02 January 2008|
Rebuttal: Paul Krugman (Yet Again)
Ownership. It's not just for the logical.
The following letter was sent to Mr. Krugman:
Congratulations! Your article, entitled "Bush's Own Plan," has been designated "Machicolation of the Week" by the Prometheus Institute! Your work has been selected for its logical fallacies, shamelessly demagogical intent, and general ignorance of political reality. In order to combat the egregious saturation of sophistry that pervades your piece, we felt the publication of a full rebuttal was a public necessity. Below you will find the Prometheus Institute's response to your piece. We hope you enjoy the spotlight of our intellectual illumination. We eagerly await your reply.
A new Bush campaign ad pushes the theme of an "ownership society," and concludes with President Bush declaring, "I understand if you own something, you have a vital stake in the future of America." But there's a political imperative behind the "ownership society" theme: the need to provide pseudopopulist cover to policies that are, in reality, highly elitist. The Bush tax cuts have, of course, heavily favored the very, very well off.
The tax code, also, heavily burdens the very, very well off. In the interest of fairness, or at least reality, the datum is worth relation.
But they have also, more specifically, favored unearned income over earned income - or, if you prefer, investment returns over wages. Mr. Bush hasn't yet gotten all he wants, but he has taken a large step toward a system in which only labor income is taxed. The political problem with a policy favoring investment returns over wages is that a vast majority of Americans derive their income primarily from wages, and that the bulk of investment income goes to a small elite. How, then, can such a policy be sold? By promising that everyone can join the elite.
It can also be sold with the apodictic observation that investment benefits the economy at large, whereas wages benefit strictly the individual (unless, in turn, they are invested). Now who's populistic?
Right now, the ownership of stocks and bonds is highly concentrated. Conservatives like to point out that a majority of American families now own stock, but that's a misleading statistic because most of those "investors" have only a small stake in the market. The Congressional Budget Office estimates that more than half of corporate profits ultimately accrue to the wealthiest 1 percent of taxpayers, while only about 8 percent go to the bottom 60 percent. If the "ownership society" means anything, it means spreading investment income more widely - a laudable goal, if achievable.
You spent over three hundred words (of which most were cut out here, for the simple reason that my readers don't desire to read vituperative illogic) animadverting the ownership society only to conclude that its goal is laudable. I'm envious. I wish I could write without regard to a logical point.
The one seemingly substantive proposal is a blast from the past: a renewed call for the partial privatization of Social Security, which would divert payroll taxes into personal accounts. Mr. Bush campaigned on that issue in 2000, but he never acted on it. And there was a reason the idea went nowhere: it didn't make sense.
Au contraire, Mr. Krugman, it is rather simple. In fact, it makes more sense than the current system. As you say, the current system arrogates funds from the working generation and pays them to the retired generation.
This begs a question.
If each generation makes approximately the same amount of money as the next, Social Security is de trop, as it achieves a redistribution that is unneeded.
If the retiring generation requires funding - i.e. they make insufficient funds to retire themselves - then we admit that the system is socialist, ipso facto. And if we admit that we're directly redistributing wealth inter-generationally, your ensuing argument against cost is contradictory. You already promote an economic loss for the taxpayer.
If the payroll taxes of younger workers are diverted into private accounts, there will be a gaping financial hole: who will pay benefits to older Americans, who have spent their working lives paying into the current system? Unless you have a way to fill that multitrillion-dollar hole, privatization is an empty slogan, not a real proposal.
See above for the irrelevancy of your own argument. However, it still has an easy solution. All extant money in the Social Security system is remunerated to those who paid it. Will there be a discrepancy? It is possible, as Social Security is rapidly becoming a bankrupt system. However, we'll have to cover any difference with tax dollars - whether we privatize or not.
In 2001, Mr. Bush's handpicked commission on Social Security was unable to agree on a plan to create private accounts because there was no way to make the arithmetic work. Undaunted, this year the Bush campaign once again insists that privatization will lead to a "permanently strengthened Social Security system, without changing benefits for those now in or near retirement, and without raising payroll taxes on workers." In other words, 2 - 1 = 4.
You're free to display your own arithmetic maladroitness, but the solution is rather simple.
The Bush team was unable to promulgate a specific solution not because of intrinsic mathematical difficulties, but because even the partial privatization of a septuagenarian bureaucracy is far from a simple task.
However, difficulty on the path to individual choice is hardly an argument against it. We'll likely find a financial disparity thanks to Social Security's ineptitude, but this obstacle is further probative evidence that the New Deal was a waste - not that privatization is unwise.
I hope you have enjoyed the illumination.