Swedish Pension Reform

Sweden is widely considered a cradle-to-grave welfare state, but that is somewhat misleading. The burden of government is significant, to be sure, but there have been some impressive market-oriented reforms. Sweden, for instance, has eliminated its death tax and implemented school choice.

Perhaps most surprising, Sweden has partially privatized its Social Security system. The amount going into private accounts is small — just 2.5 percent of earnings, so the system is not nearly as good as Chile’s, but it is much better than the American system.

In addition to small private accounts, Sweden also has created a direct link between taxes paid and benefits received. This shift to a “notional” defined contribution system represents a significant departure from traditional Social Security systems, which are akin to defined benefit schemes containing widespread redistribution.

The Wall Street Journal reports that the Swedish reform is inspiring other nations to move in a similar direction:

By pegging public pensions to individual earnings and overall life-expectancy rates, Sweden has given its citizens incentives to be more productive and retire later — and sidestepped the political paralysis that has stymied change elsewhere.

Some Eastern European nations have already ditched their struggling post-Communist systems and gone Swedish. Steps taken in countries as diverse as Brazil and Russia boast some Swedish elements. A World Bank book based on the Swedish model has been translated into Chinese.

…[C]alculating payouts according to salaries and aging projections gives [the Swedish system] the flexibility to accommodate revenue and population shifts. If the economy does poorly, the thinking goes, future pension payments will go down. And the longer people in a particular age group are projected to live, the smaller their pension payouts will be.

…The bottom line of the Swedish model: Most people will have to work harder to reap the kinds of pensions their grandparents could take for granted. “It puts the cost of aging onto the individual, rather than onto society,” says Sarah Brooks, an Ohio State University political-science professor who has studied the plan.

‘Terror Porn’

The Homeland Security budget has become a business-as-usual way for politicians to steer tax dollars to contributors and supporters. But even though the budget is being allocated using traditional pork-barrel methods, the arguments for more homeland security spending are based on exaggerated claims that the money is necessary to thwart terrorism.

Veronique de Rugy, an American Enterprise Institute scholar and Cato adjunct, call these claims ”terror porn.” ABC News’ John Stossel quoted de Rugy as part of a recent report:

[T]he bureaucracy hypes terrorism to justify its pork. “Terror porn” is what economist Veronique de Rugy calls it. Why “porn”? “Because porn sells, [and] terrorism sells even better,” she says. “It’s great for politicians. They can campaign on the fact that they are protecting us. They also can campaign on the fact that they’re bringing more money to their states.”

Lots of small towns do get absurd grants for homeland security. Lake County, Tenn., a rural county with only 8,000 people, got nearly $200,000 in homeland-security money. …”I don’t know that terrorists will come, but I don’t know they won’t come,” Lake County Mayor Macie Roberson told us, smiling.

At least he didn’t do what Columbus, Ohio did: spend it on bulletproof vests for police dogs.

Inordinate fear of terrorism leads to more than just wasteful spending. Stossel also cites a study estimating that 1,000 people have died because they avoided air travel and instead relied on a much riskier mode of travel:

Of course, terrorism is a real threat. But fear kills people, too. A University of Michigan study found that an additional 1,000 Americans died in car accidents in the three months after Sept. 11, because they were afraid to fly. We need to keep risk in perspective.

New at Cato Unbound: Brian Doherty on the Past and Prospects of Libertarianism

The release of Reason senior editor Brian Doherty’s Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement — the first comprehensive history of its kind — provides a fitting occasion for libertarian reflection. How did libertarians get to where they are today? Where are they going? How should they proceed? Drawing on his book, Doherty kicks off the new issue of Cato Unbound with a lead essay reflecting on the miracle that libertarians are politically and culturally relevant at all, while promoting a continued laissez faire attitude to libertarian strategy.

To showcase the high art of libertarian in-fighting, we’ve gathered a panel of libertarian luminaries including: Cato Unbound’s own Brink Lindsey, author of the controversial “Liberaltarians” essay in the New Republic; George Mason’s most famous blogger-polymath, New York Times Economic Scene columnist Tyler Cowen; Cato’s globe-trotting ambassador for liberty Tom G. Palmer, who was writing libertarian political theory as a zygote; and Atlantic columnist, former Reason editor in chief, and author of The Substance of Style, Virginia Postrel. Stay tuned over the next two weeks as our very special conversation on the future of libertarianism unfolds.

Paging Dr. Smith…

In the Economix column of today’s New York Times, David Leonhardt commits health policy heresy:

there is no question that the country would be better off if everyone were covered. But the gaps in insurance aren’t the only problem with the medical system. They are not even the biggest problem.

You’ll have to read the column to learn what Leonhardt thinks The Biggest Problem is. But he points out that the market is moving to fix that problem without government direction.

Personally, I’m not sure that a government mandate is necessary to get hospitals to report quality data. (Malpractice insurers, are you listening?) But Leonhardt documents well how the Invisible Hand works even in health care.

European Politicians Continue Push for New Tax Powers

The tax burden in most European nations already is stifling growth and undermining competitiveness. Yet many European politicians – as well as the European Commission bureaucracy in Brussels – think that there should be a new pan-European tax. Currently, the European Union’s budget is financed by contributions from member states. This is bad enough, especially since it finances the highly protectionist and inefficient system of farm subsidies, but European politicians and bureaucrats doubtlessly would concoct even worse ways of spending money if they had their own tax. The EU Observer reports:

The commissioner argues that any new “own resources system” – where Brussels raises money directly – should be “simple and very transparent.” … One way of changing the EU’s financial system – supported by some in the European Parliament – would be introducing its own tax to replace member states’ donations. The idea came up several times after the bitter budgetary talks both in 2005 and previously in 1999, with for example senior French centre-right MEP Alain Lamassoure suggesting that the EU could levy a tax on SMS and email messages.

If Bush Is a Conservative, the Word Has No Meaning

Writing for National Review, Michael Novak of the American Enterprise Institute seems surprised that conservatives like Reagan but disapprove of Bush.

Conservatives have not been happy with George W. Bush. For each brand of conservatism, there is a different critique. Not so with Ronald Reagan, whom conservatives uniformly praise for various reasons. Seventy-nine percent of those in attendance at last week’s Conservative Political Action Conference said they would prefer a candidate who is a Reagan Republican. Three percent would go for a G. W. Bush Republican. One gets the impression that Bush isn’t even considered a conservative.

But maybe Novak is confused because he doesn’t understand conservatism. He assumes conservatives are upset about deficits and debt, when the anger is really because of wasteful government spending. He writes, “Some say that Bush’s budget deficits prove he is not a conservative.”

Novak then lists several Bush “accomplishments,” most of which expand the size and scope of government. Most conservatives, for instance, presumably think that families and private institutions should be responsible for moral teachings, yet Novak claims that Bush’s subsidies for abstinence education are a conservative victory: “He dedicated unprecedented funds to abstinence education through the Department of Health and Human Services.”

“He was the first president to sign a school-choice bill to give parents greater freedom in deciding where their children will be educated.”

Bush’s record on education is particularly disappointing, with record spending increases and more centralization, yet Novak claims Bush is a conservative because of a tiny school choice program (which shouldn’t be operated with federal dollars anyway).

“He has dedicated funding to prepare prisoners for productive lives after they leave prison.”

Novak praises Bush for programs that ostensibly rehabilitate prisoners, but it is unclear why this is a responsibility of the federal government. Nor is there any evidence that Bush’s rehabilitation strategy would work any better than the left’s rehabilitation approach.

“He signed the Deficit Reduction Act of 2005, which will curb Medicare/Medicaid spending by $11 billion over the next five years.”

Bush has increased federal spending more than twice as fast as needed to keep pace with inflation, and entitlements have been growing at three times the rate of inflation. But Novak thinks Bush is a conservative because a so-called Deficit Reduction Act that included $11 billion of savings. Yet this is the same president that added trillions of dollars of new Medicare spending by creating a prescription drug entitlement. Moreover the savings are only savings using the Washington definition – i.e., not increasing spending as fast as previously planned. After the “cuts,” for instance, the Medicaid budget was projected to grow 7.6 percent annually, compared to a projection of 7.8 percent before the legislation was adopted.

One of the many disappointments of the Bush presidency is an increase in regulation, particularly the hugely expensive Sarbanes-Oxley legislation, yet Novak makes a completely unsupported assertion that Bush believes in deregulation:

“He implemented deregulation across all government agencies.”

Perhaps the most amazing assertion in Novak’s article is that the creation of a new entitlement program is conservative. It also is interesting to note that Novak apparently believes that a program is conservative if it has popular approval. That means the looming minimum wage hike also is conservative (though not as conservative as the prescription drug entitlement, since only 70 percent of Americans foolishly think that government can raise the wage level). Moreover, the assertion that the program is “under budget” is rather odd. I wonder if he would be willing to bet (akin to the Ehrlich-Simon wager) whether the program 10 years from now will cost more than projected:

“He signed into law prescription drug assistance for the elderly — the first and only health-care reform in modern history to win a nearly 90-percent approval rating and to come in substantially under budget.”

To be fair, however, Novak was certainly correct when he wrote that “President Bush has defined a new kind of conservatism.” It may have nothing to do with limited government. It may be a complete reversal of Reagan’s policies, but it definitely is new (though Democrats surely can argue that they’ve been peddling these ideas for decades).

Overpaid Bureaucrats in Alabama

As Chris Edwards has shown, federal government bureaucrats are grossly overpaid. The same is true for government workers in Alabama. A report published by the Alabama Policy Institute finds that public sector workers gets 21 percent more compensation per hour than workers in the productive sector of the economy. But even this analysis understates the problem since many bureaucrats are involved in activities that are not legitimate functions of government: 

This report evaluates information available on Alabama state employee compensation, making comparisons to other states and to the private sector. Generally, the conclusion is that Alabama state employee pay is higher than in comparable states. More importantly, it is concluded that state employee compensation (that is, wages and employer-paid benefits) in Alabama is substantially higher than for equivalent employees in the private sector in the state. …an analysis of comparable state and private employees (equal education, equal skill), this discrepancy in pay is principally the result of the fact that the state, unlike the private sector, does not establish employee compensation using reliable market mechanisms. …State government employer-paid benefits are considerably higher than in the private sector. State government employee-benefit costs are estimated at 28.5 percent compared to wages and salaries. Private employee-benefit costs are estimated at 21.9 percent of wages and salaries. Thus, the employer-paid benefit factor for state employees is nearly one third higher than that of private employees. …State employees receive more paid time off than private employees in Alabama. On average, full-time state employees spend 10 percent fewer hours on the job for their compensation than private employees. State employees use more than twice as many annual sick days as private employees (10.2 compared to 4.4). It is estimated that state employees spend 1,726 hours per year at work. Private employees spend an average of 1,915 hours on the job. It is estimated that Alabama private employees are at work, on average, more than a month more each year than state employees (189 hours). Each month, the average state employee is paid for not working approximately two days that private employees would work. As a result, the average private employee is compensated $21.41 per hour worked. The average state employee is compensated $25.88 per hour worked, 21 percent more than the average private sector employee.