Good
Here’s Darrin McMahon in the WSJ, in a piece subtitled, “‘The pursuit of happiness’ is about more than private pleasures”:
For in Christian, classical or Lockean terms, virtue at its highest meant serving one’s fellow citizens, working for the public welfare, furthering the public good. It followed that virtue was the indispensable means to reconcile the conflicts of individual interest.
The last sentence is correct. But the reconciliation of conflict in Lockean-American terms doesn’t entail service of fellow citizens, working for the public good, etc. Virtue in Locke, Hume, Smith, etc., etc., is for the most part about the restraint of self interest to enable social cooperation. But it is self interest, operating within the bounds of virtue, that brings the blessings of society. This is the central liberal insight.
Order need not be teleological, based in the shared pursuit of a common goal. Nor need it be authoritarian, imposed from above by force. Order requires the coordination of individual’s acting for diverse ends, and virtue is of first importance because it enables coordination at the lowest cost, ensuring the greatest mutual benefit. Conscience does not eat into the surplus of cooperation. Cops do.
To think that civil peace or social order requires concerted efforts aimed at its maintenance is to totally misunderstand the idea of liberal order and the idea of liberal virtue. Virtue makes us happy because it enables the largest cooperative surplus and therefore allows us each to do better in self-interested terms. McMahon seems to think virtue makes us happy because our souls glow or something when we pitch in for the public welfare. But that’s not the liberal or the ur-American view.
The common good does require that some of us devote our energies to the maintanence of public institutions, of civil society and government. But the decision to work within public institutions is a personal decision about the kind of life one wants to lead, and is not especially meritorious or virtuous. There is no praise we owe to the bureaucrat that we do not owe to the cosmetologist. The wisdom of market liberalism is that it recognizes that the virtues of market exchange do serve one’s fellow citizens, the public welfare, and the common good, even when it is not aimed at these things.
Happy Independence Day!
Social Change Shots
Pictures of this summer’s IHS Social Change Workshop are popping up all over the internets.
Victor Muniz-Fraticelli has a few here, which link to yet more pictures on his Flickr page.
Matt Mullins has pictures here and here, where I can be seen dominating Alina in thumbwrestling and gesturing rudely.
If you can’t tell by looking, it’s a good time, folks. I’m sorry I couldn’t stay the whole week this year.
[Update: More here from Jose Castellano.]