With Republicans like these . . .

Most libertarians, including me, have generally leaned somewhat toward the Republicans on economic issues.  Therefore it is especially dismaying to read the following comments from the Republican House Leader, John Boehner:

Besides raising the retirement age for full Social Security benefits to 70 for people now 50 or younger, Mr. Boehner suggested curbing benefit growth by tying cost-of-living increases to the consumer price index rather than growth in wages, and providing benefits only to those who need them.

I suppose there are good arguments on both sides of the first point, although it seems a bit unfair to make coal miners work until 70.  I seem to recall that the Brits tried indexing initial benefits to the CPI, and it failed for the obvious reason that people judge how they are doing relative to their neighbors, not relative to those who lived 100 years ago in log cabins.   But it is the third point that really bugs me.  This is penny wise and pound foolish policy-making.  We are already getting all sorts of subtle and not-so-subtle increases in marginal tax rates (MTRs), why would the Republicans want to raise the implicit MTR on people who save for retirement?  We should be moving closer to the Singapore high-saving model, not ever further away.

I suppose some would argue that the benefits of lower government spending outweigh the costs of higher MTRs.  In fact, there is no way that AARP would allow them to means test benefits for any but the top few percent of earners—so it won’t save much money.  And in any case, saving money doesn’t seem to be the most important factor motivating Boehner:

Mr. Boehner advocated continued free spending on defense and said that should Republicans take control of the House in the fall elections, one of his first acts as speaker would be to repeal the $534 billion in Medicare cuts used to finance the Democrats’ expansion of health care this year.

Many of those cuts are the same ones seen in a Republican budget plan, the only one to date that carries out the GOP pledge to get the deficit under control without tax increases, authored by Rep. Paul D. Ryan of Wisconsin.

Liberaltarianism looks more appealing every day.


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38 Responses to “With Republicans like these . . .”

  1. Gravatar of Doc Merlin Doc Merlin
    14. July 2010 at 10:38

    ‘In fact, there is no way that AARP would allow them to means test benefits for any but the top few percent of earners””so it won’t save much money’

    Even if you just means test it on the top 10%, that would result in massive savings.

  2. Gravatar of Gregor Bush Gregor Bush
    14. July 2010 at 10:53

    Scott,
    I think if you looked closely at the policy prescriptions of the so-called “liberaltarians” you would very quickly change your mind. They tend to be very heavy on the former and light on the latter.

    In other more pressing news, did you see the FOMC minutes this afternoon? They’ve once again lowered their projection of y/y inflation for Q4 2012! They’ve also raised their projection of the unemployment rate but left their estimate of the natural rate unchanged.

    The minutes also include this gem:

    “Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives; most expected the convergence process to take no more than five to six years.”

    That’s right – growth and inflation won’t return to trend for five or six years (!) but don’t worry, it shouldn’t be too much longer than that. Besides, there’s nothing we can do about it, we’ve already lowered rates to zero so don’t bother us. We’re busy working on our exit strategies.

    This reminds me of the BoJs comment that “monetary policy alone cannot end deflation”.

  3. Gravatar of Paul Zrimsek Paul Zrimsek
    14. July 2010 at 10:54

    I’d like to know where Boehner got the idea that COLAs are based on anything but the CPI now.

  4. Gravatar of Lord Lord
    14. July 2010 at 10:59

    We already have means testing; it’s called the income tax. If they like it so much, let them propose increasing it. I’m sure that will go over swell.

  5. Gravatar of Benjamin Cole Benjamin Cole
    14. July 2010 at 11:04

    There is some sense in raising the SS retirement age to 70, as we live longer nowadays–though Sumner’s point about a coal miner is spot-on. I suppose s plit between physical/desk work is possible, but gets tricky. I say just raise it to 70.
    Also, we need to raise the minimum pension age for public workers to 67, including all military employees.

  6. Gravatar of david david
    14. July 2010 at 11:47

    Apropos of nothing, a quirky story someone forwarded to me re: Singapore’s forced-savings model:

    [Senior Minister Goh Chok Tong] explained that the Government allowed the use of CPF money for investment because interest rates at the time were ‘on the low side, and there was pressure for CPF to open up’.

    Unfortunately, most people lost money because they were not savvy investors, he added.

    Damned if you do, damned if you don’t.

    I wonder whether introducing government-run bank accounts and electronic money transfer networks first might be easier than trying to privatize social security from nothing. The government doesn’t have to also run loans operations; it can just have banks bid for savings or something. I mean, we guarantee savings already so this would hardly be a large step.

    And then we can have employers pay employees via direct deposit, and then offer opt-in savings accounts, and then make them opt-out, and then make them compulsory… etc.

  7. Gravatar of MikeDC MikeDC
    14. July 2010 at 11:57

    This is the sort of dogmatic contrarianism I find very unappealing in my fellow libertarians.

    I mean, guys, isn’t it the basic libertarian position is that an omnipresent government retirement plan for all citizens is not a great idea in the first place? And isn’t it the basic libertarian position that said program is heading off a financial cliff?

    (Those were rhetorical questions)

    So here, you’ve got a mainstream politician who’s taking at least a somewhat politically reasonable proposal to address those problems, and the response is to take a shit all over him, find an inane technical point to quibble about, and talk about how libertarians need to go join forces with the party that just (further) socialized the health care industry.

    Makes perfect sense!

  8. Gravatar of Wonks Anonymous Wonks Anonymous
    14. July 2010 at 11:57

    David Henderson & Bryan Caplan argued about means-testing a little while back. David ended up conceding.

  9. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    14. July 2010 at 12:36

    Every policy position that I support comes from Hayek, Milton Friedman, Frank Knight, Henry Simons, Jacob Viner, Irving Fisher, Bagehot, Adam Smith, Burke, or James Buchanan. I don’t feel the need to express fealty to just one of them. I pick and choose. The only political party supporting a Negative Income Tax or Cash Transfer ( Friedman & Hayek )is the Green Party in Canada. Go figure!

    It’s true I include Keynes, but even Hayek concedes Keynes always considered himself a Classic Liberal, and, had he lived longer, Hayek said this would have become much clearer. I also include Minsky, who was a student of Knight, Simons, and Schumpeter.

    That’s it. If these men aren’t connected to libertarianism in some way, what are they doing being featured by Liberty Fund? It reminds me of this point by Hayek:

    “HAYEK: Well, I believe I derived it directly from [Karl]
    Menger’s original work. I don’t think there’s much of it
    in the later Austrians, nor in Mises’s work, and he’s the
    real founder of the American school of Austrian economics.
    I mean, the American school of Austrian economics was very
    largely a Mises school.
    [Mises] had great influence on me, but I always
    differed, first not consciously and now quite consciously.
    Mises was a rationalist utilitarian, and I am not.”

    It’s as if libertarianism has become a specific creed or the province of just a few select people. I don’t find that a useful approach. As Frank Knight wrote:

    “The right principle is to respect all the principles, take them fully into account, and then use good judgment as to how far to follow one or another in the case in hand. All principles are false, because all are true””in a sense and to a degree; hence, none is true in a sense and to a degree which would deny to others a similarly qualified truth. There is always a principle, plausible and even sound within limits, to justify any possible course of action and, of course, the opposite one. The truly right course is a matter of the best compromise or the best or “least worst” combination of good and evil. As in cookery, and in economic theory, it calls for enough and not too much, far enough and not too far, in any direction. Moreover, the ingredients of policy are always imponderable, hence there can be no principle, no formula, for the best compromise. That laws must be stated in sentences partly accounts for the familiar “principle,” “the law is an ass.” And if people don’t have good judgment, or won’t use it, it is “just too bad,” for themselves and for others over whom they have power.

    “”On the History and Method of Economics, 256.”

  10. Gravatar of Justin Justin
    14. July 2010 at 12:42

    MikeDC,

    I appreciate your frustration, but it’s also important to note Scott’s criticism is of the “government creates a new problem trying to fix an existing problem” type. The Republicans libertarians are supposed to depend on are themselves prone to liberal-esque tinkering with its predictable consequences.

    Why wouldn’t just admitting the program can’t fund all benefits after 20XX, and telling people to expect only XX% of promised benefits not be better than means testing the top 5% or 10% from a libertarian perspective?

  11. Gravatar of Adam Adam
    14. July 2010 at 13:09

    Republicans have always been a small tent party unlike the democrats.

  12. Gravatar of Richard A. Richard A.
    14. July 2010 at 13:32

    Medicare is gobbling up an ever increasing percentage of the GDP, not social security. It’s interesting how many Republican office holders want to go after ss while defending the waist, fraud, and abuse in medicare.

  13. Gravatar of Dan C…….. Dan C........
    14. July 2010 at 13:46

    “I suppose some would argue that the benefits of lower government spending outweigh the costs of higher MTRs.”

    Here is the Conservative version of that very argument:

    http://douthat.blogs.nytimes.com/2010/07/12/small-government-or-flat-government/

    As for the coal miner, we can give him a lower “retirement” age by letting him start collecting SS disability before he turns 70. This is potentially open to abuse, but there are pretty basic ways to avoid letting that becoming significant.

  14. Gravatar of Morgan Warstler Morgan Warstler
    14. July 2010 at 14:03

    Boehner’s logic makes clear sense, Scott refuses to read between the lines politically:

    1. Raising age on SS just pushes us back towards it’s original sales pitch – don’t count on it for much, you’ll probably be dead… if Boehner could he’d tie it to average age of death, and only cover people for a set number of years based on something like 1940:

    http://www.ssa.gov/history/lifeexpect.html

    2. Medicare, regardless of GOP intentions of privatizing health accounts in the future – the KEY THING right now is gutting Obamacare, throwing out those cuts raises deficit immensely and helps create the rationale the tossing “universal” care.

    Scott should know and accept this stuff, it makes his other thinking more suspect.

  15. Gravatar of Misguided utilitarian arguments for a lower retirement age for social security « Belligerati Misguided utilitarian arguments for a lower retirement age for social security « Belligerati
    14. July 2010 at 14:05

    […] With Republicans like these . . . […]

  16. Gravatar of JimP JimP
    14. July 2010 at 14:13

    Something on which DeLong and I agree:

    http://delong.typepad.com/sdj/2010/07/obamas-failure-to-make-his-federal-reserve-appointments-in-a-timely-fashion-looks-to-have-been-his-biggest-blunder.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+BradDelongsSemi-dailyJournal+(Brad+DeLong's+Semi-Daily+Journal)&utm_content=Google+Reader

  17. Gravatar of Matthew Yglesias » Endgame Matthew Yglesias » Endgame
    14. July 2010 at 14:15

    […] I keep waiting for more conservatives to realize that means-testing Social Security is a kind of tax increase on the […]

  18. Gravatar of Don Don
    14. July 2010 at 14:29

    The Republicans want to institute means-testing so they can start to claim that SS is really welfare and begin the process to dismantle it.

    But that said, I doubt that Boehner is aware of that plan. He’s not a very bright guy and generally just clobbers together a set of talking points that sound like sensible policy.

    Raising the retirement age: for men, life expediency for the lower quartile of income has increased 2 years; for the highest level quartile, six years. Now justify raising the retirement age?

  19. Gravatar of Jim Glass Jim Glass
    14. July 2010 at 15:43

    We are already getting all sorts of subtle and not-so-subtle increases in marginal tax rates (MTRs), why would the Republicans want to raise the implicit MTR on people who save for retirement?

    We are already heading for an explicit 50% across-the-board increase in income tax rates by 2030, to cover the cost of Medicare and operating the Social Security trust fund, as per CBO. (And ever upward from there!) About one-third of that is for Social Secrity TF operations.

    I think the idea of cutting SS benefits to the wealthy is to get that explicit increase in tax rates down to under 50%. If we can’t cut govt transfers to persons who use them to sail off on their yachts, what the heck can we cut?

    In fact, there is no way that AARP would allow them to means test benefits for any but the top few percent of earners””so it won’t save much money.

    Don’t mistake today for the future.

    When that 50% tax increase arrives it is going to land on retirees’ pensions, IRAs, lifetime investment savings, and (yes) their Social Security benefits. In good part to pay for Social SEcurity benefits. What is AARP going to say to that?

    It’s not so difficult — median voter theorem: “Cut the benefits of people richer than me, to keep the taxes on my fixed retirement income from going way up.”

    “The rich” don’t figure to object particularly hard either. Would they rather have their puny (for them) SS benefits cut or pay a big fat tax increase on *all* their income?

    In fact, check out everybody’s incentives. Who won’t vote for serious means-testing by 2030? It’s hard for me to find anybody.

    It’s easy to be dead-set against cutting benefits to anybody when it is free to take that position. But when it costs your own constituency a 50% income tax increase, then it’s not so easy.

    We should be moving closer to the Singapore high-saving model, not ever further away.

    Sure. But it’s far too late in the game for that to change anything by 2030, even if it happens, of which there is precious little sign.

    Taxes are going way, way, up; or benefits are going way, way, down; or taxes are going way up and benefits are going way down. There is no other option.

    If benefits going down for the wealthy effectively create higher marginal tax rates … what are the better options that don’t?

  20. Gravatar of Mike Sandifer Mike Sandifer
    14. July 2010 at 16:32

    First, the GOP is simply a fascist self-serving party of machiavellians, the members of which regularly use Goebbels’ propaganda techniques in scorched earth attempts to win power at any cost for the mere sake of holding it.

    Just as Goebbels recommended, they seed their audacious lies with the faintest truths, make them simple enough for even the most feeble to understand, and repeat them ad nauseum.

    Death panels? Standing against healthcare ideas they long publically favored? Painting Obama and progressives in general as simultaneously fascist and communist, having revised the former term to be interchangeable with the latter? Challenging the patriotism of all who disagree on security policy? Trumping up foreign policy threats to carry out their favored militaristic strategies? Continuations of southern strategy rhetoric, even less subtle than the original in some ways? There are so many things I could point to in support of this point.

    I remember when liberals routinely called Republicans fascists and they called liberals commies. Those were the days.

  21. Gravatar of Joe Joe
    14. July 2010 at 16:47

    How about turning SS into one big negative income tax for the elderly?

  22. Gravatar of Doc Merlin Doc Merlin
    14. July 2010 at 17:52

    @Jim Glass:

    Your analysis strikes me as correct.

  23. Gravatar of Doc Merlin Doc Merlin
    14. July 2010 at 18:00

    ‘This reminds me of the BoJs comment that “monetary policy alone cannot end deflation”.’

    Is the BoJ run by Post Keynesians?
    It seems absurd to me, I mean they can always devalue or do helicopter drops.

    If helicopter drops can’t cause inflation, then you can create real wealth through printing excess money. If that is true then monetary expansion would raise long term RGDP and not NGDP. That strikes me as insane.

  24. Gravatar of scott sumner scott sumner
    15. July 2010 at 06:00

    Doc Merlin, It won’t happen. The top 10% is mostly middle class. Just try taking away SS benefits that middle class people have been promised their whole life. It would be retired people making over $200,000, which is probably more like 2%. Or it would just be benefit cutbacks, not elimination.

    Gregor, The only liberaltarian I have read is Brink Lindsey, and I like him.

    Why should recovery take a ling time just because the recession was severe? It didn’t in 1983-84. The Fed has no discernible rationale for its passivity. It would be one thing it we had stagflation, but we don’t

    I may do a post on this.

    Paul, He is talking about something else. The initial starting point for your monthly benefits are now determined by a wage index. After that you get increases tied to a CPI COLA, as you say. But he is correct.

    Lord, I agree.

    Benjamin, Yes, there are decent arguments on both sides.

    David, If we go the Singapore forced saying route, I think there is an argument for requiring the first $X dollars to be put in relatively safe index funds, where investors could choose between government bonds and a blended mix of stocks and bonds. Once they had contributed that minimum, they would be free to invest anywhere. That stops people from ending up in the poorhouse because they put all their money into AIG.

    MikeDC, This “mainstream politician” is calling for a massive increase in federal spending. How is that libertarian? I am calling for a massive cut in federal spending.

    wonks anonymous, Keep in mind that “means testing” welfare didn’t work very well, which is one reason why welfare reform was instituted. If you simply give welfare to people with low income, it will discourage them from working. Ditto for means testing SS and saving. You need to address the problem is a more subtle fashion. I prefer forced saving.

    Don the Libertarian Dem, Thanks for the Knight quotation. I like it.

    Justin, Good points. We need to think about how we reform programs. But my real criticism was the second part—Boehner’s call for a massive increase in Federal spending, over what Obama wants. That’s nuts.

    Adam, I’m not so sure. There are big differences between economic, social and foreign policy conservatives.

    Richard A. Yes. Could it be because many Republican voters benefit from Medicare (as health care providers)

    DanC, That post is zero sum thinking. We need to get out of that box with the Singapore model. That allows us to have our cake and eat it too. We can have universal health care, subsidies for the poor, and yet have the government spend far less on health care than we do now. Then replace SS with forced saying, subsidizing the contributions from low wage workers.

    Morgan, You want to make things worse so that later they will get better. My fear is that only the first part of your plan will work.

    JimP, Yglesias is also saying that. Of course I’ve been saying the same thing for a year.

    Don, The Republicans don’t seem to be willing to bite the bullet. They want to replace SS (which I support) but don’t seem to be willing to spend the money required to make it happen.

    Jim Glass, There are many better options, such as cutting everyone’s benefits by 1%. There are so few wealthy that Boehner’s plan wouldn’t save much money.

    Another option would be to allow the wealthy unlimited 401K contributions, but take away all of their social security. If I was wealthy, I’d take that reform in a heartbeat. The tax revenue loss could be offset with higher payroll taxes on the wealthy. Payroll taxes don’t discourage saving.

    Mike, I’ll let others defend the GOP.

    Joe, I am not a fan of the negative income tax. It discourages work. I rather have wage subsidies for low wage workers.

    Doc Merlin. And the funniest thing is that the BOJ doesn’t even believe that. When asked why they didn’t do a big QE, they said it would result in hyperinflation!!

  25. Gravatar of Doc Merlin Doc Merlin
    15. July 2010 at 07:47

    @Scott
    ‘David, If we go the Singapore forced saying route, I think there is an argument for requiring the first $X dollars to be put in relatively safe index funds, where investors could choose between government bonds and a blended mix of stocks and bonds. Once they had contributed that minimum, they would be free to invest anywhere. That stops people from ending up in the poorhouse because they put all their money into AIG.’

    NO! NO! NO! The housing investments that AIG had where ‘safe’ investments. If the demand for ‘safe’ investments is artificially inflated, then the market will manufacture bad ‘safe’ investments for people to lose money on. This is a bad idea, this is what happened with the east asian savings glut. Its a bad, bad idea to artificially limit investments too much.

    ‘Doc Merlin. And the funniest thing is that the BOJ doesn’t even believe that. When asked why they didn’t do a big QE, they said it would result in hyperinflation!!’

    Really? Wow, it really is puzzling. Maybe what they were doing was actually just sterilizing the fiscal stimulus to prevent inflation, as they knew they would get blamed for fiscally caused inflation, but not for monetary caused recession? Could that be what the Fed is doing?

  26. Gravatar of david david
    15. July 2010 at 10:11

    Yeah, I agree with Doc Merlin (amazing!) – forcing hundreds of millions of people to invest in existing “safe” assets will rapidly make the assets unsafe.

    Singapore has every possible advantage available to it here; it is tiny and cannot distort markets into producing heavily correlated “safe” assets, it has numerous productive state enterprises that can soak up the bulk of savings and produce good returns, and it has an efficient and focused government to act as a disciplined fund manager (every national provident fund that exists has submitted to government direction of said funds toward political goals, yes even in Singapore. But Singapore can pick non-foolhardy goals). The United States cannot say the same.

    A broader question: do you think that the US government should guarantee some level of savings, should it miraculously decide to operate a national provident fund in lieu of SS? This seems reasonable. If so, well, 100% bonds it is, then, surely? The amount above the cap can be invested into safe or unsafe assets of the saver’s choice.

  27. Gravatar of Mike Sandifer Mike Sandifer
    15. July 2010 at 14:12

    I didn’t think you’d defend the GOP. I don’t think that even most rational conservatives support them anymore.

  28. Gravatar of Doc Merlin Doc Merlin
    15. July 2010 at 15:59

    @Mike:
    Yes but for reasons opposite of what Scott states. The GOP gets flack from conservatives from being far too liberal, mostly.

  29. Gravatar of johnleemk johnleemk
    15. July 2010 at 21:16

    Scott,

    What exactly is the difference between a negative income tax and a wage subsidy? I’ve been assuming that the negative income tax is a type of wage subsidy…

  30. Gravatar of Doc Merlin Doc Merlin
    15. July 2010 at 21:40

    @johnleemk:
    It is, only it is paid to workers instead of employers, wage subsidies are typically paid to employers.
    This means that with a wage subsidy one is encouraged to work as the work is being subsidized. With negative income tax, non-work is being subsidized.

  31. Gravatar of Tracy W Tracy W
    16. July 2010 at 04:42

    Scott – as the ratio of retirees to working age poeple rise, do you agree that the total amount paid to retirees will have to be cut at some point?

    And if you’re going to cut payments to retirees, well, your options are either pay people less (eg raise benefits by CPI, rather than average wages), or don’t pay some people at all in any given year (eg raise the retirement age, means-test the rich people out). None of these options have no downsides.

  32. Gravatar of scott sumner scott sumner
    16. July 2010 at 07:49

    Doc Merlin, I am talking about index funds, not MBS investments.

    It is simple, the BOJ hates inflation like a vampire fears the sun.

    David, I don’t agree. Would T-bills become dangerous just because they entered people’s 401ks?

    Mike, They certainly have problems recently.

    Doc Merlin: You said;

    “@Mike:
    Yes but for reasons opposite of what Scott states. The GOP gets flack from conservatives from being far too liberal, mostly.”

    That’s also my complaint. I complained Boehner wants to spend money like a drunken sailor.

    johnleemk, Wage subsidies go the the working poor. The NIT goes to people who choose not to work.

    Doc Merlin. That’s right.

    Tracy W. First of all, the big problem is the medical program, not SS. We don’t HAVE to cut SS, although we may want to. I’d like to see SS cuts made in a way that didn’t sharply raise implicit MTRs from working and saving.

  33. Gravatar of johnleemk johnleemk
    16. July 2010 at 08:11

    Scott/Doc Merlin,

    That makes sense — it’s what I intuitively guessed. I assume a forced savings scheme would then be the more efficient equivalent of unemployment insurance?

  34. Gravatar of Cory Cory
    18. July 2010 at 03:03

    We need a safety net for people who are absolutely broken. But we must start recognizing and talking about the fact that an enormous number of Americans have been and are irresponsible, not preparing or saving for retirement, buying new cars and flat-screen TVs and lifestyles they can not afford. And then they expect.. demand.. other more productive or more prudent people take care if them like children.

    Means testing is simply more if the same.

  35. Gravatar of ssumner ssumner
    18. July 2010 at 04:42

    Johnleemk and Cory, Yes, the forced saving plan is intended to be a safety net that does not require high taxes, and does not give people a disincentive to work.

  36. Gravatar of johnleemk johnleemk
    18. July 2010 at 09:00

    The forced savings scheme seems less than intuitive to me because I assumed the lowest earners wouldn’t be able to save enough for a rainy day — sort of a poverty trap.

    But it occurs to me that government could match low-income earners’ wages, and means test this matching; perhaps it’d match 2-for-1 the contributions of those earning minimum wage, and gradually reduce this. Which works out to the wage subsidy you’ve proposed. Whoa.

  37. Gravatar of Richard A. Richard A.
    18. July 2010 at 18:19

    With regard to health care costs going out of control see —

    http://johnbtaylorsblog.blogspot.com/2010/07/new-data-show-debt-problem-is-spending.html

  38. Gravatar of ssumner ssumner
    19. July 2010 at 06:01

    johnleemk, If you don’t think low income people are capable of saving a lot, go to Asia. But I do support wages subsidies for the poor, so that would take care of that problem.

    Richard, The first graph is somewhat midleading, as it includes interest. But overall I agree that spending is the big problem.

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