Friday, February 12, 2010

Fiscal Orthodoxy is for Big Fat Idiots, and Other Observations.

-- Posted by Neil H. Buchanan

In my FindLaw column this week (published here yesterday), I return to two of my favorite topics: Social Security, and intergenerational obligations. Many readers of this blog will recall that I have been rather obsessed with the question of justice between generations for the last several years. (See, e.g., here, here, and here.) In fact, my sabbatical is largely devoted to expanding my work on generational justice beyond the fiscal policy questions that motivated my interest in the subject in the first place.

Until now, I have been surprisingly successful in avoiding bringing this part of my academic life into my FindLaw columns; but in this case, I was provoked: David Brooks wrote an especially uninformed and misleading column last week repeating the "greedy seniors are cheating the young" mantra that sparked my earlier work in this area.

The bulk of my FindLaw column is devoted to summarizing the major analytical finding in the article that I published in the GW Law Review's symposium issue last Fall. (That volume also included articles by DoL stalwarts Mike Dorf, Sherry Colb, Bob Hockett, Jamie Colburn, and Ori Herstein.) Specifically, relying on the (generally pessimistic) forecasts from the Social Security Trustees, the economic fortunes of future generations -- even in the face of deficits in the Medicare and Social Security programs -- are astoundingly promising. In terms of the "stuff" that GDP measures, Americans in 2084 are projected to be 2-4.5 times richer on average than Americans in 2009. That's 2-4.5 times, not 2-4.5 percent!! I then point out that this gives us the opportunity to be truly benevolent to future generations by giving them a better environment in which to live. Happily, the natural environment can be improved while still leaving future generations significantly better off in material terms than we are.

Early in the column, I point out that this "save our grandchildren from these awful entitlement-fueled deficits" meme is entirely, and sadly, bipartisan. Not just Blue Dog Democrats, but even supposed liberals like Sen. Al Franken (D., Minn.) have made these arguments quite loudly. I specifically cite Franken's hilarious book (the title of which is especially funny in its full form), Rush Limbaugh is a Big Fat Idiot and Other Observations, which includes a bizarrely out of place chapter in which he laments the fiscal irresponsibility of his generation toward his son's generation. His message is numbingly familiar to anyone who has even a passing acquaintance with this debate: Children can't vote, so we Baby Boomers have shamelessly stolen the birthright of future generations by lavishing out-of-control entitlement spending on ourselves.

One interesting question is why someone like Franken would believe this reactionary nonsense -- nonsense that fed Bush's nearly-successful push to privatize Social Security and that still feeds the efforts to strangle Social Security and Medicare. A couple of possible explanations:

(1) He no longer believes this. The book was published in 1996, and Franken's views might have changed in the interim. I have not been following his short Senate career, so I can only say that I have not heard him say anything to repudiate his former views. Of course, he has not been pulling a Lieberman and siding with the Republicans, either.

(2) Franken is not a liberal but rather a partisan Democrat. He is certainly at his best when ridiculing Republicans, and it is impossible to imagine a more committed party man. That does not make him a liberal. Indeed, he has long identified himself as a "DLC Democrat," referring to the pseudo-centrist Democratic Leadership Council that was formed in the 1980's to move the party to the right (producing, among others, Bill Clinton). These are the people who, for example, pushed Clinton to adopt a goal of annual budget balance in response to the Gingrich revolution.

Whether or not Al Franken in particular still holds these orthodox views on fiscal policy and entitlement spending, however, it is clear that many current Democrats do. One such Democrat is Barack Obama, who is making noises about "fixing" Social Security, even though there is simply no need to spend the political capital today to address a problem that might never come into being at all and that can certainly be handled responsibly at a later date.

A few weeks ago, I accused the Democrats of panicking and pandering about budget deficits. (Link here.) While it is true that there would be political peril if Democrats were to come out strongly in favor of deficit spending, it is also true that they are getting hammered about deficits anyway, even though it is manifestly true that deficits rose faster (and for worse reasons, which is really the point) under Republican rule. Moreover, it is not necessary for Democrats to say, "We were wrong, and we now agree with Neil Buchanan that budget deficits are not always horrible and can in fact be good for the economy." They can simply do everything that they can to talk about other issues that resonate with voters -- and to advocate policies that would actually make people better off (unlike their deficit-reduction plans).

What makes Social Security and Medicare different, however, is that the public does not really want either program to be changed. Bush's privatization plan was defeated, even in the shadow of the faux-mandate from Bush's re-election and with Republican majorities in both houses of Congress. The successful opposition to Obama's health care proposals, moreover, was fueled in part by Republicans' scare tactics that portrayed attempts to control cost increases in the Medicare program as "Medicare cuts." And who can forget the famous "keep the government out of Medicare" hilarity from some of Obama's fiercest critics at town hall meetings?

In short, while I can at least see (but ultimately disagree with) the arguments of those who refuse to run the political risk of seeming to be "soft on deficits," there is not even an expedient political reason to adopt the fiscal orthodoxy regarding entitlement spending. There is no excuse for giving ground (in particular on Social Security), especially when even the most pessimistic forecasts show a materially richer future for generations to come.


Charles T. Wolverton said...

It is, as you note, quite curious that people who should know better insist on propagating mindless nonsense: Sen Franken and Pres Obama are clearly not ignorant fools. As to the former, I wonder if it isn't that he simply doesn't know how to think about the issue. There is some minimum amount of time and effort necessary even for really smart people to understand the intricacies of any complex issue. Perhaps he has never previously read and thought in any depth about economics and doesn't automatically distinquish between "investment" and "consumption" (FWIW, I've casually read econ stuff off and on for decades and didn't until recently). Of course, there is always the question "why do pols' econ advisers let them say dumb things", so it may be pure politics as you suggest.

As to the latter, it is one of the major disappointments of the current administration that they have chosen not to try and raise the level of public discourse and instead have continued with mindless, often untrue sloganeering. Since they are wildly smart people and clearly experts at politics, one must conclude that they sincerely believe that the public can't deal with straight talk. If that is correct, I would submit that predictions of a rosy future for today's young may be wildly optimistic. It's hard for me to imagine a prosperous future for a (increasingly non-republican, small "r") democratic society whose majority is too ill-informed to permit rational public debate on any issue and whose science/math literacy is at the bottom of the developed world's.

Yet another very helpful essay, including the various refs, which I have skimmed but intend to read carefully. Especially interesting to me, a one-time probability maven, is Prof Lawsky's paper on subjectivist vs frequentist probability. Talk of of the "probability" of one-time events is always grating, so her take on the issue will no doubt resonate.

Also, the following phrase in "Challenge-d" jumped out: "Posner's conversion [to post-Keynesianism] was a surprise." Is that because you think of him as a conservative or because you happen to know (which I don't) that he at one time wasn't a Keyesian of any stripe? I know he is often labelled "conservative", but I have never understood why. Although eschewing labels, I would, if forced, self-identify as "liberal" (in the mid-20th C US sense of my youth), but am nonetheless a huge Posner fan. I've read many of his books and have always found him to be objective. Obviously, some of his positions don't resonate with those of partisan leftists (or mine), but I don't view that as positioning him on the right.

Neil H. Buchanan said...

Thank you for the thoughtful comments, Charles. You're surely right that these are very difficult issues that can confuse even very smart commentators. (In addition to Franken, I've previously noted on DoL the uninformed and damaging commentary about deficits by Maureen Dowd and Jon Stewart.) Four thoughts in response to your comments:

(1) This gives me a good idea for a future column, to discuss why economists who know better are so conspicuously silent. Thanks.

(2) I agree that the future will be a lot less bright than current predictions imply *if* our politicians make stupid decisions based on bad economic analysis.

By analogy, imagine that a doctor performs a physical exam on a patient. Based on the results, he tells her that she'll live a long and healthy life. Meanwhile, people with no medical training tell her constantly that she's going to die any minute unless she takes some very powerful pills with seriously negative side-effects. If she starts taking those drugs, she will make her doctor's prognosis wrong. She'll die young.

The point is that the forecasts I cited indicate reasons not to panic. If the politicians panic nonetheless, the country will suffer. That's a reason NOT to buy into the panicked statements of doom, not to believe them.

(3) Yes, Sarah Lawsky's article on subjectivist probability is excellent and well worth a careful read. Everything she writes, in fact, deserves that description.

(4) I do view Posner as a conservative, which is why I was surprised that he now identifies as a post-Keynesian (which is unquestionably on the left end of liberalism in the US).

It's true that Posner is not a Movement Conservative, as his votes on abortion-related cases in particular demonstrate. Still, he's very, very conservative. He is probably the single most important reason that "Law & Economics" gained such traction in academia. This is a school of thought that very closely identifies with anti-government libertarianism, especially the belief that policy should be driven by Pareto efficiency and not equity.

To his credit, Posner is known to be an avuncular, even modest guy, unlikely to verbally abuse those who disagree with him (which distinguishes him from many of his colleagues). I'll take him over, say, Antonin Scalia any day. But that doesn't make him liberal or even "not conservative."

Charles T. Wolverton said...

Neil -

A few brief (I promise) responses:

1) Can't wait for that column.

On Fareed Zakaria's GPS "What in the world (were they thinking)?" segment yesterday, he showed clips of Paulsen and Greenspan (on Meet the Press) agreeing that the deficit was the main long term "challenge" and that letting the Bush tax cuts expire would be a bad idea. So, even ignoring your issue of whether their unqualified premise is correct, with at most personal wealth (and maybe a greedy friend or two) to lose, they still couldn't bring themselves to make a case that was internally consistent. Fareed concluded "For shame".

4) I rather guessed that was the sense of your comment re J Posner. Except for posts on his blog with Prof Becker (compared to whom he seems especially objective), I have read none of his economics writing, only his legal writing, including LD&P several times. (I actually came to DoL for the legal commentary - the economics education is an unanticipated boon!)

Neil H. Buchanan said...

Good information re the Zakaria show. Thanks.

Yes, as compared to Becker, Posner is a delight.

Glad you're getting unexpected additional value from DoL.

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