Saturday, March 05, 2005

Now that I've read it

I was going to write more last night but was just too tired. I did dash off a quick update yesterday evening before leaving work, waiting for someone to finish so we could go out for drinks. By the time I got home, whew, I realized it was one of those weeks. So this afternoon, I added the link to Krugman's op-ed in my previous entry. I also forgot to mention Donald Luskin's spot-on description of Krugman and "the true nature of the liberal mind."

Let me expand on what I began. Krugman claimed that "private accounts, once established, would be used as a tool to whittle down traditional guaranteed benefits. For example, conservatives would use the existence of private accounts, together with rosy scenarios about rates of return, to argue that guaranteed benefits could be cut without hurting retirees." Wait a minute. Since when is it a bad thing to rely less on government? Don Boudreaux wrote a couple of days ago about "the devout" who believe in God, and "the devout" who believe in the state. In which category would one put Krugman?

Since when is it a bad thing to invest in the stock market and get better returns on your savings? At my work, we have a nice color print for the financial advisors to show skittish clients. It shows what's happened to $1 since 1920 had it been invested in Treasury yields, small-cap stocks and large-cap stocks. The small-cap and large-cap curves aren't smooth, but they do curve upward almost all the time, and far more than Treasury securities. Donald Luskin recently won the Krugman-Baker challenge, using Krugman's own data to show the superior returns from stocks. Now who still wants the poor yields from the low-grade (3%) Treasury securities in the Social Security "trust fund"? I'll be blunt: only someone indifferent, because he figures others will pay more for his retirement than he pays in Social Security taxes.

Certain liberals like to criticize stocks as "unreliable" investments, and hypocrites like the AARP scorn private accounts while offering their own mutual funds. They point to things like dotcoms, Enron and WorldCom as "proof" that stocks are bad. I could just as easily point to the NASDAQ and S&P 500's performances in 2004. "Oh," the liberals counter, "Those were just aberrations." Indeed? They're no more aberrations than the "bad" examples they cited. The fact is, and this is nothing original to say, diversify. Diversify and it doesn't matter if one stock goes down, because the stock market's long-term trend is for far more winners than losers.

Then liberals like Krugman, AARP and the Economic Policy Institute always talk about Social Security's "guaranteed benefits," that the "trust fund" is "backed by the full faith and credit of the United States," and that the Treasuries at least pay some interest. Forgive me for stealing anyone's thunder, as this isn't a new critique, but I'd like to reiterate that the low-grade Treasury securities in the "trust fund" are just loans to ourselves. Who pays the interest, Santa Claus?

Whenever Angry Bear says the IOUs held by the trust fund aren't worthless, doesn't he consider who's obligated to pay? They have value only because they're backed by the taxpayer's wallet, and for no other reason. When the Social Security "trust fund" starts cashing the Treasuries, who will repay them with interest? I'm still saying nothing new, but liberals don't seem to comprehend that as more and more of the IOUs are cashed in, the more we'll have to pay in taxes, or the more we'll see cut from other government expenditures. Oh, you say that only the rich will pay higher taxes? Then what happens when "the rich" have less to spend on goods and services that we lower-income folks produce?

Amazingly enough, I actually agree with Krugman on something. Wait, no. It's inaccurate to say that I agree with him. It's more accurate to say that he finally agrees with those of us against tax hikes. It's certainly a bad idea to raise the ceiling on Social Security's payroll tax maximum, as Larry Kudlow so well explained. So what's Krugman's angle?

He specifically mentioned someone earning $140,000 per year would pay $6000 more in Social Security taxes, if the cap were raised that high. Well, I'm no expert on professor salaries, but I found that Princeton salaries average almost $150K annually. That's only the average, not necessarily what Krugman makes. Nevertheless, it makes me suspect that's why Krugman is against raising the payroll tax cap, and why he mentioned such a specific figure.

No, I'm not ignoring nor forgetting his earnings from writing Times columns, but its highly doubtful that they push him into the top tax bracket, so Krugman can support "raising taxes on the very rich" all he wants. Similarly, Teresa and John can afford to support "rolling back tax-cuts on those making over $200,000" -- with all their income from tax-free investments, they pay only 12.8% of their total income in taxes.

So permit me, Mr. Luskin, to add something to your description of "the true nature of the liberal mind": liberals like Paul Krugman will indeed come out against a higher tax, but only if it will hit them.

Update, Sunday: I suppose it had to happen, and last week was just one of those weeks where you're left bewildered. I was checking through the first week of my blog, and I was shocked to discover that I'd already written something on Krugman's column from last week...not only did I completely forget that I wrote it, I even forgot I linked to the same entry on Donald Luskin's blog.


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