Thursday, September 15, 2011

Assault of Thoughts - 9/15/2011

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- NASA announces plans for a new rocket that will carry humans to Mars. I am not following it too closely, but my understanding is NASA budgets are under a lot of pressure - so I'm not sure how to interpret this with respect to the budget constraints. They are talking about putting people on Mars by 2025, which is in the middle of the range of Musk's schedule. Many people see space exploration as zero-sum, which is a view I simply don't understand. I'm excited to see at least two projects - one public and one private - moving forward over the next decade.

- I haven't jumped into this "Social Security as Ponzi Scheme" debate, but this post by David Henderson caught my eye. He seems to balk at the idea that Krugman was refering to Social Security as a Ponzi scheme as him being "cute". I don't see what's so hard to accept about that. Krugman (and Samuelson) both obviously referred to it as a Ponzi scheme. However, they both obviously consider it sustainable and a good idea. Isn't the "being cute"/"being clever" the obvious interpretation? Social Security has elements that are obviously like a Ponzi scheme, otherwise we wouldn't be talking about this. However, it has two things that a Ponzi schme doesn't have: (1.) transparency, so everyone is aware of the structure and able to debate it and reform it, and (2.) a built in growth guarantee because market economies do a good job growing over time (which is why economists are so pro-market!). Difference number 1 comes in handy when the parameters associated with difference number 2 change over time. So yes, it's "like a Ponzi scheme" and that's a good, clever attention getter. But it's unlike a Ponzi scheme in a lot of important ways too - and the ways in which it is unlike a Ponzi scheme are exactly what have made it a great social insurance program in the twentieth century. Will we continue to want to use it as a social insurance program? Maybe not - but that's for future generations to decide. When Krugman said this the "cute" observation made for interesting commentary. At the time he didn't have likely Republican nominees seriously considering the dismantling of the program!

- I debated whether I should share this Onion piece with my thoughts: "New Study Finds Women Should Only Be Making 20 Cents Less On Dollar Than Men", because of how sensitive the issue can be. I've worked a lot on disparity issues over the last several years - mostly racial disparities, but some on gender disparities too. One of the interesting things to me is how people think about raw vs. adjusted parity. When you see an employment or earnings gap, there's a very good instinct to think it's all illegitimate. I think for the most part that's true - but we have to remember that it is illegitimate in at least two ways. At least a portion of these disparities are problematic simply because of problems in equity - we treat blacks different from whites or women different from men. But in circumstances of complete equity in the variable of interest, we are likely to still see disparities in that variable of interest because of disparities in other causal variables. Education as a determinant of wages is the obvious example. Even if we achieve "equal pay for equal work", there's no reason to rest on our laurels and no reason to expect that that amounts to the elimination of racial or gender disparities that we're concerned about. Equal pay is conditional on equal work, but disadvantaged groups may not be producing "equal work" because of earlier disparities in child nutrition, home life, education, etc. A lot of people make the mistake of thinking either (1.) that all disparities are due to inequity and discrimination, or (2.) if we achieve "equal pay for equal work" that is satisfactory. Disparities need to be thought of as a pervasive social phenomenon. They don't occur in just one variable of interest so the logic of "holding everything else constant" isn't necessarily meaningful as a social goal.

12 comments:

  1. It's only a Ponzi scheme in that it's simply a kind of transaction. And I thought I had no sense of humour!

    --Blue Aurora

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  2. There is no money and certainly no will for a NASA led mission to Mars. To quote Gus Grissom from "The Right Stuff" - "No bucks, no Buck Rogers." In the long run, it is going to be a lot better for space exploration and colonization to be a privately run affair that is not held captive by the varying political winds.

    SSI is transparent? Not to the vast majority of the population. Much of what is involved with SSI doesn't appear to be advertised. So, you're wrong. It may be transparent to policy wonks, but that means very little indeed. That's actually much of what makes it unsustainable; when it becomes viewed as merely a wealth transfer (as opposed to me putting my money into a "trust fund") it will lose a lot of support.

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  3. In other words, the gap between the myth vs. reality of any institution is a good way to tell how healthy it is. This works for private, public, etc. institutions. For example, in the 1970s there was a growing chasm between the myth of socialism in Poland and the reality of socialism in Poland, and that was reflected in comparing experiences on the ground to what was broadcast in the news. I make the same the observation about SSI; there is the myth of SSI and then there is the reality of SSI - to me they are diverging.

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  4. re: "SSI is transparent? Not to the vast majority of the population. Much of what is involved with SSI doesn't appear to be advertised. So, you're wrong."

    "I disagree with you so you're wrong"? I can do that too. It is relatively transparent. So you're wrong, Gary.

    The public knows SSI taxes get taken out of their paychecks. They are not dumb. They are aware of this. The public knows that you don't have your own account with the Social Security administration. This point has been repeated ad nauseum for decades now. It's been featured in multiple presidential campaigns. If you are aware of what SSI is, then you are aware that there is no account just for you.

    The only non-transparent aspect of SSI that people get regularly confused on is the state of the trust fund. People confuse concerns about entitlements in general with concerns about SSI and generally think the situation is more dire than it is.

    But the operation of the program is clear to a much, much wider population than what you call "wonks".

    re: "I make the same the observation about SSI"

    Where are you observing this? Almost everybody knows there's no account with your name on it. This has been blared non-stop for years and years. Who exactly believes this "myth"?

    The public doesn't always understand policy well. But if you had to pick one policy where that confusion doesn't exist, I'd say that one policy is SSI.

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  5. Now, certainly people feel (and I'd argue that it's completely legitimate to feel) a sense of entitlement to what you've paid in. "I've paid in for decades so I deserve X" is a very reasonable feeling to have. I feel that - I don't want any stark changes for exactly this reason - I think any changes should be phased in very, very slowly. But people have that strong sense of entitlement precisely because they know it's not a guarantee (if there was a legal claim to it there'd be no need to get up in arms about it.

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  6. "The public knows that you don't have your own account with the Social Security administration."

    Actually, polling does not bolster your position; it is viewed by vast swaths of the public as an individualized account that I put money into (and anecdotally speaking, I cannot tell you how many times I've had people tell me that). Which is why when changes are proposed, they were a bunch of people clamoring about having "their money" being taken away - it is viewed as something along the lines of a bank account almost. Liberals are really big on talking about how Tea Party types talk about "don't let the government touch my medicare" etc. The same sorts of mis perceptions are true here.

    "This point has been repeated ad nauseum for decades now. It's been featured in multiple presidential campaigns. If you are aware of what SSI is, then you are aware that there is no account just for you."

    None of that campaigning has apparently mattered. There have also been lots and lots of programs on evolution, yet the majority of population rejects evolution completely, and most of the rest rejects the neo-Darwinian synthesis for some theistic version of evolution. Just because something is discussed a lot doesn't mean people believe it.

    "Almost everybody knows there's no account with your name on it."

    No, they don't. Poll, after poll, after poll shows this. There are basic misconceptions about what SSI promises, how much people pay into the program, how much they get out in relation to what they pay, etc.

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  7. It isn't a remotely reasonable feeling to have.

    "But people have that strong sense of entitlement precisely because they know it's not a guarantee..."

    Ahh, this on its face doesn't make any sense. If I know something isn't a guarantee then I am likely not going to have a sense of entitlement.

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  8. re: "Which is why when changes are proposed, they were a bunch of people clamoring about having "their money" being taken away - it is viewed as something along the lines of a bank account almost."

    Oh yes - how crazy of citizens of a democratic republic to feel ownership of the achievements of that democratic republic. They MUST be misunderstanding something to feel a sense of ownership.

    I don't mind tweaking the programs, but if Ron Paul gets elected and wants to eliminate them you might see ME in the streets yelling "get your hands off my SSI and Medicare!". That hardly implies I misunderstand how they work. I just feel a sense of ownership of them.

    re: "There are basic misconceptions about what SSI promises, how much people pay into the program, how much they get out in relation to what they pay, etc."

    This I have no doubt about. I'm not surprised at all that people don't know exactly the structure and magnitude of benefits. I don't have a good sense of that for SSI either - I would be likely to poll badly on that sort of question. The only programs I really have a sense of in that regard are unemployment insurance because I've looked into that more closely. Certainly people don't have details like this at their fingertips. But that seems like a totally different point.

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  9. It's only anecdotal, obviously, but my grandmother believes the money the government took from her is sitting in a vault with her name on it. Most old people I know seem to think that Social Security is their money that the government saved for them. They are quite puzzled when I point out that their money is long gone and now it's my money. Something akin to fraud seems to have happened.

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  10. "Oh yes - how crazy of citizens of a democratic republic to feel ownership of the achievements of that democratic republic."

    Yeah, that is a little crazy. Then again, I've always had a hard time groking stuff like that - I think it is partly how SSI has become such a sacred cow. The Romans used to have a very similar attitude toward their institutions.

    I feel no ownership toward SSI.

    Stravinsky,

    I have met so many people in my life who think that their social security taxes go into an account or a fund that is either specific to them (or into an account where the money is pooled but is used for nothing besides retirement funds) that does something like draw interest. They analogize it to a 401k or a Roth IRA or something like, just that it is managed by the government. Yeah, Gore's discussion of a "lockbox" ought to have been clue one about the nature of SSI, but it wasn't. Indeed, I wonder if SSI could be justified if it were merely viewed for what it is - a wealth transfer - particularly since it is a wealth transfer to a portion of the population which is on average fairly well off in comparison to the rest of the population. That's a very different sort of narrative than what is generally thought re: SSI by the general public.

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  11. I think it's interesting to mention what has happened in the UK...

    In Britain the baby-boom population bump was earlier than in the US. So a great many of them are already retired.

    Various governments responded to this before it happened. The state pension was reduced to a very low level. Today in Britain if you don't have a private pension (what Americans would call a 401K) you have to claim means-tested benefits to top-up your state-pension to a reasonable level. Through this means the cost of state pensions has been reduced.

    The age of retirement was raised to 65 for both men and women. It will be raised further to 66 at least for those paying in now. Some government planning documents indicate that the civil service think it will be raised to 69, but the government haven't admitted to that.

    I expect the same sort of thing will happen in the US.

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  12. Current,

    SSI as originally imagined is just far to extravagant to sustain. If it is going to be anything it ought to be viewed as an anti-poverty program for those of a certain age, not as a general wealth transfer program just because you've hit whatever age makes you qualify for it.

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