Wednesday, January 16, 2013

Dear Matt Yglesias: the Important People ARE wrong to hate Social Security

- by New Deal democrat

AAAARRRGGHHH!!!! I hate to step on Bonddad's stuff, of which there is a ton today, but I simply have to comment on this article by Matt Yglesias about why "Important People" hate Social Security.

It boils down to an embrace of trickle down economics, and I know Yglesias isn't agreeing with their prejudice, but after describing why the entrenched elites hate Social Security, he writes the following two sentences, which completely set me off:
The important thing to note about this hatred is that it's not unjustified. The haters aren't wrong.
No, Matt. The haters ARE wrong, dammit. The prejudice goes to a fundamental flaw in the way neoclassical economics treats labor and demand.

Here's the critical error. Yglesias writes that
The Economy wants you to spend money on things that can be plausibly described as "investments" that drive future prosperity. And mailing a check to your grandma doesn't fit the bill.

You've got this big scheme to levy taxes on working people who are participating in The Economy and transfer money to people who've dropped out of The Economy. They take that money and use it to pay the electricity bill and buy a cookie for their grandkids. If they didn't get that money, they'd probably have to work longer and spend more years being part of The Economy. And they'd have to spend their working years being thriftier, and amassing more savings that (via the magic of the financial system) finance private sector investments in The Economy.
[my emphasis]

Excuse me, but when grandma pays her electric bill or feeds your kids a cookie, it has exactly the same value as when you pay your electric bill and you feed your kids a cookie. In fact, with consumer spending driving 70% of the economy, transfering money to someone who is probably going to spend all of it (as the large majority of seniors will), is an excellent way to keep the economy moving - versus, you know, Mitt Romney hiving it away in a trust in the Caymans.

More to the point, unlike what you learn in Econ 101, when you go down the hall and take Psych 101, you learn the actual truth, which is that drives can be sated. I may like steak, but not 5 steaks in a row. Or (true story) I have a relative who hit the lottery. BIG. Did he take that as an incentive to work harder? No, he immediately retired and is building his family a very nice house on the water in palm tree land (and if he is reading this, please don't forget to invite me!).

Most people have a Magic Number. That's the number, where, if they have the money, they would like to cash in their chips and ride on off into the sunset. If you double their salary, they don't work harder, they actually hit the number earlier and retire from the workforce.

Beyond that, weren't we told by no less than an authority than George W. Bush that if people could have control of their own retirement funds, they would invest it far more efficiently than in Social Security (never mind that Vanguard has studied the issue, and in fact individual investors in the aggregate made a whopping 2% on their investments during the entire 1983-2000 stock market boom). Which would mean that instead of having their withholding payroll taxes return only the inflation rate, they would supposedly hit their magic retirement number sooner.

And what would they do then? Why, retire, of course. So if the theory of the Important People is right, the masses would retire earlier rather than later, not the other way around.

No. The theory of the Important People only works if you pull off a bait and switch, where you con people into withholding a part of their pay for a retirement annuity (so gramma and grampa didn't spend the money in The Economy when they were younger), and then steal the money to put to other purposes. So, you know, tough luck gramma and grampa, you'll have to keep working now. We stole the money you were counting towards your Magic Number. HAHAHAHAHAHA!!!!

So to amend Yglesias' writing to make the point as directly as possible:
If they didn't get that money, they'd probably have to work roughly the same amount of time, and take the money that is now withheld in payroll taxes and put it into private savings, investments, or insurance, amassing the same amount of savings that they now withhold for Social Security. But it would be a lot riskier, and history shows they would be bad at it. The only difference is the identity of the Economic actor (federal government vs. Wall Street) who would direct the flow of the money in The Economy.
The entire economy has been run like a mafia Bustout to loot middle class assets for the last 30 years. No, Matt, the Important People are wrong about Social Security.