Social security won’t be around long enough for me to collect it (repost from 2014)

The claim that our current healthcare and pension policies are unsustainable is a classic zombie idea on the political right, embodied in the regular Interngerational Reports produced by the Australian Treasury which invariably fail to mention the real threat to the future posed by climate change and environmental destruction more generally.

In the US, the release of the trustees reports for Social Security and Medicare has produced <a href=”″>the usual crop of alarmist articles</a>, though with more pushback than in the days when the political class was united around the idea of a “grand bargain”. So, I thought I’d repost <a href=””>this piece from 2014</a>.


Salon has a couple of interesting articles about millennials. Tim Donovan focuses on <a href=””>the plight of young people without college education</a> who are suffering the combined effects of long-term growth in inequality and the scarring that comes from entering the worst labor market in at least a generation[^1]. Elias Isquith has a piece <a href=””>debunking Rand Paul’s prospects of pulling the millennial vote</a> (I’ve seen a few of these lately, which may or may not mean anything), which includes the following observation<blockquote>Despite the fact that a whopping 51 percent of millennials believe they’ll receive no Social Security benefits by the time they’re eligible, and despite the fact that 53 percent of millennials think government should focus spending on helping the young rather than the old, a remarkable 61 percent of young voters oppose cutting Social Security benefits in any way, full stop.</blockquote> The idea that “Social security won’t be around long enough for me to collect it” is a hardy perennial, and thinking about it led me to the following observation:

It’s now possible for someone to have spent their entire working life believing that Social Security would not last long enough for them to receive it, and now to have retired and started collecting benefits. This belief has been prevalent at least since the early years of the Reagan Administration when it was pushed hard by David Stockman, and I’m going to date it to the first big “reform” of the system in 1977. Someone born in 1952, who entered the workforce in 1977 at the age of 25, would now be turning 62 and eligible to collect Social Security.
I’m betting that, in 20 years time, when the 1952 cohort reaches their average life expectancy, having enjoyed their full entitlement to benefits (assuming no ‘grand bargain’ intervenes) that the belief will be just as prevalent

[^1]: As I’ve argued <a href=””>many</a&gt; <a href=””>times</a&gt;, the shared experience of entering the labor market in a recession is one of the few instances where membership of a particular generation is more than a marketing label.


I’ve stopped doing instant reactions on Budgets. There’s always plenty available now, at places like Inside Story, as well as in the newspapers.

But there’s often something of interest that gets overlooked a bit. In this case, it’s the government’s proposal to legislate tax cuts for the rich seven years in advance. This is an idea with a lengthy and inglorious history, taken to a new extreme.
Read More »

GMI + JG = paid work as a choice for all

I’ve been arguing for a while that a Guarantee Minimum Income (or Universal Basic Income) ought to be combined with a Jobs Guarantee to would make paid work a genuine choice for everyone. To spell this out, the GMI/UBI would make it possible to live decently without paid work, while a Jobs Guarantee would ensure that paid work was available to everyone. As a medium term policy, the best form of GMI would, I think, be the participation income advocated by the late Tony Atkinson. That is, a payment conditional on some form of social contribution, including voluntary work, study and childcare. Support for such a policy entails a direct confrontation with the punitive attitudes behind policies like Work for the Dole, while still maintaining the widely-held principle of reciprocity.

I was going to write more about this, but I just received an article by Felix FitzRoy and Jim Jin, in the Journal of Poverty and Social Justice which presents the argument very well. So, I’ll just recommend that to anyone interested in the issue.

Fortune favours the brave (updated)

Most of the political commentariat were convinced that Bill Shorten had got things badly wrong by announcing his policy on dividend imputation immediately before the Batman by-election. It was even more striking that, despite the pressure, Shorten didn’t cave into demands for changes to the policy. Michelle Grattan, for example, described the policy as an “own goal“. After Labor’s easy win, she backed off a little bit, but still claimed that Labor “has a selling job“. M

Maybe so, but I’d say the government is the one that has scored goals for the other side.

(Update 27/3) As predicted, Labor has tweaked the policy to exclude pensioners. That blunts the remaining lines of attack, but doesn’t cost much money, since the benefits go primarily to high-wealth self-funded (but massively tax-subsidised) retirees. By waiting until after the Batman by-election and the latest Newspoll, Labor looks gutsy (even Dennis Shanahan in the Oz conceded this) and Turnbull looks even weaker than before

Read More »

Grattan unreliable on electricity networks

The Grattan Institute has just released a report blaming high electricity network costs on public ownership and excessive reliability standards. I commented on a draft of the report, but there wasn’t much change in relation to my comments.

My comments are over the fold. Let me offer the following, slightly ad hominem argument. Grattan has backed the National Energy Guarantee, a radical change in Australia’s energy policy, which was justified mainly by the occurrence of a single blackout in Adelaide. Yet it asserts (without any evidence I can see) that the responses to earlier blackouts in Queensland and NSW represent unjustified “gold plating”.

Read More »

Bitcoin kills the efficient market hypothesis (now with full article)

I have a piece in the New York Times looking at the implications for the bitcoin bubble for economic theory and, in particular, for the (Strong) Efficient (Financial) Markets Hypothesis (EMH) which states that prices determined in financial markets reflect all the available information about the value of any asset. If that’s true then governments can’t improve on a policy of allocating investment to those assets with the highest market return, which can be achieved by letting private capital markets determine all investment decisions.

Bitcoins have no inherent usefulness, being a record of pointless calculations. They are useless as a currency (their putative purpose) and are now being promoted as a store of value on the basis of scarcity alone. This leaves supporters of the EMH with a dilemma.

If Bitcoins are indeed worthless, then financial markets should price them at zero. But the introduction of futures trading actually boosted the price in the short run. Even after recent declines, there’s no sign that prices will reach zero any time soon.

On the other hand, if Bitcoins are valuable simply because people value them, then asset prices are entirely arbitrary. The same argument can be applied to any financial asset.

Dean Baker at CEPR has a nice followup, making the obvious but crucial point that, since financial services are an intermediate input to production, we want the financial sector to be as small as possible, consistent with doing its essential tasks. As the experience of the mid-20th century shows, a market economy can function perfectly well with a financial sector much smaller than the one we have today. As Bitcoin shows, the massive expansion since then is nothing but wasteful speculation. The financial sector should be cut down to (a small fraction of its present) size.

Read More »