Friday, August 19, 2005

Non Introspective Paranoia

Whenever I get bored I turn in to Al Franken on Air America, thereby increasing his listenership by about 5% but hearing what the left is chattering about. This morning I got to hear a professor from Yale spout about a new book he is about to have published that sounds absolutely odd.

Jacob Hacker (from looking at his home page) is concerned about public policy. He is also worried about the "privitization of risk." He went on this morning about how the switch from defined benefit retirement plans to §401 (k) plans (shudder) moved American employees into a range of unprecedented uncertainty. What bothered me about his comments were a number of things. First, is his perception that allowing individuals more control over their lives (with the attendant increase in responsibility) a bad thing. Just how much additional security is provided by "experts" like him? Second, is the perception of additional security actually real when the experts run the show?

In my mind, most Americans want the additional flexibility that §401ks and other types of empowerment offers. Look at the consistent responses from surveys about the level of confidence in programs like Social Security. Although the President's plan to partially privitize Social Security seems to have failed, the consistent response by the vast majority of people under 50 is that Social Security is a ponzi scheme that will take an increasing percentage of wealth to administer, if not fixed.

Hacker and Franken patted each other down to suggest that all this uncertainty is something that is terrifying to individuals and that the changes have made American workers worse off. What nonsense. First, if you look at any income series - that includes total compensation (fringes) - wages in this country have not been flat at all. But as one would expect, as tax rates become too high and fringes become less taxed - employers have shifted their dough into fringes. Second, both of these yahoos seem to think that (at least if there is a democratic administration in place) the government can promise greater security than individual choices. Didn't they read about the fall of the Soviet Union and its wonderful long range plans? Do they really believe that government is better able to discern needs than individuals? Have they never read any Hayek?

Ultimately, any society needs to make welfare tradeoffs for at least some of the people who make wrong choices. But look at the projected returns that Social Security will offer people in Hacker's generation versus a passbook savings account. If that offer were made by a financial institution - government laws would probably be after them for false advertising.

There are some good examples of irresponsible actions in private pension plans. But they pale in comparison to the long term assumptions for Social Security. We have a choice we can fix the problems or inflate out of them or lower benefits in some other way. Hacker did a rough calculation about the required fund to offer a very modest pension. He suggested that you need about $150,000 in capital for a retirement payment of about a $1000 per month. In reality, the best guide is about $50,000 per year in income off each $1 million in resources. But compare that to the tax bite of social security versus the projected benefits.

Fracker and Hanken then went on to argue that a) health care is best when provided by the government and it was "odd" that the US did not follow other countries in offering citizens a public program. At the same time Hacker advanced the thesis that the GOP has a strange hold on the political system which enhances their advantage.

This is not to say that talk radio on the right is much better - although it is certainly more funny than the talk on Air America. For the last week all of the talk shows have been yacking about Cindy Sheehan. Ms. Sheehan is a pathetic figure. She should certainly be allowed to express and opinion on the president. But she has been so caught up in her own schtick that one wonders if anything but continued attention would satisfy her. It is disappointing that a country such as ours cannot have a better and sustained level of dialogue.

In 1998 my wife and I went to Ireland - there we heard an interesting brand of talk radio. People actually had differing points of view. They actually considered each other's arguments. It would be a wonder if the US could copy that format.

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