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I'm temporizing with a joke while I assemble the monthly jobs charts, which will be a day or two later than usual because of a particularly busy time in my side project.
Ever wonder what's the difference between sociology and economics? Here's a succinct illustration:
A sociologist walked up to an economist and said, "Would you be so kind as to give me a dollar for a sandwich?" The economist replied, "I don't know; let me see the sandwich."
I would much rather have my children, grandchildren, and great-grandchildren have to deal with the problem of global warming than with the problem of a huge economic difference between rich and poor countries.
—William W. Lewis, The Power of Productivity
The Weekly Standard recently reported the makeup of John McCain's economic team: Jack Kemp, Phil Gramm, Warren Rudman, Pete Peterson and the Concord group. I am disappointed, because that team is way too diverse. Jack Kemp definitely gets it; I certainly hope he is leading the team. I don't know enough about Gramm's positions, so I'll remain neutral on him. But Rudman, Peterson, and the Concord group should be fired immediately.
Reason: Although Jack Kemp clearly understands that there are some things more important than deficit reduction (or surplus worship), Rudman-Peterson-Concord do not. If McCain's way of getting more up to speed on economic matters is to let that diverse bunch slug it out behind the scenes, then he needs to rethink that strategy as soon as possible. Better would be to put Jack in charge, and swiftly uninvite the Concord crowd.
Why? I'll explain by starting with something on which I presume we can agree unanimously:
War prevention should be one of our nation's top priorities.
[We unanimously agree on that, correct? If not, please try to explain why in a comment.]
We can and should have a lively debate about how to prevent war; for example, should we...
(1) ...achieve peace through strong intelligence, skilled diplomacy, and state-of-the-art military capability?
Or, should we instead...
(2) ...hope for peace by cutting military spending to the bone, while being extra nice to everybody in the hope they'll like us in return, and therefore decide not to hurt us?
In short, how to prevent war is a healthy, worthwhile debate. What should not be up for debate is whether investing in war prevention is more important than deficit reduction or surplus worship.
Borrowing money for the necessary investments (in intelligence, diplomacy, and military capability) to prevent a global thermonuclear war was a good investment; borrowing money for the necessary investments to prevent a crippling terrorist attack and two subsequent wars would have been a good investment, too. [Anyone who thinks war in Iraq, or even Afghanistan, would have happened if 9-11 had been prevented is invited to explain that in a comment below. Also: Would 9-11 have been prevented if we had just spent more money on national security? Not necessarily, because it would also have required effective strategy, coordination, and leadership; but at least one variable would have been eliminated: the diversion of money out of national security into surplus-enhancement.]
Rejecting war-prevention investments in favor of deficit reduction (or surplus worship) is not just foolhardy, green-eyeshade, myopic, politically-motivated, grandchildren-impoverishing mismanagement; it also costs many, many lives, as well as the big deficits that always accompany wars. [My judgment, of course; if you've been to this blog before, you probably know that already.]
Focusing successfully on war prevention instead of deficit reduction yields the benefit of eliminating the big-deficit effect of wars. In other words, focusing mainly on what we get for the money (war prevention) ends up costing less than foolishly focusing mainly on the money. Ironic, isn't it?
My beef with Concord
The Concord Coalition still, to my knowledge, has not defined the worn out buzz-phrase "fiscal responsibility" they lean on so frequently—and I've searched their website up and down for a definition; I see "eliminating the deficit" mentioned, but that's not specific enough. Does it mean balancing the budget even if war-prevention must take a back seat, as it did in the 1990s? Or is it even worse than that: running surpluses, to pay off the debt before our grandkids inherit it? (I'll stop there, because I doubt that Concord would agree with the definition I recommended in this article about "fiscal responsibility.")
Still waiting, nine years later
Another beef: Warren Rudman still has not answered the two simple questions I asked him nine years ago, almost two years before the 9-11 attacks that kicked off two expensive wars. And nobody from Concord has responded to my 2005 reminder, "Still waiting, six years later." Here are the key excerpts from my letter to then-Senator Rudman [the war-prevention question is the second one]:
To: Senator Warren B. Rudman, Concord Coalition
From: Steve Conover, Sr.
Date: January 25, 1999
Concord's position seems to be that "growing debt is undesirable, because it represents a growing burden on our children." That leads to the first of my two questions:1. If the USA's Gross Domestic Product grew at a slightly faster rate than the federal debt grew, year in and year out, would the USA's fiscal health be getting worse because of the increasing debt, or would it be getting better because of the improving debt-to-GDP ratio?
Next, I presume you are aware of the precipitous decline in defense spending during the Clinton administration. This condition alarms me greatly, because a strong defense deters war, while a deteriorating defense invites misadventure by foreign rivals. Moreover, a Balanced Budget Amendment, which Concord advocates, would forbid borrowing except in cases of national emergency. That wording puzzles me, and leads to my second question:
2. Why should it be permissible for the government to borrow money to win a war - yet impermissible to borrow money beforehand, to prevent that war from starting?
I've been waiting and listening patiently for satisfactory answers for nine years. I've never heard one yet. Until I do, I'll stick with my recommendation to John McCain: Clean house; put Jack Kemp in charge, and get rid of the Concord bunch.
And if you don't want to do it that way, then I recommend sending Jack over to Obama's team, where his talent won't be wasted.
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End note:
Ron Paul was mentioned in that same article, so I need to add this note, just so there's no confusion as to where I stand on Ron Paul's ideas about monetary economics (...i.e., that the Fed is a conspiracy, gold is king, "more money" means "inflation," etc.). Here is my position:
I have as much enthusiasm for placing gynecologist Ron Paul in charge of monetary policy as I have for placing economist Ben Bernanke in charge of maternity wards and pap smears.
I explained this in more detail in the article, Two different definitions of "inflation": Ron Paul's, and Ben Bernanke's.
The straw-man argument against social security privatization goes like this: "The stock market is too risky; it's no place to park the retirement safety net FDR set up for workers." ["FDR": Franklin Delano Roosevelt.]
And with the recent declines in the stock market, there's the following obligatory addendum: "SEE? We TOLD you so."
Furthermore, depending on the blogger in question, the straw-man argument might end with the smug assertion that those who support SS privatization are the "Stupidest people on the planet"—or similar ad hominem epithets typical of (a) the grammar school playground, and (b) some left-leaning blogs I've visited. And they get away with it easily, because privatization proponents always accept the premise, and are left trying to defend the stock market investment theme—an impossible, unwinnable argument.
I've had enough of that straw man. Let's knock it down and expose the real issue. It's a simple, two-step process, as follows...
Step 1: Knocking down the straw man
• Is the stock market too risky? YES.
• Should we allow workers to expose any of their SS retirement safety net to the equity markets? NO.
• Should we restrict all SS retirement obligations to the US federal government only? YES.
In theory, that should make the "stock-market-is-risky" crowd very happy, shouldn't it? Yes, it should. The straw man is now out of the way.
Step 2: Exposing the real issue
Private property versus government property, that's the issue we should be debating—and here's a proposal to smoke it out into the open:
• Issue a special new type of Treasury bond to each worker, instead of the "credits" now tracked by the SS Administration.
The new "Social Security Retirement Bonds" would be issued to each individual worker—probably electronically in a new database, but possibly on paper, the same way US Savings Bonds are issued. The terms could be structured such that there would be no difference in the system's financial effects or obligations: the bonds would only activate on retirement, would be nonmarketable and non-transferrable, and would void at death.
The big difference: the new bonds would have a key feature, familiar to the holders of standard US Treasury bonds—they would be the private property of the worker, backed by the full faith and credit of the United States government. As with normal Treasury bonds, the terms would be unalterable by future politicians.
Compare that with the government-controlled system we have in place (...see the Social Security Administration's website):
"Your Social Security Statement is a concise, easy-to-read personal record of the earnings on which you have paid Social Security taxes during your working years and a summary of the estimated benefits you and your family may receive as a result of those earnings."
Notice the key words: "estimated" benefits you and your family "may" receive. For clarity and full disclosure, the Social Security Adminstration should add the following sentence: "Important: Note that the benefits you may receive are only estimated. Your actual benefits will vary if future politicians change the way the system works before or during your retirement, thereby altering the promise the federal government had previously made to you."
In short, now that the stock market straw-man is knocked out of the way, the question we should really be debating is as follows:
Should social security "benefits" be...
(1) the private property of each worker, with unalterable terms as specified by past politicians; or...
(2) estimates made by the government, subject to change, with actual benefits controlled by the government and alterable by future politicians.
Said another way: Should the US workers who have accumulated social security credits be given the same guarantees we now give to holders of US Treasury bonds, bills, and notes (which include Japanese, Chinese, and British bondholders)? Or should those US workers continue to trust, with no guarantees, that future politicians will not renege on promises made by past politicians?
My guess: FDR would favor the former. In any case, the real issue is whether SS "credits" should become private property. The "stock-market-is-risky" argument is just a diversionary straw man. The important debate is about "privatization"—not "the stock market."
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End note:
Policy wonks might want to tweak the terms of the new bonds such that the financial implications of the new vs old system remain identical. I probably left out a detail or two, esp. regarding the non-retirement benefits such as disability.
Theory:
[Individual investors] will behave as rational, clear-thinking, self-interested individuals, each one a latter-day Adam Smith. They will make the market work efficiently, with their well-reasoned actions driving prices quickly to the "correct" level. . . .Reality:
People simply do not think in terms of some theoretical utility measurable in dollars and cents, and are not always rational and self-interested. The refutation of this one assumption of modern financial theory has in the past twenty-five years created a fertile new field of inquiry, called behavioral economics.—Benoit Mandelbrot, The (mis)Behavior of Markets
