« A Brief Note | Main | Who Cares »
Wait And See
Today's column makes the case for not solving the Social Security pseudo-crisis until we know whether or not it will actually arise and what it's scale will be. Instead, why not focus on the problems -- with the non-SS budget deficit and the health care system, for example -- that we know we have right now? One issue looking at the projections raises, however, is this. If the Trustee's Report is right and we're headed for a prolonged post-2012 period of slow productivity growth, this will be very bad across the board for all sorts of reasons. Among other things, it will create a real Social Security problem. Indeed, it will create problems just about everywhere. So if we think that's likely, shouldn't we be thinking about what we can do to avoid that occurence? Obviously, economists don't know for sure what sort of policies help create robust productivity growth, but surely they know something about the subject....
December 14, 2004 | Permalink
TrackBack
TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345160fd69e200d83457522d69e2
Listed below are links to weblogs that reference Wait And See:
» It's not "NEWS" exactly, but it's as close as they'll let us get... from Who Tends the Fires
The Word(s) for the Day are: "Electoral Buccaneering" and "Zell in the FOX House" Muchas gras for the handful of "Welcome back!" emails. ;) I have to note in passing that I'm not much for the "apologies for the lack of free icecream" style of blogging:... [Read More]
Tracked on Dec 16, 2004 6:10:56 PM
Comments
My preferred solution of not paying rich and upper middle class people is best implemented early and slowly so people can plan ahead. I would suggest reducing the benefits of the top 1/3 by 3 1/3% every year for 30 years. Best to start that type of solution now rather than later.
But of course, I'm an evil conservative. :)
Posted by: Sebastian Holsclaw | Dec 14, 2004 12:57:09 PM
You know what helps productivity? National Savings. Know how to increase National Savings? Don't run huge budget deficits.
Posted by: Rob | Dec 14, 2004 1:07:05 PM
What's with this projected post-2012 era of slow growth? Population? Oil shortages? The full impact of Bushisms?
Posted by: Jeffrey Davis | Dec 14, 2004 1:07:18 PM
MY, you aren't thinking like a power hungry partisan. SS is one of the few issues where the Dems can blow the Republicans out of the water if the rhetoric is right. People like and trust social security, and if the dems can successfully show that the Republicans in the house and senate are trying to take it away in the fall of 2006, we could be looking at some big gains. If I was a big Democrat, I'd be pounding away at the Republicans for lying, fearmongering and trying to dismantle SS every single day. It's an easy win.
Posted by: dstein | Dec 14, 2004 1:09:04 PM
Well... I seem to remember reading something on Brad DeLong on this subject... something about "Schumpeterian booms and busts" or something. The idea is that the technologies that have driven the current boom (microchip and transistor technologies, etc) will reach their theoretical limits around 2015 (or something) based on current rates of progress, and by then, we won't be able to make improvements in processor speed based on refinements of existing technology because electrons just don't travel through copper that fast, and the size of atoms simply won't allow for much small switches, much as in the 1970s, when the last productivity boom ran out, we simply had finished replacing all the gravity-driven factories with open-plan factories, and the car had reached technological maturity and penetration to most of the people who wanted one, etc.
A permenant "Schumpeterian boom" might be impossible, but if not, the keys to creating it seem (to me) to lie neither in macroeconomic concerns like ensuring sufficient demand nor in microeconomic, efficiency-related concerns like marginal tax rates or Social Security funding, but in generating fundamentally new technologies for businesses to exploit and invest in. I don't know how to do this. My crude liberal idea is to increase funding for the basic-to-intermediate sciences and try to train or import more scientists, so that we can build a backlog of new ideas that businessmen can invest in before any of them pewter out leading us back into the 1975-1995 style productivity slump. That takes a rather mechanistic view of scientific/technological progress that's probably unworkable in the real world, though, like when you're playing Civilization and devote all of your government's finances to "science" so you can discover gunpowder in 6 turns rather than the 12 that it would take if you were doing it with 50% science, 20% luxuries, 30% taxes, or whatever.
Posted by: Julian Elson | Dec 14, 2004 1:18:04 PM
"If I was a big Democrat, I'd be pounding away at the Republicans for lying, fearmongering and trying to dismantle SS every single day. It's an easy win."
Well, my son is 24 years old and can't wait for SS to offer some sort of private account similar to what civil service get. Its pretty hard to convince someone owning an account is so terribly much worse than owning a politician's promise.
Posted by: Abdul Abulbul Amir | Dec 14, 2004 1:19:21 PM
Hell, Kevin Drum points out that the Doomsday date the privatizers use keeps getting pushed back. In 1994, the drop-dead date was 2029; now, ten years later, it's 2042 -- and that's using the most pessimistic estimate.
In other words, in ten years we've added three years, at minimum, to the thirty-five-year cushion.
Posted by: Phoenix Woman | Dec 14, 2004 1:19:59 PM
Look, it's simple: In 2042, Social Security will either:
a. need a little more cash (our plan)
b. no longer exist (their plan)
I think discussing these possibilities makes good sense.
Posted by: bobo brooks | Dec 14, 2004 1:22:45 PM
Economists may not know which policies create robust productivity growth, but they know which economic policies create the conditions for such growth. Keynesian pump-priming when the economy slows, taxes to cool it down when it overheats, and broad social programs to maintain predictable demand for basic services and needs- these have all been proven to work.
I am well aware that people who were born rich, and have never had to work for a living, have enjoyed a fantasy existence of reaping the benefits of socialism through their ownership of war industries while they attack Keynes, whom they have never forgiven for being right in the 30s.
The fact remains, if we solved problems like the outsize chunk of GNP devoured by our immensely wasteful private medicine scam, it would be easy to reduce SS benefits if we needed to.
If you don't believe that, go to your local pharmacy and watch the elderly paying $200-$300 as they pick up their prescriptions. It should come as no surprise that an economy dependent on fleecing the poorest citizens is anticipating big trouble down the road.
Posted by: serial catowner | Dec 14, 2004 1:24:31 PM
"If you don't believe that, go to your local pharmacy and watch the elderly paying $200-$300 as they pick up their prescriptions. It should come as no surprise that an economy dependent on fleecing the poorest citizens is anticipating big trouble down the road."
Are not the elderly the wealthiest segment of this society? Your image seems to be abour 70 years out of date.
Posted by: Abdul Abulbul Amir | Dec 14, 2004 1:30:10 PM
Julian, you are being much too techincal and are giving the trustees too much credit. The productivity slowdown just means the actuaries are using long term Post-WWII productivity growht going forward. And that is harmed by the 20 year period 1973-1990 or so. If those 20 years are normal things will be bad. If they aren't and the 1948-1972 and 1991-2004 periods are more the norm than there is no problem.
Posted by: Rob | Dec 14, 2004 1:33:24 PM
A single payer medical system would be cheaper and more beneficial than what we have now, but you'd be asking Republicans to admit that they're wrong about this, too.
Posted by: Jeffrey Davis | Dec 14, 2004 1:34:02 PM
1991-2004?
Ah, so GDP growth is the only measure. If job growth stays as is, we're all in the toilet.
Posted by: Jeffrey Davis | Dec 14, 2004 1:35:34 PM
Neither economists nor anyone else can accurately predict "a prolonged ... period of slow productivity growth" beginning 7 years in the future. They can't even predict GNP growth or oil prices in 2 years. Ridiculous notion.
Posted by: ostap | Dec 14, 2004 1:36:14 PM
Delong has this exactly right. This is a general fund problem, not an SS problem. And it is a problem that did not exist when Bush was elected.
Sebastian also puts forth a good proposal (although a time machine to implement it instead of Alan Greenspan's fix, would be even better).
Posted by: theCoach | Dec 14, 2004 1:39:19 PM
No, Jeffery we are talking about productivity growth. That leads to GDP growth and job increases in most cases. Why it hasn't during Bush's term is an important question that no one knows the answer.
Posted by: Rob | Dec 14, 2004 1:44:36 PM
Neither economists nor anyone else can accurately predict "a prolonged ... period of slow productivity growth" beginning 7 years in the future.
Right, but we also cannot predict a prolonged period of high productivity growth beginning 7 years in the future, so, like all sensible people, we hedge our bets and go with the more pessimistic estimate.
Posted by: Kimmitt | Dec 14, 2004 1:57:09 PM
Some economists like to put forth the conceit that their ten-year projections or predictions have value, to say nothing of their multi-decade projections and predictions. This is due to the simple fact that there is a lot less prestige, influence, and money to be had by saying, "I really only have a very, very, foggy notion, if that, of what the world will be like 20 years from now". Thus, much blather ensues.
To guard against the worst scenarios, it would seem wise to stop transferring wages to people with the means to care for themselves more than adequately. In a burst of wild optimism, there are times when I start to believe that there may be a consensus beginning to form around this notion, a consensus that goes beyond the typical tribal loyalties. I probably need to lay off the gin in the morning.
Posted by: Will Allen | Dec 14, 2004 2:01:04 PM
"Why it hasn't during Bush's term is an important question that no one knows the answer."
Well one clue is oil prices doubling without a corresponding rise in measured inflation. I am just another jerk with a little dangerous knowledge, but the pegged currencies have disguised a real decline in the dollar. If productivity is calculated by GDP in dollars divided by man-hours, *Real* productivity has probably not increased as much as it seems. One could test by converting dollars to euros or barrels of oil, and then drawing your charts.
And technological advances are sometimes primed by government research spending, and subsidizing early adopters. Arnie seems to think it might do some good with stem cells in California, Bush said something about helping hydro-cars. We should have a massive energy-research program, and fund NIH generously.
Posted by: bob mcmanus | Dec 14, 2004 2:05:14 PM
Of course economists know what helps productivity growth along.
1) Clamp down on dirty outsourcing.
2) Tax investment to the greatest extent possible, because only rich people make investments, and what do they have to do with productivity?
3) Raise corporate taxes.
4) Stimulate current demand with good ole low and middle income 'targeted' tax cuts. Don't ask too many questions about how the stimulation of current spending at WalMart combined with the taxing of WalMart at a higher rate is supposed to help productivity. You need a DNC decoder ring.
5) This is the important part. Remember that productivity doesn't matter at all. Historic increases in productivity are absolutely not to be taken as a sign of a healthy economy.
Posted by: Jason Ligon | Dec 14, 2004 2:20:58 PM
Are not the elderly the wealthiest segment of this society? Your image seems to be abour 70 years out of date.
I'm interested in whether or not you have any data to support this. What is your definition of elderly/what age group are we talking about? Looking at averages, I could see how this could be true. As your age limit goes up, more poor old people die due to lack of adequate medical care. You then get a higher percentage of wealthy old people. People who earn a lot of money while young tend not to lose it by the time they are old. As people age they have had more chances to earn money/save, so those who have when young will have more when old. I haven't looked at any statistics or numbers, just my musings, but it seems that your position that the elderly are the wealthiest segment smells like Bush's "average tax cut".
Posted by: Rambuncle | Dec 14, 2004 2:29:12 PM
What is Social Security? Is it a retirement plan? Is it socialized medicine? Is it alcohol/drug rehab? Is it welfare?
Posted by: Dan from Cos | Dec 14, 2004 2:49:39 PM
rambuncle, the 65-74 age cohort has the 2nd highest median (not average) net worth, behind the 55-64 age cohort. As retirees get past 75, of course, they consume more of their net worth, but it still is higher than that of people in their 20s and 30s. Do some googling if you doubt this (and my memory might be slightly off on how the age brackets were broken down), but rest assured, the cohort just prior to typical retirement, and the cohort just after typical retirement have the highest median (again, not average) net worths.
As far as life expectancy and eledrly, a 65 year old in the U.S. has a higher life expectancy that 65 years olds anywhere on the planet, including the medical nirvanas of Canada, France, or anyplace else. A good deal of the differences regarding life expectancy at birth between the U.S. and other countries has to do with the fact that young Americans get killed through homicides, automobile accidents, and other sudden deaths unrelated to medical care (although one gets the best trauma care in the U.S., due to experience), than what occurs in other industrialized countries.
Factor in that the U.S. medical system goes to much greater lengths to save severely premature infants, and records the deaths of these people differently, and that Americans are the most obese, sedentary, people in the industrialized world, and the differences in life expectancy at birth may not have much to do with quality of medical care. Of course, one also cannot definitively say that American retirees live longer than others due to superior medical care. It is simply in error, however, to assert that Americans above the age of 65 suffer, in terms of life expectancy, due to medical care, compared to other nations.
Posted by: Will Allen | Dec 14, 2004 2:52:58 PM
As people age they have had more chances to earn money/save, so those who have when young will have more when old. I haven't looked at any statistics or numbers, just my musings, but it seems that your position that the elderly are the wealthiest segment smells like Bush's "average tax cut".
Rambuncle: You make some good points. I hadn't thought about the "winnowing" effect on poor people (namely, that they don't live as long as the wealthy, and thus wealthier people are more likely to surivive into old age). I'm sure your comment about saving when you're young is likewise true; surely if you earn a lot or have access to wealth when you're young, you're more likely than a poor young person to end up wealthy in your old age.
But I would ask: what of it? Sebastian is making the (I think valid) claim that the aged are wealthier than the general population, and that this fact should be considered when formulating policy. Or are you perhaps of the opinion that we ought to be more generous than we are currently with the tax dollars we spend via checks to retirees (some of whom have no need of the money)?
Posted by: P.B. Almeida | Dec 14, 2004 2:58:35 PM
Matt- good column.
We need to browbeat the press about the non-SS part of the budget. Right now, it is getting help from SS revenue that is being used for other thngs (like tax cuts for the wealthy). The non-SS revenue has to improve. Bush thinks his tax cuts will eventually stimulate the economy enough that revenue will improve. Not a chance. To pay for 2003 spending at the 16.5% Revenue rate, the economy would have to be $13.1 Trillion, not $10.8 Trillion, an increase in over 20%. That kind of increase might be nice but it won't happen.
If we spend over 20% of GDP, we need to collect over 20% of GDP as revenue. Right now we are collecting less than 17%.
Posted by: bakho | Dec 14, 2004 3:07:35 PM
The comments to this entry are closed.
