Topic: Social Security

Appraising MAGAnomics after 500 Days

A few weeks ago, President Trump surpassed his 500th day in office. That’s a good vantage point to appraise his economic policies to Make American Great Again.

Over at the Library of Economics and Liberty’s Econlog, I offer my assessment. It’s not good.

This may seem surprising, given current economic conditions. But economic policy isn’t merely about the current moment, but predominantly about improving economic conditions long-term. Aside from a couple of provisions in the December 2017 tax law, President Trump has done precious little in that regard and much to harm the economy long-term, from borrow-and-spend fiscal policy, to disastrous trade and immigration policies, to disinterest in serious regulatory reform, to his refusal to face the country’s dreary long-term fiscal challenges.

From my conclusion:

MAGAnomics appears to be little more than an impulsive dislike of free trade and immigration, a hazy desire for less regulation, disinterest in (or perhaps a lack courage to face) the nation’s long-term fiscal problems, and a desire to temporarily lower taxes without making the hard choices necessary to fiscally balance those cuts and make them enduring. In other words, MAGAnomics is a slogan supporting a few weak and many harmful initiatives, not a serious collection of policies thoughtfully designed to strengthen the nation’s economic health.

Take a look and see if you agree.

California’s Pension Woes Exacerbated by Politics

California governor Jerry Brown has been taking a victory lap of sorts after putting forth a budget for fiscal year 2019 that would include a $6 billion surplus, a remarkable turnaround for a state that hemorrhaged red ink in the wake of the great recession.

Of course, much of that surplus arrived via a hefty tax increase, as well as a surfeit of revenue resulting from the stock market boom via capital gains taxes, so attributing this turnaround to fiscal probity might be taking things a bit far.

However, Governor Brown does get credit for at least temporarily righting what seemed to be a sinking ship. What’s more, he seems to realize that this surplus can easily disappear, and he has warned his potential successors to resist spending that surplus. What Brown is fully aware of is that even the most spectacular stock market increase is not enough to erase the state’s most pressing financial problem—namely, its underfunded government pension.

Currently, it has enough money set aside to cover just 68% of its future obligations—certainly far from the most indebted state (that would be my own state of Illinois), but still low enough to dismiss any notion that future stock market growth can remedy the problem.

Despite this, the California Public Employees Retirement System, or CalPERS, has put politics ahead of achieving a high rate of return by insisting that the boards of the companies it invests in adhere to various social and environmental practices.

It’s nonsense, of course, and it amounts to little more than an extension of politics into a realm that doesn’t have room for it.

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Support Parental Leave by Saving Not Spending

Some conservative writers are proposing to raid Social Security for the costs of a new parental leave program. Proponents are selling it as a sort-of free lunch. The plan would be “self financing” says the IWF’s Kristin Shapiro because “new parents would agree to defer their collection of Social Security benefits upon retirement for the period of time necessary to offset the cost of their parental benefits.”

But Social Security is not a savings program with a pool of assets to draw on. If the government starts mailing checks to millions of new parents, the only “financing” would be more federal borrowing. What Shapiro calls $7 billion a year in “parental benefits” would be $7 billion more in government spending. What Shapiro calls “self financing” would be more government debt.

In theory, the government would delay retirement handouts for participating individuals three decades down to the road. But, if enacted, lobby groups and politicians would get to work undoing those future savings. And if this sort of accounting trick is used for spending on parental leave, then the flood gates would be opened for Social Security spending on home purchases, job training, and other trendy causes.

What ever happened to personal saving? Humans can look ahead and plan, and they have been doing so since the beginning of time. Personal saving is the most powerful financing tool. But the more the government hands out benefits—for retirement, health care, unemployment, parental leave, and many other things—the more it undermines the innate and responsible saving incentive. The more the nanny state spends, the more it sabotages a culture of savings and the practical ability to save as taxes rise.

Young people thinking about having children should start setting aside some of their paychecks. Young people should be taught that kids are expensive, and they should plan accordingly. Alas, personal responsibility and saving are not the starting points for most policy discussions these days.

Problems with Republican Proposal for Paid Leave

A new federal paid leave idea has been produced, promoted, and endorsed by individuals on the right. And now Republican legislators like Marco Rubio, Joni Ernst, and Mike Lee are getting behind it.

Advocates propose using Social Security as a benefit bank for paid leave – the idea is that parents could withdraw Social Security benefits today if they defer collecting benefits later. Of course, if advocates want to provide paid leave, a better idea is cutting Social Security benefits and payroll taxes so new parents don’t have to ask the government for their money back.

Still, it’s a clever idea and maybe the least-bad proposal for federal paid leave. But that does not mean the Social Security paid family leave (SS PFL) proposal is a good idea on its own merit. As described in The Hill yesterday, government-provided paid leave has harmful consequences and is not politically supported. 

Setting that aside, Social Security is a program with an assortment of problems, and allowing beneficiaries to borrow against future benefits does not improve the current model. Given how integral Social Security is to the current proposal, it’s worth a reminder just how deep those issues run.

Kenneth Boulding on the Serious Distortion of Economic Ethics

From Kenneth Boulding, A Reconstruction of Economics (NY, Science Editions 1962) pp. 481-82:

“Economic ethics has been seriously distorted by static and short-run criteria of value. ‘Justice’ has been thought of too much in terms of division of a fixed pie than in terms of encouraging the baking of more pies… .The importance of this problem rests on a matter of simple arithmetic: that if redistribution toward any group causes a fall in the rate of growth of national income, no matter how slight, there will be some date beyond which the absolute income of the favored group will be less than it would have been if the redistribution had not taken place.”

The Answer Is a New Government Program. What’s the Question?

The Sunday Washington Post had a long, hagiographic article about Senator Mark Warner’s critique about how capitalism “isn’t working” for the masses and his heroic attempts to fix it that left me thinking I’m in an alternate reality.

The problem he sees is that the growing tendency of people to change jobs throughout their career has left people unprepared for retirement, and that we need to do more to make sure that workers have some sort of safety net to provide them with health care and income in their golden years.

That this was largely addressed decades ago with the introduction of Social Security and Medicare was completely missing from the article. Social Security is an incredibly progressive retirement program that provides everyone with a work history of at least ten years with a decent-sized benefit that doesn’t go up all that much for wealthier people who contributed much more. And Medicare is the largest government program there is, covering hospitalization costs, basic health costs and drug benefits for tens of millions of senior citizens. The government spends about $1.5 trillion each year on these two programs, and they make up the majority of our federal budget. There’s also plenty of evidence that they prevent seniors from indigence: the poverty rate for seniors is well below that of other age groups. 

The current Administration also added an expensive entitlement that makes it much easier for people under age 65 who do not receive health insurance to obtain it, along with a healthy subsidy. For a family of four in Washington DC there is still a subsidy for an income of $80,000, which is well above the mean household income, and Medicaid completely covers those who don’t make enough money to buy their own health insurance. What more can we possibly do to make health insurance more affordable for the working poor?

The Attack on Chile’s Private Pension System

Last month, a scandal erupted in Chile. The media discovered that the former director of the Chilean gendarmerie, the country’s penitentiary service, was receiving a pension of about $8,000 per month. Chile privatized its pension system in 1980. Instead of sending retirement money to the government, workers there put their money in private accounts that invest and accumulate savings to be used in old age. When Chile approved the reform, the military and some law enforcement agencies (such as the gendarmerie) remained in the old public system.

Although the abuse occurred within the old public pension system, which benefits a minority of Chileans, and the beneficiary in this case was a socialist political activist and ex-wife of the head of the lower house of Congress (also a socialist), the episode was used to attack the private system to which almost every Chilean worker belongs. The left declared that the private accounts managed by the private pension fund companies (known by their Spanish acronym AFP) provide low pensions, something that incensed many Chileans who saw that the AFPs do not pay the same level of pension evident in this particular case.

Before long, protests involving hundreds of thousands of people took place throughout the country under the slogan “No + AFP,” and demanded a return to the old pension system. Last week, President Michelle Bachelet announced a series of reforms that would give the state a larger role in peoples’ retirement.

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