Economic Update
Irwin Stelzer argues that higher interest rates are a certainty; and those who question that prediction just haven't been listening to Alan Greenspan. Moreover, Stelzer points out that it's difficult to know which rate represents a "neutral" policy -- neither stimulative to nor restrictive of economic growth. But that's the Fed's current goal, and Greenspan seems to have 3.5% in mind.
In other economic/political news, mutual fund honcho, Robert Pozen, had an interesting piece in the Boston Globe earlier this week on social security reform. I removed a longer post that I had about it, because I thought it was too confused (this one may not be better, but it's a difficult topic). I'll just say that Pozen's proposal that only middle- and higher-wage earners receive the opportunity to invest a small piece of their ss savings in private accounts is not a great idea. Pozen wants to penalize middle- and higher-wage earners by having the bulk of their ss savings grow at the rate of the CPI (consumer price index). The CPI grows notoriously slower than the wage rate, so lower-wage workers would get a greater benefit by having their ss saving grow with wages. Allowing middle- and upper-wage earners to invest a small portion of their ss savings in personal accounts would be a way to make up for the penalty of having the bulk of their savings tied to the CPI.
Giving low-wage earners (who depend on ss more than upper-income individuals) the greater benefit of tying their ss savings to wage-increases instead of the slower-moving CPI is something worth considering. But trying to equalize the pain dealt to middle- and upper-wage earners (from tying most of their benefit to the CPI) by only giving them the opportunity to have separate, private accounts even for just a small part of their ss savings seems rather discriminatory against the poor. I fear that it has the potential to encourage the idea that "the market is a rich man's game", further exacerbating the tensions between rich and poor. It may be a good economic solution, but I'm not sure it's good politics.
If private accounts are instituted, then everyone should have the opportunity to invest in them. Actually, as things stand now with IRAs, it mostly lower- and middle-income workers who meet the requirements to derive the full benefit of investing in IRAs. Upper-wage earners can invest in a Traditional IRA (though not a Roth IRA), but only get the benefit of tax-deferred savings instead of an income tax deduction for the contribution as well. In other words, the small privatization that we have now (if that's how you can consider IRAs) encourages more participation in the markets with retirement savings from lower- and middle-income workers.
Pozen's proposal would be reversing that trend, encouraging more participation in the markets from middle- and upper-income workers and excluding lower-income workers totally. I doubt that it's good politics to exclude the lower- and middle-income workers from the markets, to prohibit them access to something simply because they're poor. Pozen apparently thinks that throwing money at the poor in the form of having their ss savings grow at the rate of wages should be satisfaction enough for them. It strikes me that only someone who has spent a lifetime in business and, therefore, only sees acquisitiveness in the human soul can think that this is a satisfactory solution.
Misreading the soul leads to dangerous policy, for offending the pride of the poor will likely increase their resentment toward the rich, a potential problem that Pozen doesn't even consider. A more politic solution is needed.
One thing appears certain though: Bush is attacking the Social Security problem with the same energy he has reserved so far for foreign policy. The scope of his ambitions continues to impress me (though, like so many others, I may just be guilty of "misunderestimating" him). Although it's early in the second term, it won't be long before he'll be "quacking like a duck" as he put it. When all is said and done, however, he may go out with some impressive accomplishments in both foreign and domestic policy.
Irwin Stelzer argues that higher interest rates are a certainty; and those who question that prediction just haven't been listening to Alan Greenspan. Moreover, Stelzer points out that it's difficult to know which rate represents a "neutral" policy -- neither stimulative to nor restrictive of economic growth. But that's the Fed's current goal, and Greenspan seems to have 3.5% in mind.
In other economic/political news, mutual fund honcho, Robert Pozen, had an interesting piece in the Boston Globe earlier this week on social security reform. I removed a longer post that I had about it, because I thought it was too confused (this one may not be better, but it's a difficult topic). I'll just say that Pozen's proposal that only middle- and higher-wage earners receive the opportunity to invest a small piece of their ss savings in private accounts is not a great idea. Pozen wants to penalize middle- and higher-wage earners by having the bulk of their ss savings grow at the rate of the CPI (consumer price index). The CPI grows notoriously slower than the wage rate, so lower-wage workers would get a greater benefit by having their ss saving grow with wages. Allowing middle- and upper-wage earners to invest a small portion of their ss savings in personal accounts would be a way to make up for the penalty of having the bulk of their savings tied to the CPI.
Giving low-wage earners (who depend on ss more than upper-income individuals) the greater benefit of tying their ss savings to wage-increases instead of the slower-moving CPI is something worth considering. But trying to equalize the pain dealt to middle- and upper-wage earners (from tying most of their benefit to the CPI) by only giving them the opportunity to have separate, private accounts even for just a small part of their ss savings seems rather discriminatory against the poor. I fear that it has the potential to encourage the idea that "the market is a rich man's game", further exacerbating the tensions between rich and poor. It may be a good economic solution, but I'm not sure it's good politics.
If private accounts are instituted, then everyone should have the opportunity to invest in them. Actually, as things stand now with IRAs, it mostly lower- and middle-income workers who meet the requirements to derive the full benefit of investing in IRAs. Upper-wage earners can invest in a Traditional IRA (though not a Roth IRA), but only get the benefit of tax-deferred savings instead of an income tax deduction for the contribution as well. In other words, the small privatization that we have now (if that's how you can consider IRAs) encourages more participation in the markets with retirement savings from lower- and middle-income workers.
Pozen's proposal would be reversing that trend, encouraging more participation in the markets from middle- and upper-income workers and excluding lower-income workers totally. I doubt that it's good politics to exclude the lower- and middle-income workers from the markets, to prohibit them access to something simply because they're poor. Pozen apparently thinks that throwing money at the poor in the form of having their ss savings grow at the rate of wages should be satisfaction enough for them. It strikes me that only someone who has spent a lifetime in business and, therefore, only sees acquisitiveness in the human soul can think that this is a satisfactory solution.
Misreading the soul leads to dangerous policy, for offending the pride of the poor will likely increase their resentment toward the rich, a potential problem that Pozen doesn't even consider. A more politic solution is needed.
One thing appears certain though: Bush is attacking the Social Security problem with the same energy he has reserved so far for foreign policy. The scope of his ambitions continues to impress me (though, like so many others, I may just be guilty of "misunderestimating" him). Although it's early in the second term, it won't be long before he'll be "quacking like a duck" as he put it. When all is said and done, however, he may go out with some impressive accomplishments in both foreign and domestic policy.
posted by John Coumarianos at 1/12/2005 10:28:00 AM
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