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Posted at 6:48 PM ET, 02/28/2011

Reconciliation

By Ezra Klein

Recap: A government shutdown still looks quite likely; the White House endorsed Wyden-Brown; and how is the House GOP planning to create jobs, exactly?

Elsewhere:

1) "The industrial revolution occurred in England after 1800 because the English underwent a gradual transformation of their behavior and manners in the period before 1800."

2) "Almost everything in American politics circles back to health care costs."

3) David Carr has a great take on Charlie Sheen.

5) Dean Baker runs the numbers on state and local pensions (pdf).

4) The case for more bureaucrats.

By Ezra Klein  | February 28, 2011; 6:48 PM ET
 
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Next: Wonkbook: GOP spending cuts would cost 700,000 jobs

Comments

If Baker is so confident that 8% real returns will materialize from stocks, he must surely be in favor of ending Social Security and replacing it with private savings. No one will get anywhere close to 8% returns on Social Security.

A married couple with two workers, one earning $40,000/yr and the other $20,000/yr, married at 25 and working until 67, assuming no earnings from 16-24, and both living until age 80, will have a real annual return of 1.4% assuming that 10% of the 12.4% FICA contribution goes towards OAI. If that couple received an 8% real return instead, their income in retirement would be roughly 8.2x what they would receive under Social Security.

Apparently though, Baker thinks the 8% assumption is okay because the government can just steal any shortfall and paper over the difference.

If he wants to use an 8% discount rate to declare the pension funds to be in decent shape, I hope he's willing to tell pensioners that their benefits will be cut if those returns don't materialize.

Posted by: justin84 | February 28, 2011 7:43 PM | Report abuse

--*4) The case for more bureaucrats.*--

Sounds more like the case for fewer bureaucracies.

Posted by: msoja | February 28, 2011 9:17 PM | Report abuse

baker's argument as to returns really is lacking, especially given the leverage effects of volatility due to the sheer liability size. moreover, he acts as if the risk adjusted treasury returns somehow are stilted by risk aversion not held by state governments...but who's buying treasuries (and therefore, who's buying his discount rate argument)? it's bad finance...that reeks a bit from his political propensity. for my money, i'd go with SIEPR on this.

Posted by: stantheman21 | March 1, 2011 1:30 AM | Report abuse

SS is not an investment or retirement program.

It is a social insurance program.

And the vast majority of Americans WANT to protect SS and strengthen it, not privatize it, though I am sure most of us would gladly reform it to some degree to ensure deadbeats are thrown off the program.

I wish you libertarians would just get over it and move on. Indeed, if you all would accept SS for what it is designed for and instead focused your energies on reforms, maybe we'd end up with a more efficient and effective SS program instead of all this wasted talk and all the abuses.

Posted by: lauren2010 | March 1, 2011 6:24 AM | Report abuse

"SS is not an investment or retirement program.

It is a social insurance program."

And it makes most Americans worse off in retirement, egregiously so if you think the stock market is set for 8% real annual returns. It also reduces economic growth by limiting capital formation.

"And the vast majority of Americans WANT to protect SS and strengthen it"

That's wonderful - they can then organize themselves into whatever sort of cooperative they'd like, and keep it going.

In any case, I'm not impressed by what the vast majority of Americans claim to want. A vast majority of Americans were pleased as punch to cheer on the invasion of Iraq - how'd that one turn out?

"I wish you libertarians would just get over it and move on."

Quit forcing us into your silly social schemes and we'll be happy to leave you alone as well.

Posted by: justin84 | March 1, 2011 7:44 AM | Report abuse

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