Good ideas do not usually need lots of lies told about them
Old friend-o-the-blog Michael Pollak, in comments to the Krugmalanched post, questions whether this sonorous maxim is actually true. Specifically, I think we can all agree a) that Social Security in the USA is a good idea and b) that it's a pay-as-you-go scheme and the "trust fund", "lockbox" accounting for it is a heap of bullshit that has caused confusion without end ever since the inception of the scheme.
D^2D is currently in the market for weaselly explanations of how this isn't really a counterexample, properly construed, because at present the management is not really coming up with any. I'd note that the UK's National Insurance system more or less admitted many years ago that the "insurance" element was a pack of lies and that NI contributions were a tax, without terrible consequences. But the question at issue is; would it have been politically possible for these schemes to have been launched without the fund accounting fiction, and if so, why weren't they?
the "insurance" element was a pack of lies
ReplyDeleteWas it though? When I was working in Income Suppport (this is 15-20 years ago) people were eligible for Unemployment benefit if they had made sufficient NI contributions. They were also eligible for Retirement Pension (if I have the right name) on, I think, the same grounds, and presumably still are.
Now in some circumstances this wasn't much of a bonus, since your apparent insurance pay-out would immediately count as "income" and therefore be deducted from other, non-contributory benefits to which you might be entitled. But in other circumstances (if, say, your partner was working full-time, disqualifying you from entitlement to IS) it wouldn't be deducted from anything, thus making it, essentially, an insurance pay-out, albeit on a weekly rather than a lump-sum basis.
Of course one can argue that it's different from "normal" insurance in all sorts of ways, notably that pay-outs weren't necessarily related to contributions. But possibly the fib to which you refer was actually that the pay-outs didn't come from a bucket filled by the contributions, that the two things were essentially distinct and not in any sense mutually dependent?
(That, however, would be no bigger a fib than the idea that cracking down on social security fraud produces more money for the legitimate claimant.)
nah, it's a boondoggle - NI contributions are something like 20% of government revenue and the benefits paid out are nothing like that.
ReplyDeleteWould this have been so in the earlier years of the scheme, or in times of heavy unemployment?
ReplyDeleteBarkley Rosser said, at the now defunct MaxSpeak.org, that the insurance veneer was imported from Germany. In his account, Bismarck co-opted the social democratic proposal of his opponents but sold it in more conservative garb as his own.
ReplyDeleteI don't agree that the Social Security "trust fund" is a lie. If you think of the government actually managing its finances without taking into account the Social Security trust fund, it is a perfectly defensible concept.
ReplyDeleteThe real lie is the unified budget - and that lie clearly follows the maxim. If it were a good idea for the US government to run the deficits it has over the years, politicians would not have needed to come up with the "unified budget" lie to cover them up.
The often-advanced idea that because the US Government can change the rules at a later date the Social Security trust fund isn't "real" is mistaken. No one who advances that argument would dispute the statement that if the trust fund held gold it would have "real" assets. But the government could decide to sell that gold (and use the proceeds to cut taxes or fund non-Social Security spending) with the stroke of a pen. Cutting Social Security benefits to avoid redeeming the trust fund's bonds is no different than selling this hypothetical gold - and so the "reality" of the the two different assets is the same.
I may be misremembering but wasn't the Trust Fund introduced by still deluded Reaganite budget hawks who wanted to show that large slices of the previously unhypothecated revenues were in fact needed for future Social Security liabilities so it wasn't needed for introduction of the good idea.
ReplyDeleteAs for being a lie, the accounting and statistics it made available resulted in a relatively high level of debate about attempts to privatise and reduce benefits from Social Security and has helped deliver predictable benefits. The lack of an equivalent for medical benefits in the US and pension arrangements in the UK had made policy on these far far worse so I don't think it is a lie either.
Also NI contributions are not terribly progressive. If they were a tax they would be and there are people who don't get benefits because they haven't paid the premiums so I'm not sure that there is no harm done.
Social security was sold pretty accurately in the beginning, and the one misleading point was something I'm not sure even the salesman recognized.
ReplyDeleteFDR did originally sell it as insurance for the reason that it was intended to be insurance, near as I can tell; both against getting your limbs chopped off and all your investments failing. The social security administration has a good page with his significant public statements on the program: http://www.ssa.gov/history/fdrstmts.html
The only misleading part IMHO was that it ended up being a forced investment program to keep people from consuming everything; in light of the myopic long-term planning abilities people have, a forced savings program to result in a minimum retirement income was and is necessary. People are shit at planning for retirement.
Bunbury, the big 1980s run-up in the social security trust fund was a shell game come up with by Reagan's crew and Greenspan, yes.
ReplyDelete1. The baby boomers will cause a temporary bulge in payouts in a few years.
2. Therefore, to smooth that out, we should run a big surplus in the trust fund for a few years.
3. Coincidentally, this provides easier deficit financing for the tax cuts we like, as the rest of the government can now "borrow" from the exceed revenues in the trust fund.
4. Coincidentally, a few years later conservatives can pretend that none of this happened, therefore as soon as social security outlays exceed revenues it's time for enormous
cuts.
5. Surprise! Income tax cuts for the rich!
The lie for NI is necessary because of the bad idea, not the good idea. Universal safety-net and benefit provision funded on a pay-as-you-go basis from general taxation is a good idea. It might need good PR, but it doesn't need lies telling about it. Lies are generally only effective PR on a short timescale.
ReplyDeleteHowever, limiting the provision to people who are fortunate enough to meet the various daft criteria of the system is a bad idea.
For instance, to get disability living allowance (DLA) you need either to be a young adult (as narrowly defined in DLA-specific regulations) or to have "paid your stamp" a certain number of times over a certain number of recent years (again, in a tangled mess regulations specific to DLA). Or possibly to meet some other DLA-specific botched compromise criteria.
Of course DLA should be easily available to anyone who is unable to work for medical reasons. The reason it is not is partly to limit take-up (and therefore cost), by either refusing to provide benefits to people who should receive them or by dissuading them from applying.
This is the way in which NI resembles insurance: the claims process is a nightmare, subject to a great deal of small print, and prone to arbitrary refusal, delay, evasion and cock-up by a bureaucracy designed to deny payments to as many people as possible.
The lie about NI is encapsulated in its name. And this aspect of its name is also connected to the bad ideas in its implementation. It should of course be replaced with a system which is genuinely universal and is funded by progressive taxation.
Just about any system for retirement, including personal savings, is "pay as you go" in some sense -- since I can't actually save up the physical stuff that I'll want in retirement. So I have to save money, and then consume the physical stuff that other people make when I can't/won't contribute any more. It makes us feel better to save money, but really I'll be living off the work of others when I retire. As I was when I was a child.
ReplyDeleteyes, which raises the original question - since there really can't possibly be such a thing as a funded scheme for the whole economy, why was this pretence so necessary?
ReplyDeleteWell, it is a bit hard to convince people who distrust the government (this is more true in the US and UK than the rest of the first world, right?) that they'll pay you back in 50 years.
ReplyDeleteThis has a good bit on FDR's take of the politics of it.
ReplyDeletehttp://www.ssa.gov/history/Gulick.html
"FDR said, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
Well, here's a weaselly defense: maybe we can make a distinction between a lie and a simplification. For purposes of your original maxim, a lie is something where anyone who knew the truth would be against the policy. So a lie is necessary in the strict sense of the term. If you knew there were no WMDs and Saddam had nothing to do with 9/11, then the reasons for attacking him would disappear, and you'd be against the policy.
ReplyDeleteBut in the case of a simplification that's not true: someone who knew the truth would still be for the policy. The "need" for using simplifications of is a different order of necessity and has a different distribution of use. You always need simplifications to communicate to some non-expert parts of the population what a policy does; it's a condition of democracy. Sometimes you'll need them more; sometimes less. But lies of the sort you are talking are not needed unless the policy is bad.
Also to be fair to the simplification, the idea that "you put money in the system now and later the system owes you money" isn't really that bad an image of the duties and claims involved. The problem only comes when this image, meant solely to explain how the system works on an individual level, is battened onto to argue about what we ought to do about the budget or taxes. And it's really too much to ask a metaphor to apply in completely different situations. If it applied in all situations, it wouldn't be a metaphor.