BUSH & SOCIAL SECURITY:
QUICK HITS

From people with a clue.

IDIOT SAVANT WATCH

Professor Steven Landsburg has tenure in a very good economics department and can write sentences like this:

Given a quaternion p = A+Bi+Cj+Dk (A,B,C,D 2 R), I define K(p) = ABCD. I say that a 4-tuple of quaternions (p, q, r, s) is intertwined if K(Xp+Y q) = K(Xr+Y s) for some non-zero real constant . Here X and Y are polynomial variables and equality means equality of polynomials. I say that (p, q, r, s) is fully intertwined if both (p, q, r, s) and (p, r, q, s) are intertwined.

But he can also post nonsense on Slate, to the effect that the measure of fairness in a tax cut is the the percentage change in an individual's tax liability. So if your tax is cut from $100 to $50, and Bill Gates' is cut from ten million to seven million, you have been the beneficiary of an injustice done to Bill Gates.

Why does he do this? Maybe because he's a dick? I don't know.

THERE IS NO
"NEW YORK YANKEES"

Weep not for that corporate golem misleadingly described as "The New York Yankees." The actual Yankees were a wonderful baseball team that I followed as a youth and young man. They were destroyed by a convicted felon named George Steinbrenner, when he drove 1977/78 World Series hero Reggie Jackson out of town. In ensuing years, he used his position of power to humiliate assorted great players, including the saintly Yogi Berra. At that point, the team was no longer about the players. It was about the owner, and the owner is a sleaze-bag.

STATE SPONSORS OF TERROR
FOR BUSH

As communist exKGB agents go, so go Iranian Islamicist fundamentalist mullahs. Can Kim Jong Il be far behind?

UNE ERREUR
DU MORCEAU DU TRAVAIL?

by the Sandwichman

From the October 18th report (PDF file) to the French Minister of Finance from Michel Camdessus, former head of the International Monetary Fund (here's an AFP news item for those who don't want to wade through an 161 page plus appendices bureaucratic report in French):

La logique de partage repose sur l’hypothèse qu’il existe, dans l’économie, une quantité d’emplois déterminée et fixe. Cette logique se vérifie, à un instant donné du temps, pour une activité, un secteur, une région particulière. Mais elle est fausse pour l’économie dans son ensemble, surtout quand on considère les évolutions dans le temps.

In plain English, Monsieur Camdessus is saying that advocates of reduced working time believe that there is only a fixed amount of work to be done. That is to say, we commit the infamous "lump-of-labor fallacy," the bogus claims of which your Sandwichman disposed of (another PDF file) four years ago.

The logic of work sharing IS NOT based on the erroneous assumption that there is only a fixed amount of work to be done. It is based on several factors, including the improved productivity enabled by reducing working time and the improved standard of living that greater leisure affords to the workers. Meanwhile, the almighty croissance of the GDP IS NOT, as the Camdessus report explicitly assumes, an unalloyed blessing to mother earth and all mankind. Bobby Kennedy knew that 36 years ago. The good folks at Redefining Progress can give you the details.

Proof that a lowly Sandwichman is smarter than the former head of the IMF! O.K. Monsieurs Camdessus and Sarkozy. $5,000 (Canadian) says you can't verify the authenticity of the lump of labour fallacy claim. Anyone is eligible to try for that prize.

APOCRYPHAL INFORMATION

Often a duh moment, as Jane 'From the desk of and I do have one" Galt flogs a single data point supporting her belief that the very rich don't pay taxes, or pay less than the less rich.

Joel Slemrod, a professor of economics at the University of Michigan, uses actual data to reach the finding (PDF file) that in 1995, the 400 tax returns with the highest reported adjusted gross income in the U.S. had an average effective income tax rate of 29.93 percent. (If you included their share of the burden of corporate taxes it would be higher.)

The biggest component of AGI for these people was capital gains. In 1997 the tax rate on capital gains was slashed from 28 to 20 percent. It has since been reduced to 15 percent (less in special cases), along with tax rates applied to dividends.

The right-wing myth is that the complexity of the income tax enables the rich to avoid paying more tax than you. The right-wing solution is to eliminate taxation of capital income -- interest, dividends, and capital gains. This of course would make the situation worse, not better.

The real story is rate reductions, a result of the influence of the rich in politics, not of complexity. To be sure, there are ways to shield income from tax that result from complexity. Eliminating any tax on capital could possibly improve matters on that front.

By 2000 the average rate of the top 400 had fallen to 22.29, still higher than average, and much higher than the taxes of Teresa & John Kerry. It is true that a broader group -- the top one percent of taxpayers -- paid a higher rate on average than the top 400 (27.45 percent in 2000). (There are today about 130 million individual income tax returns filed annually.)

Slemrod also points out that the volatility of capital gains can distort a single-year snapshot of average rates paid by, say, the top 400 v. the top one or five percent. The reason is that capital gains are taxed at lower rates. If you strike it rich in a particular year from capital gains, relative to those earning very high but stable incomes from other sources, your tax rate is artificially reduced in relative terms. Over your lifetime, your average rate will more consistently track your income.

Here's a table from the Urban Institute attesting to the fact that before the Bush tax cuts, average rates rose consistently with AGI. Presently they still do, with a small exception for the top one-tenth of a percent of taxpayers.

Jane reasons that "It doesn't look like his family paid enough in taxes to get much of anything back." The piddling sum in question based on her numbers is $629,000.

Some of Jane's commenters seem puzzled that someone with so much wealth could have so little income. They don't realize evidently that capital gains are not taxed as income, as they are accrued (when the value of financial assets increases). They are only taxed, if at all, when "realized" -- when the asset is sold. Failure to tax the build-up in value in and of itself is a significant tax advantage, since postponed tax payments are cheaper. You can use the interim to gather interest on the unpaid tax.

The income tax is still broadly progressive and insofar as it isn't, the real action is in the rate structure, and in the exclusion of capital income from tax. Moving to a flat tax or national sales tax would hugely shift the tax burden to working people, since those schemes are deceptively bound up with the exclusion of capital from tax altogether.

YOUR MOMENT OF ZEN

I had heard some bits from the now legendary Jon Stewart invasion of Crossfire and not thought much of them (aside from agreeing with him), but in the actual segment he is very funny. The audience seemed to think so too. It's worth a listen, if you have broadband and don't think twice about downloading 30 megs. Here are some links. His post mortem is good too. (Thanx, Tapped.)

Unfortunately The Daily Show is on too late for me now, what with my new pre-dawn schedule. If I tried taping it I'd probably find Teen Titans on the tape when I tried to listen later on.

GREAT MINDS THINK ALIKE

Sometimes it's eerie. October 19. October 15.

BUSH HAS A PLAN(S)

The latest Bush entry in the Stupid Olympics, after the "terrorism is a nuisance" canard (nicely ripped here by Michael Kinsley), is their umbrage over the suggestion that they have a secret plan to privatize Social Security.

If memory serves, the President was emphatic in the third debate on the need to divert a portion of payroll taxes into individual accounts. That's privatization. The fun part -- the need to replace trillions of dollars of lost revenue to pay current Social Security benefits -- was missing from his spiel.

There are only a few possibilities here.

1. Bush has no plan for transitional finance of benefits and was just lying about intending to launch those private accounts.

2. Bush plans to cut Social Security benefits, in order to protect them.

3. Bush has a plan, or more likely several options, but declines to reveal them. Ergo, secret plan(s).

4. Bush thinks the revenue shortfall will be made up for through control of The Spice, once the Sleeper awakens. His mentat Karl Rove figured it out.

I thought I saw a giant worm coming down 17th Street, but it was just Larry Lindsey.

COMMUNIST KGB EX-AGENTS
FOR BUSH

And Insty seconds the endorsement. Freedom is on the march.

CONCORD DISCORD

Today David Broder refers to my report (PDF file) on the Federal budget mess, in the process lumping us together with the Concord Coalition and the sort of guff purveyed by Peter Peterson.

This press release summarizes Concord's position, with which we take issue with on two major points. One is the disutility of balancing the budget, discussed at length in our paper. The second is the problem of long-term sustainability, about which a bit more, since it came up in the comments here.

There is no entitlement problem in the Federal budget. There is a health care problem, embodied in just two big entitlement programs -- Medicare and Medicaid. The problem is that these two programs are growing at double-digit rates, while our ability to finance them grows at single-digit rates. This cannot continue indefinitely. This trend is mirrored in the private sector, where likewise health insurance premiums are growing much faster than income. That can't go on indefinitely either.

The problem with Concord's treatment of entitlements is that their indictment is too general, and their remedies are empty. Too general because Social Security's problems are tractable. Empty because they only propose to arbitrarily cut health care spending and push it out of the public sector.

Privatizing health care spending does not solve the affordability problem. It means that insurance and health care will be increasingly denied to the unhealthy and unwealthy. You can always save money by dying, but that doesn't mean you will be better off.

In and of itself, the notion of cutting (or capping) entitlement spending is a non sequitur. An entitlement program is a bundle of benefits promised to persons meeting specific eligibility criteria. In order to really cut such spending, you need to stipulate whose ox gets gored. The budget hawks like Concord never get around to this problem.

Concord is also blind to the economic implications of reducing non-entitlement spending, which includes public investment and services the private sector requires to function.

Much of what goes under the rubric of health insurance is really an argument about cost-shifting, or sharing if you will. I, for instance, am uninsurable. By virtue of my enrollment in a group plan, my co-workers pay a portion of my medical bills. Only my inspirational presence in the office allays their disquiet with such an arrangement. So too with many of the elderly, in Medicare they are not getting insurance. They are being billed for the public sector equivalent of co-pays and deductibles.

Arnold Kling had a piece which pointed this out a while back. He thinks people should save for their own health insurance needs. Of course, for many it is too late to save. Or saving would grind one's standard of living down to nothing.

Too much of a requirement to save for contingencies leads to very unsatisfactory financial constraints. You could easily end up saving more than you need, depriving yourself of consumption. Or you could miscalculate in the other direction. By the time you figure out you're going to need a lot of medical care in your declining years, it could be too late. That's why we have insurance, but insurance markets don't necessarily work well.

We could have said the same thing in the 1930s -- all those rubes who became destitute in their old age didn't save enough. The political answer was a cost-shifting of retirement benefits across generations. Current workers financed benefits for retirees who had paid little, nothing, or less than the value of their benefits.

This is often thought of as a Ponzi game. If you give me some money, I promise you a handsome return. I use your money to pay off some previous clients. Word spreads of this wonderful deal, people flock to me with their contributions, and it goes on for a while. Along the way, I rake off something generous for myself. Eventually the new clients run out, I stop paying, and then I'm on the next boat to Bali.

A pay-as-you-go system need not be a Ponzi scheme. If you have a growing workforce, compounded by growing productivity per worker, and you don't promise too high a return on contributions, you can finance a pay-as-you-go system indefinitely. A downturn in labor force growth, such as the retirement of the Baby Boom, creates a potential problem, but not necessarily an insuperable problem.

The problem in this context with Medicare is that the implied rate of return is too high. New specializations, treatments, technology, and drugs drive up usage of medical services. You don't fix this by dumping it into the private sector.

If you were well enough to merit low insurance rates, chances are you would just as soon do without it. If your payments for insurance are subsidized, your incentive to pursue a healthy life-style and economize on medical costs is reduced. These sorts of problems make health care a bad candidate for private sector markets.

Because the market solution is unappealing, even President Bush makes a nod towards increased public subsidies. Kerry's proposed increase is much larger. Neither grapples with the very difficult question of economizing on consumption of medical services in the face of growing costs.

These sorts of considerations are what drive us to emphasize that fiscal solutions to entitlement spending are not solutions at all, but barren arithmetic exercises.

FASTER

October 15. October 12.

More concise too.

THE DRAFT IS NO STRETCH

Rethuglican Ed Gillespie sent a nasty letter (PDF file) to Rock the Vote, protesting their talk of a potential draft in the event of a Bush victory. RTV's answer is here (PDF file).

You don't have to be a mind-reader or have access to secret documents to get a fix on this problem. If you're driving 100 miles an hour around a sharp turn, you're probably going off the cliff. The question is how fast you are going, and whether there is that turn ahead.

It is perfectly reasonable to warn of a potential draft inherent in Bush's policies. There is no question that current U.S. military manpower is strained. Reserves are not being used as reserves, but exploited as professional military. The Iraq occupation is open-ended. Afghanistan is not secure. The U.S. mutters about the threat of Iranian nuclear power development. And most important, President Bush channels the neo-con/Wilsonian vision of the U.S. liberating Arab and Muslim peoples from tyranny -- especially the tyrants who don't play ball with the U.S.

You can't put these together and discount the possibility of a draft.

Kerry is a little pregnant on this issue himself. He proposes to add two divisions to the Army, which would relieve draft pressures, but he also promises to finish the job in Iraq, which could end up taking a lot more than two divisions. On balance, you have to believe he would be more cautious about using military force than "Bring-em-on" Bush, though in office he might also be moved to over-compensate for suspicions of excessive liberalism.

In the past, I flogged Charlie Rangel's mischievous proposal for a draft, in a cheap and tawdry effort to rally sentiment against an unnecessary war. And I'd do it again. In so doing, I helped to inspire my libertarian friend Julian Sanchez to write a column about the left supporting a draft.

In fact I would not sincerely support a draft, nor advocate one in principle, except in cases of real, Hitler-scale national emergency. (I think I was upfront about this in my original post, in like the second sentence.) On the latter, I would say you know 'em when you see 'em. I don't see any right now.

In an important sense it's like the untenable budget situation. Or the economy as a whole. The logic of current trends in budget and trade deficits extrapolates to impossible outcomes. The trends are unsustainable. Even so, policy-makers may have no thought in their heads as to the likely, unpleasant solutions to those problems they will be forced to implement, whether they like it or not. Read my lips and all. So they are sincere, if sincerely ignorant.

In the same way, protests that no serious plans for a draft are irrelevant. It's not what they say, or even think. It's the implications of what they are doing.

Kerry recognizes that as far as manpower goes, the U.S. is over-extended. The bigger question is whether he is susceptible to the notion that in an ideological sense, ambitions for U.S. supremacy in the world reflect imperial overstretch. Read Chalmers Johnson. Read Noam Chomsky. (Don't read Pat Buchanan; he's a fraud.) Empire means bad vibes, kids.

THE BEAR FACTS

It may seem like an eon has passed, but here's some good fact-checking on the debate from The Angry Bear.