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An excellent Jonathan Kaplan

An excellent Jonathan Kaplan article in The Hill notes that when privatization maestro Edward Prescott tried to sell the Treasury Department's professional economists on phase-out "as part of the department’s effort to build support for its plan in academia and on Capitol Hill," the economists told Prescott that lots of the things the administration's been saying about Social Security are, to put it bluntly, untrue. Kaplan also makes the point that this is part of a larger pattern, just one more step in the development of the postmodern presidency as someone once put it.

Every time Ive mentioned

Every time I've mentioned on my blog that faster productivity growth (and therefore faster wage growth) will shrink the Social Security deficit in come the emails complaining that this won't work because wage growth increases Social Security's costs as well as its revenues. You can also find this complaint being made by many a conservative pundit. Make the case to a bigger audience here on TPM, the number of complaints is only higher. But the complaint is wrong. Read the Social Security Administration's annual report and you'll see that it's wrong. Faster productivity growth leads to an improvement in Social Security's finances. That's why one of the assumptions of the (historically more accurate) "low cost scenario" (under which no deficit whatsoever is projected) is that productivity growth will be faster. Read Brad Delong's explanation if you want to know why. The short version is that while initial benefit levels are indexed to wage growth, annual benefits above the initial level increase only at the rate of price inflation.

The Frist Filibuster continues

The Frist Filibuster continues today at Princeton. Congressman Frank Pallone is supposed to be by in about ten minutes and the Princeton Progressive Review folks say they'll be live-blogging his appearance here. Word on the street is that some other pols may join the fun in the days to come.

This is bad. I

This is bad. I see the Social Security mumbo-jumbo has gotten so bad that even the usually sharp Michael Kinsley is taking a sip or two of kool-aid. One problem with the column is the assertion that "if privatization is truly voluntary, it can't do much harm." Kinsley should know better, since he himself writes earlier that "Bush's privatization ideas are a mathematical fraud." Fraudulent business proposals are almost always voluntary. Nobody needs to get suckered in. But they're not harmless. Nor is, say, heroin harmless even though nobody's forced to take it.

A more serious error, in many ways, because it lends a liberal imprimatur to a bit of pure rightwing spin is this: "The problem is fewer and fewer workers supporting more and more retirees." For one thing, it's simply not the case that we're looking at fewer and fewer workers. The population is aging, not shrinking. There will be both more workers and more retirees, it's just that the number of retirees is increasing faster than the number of workers. That's a different sort of problem. And the mere fact of aging doesn't necessarily cause any problems for a pay-as-you-go social insurance plan. The reason is that over time thanks to the accumulation of capital goods, improvements in education, and so forth, workers grow more productive. That's to say that a single person in 2005 can produce a lot more value in terms of goods and services than could a single person in 1905. So we're looking at a smaller worker/retiree ratio in the future, but future workers will be super-sized compared to today's workers and therefore capable of supporting more retirees while also seeing their own livings standards improve.

Now all that notwithstanding, the rapid one-time shift in population composition associated with the baby boom is projected to outpace increases in productivity growth. This, though, was entirely foreseeable a long time ago. And, in fact, a bipartisan commission chaired by Alan Greenspan came up with a plan to cope with the problem, a plan that was passed by the congress and signed into law by Ronald Reagan. That plan was the build-up of a Trust Fund that was supposed to generate sufficient additional money to cover the demographic transition and leave us with clear sailing, which was what we were projected to have in 1983. Now by 2005, clear skies are no longer forecast. What went wrong? Did Greenspan count the number of baby boomers wrong? Well, that would be a pretty stupid mistake. And, in fact, it's not a mistake that was made. Josh Bivens of the Economic Policy Institute took a look at what actually went wrong and concluded that "The deterioration in the 75-year actuarial balance of Social Security that has occurred since 1983 has been caused overwhelmingly by economic developments, trends in disability incidence, and programmatic changes to Social Security."

Specifically productivity growth from 1983-1995 was very bad by historical standards and more people have been becoming disabled than we expected. Fortunately, since 1996 the productivity situation has turned around. Unfortunately, the Social Security Administration adopted a methodological change two years ago that prevents them from considering recent trends in productivity growth that suggest the shortfall will be more like the one originally forecast in 1983 (which is to say nonexistent) than like the one being projected today. Policy measures to increase wage growth, reduce disability rates, and reform immigration -- all of which are worth doing on their own terms -- could very well eliminate the whole problem without any benefit cuts or tax hikes whatsoever.

The president takes a

The president takes a lot of heat from the liberal blogs for all the mumbo-jumbo he puts on offer, but he wouldn't bother unless there were all these people out there eager to lap it up. Case in point, today's witless Washington Post editorial that opens with the astounding observation that "For the past three months Democrats have declined to engage in a debate over Social Security."

Now I'm not sure where Fred Hiatt lives, but here on the planet earth Democrats have very much been engaged in a debate over Social Security. There's a debate on about whether we should have Social Security or whether it should be phased-out and replaced with something radically different. The White House initiated this debate by proposing that we get rid of Social Security, and Democrats have engaged by saying we should keep it. So far, Democrats are winning this debate.

On Planet Hiatt there's some other debate taking place about how we should phase Social Security out and what, exactly, we should replace it with. These can be interesting debates. Reason is a stylish and witty libertarian magazine where several of my friends work. As libertarians, they take it for granted that we should get rid of Social Security. Consequently, they hosted a debate in their pages between James "Dow 36,000" Glassman and Tyler Cowen, a very sharp libertarian economist. Naturally enough, the credibility-deprived hack endorsed something very much like the president's proposal. Cowen prefers to just radically reduce benefits and leave things at that. The debate's worth reading. Nevertheless, this is a whole other debate from the one the country is having right now, which is about whether or not Social Security should be saved. That's the debate Democrats need to be -- and are -- engaged in right now. They have no business engaging in the other debate. Anyone who's genuinely confused as to how a pro-Social Security administration might make the numbers add up can look at any number of plans liberal wonks have put together. But those internecine debates within the Social Security faction are, at the moment, every bit as irrelevant as the internecine debates within the phase out faction. Right now, the debate is about phase out pure and simple. Bush, and the Post, are for it. Democrats are against it.

Efficiency and progress are

Efficiency and progress are ours once more?

On the campaign trail back in 2000, George W. Bush criticized congressional Republicans for trying to "balance the budget on the backs of the poor" for proposing cuts in the Earned Income Tax Credit. The credulous media took this as an indication that Bush was "a different kind of Republican" who would govern the country in a kinder, gentler, more compassionate manner. Now it's clear that he meant something rather different: The congress just shouldn't balance the budget -- screwing over poor people is fine.

How else to understand the budget the House/Senate Conference Committee came up with at the end of last week? It doesn't balance the budget and, thanks to adding even more tax cuts on to what we've already had, doesn't even shrink the deficit. Nor does it even cut spending very much. But it does cut spending on Medicaid and, fulfilling Ed Kilgore's February prediction, managed to turn the excellent idea of cutting farm subsidies into the terrible idea of cutting food stamps. All disagreement aside about how much overall spending is desirable, I don't think you can find anyone who thinks on the merits that giving food and medicine to poor people rank number one -- or even close to number one -- on the list of dubious government projects that ought to be on the chopping block. So how is it that these particular programs wound up being the ones to get the ax? Well, it's not too difficult to understand. These are programs that benefit poor people who can't hire lobbyists and who, therefore, lack clout in a Washington, DC run by a Republican Party that's decided to outsource policymaking to K Street.

There are a few lessons to be learned here. One is that Republicans are bastards. Another is that this is what will happen to Social Security if it's transformed into a welfare program instead of the universal social insurance program it is today. The third is that every conservative who promises that no such thing will ever happen but who isn't exactly speaking out forthrightly against these "soak the poor" cuts (i.e., pretty much all of them) is not to be trusted.

Warren Buffett who knows

Warren Buffett, who knows a thing or two about investing, comes out against the phase-out (see last item) along with Berkshire Hathaway Vice Chairman Charles Munger, "a self-described right-wing Republican" who thinks "Republicans are out of their cotton-picking minds on this issue." It's not entirely clear if he thinks Republicans are insance because their plan is so bad on the merits, insane because their plan is so politically self-destructive, or insane because it's simply absurd to be having a national conversation about restoring "solvency" to the federal government's best-financed element. Perhaps it's all three!

Enough introducing -- on

Enough introducing -- on to substance. Nicholas Kristof's gone and written what you might call an "objectively pro-privatization" column. He doesn't endorse Bush's privatization drive, or even so much as mention it. But the theme of the column is that the government spends too much money on old people and this plays an important role in shaping the meta-context in which this debate plays out in favor of the sort of sharp benefit cuts the White House is putting on the table. What's more, it contains a plug for the work of Laurence Kotlikoff. If you're not familiar with the man or his book what you need to know is that he's perhaps the chief useful idiot of the privatization drive.

Kotlikoff, as you can tell from Kristof's column, is very concerned that the government spends too much money on the people who are old right now, and the people who will be retired soon, and not enough on younger people. The phase-out crowd is a great fan of his book and mentions it constantly. I spent the day a couple of weeks ago at a Heritage Foundation event on Social Security where, naturally enough, you had a lot of privatization advocates, and several of them mentioned Kotlikoff and the analysis presented in his book as an important reason to support the phase-out. Funny thing, though, was that none of them said anything about Kotlikoff's views as to what we should do about it.

Kotlikoff favors replacing Social Security with something that's been given a name that sounds like "private accounts" or "personal accounts" or whatever it is we're supposed to call them nowadays. But his accounts are nothing like the ones Bush is pushing for. Individuals have no control over them -- each and every citizen's money is going to be invested the exact same way according to a formula devised by a government computer somewhere. In essence what he's proposing is simply that the Social Security administration invest the Trust Fund partially in stocks and other private assets. In order to overcome a couple technical problems with that plan, he splits the money up into a whole bunch of pseudo-personal accounts as a kind of accounting device. This bares about the same relationship to accounts à la Bush as the administration's claim that it doesn't ship terrorism suspects abroad to have them tortured does to the truth.

The other, even bigger difference, is that while Bush's accounts are financed through massive amounts of borrowing from some unspecified source, Kotlikoff's accounts are financed through a hefty sales tax. This is important not just because of the difference between a fiscally responsible plan and an irresponsible one. It's important because consumption taxes, like a sales tax or a VAT, are taxes that fall much heavier on old people than do the income and payroll taxes that the government depends on for the vast majority of its revenue. Retired people, by definition, don't earn much income. They also tend not to save any money, since they're at a point in their lives when they're focused on spending down whatever savings they may have. But they do buy stuff, so a 10 percent sales tax would wind up taking a lot of money from them. This is key, because the whole point is that Kotlikoff and Kristof think the government spends too much money on the people who are at-or-near retirement, and not enough on younger people.

What Bush is pushing -- and what's being pushed with many a reference to Kotlikoff's book -- does the reverse. If you're 55 or older when the plan passes, nothing changes for you. If you're 50 or 45, you do face some benefit cuts, but they're not all that big. That's because the way switching from price indexing to wage indexing (whether fully or, as we're now being asked to swallow, partially) works is that there's a little cut the first year, then a little cut the next year, then another cut, then another cut, then another, and so on down the road until quite literally the end of time. Once you get to somebody Josh's age, the cuts are looking pretty steep. If, like me, you were born in 1981, they get even steeper. My younger brother's benefits will be cut even more, and our little cousin Rebecca gets the biggest cuts of all.

Now as it happens, I think this whole Kristof/Kotlikoff analysis is off-base. Yes, meeting all our promises under Social Security and Medicare will cost a lot of money in the future. But the great thing about the future, is that between now and then our economy will grow, just as today's economy is much larger than was the economy back when Social Security was first created. With that additional wealth, we should be able to take care of retirees and children alike without too much trouble. But even if you do buy what Kristof's selling, don't buy Bush's brand of snake-oil. He's not taking from granny to help out my generation. He's taking from us -- and even more from our future children and grandchildren -- to finance tax cuts and generate administrative fees for his contributors in the financial services industry.

Greetings The only appropriate

Greetings! The only appropriate way to start things off here is by thanking Josh for the kind words and all of his readers for (hopefully) sticking with the site while it's in my hands. Both Josh and several of my predecessors as TPM guest-bloggers have been major inspirations to be over the years, and I can only hope to meet the high standards they've set both online and off.

It also only seems fair to note that I made the gigantic tactical blunder of trying to switch my internet service from DSL to cable modem on a month whose first day happens to be a Sunday. As a result, Verizon's already cut off my DSL service, but Comcast won't hook up the new service until Monday. Shouldn't be a major problem down the line, but I owe thanks to whoever it is that lives next door and hasn't put a password on their WiFi network. Without you, I'd be nothing.

I'll conclude my introductory post with a shameless plug for my employer, The American Prospect. Those of you who were told Jon Chait you were discomfitted by The New Republic's occassional lapses into rightwingery should find our sweet, sweet orthodoxy reassuring. And like TPM itself, we love Social Security. Not just in the sense of loving the program (though that's important too) -- we love to write about it. You'll be hearing plenty on the subject from me in the next few days, but in case you're left jonesing for more, check out our Social Security Archive.

As regular readers know

As regular readers know, my wife Millet and I were married last month. (It's pronounced Mill-ette. It's a Hebrew name that isn't even a name in Hebrew. Long story. But, as you can imagine, it's one I adore.) And when some readers asked why I had come back online so soon after the big day I explained that we had decided to take our honeymoon in May.

Well, that day is upon us.

We're going to be away, south of the border, for a week. And we're leaving early Sunday morning.

Now, a cynical and untrusting person might say, 'Hey, wait a minute. You spend days raising funds from hundreds of your readers. And the first thing you when you're done is leave the country?'

I admit one can arrange the facts in that way. But I assure you that doing so creates a false impression. Rest assured, I am returning. And TPMCafe is on track for our launch in mid-May.

I'll say a bit more about that in a moment. But first, I want to introduce you to the two guest bloggers who will be minding the store in my absence: Matthew Yglesias and Kenneth Baer.

I'm never up to speed with what all the latest blogs are. But I started reading Matt's blog when he was still in college only two or three years ago. He's a staff writer now at The American Prospect. And he's simply one of the most impressive young journalists in Washington today, in any part of the profession. I'm especially pleased that he's been such a strong and cogent voice on Social Security since we are sure to face a new tide of bamboozlement in the week ahead.

Kenneth Baer has one foot in the world of journalism and another in the world of brass-tacks DC Democratic operative land. He was a speechwriter for Al Gore in 90s. And I find that usually when I bring up this or that Democratic pol in conversation, it ends up that he's either worked for them, worked for someone who was running against them, wrote a speech for them or knows some secret about them that I'm psyched to know but would just assume others didn't. In any case, he knows Democratic DC -- a diminished specimen, admittedly, but still worth knowing more about.

Kenny's guest blogging stint, which will get started Wednesday afternoon, because he's following the British elections (which are next Thursday) extremely closely. So he'll be able to get you up to speed on Wednesday and explain all the ins and outs of it as the results come in Thursday evening.

I'll be back on Sunday.

Let me sign off with a note to contributors. Again, thank you. More than 1500 of you contributed over the previous ten days. You all gave generously. And many of you wrote notes that meant a great deal to me. To say that I was and am humbled would be an understatement. But I must confess that that was not my only or perhaps even my most potent feeling. As I looked over the notes yesterday and the names of various contributors, I had this moment when I imagined all of the various contributors in a crowd or all together in one place. And the thought suddenly came to me: #$@!, I really better make sure this thing doesn't suck!

So, let's hope. But I think you're going to like what we've come up with. We've got a great stable of contributors lined up. Journalists, pols, essayists, political operatives, novelists, policy hands, academics and various people I'm not precisely sure how to categorize. We're also working on new ways for the community of people who read this site to communicate with each other and contribute to the site with their own ideas, insights and observations.

And one other thing. And this again to contributors. In many of your notes you write "to Josh and staff" or something like that. Well, there is no staff. There are various folks without whom I couldn't put this site together -- the guy who helps me with the tech side of the operation, my research assistant and others. But the site has never had a staff -- as in people beside me who have regular paid job working on this site. That, in fact, was the main reason, for the fundraiser, because with the new site in addition to TPM I need to hire a staff of at least one to help me run the whole thing. As of now, though, no staff. Which brings me to my final point. As I said, I'm very appreciative of all your contributions. And I'm responding to each of you individually with a note of thanks or responding to questions you asked. But, honestly, writing 1500+ thank you notes takes a long time. This was actually the only major planning failure of the whole fundraiser. Tomorrow I'm leaving for my honeymoon and I feel confident my marriage will not last long if I spend much of any time working on writing the thank you notes.

All of which is a long way of saying that most of you won't hear from me individually till after I get back. But let me assure you nonetheless that your contributions are greatly appreciated.

I'll be back in a week.