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Join The Club!

Looking at the slideshow Max found I'm particularly amused by the slide which tries to demonstrate that we should privatize because so many other countries have done so. Talk about your clubs I'd like to join. Half of Latin America -- the global standard for fiscal rectitude -- is on board. And Kazakhstant -- the "azakh" stands for freedom! And Russia and China are in the midst of overhauling their systems. The rightwing's curious passion for Vladimir Putin's land of the flat tax and widespread economic distress is hard to understand. But the problem in the Russian pension system is that the benefits weren't inflation indexed so they all got more-or-less wiped out in the 90s. Fortunately, nowadays life expectancy is so low that they'll be out of the woods soon.

January 26, 2005 | Permalink


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I didn't find it. It was sent to me by Rick Santorum's disgruntled cocker spaniel.

Posted by: Max Sawicky | Jan 26, 2005 2:19:24 PM

I liked the 'SS transfers money from the blacks to white non-working women' slide. Thank god for Sen. Santorum, now we know the truth. Bitches. They'll pay for blacksploitation.

Posted by: abb1 | Jan 26, 2005 3:46:42 PM

>And Russia and China are in the midst of overhauling their systems.

Yeah. The U.S. is also planning to follow Russia's lead in abiding by the Kyoto Protocol, too (i.e., have a catastrophic economic collapse).

As if.

Posted by: bartkid | Jan 26, 2005 3:51:59 PM

My girlfriend is Russian.

Her attitude towards taxes is you shouldn't pay them. That's pretty much the entire Russian attitude, a huge distrust of government.

It appears as though everybody there avoids taxes, and the government pretty much ignores the situation...(maybe a few officials take some graft to look the other way)

Then when a company makes the government mad, suddenly they have these tax laws on the books which they find them guilty of not paying.

Sound like a certain oil company?

Essentially this is old-school economics, the kind of crap Adam Smith warned against.

Posted by: Steve4Clark | Jan 26, 2005 3:57:44 PM

Club for "Growth" (or was that Rich People) has a new blog. And yep - they say Russia's economy is proof that supply-side works. Per capita income less than 25% of ours and real GDP less than when they left Communism. Supply-side works????

Posted by: pgl | Jan 26, 2005 4:04:41 PM

Steve4Clark. Thanks for bringing up Yukos Oil - the scandal that makes former Enron management look like nuns. If one checks out the Club for Growth, they claim Russia is moving towards American capitalism. But if one looks at the economy report for Russia over at the CIA webcite, they say just the opposite. Club for Growth v. the CIA. Who DO you trust?

Posted by: pgl | Jan 26, 2005 4:06:44 PM

"Her attitude towards taxes is you shouldn't pay them. That's pretty much the entire Russian attitude, a huge distrust of government."

This is the cynicism and disillusionment and alienation the Republicans have spent thirty years trying to grow in America. A large reason they are ascendant, and a great obstacle for liberalism to overcome.

Wasn't so in the fifties, not only did people pay high tax rates and let their kids get drafted, but got excited over stuff like the Gemini/Apollo Program and Civil Rights.

The greatest political evil in a democracy is to alienate people from their government. Nuff said.

Posted by: bob mcmanus | Jan 26, 2005 4:07:25 PM

Let me ask you this, folks: if the transition cost didn't matter (say the US government won 10 trillion in a lottery or, say, conquered a county with a lot of oil), would you still prefer a pay-as-you-go system or something based on private saving accounts? Just curious.

Posted by: abb1 | Jan 26, 2005 4:24:23 PM

Maybe we could abolish the thirteenth amendment too. Certain Sudanese would rest easier. Or what about beheading gay people? Maybe the House of Saud would give us a cut rate on light crude. I know. Instead of sodomizing our political prisoners we could dip them in vats of boiling oil like our friends in Uzbekistan.

Posted by: Green Dem | Jan 26, 2005 5:30:54 PM

Jesse's been all over the "Black People Gonna Die" Watch. It's pretty funny. I guess black people just have an innately lower lifespan than whites... or something.

Posted by: Julian Elson | Jan 26, 2005 5:36:47 PM

So will private accounts cause blacks to live longer?

Posted by: Xboy | Jan 26, 2005 9:51:11 PM

The Republican party has been trying to turn the US into a South American economy since Ford lost to Carter. Create enough disparity in wealth, and the democratic process is easily manipulable. Pit one disadvantaged class against another and you can kep power perpetually, without electoral fraud, and never serve the interest of the people.

Posted by: Njorl | Jan 27, 2005 12:13:43 AM

Well, add Sweden to the list. But then as is well-known, it's an extreme right-wing country: school vouchers, jsut abolished estate tax, fully for free trade, and allowing private companies to run an increaisng number of public sector hospitals!

Posted by: fredrik | Jan 27, 2005 3:19:20 AM

Sweden ... jsut abolished estate tax

Is it true? The official website says:

The inheritance tax (succession duty) is a tax on the additional capital received by an heir on the occasion of a person´s death. The tax is based on the amount received.

The inheritance tax is progressive. The rate thus rises as the amount inherited becomes larger. In addition, different tax tables are used depending, among other things, on the relationship between the heir and the deceased.

But I take your point. I'd like to know: if the transition cost wasn't a problem - would the regulars here still prefer a pay-as-you-go or some kind of a front-loaded pension system?


Posted by: abb1 | Jan 27, 2005 4:30:35 AM

Estate tax abolished 15 December 2004; obvioulsy web site managemetn not government's strongest suit.

We had an overly generous earnings-related pension scheme (30 years of contributions, 15 best years counted for level of pension etc) which was regarded as unsustainable in the early 1990'ies in a genreal economic crisis. Replaced by (mainly) a reduced pay as you go system, which is complemetned by personal accounts - each contributor has a choice of funds (managed by banks, etc) to chose between; if none selected, a general, state-run fund is the default option. Older people stayed in old system, but younger phased in depending on age into new. Less than universally popular because 1. reducution of pensions and 2. personal accounts introduced about 2000; and we all know what happened to stocks in the next years.

Posted by: fredrik | Jan 27, 2005 6:45:19 AM

Fredrik, what is it exactly that has been abolished? If my uncle dies and I recieve $10 million inheritance - will it count as my income? I am sure it will. If you're saying that it's a 100% tax-free transfer (as it'll be in the US in 2010), I'd have to see a link to believe you. Thanks.

I think some of the liberals here get carried away a bit with defending the current system and denouncing private accounts. Getting too hysterical may hurt the Democrats in the end. They should try to avoid framing the issue as 'we hate private accounts', rather they should suggest some improvements to the current system that include volunteer option of private accounts; something like what you described.

Posted by: abb1 | Jan 27, 2005 7:07:31 AM

well, abb1, I expect you don't read Swedish, so it is a bit difficult to prove, but it is nonetheless true. No more tax on inheritance. (Well, there is no lakc of other taxes in Sweden of course - most paople have a marginal tax rate of around 60% and pay 23% VAT)

Posted by: fredrik | Jan 27, 2005 11:20:34 AM

"And Kazakhstan -- the "azakh" stands for freedom!"

And the prefix "K" stands for "what?" or "no".


Posted by: Ed Drone | Jan 27, 2005 11:25:08 AM

abb1: You shouldn't fall for the propaganda line that SS is "pay as you go." It hasn't been since the early 1980s.

Pay as you go would be fine if it wasn't for the fact that we face a foreseeable demographic transition. Since SS benefits depend on wage growth, there is no real question that they will be affordable.

It truly would be better to increase US savings now to deal with the declining ratio of active to retired members of the economy, but GWB has contributed to the opposite trend. If there was anything in his plan that could be expected to increase aggregate saving, then it would be supportable, but the simplest way to do that is just to cut the federal deficit.

As for your question about the chalkboard world, I think the ideal pension system is a broad, government-backed defined benefit topped up with a tax-sheltered defined contribution layer. I would be OK with requiring people to put money in their defined contribution account, but that's because I hate freedom.

Posted by: Gareth | Jan 27, 2005 12:05:10 PM

The UK has a system called "personal pensions."

Starting in 1988, UK employees could voluntarily opt out from the second, earnings-related tier of the two-tiered government pension program and set up their own tax-deferred personal pension plans. A mandatory first-tier basic pension provides a low flat-rate benefit based on years of contributions, regardless of earnings.

Posted by: Mr. Econotarian | Jan 27, 2005 12:26:25 PM

Well, Gareth, it's still basically a pay as you go system, currently with surplus - true, but that's sorta accidental. I think you're right that a combination of diverse sources of revenue would be the best approach.


Posted by: abb1 | Jan 27, 2005 2:01:14 PM


I hate to be a pension geek (who am I kidding? I love to be a pension geek), but there are 2 distinctions that are being run together here (dishonestly by the right, but not by you).

The first is between a defined benefit and a defined contribution system. SS is a defined benefit plan, because your pension depends on your wages during your woking life, not on any returns from your contributions. A defined contribution plan just gives you the annuity your returns will generate at the end of your life.

"Pay as you go" is a specific type of defined benefit plan, where the amount of benefits paid out in a given year is equal to contributions coming in. The problem arises if demographic factors mean that, in future, either contributions will have to rise or benefits will have to fall.

Ideally, defined benefit schemes should not require changes in contribution or benefit levels.

Social Security is not pay as you go, because it deliberately takes in more in contributions than it pays in benefits. The theory was that the annual surplus of benefits over contributions would be invested in special bonds, and then the general fund would pay back these bonds by meeting the subsequent annual shortfall of contributions over benefits.

Posted by: Gareth | Jan 27, 2005 2:39:50 PM

Well, Gareth, I am afraid this is a bit too fine of a point for me. I mean the point that the system is deliberately designed to have an surplus.

Clearly it's not possible to design a system with defined contributions and defined benefits that has no surplus or deficit every year. So, the current system takes some surplus for the first 35 years and then spends this accumulated surplus during the next 35 years. I don't think this is anywhere near to the main set of features of this system.

Posted by: abb1 | Jan 27, 2005 3:08:17 PM


It's deliberately designed to have a surplus now. That's because we are about to go through a one-time demographic transition. The problem is real; it's just that it was fixed twenty years ago (insofar as you can fix it by just fixing SS -- the larger fiscal problems of the US Government were almost fixed four years ago until someone came up with the idea for a butterfly ballot).

Posted by: Gareth | Jan 27, 2005 3:28:52 PM

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