| ashu |
Posted
on 14-Oct-00 01:47 PM
Hi everyone,
I am a big fan of Paul Krugman,
an economics professor at MIT.
Not only has Krugman extended the
boundaries of economics in areas such as strategic trade, economics of geography
and so on (leading no other The Economist
magazine to predict in print that Krugman will a Nobel Prize someday soon) but also
that he is a first-rate writer who writes CLEARLY and argues forcefully with evidence.
Krugman, to my mind, combines the best of
simplicity, clarity and forcefulness of
ideas based on evidence, with a good measure
of fairness thrown in.
Enjoy this Krugman article from the New York
Times (Oct. 11) . . . watch Kruman slam
(or, as some would say, pulverize) George Dubbya Bush's Social Security policies.
*********
A Retirement Fable
http://www.nytimes.com/2000/10/11/opinion/11KRUG.html
October 11, 2000
By PAUL KRUGMAN
There once was a land where people lived only two years. In the first
year they worked; in the second year they lived off their personal
savings.
There came a time when the government decided to help out the
elderly. So it instituted a system called Social Security. Every
young, working individual would pay a tax, which would be used to
pay benefits that same year to each older, retired individual.
For the first generation of beneficiaries, Social Security was a
great deal. They had not been obliged to pay in when young, yet got
the benefits anyway. But subsequent generations misunderstood the
system. They thought of their required contributions as
investments, though they really were tax payments, needed to pay
benefits to their parents' generation. And they imagined that they
could get higher returns investing that money in the market.
So eventually an ambitious politician came along, declaring: "It's
your money! I trust the people, not the government!" He said he
would let workers invest half their contributions themselves. When
critics tried to point out that this money had already been
promised to older citizens (whose own contributions had been used
to pay benefits to the previous generation of retirees), they were
drowned out by chants of "No fuzzy numbers!" And so the scheme was
put into effect.
And the next year Social Security went broke. Without enough money
coming in, retirees could not be paid their promised benefits.
I wish I could say that this fable oversimplifies this year's
Social Security debate in some important way. But it really is that
simple, and George W. Bush's proposal which calls for putting
part of Social Security contributions into individual accounts,
without any replacement for the diverted funds really is that
irresponsible. Because Americans live more than two years, the
drama will take longer to play out. Social Security won't go broke
for about 30 years, so the victims will be those who are currently
middle-aged, not those who are already retired. But the crisis will
come much sooner, as the impending disaster becomes obvious.
Mr. Bush has made an important political discovery. Really big
misstatements, it turns out, cannot be effectively challenged,
because voters can't believe that a man who seems so likable would
do that sort of thing. In last week's debate Mr. Bush again
declared that he plans to spend a quarter of the surplus on popular
new programs, even though his own budget shows that he plans to
spend less than half that much. ("No fuzzy numbers!" roared the
crowd but these are his own numbers.) And he insists that he has
a plan to save Social Security, when his actual proposal, as it
stands, would bankrupt the system.
But aren't there good economists, even experts on Social Security,
who support Mr. Bush's proposal? Think of it as a Faustian bargain
selling their souls not for power or wealth (maybe that too, but
that's not my department) but for reform.
For there is a good case for Social Security reform if we are
prepared to pay the price. The current system in effect promises
today's workers that future generations will take care of them,
just as they are taking care of today's retirees. As a Bush
adviser, Martin Feldstein, has pointed out, this makes people feel
richer than they really are, leading them to consume too much and
save too little.
But to fix this problem would take a lot of money money to pay
off the system's existing obligations. Or to put it differently
(making the same point from a different angle): Since the problem
with Social Security is that it makes people feel artificially
rich, any real reform has to make them feel poorer. But that, of
course, is not what Mr. Bush is selling.
What economists who support his proposal presumably believe is
that after the election this can all be fixed. When the real plan
is announced, it will actually make sense.
But it's hard to see how. Try to imagine a victorious Mr. Bush
explaining that he has to slash benefits after all, or abandoning
his tax cut so that he has enough money to pay for Social Security
reform.
What is certain is that Mr. Bush's actual Social Security proposal
would bankrupt the system. That's not a fuzzy number it's a cold,
hard fact.
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