A pre-Christmas helping of Whooopass. And The Donald--Luskin--opens a super-sized can and serves it with all the trimmings for The Paul, who had claimed, in his December 17th NY Times column:
Privatization [of Social Security] dissipates a large fraction of workers' contributions on fees to investment companies.
But--just as Dan Rather would have learned, were he still alive--in the brave new world of the blogosphere, there's always someone out there with specific, detailed knowledge to refute someone blowing smoke and mirrors:
I know from personal experience that every word of this is a lie. I used to be an executive of Barclays Global Investors, the firm that has run all the index funds for the [Federal] Thrift Retirement System since the program was first started in the 1980s....
....Our contract came up for re-bid every 2 years, so we were kept plenty busy competing with other index-fund managers to offer the Thrift Retirement System suicidally low management fees. In the last bidding cycle while I was still at Barclays, we beat our major competitor — State Street Global Advisors — by committing to manage an S&P 500 index fund for a fee of 4.5 one-thousandths of 1 percent per year. To put that in perspective, the Vanguard Index 500 fund, renowned for its low fees, charges 18 one-hundredths of 1 percent — which is 40 times more than we charged the federal government.
Then, in the spirit of the season, Luskin makes a list of Krugman assertions regarding Chile's pension system, and fisks it thrice:
First, Krugman is in error to call the charges “management fees.” About a third of the fees are not management fees at all, but rather premiums for life and disability insurance coverage that are an integral benefit of Chile’s system.
Second, fees should be seen in terms of assets under management — not as a fraction of revenues. According to Chilean economist Salvador Valdes-Prieto, fees in Chile as a fraction of assets under management are about sixty-five one-hundredths of 1 percent — lower than the average mutual fund fee in the United States.
....Krugman makes it sound as though the Chilean system has failed, and the government had to bail it out. In fact, a safety net for the neediest workers was an intentional feature of Chile’s reform from day one. So nobody “stepped back in” — they were always “in.” And the use of the safety net is actually minimal....
In fact, the Chilean safety net only applies to workers with 20 or more years of participation in the system. Considering that the system is only 23 years old this year, there just aren’t that many workers who are even eligible.
But, we're not done. Krugman had also misrepresented Maggie Thatcher's reforms of Britain's pension scheme, claiming that an official report described them as leading to "a fool's paradise". Luskin again pounces:
This is a flat-out lie. The report of Britain’s Pension Commission “warns” of nothing of the sort. The expression “fool’s paradise” is in reference to “irrational equity markets and delayed appreciation of life expectancy increases” that allowed many British corporate pension plans to “avoid necessary adjustments until the late 1990s.” It has nothing to do with “Mrs. Thatcher’s privatization” — and it’s hardly a “warning,” considering that it describes “necessary adjustments” as having been made during the previous decade.
And for a stocking stuffer for Krugman's claim that a “Federal Reserve study” demonstrated that privatization was a "bad idea":
Turns out there’s no such thing. There’s only a 2003 symposium paper by Stephen Kay, a researcher at the Atlanta Fed, whom a source close to the situation described to me as “a young leftie economist who is an ideologue against private systems.” Kay’s paper states right on the cover that “The ideas expressed in this paper are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.” It’s deceptive of Krugman to suggest that the paper has the imprimatur of the Federal Reserve System.
The Academy hopes Professor Krugman and family have themselves a merry little Christmas.
Tuesday, December 21, 2004
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