Saturday, November 20, 2004

The Transition Cost of Beginning to Think...

Being too high, the usual suspects continue to make utter morons of themselves over Social Security reform. Beginning with their exalted leader J Bradford Delong:

Bush won't spell out how to cover transition costs for new private accounts...

Even when it is spelled out for them by helpful bystanders:

For the umpteenth time, there ARE NO TRANSITION costs for private accounts.
There are the costs of paying the benefits promised to millions of Americans who will soon be retiring. That is true whether or not we move to a private or semi-private system.

(and, yes, they have had it explained to them many times previously by members of the FLUBA and visiting scholars of that august institution)

Reaction to that spelling out being:

Thanks for clearing this up. ... there are no transition costs, rather there are simply the costs of paying promised benefits if we move from the current plan to a private or semi-private system. They aren't transition costs, they are the costs of moving to ta new system. Don't you see the difference?

...I suspect you just haven't had enough coffee this morning


We'll never get past the "why oh why" problem as long as there is a willingness to believe (in ALL CAPS) that you can ignore an increased fiscal demand in the amount of $1-$2 trillion over an extended period simply by insisting that the wrong name is being used to describe the shortfall.


Oh. There are only costs for setting up private Social Security accounts if we decide to pay promised benefits to the baby boom generation. If we let the baby boomers go wanting, there is no problem with affording private accounts. We don't have no transition costs nohow, unless those selfish hipsters who have been paying more than would be needed for Social Security for a generation ask for what is owed. I understand.


What!!! no free lunch!!! Oh God What about the tooth fairy? There is a tooth fairy isn't there? Please


Let's imagine there is no transition. Look no transition costs!

And others too lengthy to share here.

The Academy will spell it out in more detail (and watch with continued amusement the high caliber intellects that read Berkeley economist's blog resist the idea that 2 + 2 = 4):

The government of the United States has promised--but, is not legally obligated--to pay benefits to people who are currently working and paying SS taxes. Those benefits are based on a formula that ties them to the amount of taxes paid.

That is a cost that exists. Period. There is no transition cost that we would incur only if we ended the current system and started a new one. Beyond the trivial, one time, clerical costs, that is.

We have to decide how to meet the already existing cost (which is approximately $ 11 trillion). Essentially by raising taxes or cutting back the promised benefits. It's a sunk cost, and should have no part in the decision to change to a private, or semi-private SS system.

Btw, those who decry "tax cuts for the rich" should favor moving to a system of private accounts immediately. Because the burden of paying the promised benefits would be transferred to income taxes. Meaning they would hit high income earners harder.

Much harder, as the bottom 50% of earners pay only about 4% of income taxes.

Not rocket science. But it might as well be for some people.

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