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July 28, 2006
Social Security sense and nonsense
First the nonsense. Mark Thoma quotes a Financial Times piece by Rep. Jim Kolbe. For the sake of brevity, the last line from Kolbe says it all.
Far more people would confront the need to rein in entitlements if they understood how they are putting our foreign aid budget in a straitjacket.
By entitlements, Kolbe is speaking broadly to include Social Security, Medicare, etc. To which Mark responds,
I don't have time to deal with this properly, so hopefully comments or other bloggers can put this into it's proper place, but the amount of foreign aid we give relative to the size of the budget, spending on the war, and so on, is miniscule, low among developed countries on a per capita basis (this says 27 billion in 2004).
Indeed. When I read Mark's post, I couldn't help but wonder just how I would properly deal with such a statement. Foreign aid is often smaller than the forecast error in the budget. True, foreign aid would be one among many programs fighting it out for the remaining funds if there were broad cuts in discretionary programs. But my assessment of the situation is that there is a substantial enough lobby to prevent any serious reduction in aid. There are other, larger, more promising targets for the budget axe. Now, might there be some political reason for setting up a false tradeoff between foreign aid and Social Security? Of course. One doesn't have to be all that cynical to see that. There are always political reasons for framing the rhetoric of budget priorities. So take that and see where you end up.
By the way, I'm no huge fan of the current system of foreign aid. What we do spend is often used less than effectively. That doesn't change my opinion of Kolbe's odd comparison.
So that's the nonsense. PGL at Angry Bear chimes in as well, and in a comment to that post he offers up some sense about Social Security. For context, the comments at AB went in the direction of the "trust fund" as often happens when Social Security is the topic. PGL writes,
On this no trust fund argument, consider this analogy. A 53-year old worker has accumulated funds in a private retirement account to which he'll continue to add savings draw from his salry for the next 12 years. In 2018 he retires and wishes to draw funds from his account from 2019 onwards. Imagine his reaction if he were told that his account weren't really there. That's the rightwing argument. Something tells me that this 53-year old would not accept it in the least.
That is a nice illustration to make the point that the trust fund represents a commitment to play by the rules of the game (but see below). And that is precisely how I see the trust fund. It is an accounting device that represents the promise to follow the law as currently written. The accounting device (whether a ledger sheet or a file cabinet full of bonds) is not the important thing. The promise is. As I said a year-and-a-half ago:
We need to be careful about what we mean when we discuss (or imply the possibility of) default lest we fall into rhetorical traps. The "worthless IOU" argument is itself worthless. There are undoubtedly other cases where it has been used to get the attention of the reader and then been cast aside when it has served its purpose.
My opinion on that has not changed.
To elaborate briefly on PGL's point, the government wouldn't tell the holder of a private account that his account no longer exists. Rather, they could allow inflation to eat its purchasing power away, or they could raise the taxes on investment income. The rules of the game can be changed in many ways--some ways are easier and/or more visible than others, and that should not be forgotten. But the basic thrust of his comment is on the mark.
And that brings us back full circle to the Kolbe article about "entitlements" in general and the trade-offs that they imply for present and future Congresses. Entitlements are, in effect, promises. People assumed that those promises would be kept when they made decisions such as how much to save for retirement. Just remember that when people plan how much to contribute to their private retirement funds, they are also making assumptions about future tax rates and inflation rates. However, I'm not sure that we treat those assumptions like promises--we know that tax rates and inflation rates are too fluid to project out 30 years. That is a distinction worth remembering.
Posted by William Polley at July 28, 2006 1:13 AM
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Comments
Very well said. Welcome back to blogging.
Posted by: pgl at July 28, 2006 8:17 AM