God Bless Us Everyone

Except those that aren't like us. It's not surprising, but it's still shocking. I'll never match Gibson's pithy quote, but some of the civil liberties details in the report itself are striking. Only half of Republicans believe Americans should have the right to protest or criticize the government in a time of war. Half think the media should not report such activities. In general, the gap between Republicans and Democrats on the questions asked was about 20%. When they say, "Freedom isn't free," they must mean something else.

labels, labels, labels

Mark Kleiman says that we need a label, but Social Insecurity seems much too dry.

The Retirement Lottery seems better, but not as good as Pick-65. Without a Net captures the essence. So does Not Our Problem. Homeless.gov and Enron-401K+ go to the heart of the matter.

It's surprisingly hard to pick just one.

how I know I'm not a wonk

Matthew Yglesias recalls a preferred social security framework from shortly after dawn of the second age. It's full of progressivity, mandatory private accounts, moral hazard mitigation, and refundable tax credits.

As for as I can see, however, it boils down to welfare for indigent seniors. I don't see, for example, how forcing private savings, sequestering the funds, then granting tax credits to cover the cost does anything to eliminate the "moral hazard." But then, I don't really believe there are all that many people so happy with their lives on the dole that they wouldn't lift a finger to improve their lot. I'm sure there are some, but it doesn't cost all that much to support someone in poverty, so unless there are hordes happy to live in dirty, vertical hovels, I can't see the "moral hazard" of the arrangement ruining the republic. Did we actually spend more last year on people in poverty than we did on Iraq? Why do people who would never choose to live in poverty themselves always assume that everyone else is just looking for their chance?

It must be hard to have so many policy tools at your fingertips that you can't figure out how to use them all.

executive compensation

Kevin Drum lists a number of reasons that executive compensation keeps rising. He could add to the list the common wisdom that good executive performance requires that executives identify their companies' interests with their own. Once executives become wealthy, it requires ever more compensation to achieve this alignment of interests. In many cases, companies go back to shareholders time and again asking for increased equity compensation in order to 'retain key employees,' then spend it increasing the stake of executives who are already major shareholders. This inflates the salaries of high-profile executives and feeds back into the "everyone's above average" spiral.

Perhaps the most pernicious aspect is that the equation often ends up reversing. Having been told for years that good corporate governance requires that CEOs equate the company's prospects as their own, CEOs can be tempted to conclude that anything good for them is in fact good for the company. Even if that temptation never rises to conscious action, it can influence decisions.

we've done it before

Earlier, I asked how we could absorb the 10% drop in production implied by 2030 demographics. Can we all just accept a 10% decrease in our standard of living relative to what it would have been without retiring boomers? Do we have to? It's hard to say, but we've done it before.

Between 1970 and 2002, real per capita GDP rose 86%. Over the same period, the post tax income of the bottom 90% of taxpayers declined slightly. Our society became far more productive, but the circumstances of the vast majority of the population did not change. If the next 30 years are similar, all we need to do to absorb the retirement bubble is redirect some of the wealth headed for the richest 10% to retirees. All we have to do is get over the quaint notion that the wealthiest of us are "punished" by higher marginal tax rates. Even with higher marginal taxes, the wealthy would remain wealthy.

It's a bird, it's a plane...

Mark Kleiman points to Brad Delong's pointer to unfogged's observation and suggests that we should stop talking about social security in isolation, and talk instead about the crisis in the general fund. I think that stops a bit short.

What we have is not really a funding crisis at all, but a demographic crisis. When people talk of the "aging baby boom," they're referring to a demographic phenomenon where from 2010 to 2030 the percentage of the population between 20 and 64 will drop from 60% to 55%, a drop of 8%. For a given level of workforce productivity, this equates to an 8% drop in per capita GDP. Alternatively, in 2010, the average person of productive age will be supporting 2/3 of a person of non-productive age. In 2030, they will be supporting 4/5, a 22% increase.

All the discussion about privatization vs SS vs general fund obscures this fundamental point. A real economic investment for 2030 is one that will improve productivity of the kind we will need in 2030, and that's very difficult to do today. We have to hope the market does a good job. Perhaps we can nudge it a little by funding research in the areas we're likely to need to do well, but we can't start building a stockpile of medical equipment or supplies we can use 25 years from now. We can hope the private sector increases overall productivity, but the shift (most of which occurs between 2020 and 2030) will still eat 8% of our productivity gains. If we cover the difference by increasing taxes, productive adults will see the cost in tax increases. If we cover the difference by increasing ownership among retirees, productive adults will see the cost in mandatory private investment in the "ownership society."

One way to illustrate the fallacy that privatization will solve the problem is to consider the private pension crisis, where funds run by professional money managers are going bankrupt and heading for government bailout in the face of demographic failures similar to those faced by the society at large.

The choice of solution is important. Privatization, for example, will mean that some peoples' investments will perform much better than others. They'll be able to retire quite comfortably. Others will see their savings wiped out--the overly aggressive by market downturns and the overly conservative by inflation. Equitable solutions are vital, but we can't have any real solutions without facing up to the real problem. Neither viewing the problem as an impending catastrophic failure of a government program nor as a minor accounting irregularity that can be solved by a minor tax increase today or a minor benefit cut tomorrow does that.

As it happens, we've already gone through a 30 year period where productivity rose by 10% without the gains being broadly realized. Maybe we can look at the period of 1970-2000 for hints on how to proceed.

just a little slow

Kevin Drum suggests eliminating corporate income tax, but worries about people using corporate money to pay for personal expenses. The problem isn't that corporation money would go to personal expenses, but that such a change would make it even easier for corporations to amass wealth without paying taxes. Everyone wealthy enough to do so would move their assets into privately-held corporations, making all investment income tax-free until withdrawn and spent.

To understand why corporate spending on personal expenses wouldn't become a bigger problem, consider what happens today when Joe Executive has a $100 dinner on an expense account. He pays no income tax on that dinner, and the company gets to deduct the cost from its income. Since Joe's rich (and lives in California), the company would have had to pay him about $200 for him to buy the meal with his own income. Having the company pay for it reduces the tab to $100. A 35% corporate tax reduces the net bill to the company to $65. If the corporate tax were eliminated, it would still be attractive for companies to pay for personal expenses, but less attractive than it is today.

Making corporate income tax-free, on the other hand, creates a large incentive to keep assets in the corporation as long as possible. With a 35% marginal tax rate, a taxable investment of $100 with a 5% return over thirty years grows to $260. The same investment allowed to compound tax free, then taxed at 35% grows to $320.

Some people would claim that's a good thing, that letting investments like that grow will put more money in peoples' hands rather than the government's, but that's not really the question. If we assume government spending and tax revenue are connected (an assumption that seems weaker with every passing budget), then the overall tax rate will approximately match government spending, no matter the details. If we cease taxing investment income, we'll have to raise taxes on something else: wages, consumption, value-add, carbon dioxide production. Eliminating taxes on investment return favors those able to save a large portion of their earnings over those who can't or won't. A justice argument might be tenable against those who won't, but not against those who can't.

Baby eating

I ran across a pointer to this gem again. As much as I admire the glorious symmetry of the premise and solution ("The blue states are godless, immoral, and don't show us enough respect, so they aren't worthy to be in our union"), I'm afraid it would never work. The red states, after all, are fond of pointing out that they're militaristic and view abortion as a holocaust of innocents. Within a few years of our expulsion (and their loss of blue state subsidies), they'd be morally compelled to invade us to save the children.

corruption and politics

People always talk about corruption in politics as if the problem we need to solve reduces to some form of quid pro quo. Ian Ayres and Bruce Ackerman, for example, suggest an scheme to anonymize transactions to the point that quids can't be guaranteed, and suggest this will eliminate or greatly reduce quos.

Unfortunately, corruption of the political system (grand corruption, if you will) does not depend on individual corruption (petty corruption). There are no doubt dishonest politicians looking for handouts in return for favors, but there are plenty of true believers out there who would pursue the same policy goals honestly and sincerely, and as long as money speaks, the true believers who align with the interests of money will get the support of money. True believers may actually be worse representatives than corrupt opportunists. An opportunist, after all, will do anyone a favor for a price. True believers only represent those whose views match their own.

It's not a big thing, but

We had a city council race on Tuesday. The pro-development candidates swept the last election due to some really shortsighted decisions by retiring members of the previous council. This time around, the slow growth candidates are ahead with some absentee and provisional ballots still to be counted. The pro-development candidates are sending out mail reassuring their supporters that they'll have a lawyer present during the counting of the ballots to protect their interests.

Apparently, they think the slow growth group that struggled to raise funds and mobilize volunteers in the shadows of the national race had enough of both to organize voter fraud. Or maybe they're just emulating their heroes on the national scene.

A stranger in a strange land

I grew up in Anaheim, Orange County, CA. I've always been a liberal. It never occurred to me that there was an alternative. Nothing else ever made sense. At one point, I realized that my entire extended family was Republican: my parents, my surviving grandparents, my aunts, uncles, and cousins; my sister, her husband and his entire family. A small epiphany of isolation, but one I never felt while growing up. I simply believed what I believed.

You might think that experience would have prepare me to live under Republican rule, but you would be wrong. For the last four years, I have watched the Bush administration lay waste to much that I hold dear, and now I have watched the voters of this country ratify those acts. I look at county voting maps and see a Red country with isolated pockets of Blue. I see hatred and intolerance triumphant. It is too much, but even after I close my eyes, it remains.