Friday, September 23, 2011

Elizabeth Warren and the Road

Elizabeth Warren is a serious scholar of bankruptcy at Harvard, but, off-campus, she has become a partisan hack and a candidate for the U.S. Senate in Massachusetts. Her preferred metaphor for her political style is "throwing rocks" at Republicans. It is possible, I suppose, that Warren has not thought about or does not understand her own trope. A thrown rock, though, is actually dangerous. People get hurt and killed by them all over the world. Picking that as the preferred description of your mantle is at least tasteless and petty.

Watching video of Elizabeth Warren rail against entrepreneurs, though, makes me think her rock throwing self-image is surprisingly apt. Warren argues that the state's role in coordinating the provision and maintenance of public goods entitles the community to take whatever it wants from those who benefit from using them:
There is nobody in this country who got rich on his own — nobody.
You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.
Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.
Warren's allegory of the road shows her deep misunderstanding of the relationship between the individual and the state and offer a window into a political philosophy which requires individuals to justify keeping their earnings and property rather than requiring the state to justify taking from the individual for some legitimate public purpose.

First of all, the gal who built the factory also probably helped pay to build that road she uses to pay to bring her goods to market. And, since she is rich, she probably paid a lot more toward its construction than the rest of us poor schlumps. Also, her use of the road for commercial purposes doesn't stop the rest of us from using and benefiting from the road we all paid for. Anyone gets to use the road, subject to limitations like speed limits and weight restrictions that keep it safe to use and in good order, for whatever purpose she wants. In fact, we all got together (figuratively) and agreed to build the road in the first place because we would all be better off by building it. The community is entitled to collect a tax to create and preserve the road, but fact that someone uses the road doesn't entitle the community to tax them.

Warren wants the prior provision of the public good by the state to justify the prospsective taxation of those who benefit from it. That formulation of the case of the road is exactly backwards.The right way to look at it is that prior tax collections were used to provide a public good from which we may all enjoy benefits. The community has a right to make a social choice to tax individuals to enure the maintenance of the road, but it does not have a general claim to a "hunk" of the benefits obtained by using the road. That may seem like a subtle distinction, but Warren's version of things implies that the state has a claim on my property restricted only by its perception of the size of the "hunk" I am allowed to keep for myself. The alternative grants the state a limited and discrete claim on my property.

Mike Munger makes the same point much more colorfully:
If I need security, I get a dog. If a group of us need security, we might sign a contract and get a really big, strong dog. Let's call it...I don't know... GOVERNMENT. It's big, stupid, poops in places it shouldn't and wastes a lot of time sleeping and licking its "Representative Wiener", because it can.

But, suppose that big smelly dog also does a reasonably good job protecting my house, and yours. We build factories, we create wealth, we do a lot of useful things.

And it's true that we needed the dog, for security, so we could concentrate on things that idiotic, lazy dogs can't do.

For some reason, Elizabeth Warren concludes from all this that our dog...OWNS OUR HOUSE! That is just a non sequitur. It's a DOG. But here is what she says.
Warren's allegory of the road also leave out the extent to which the rest of us have gained by building road that lets the factory owner move her wares to market. Sure, the factory owner makes a profit selling her sprockets and cogs, but we are all better off because there are sprockets and cogs to buy and jobs to be had in the factory as well as opportunities to sell parts and materials to the factory (using the road to take things to the factory), to build and sell homes to all those factory workers (who will use the road to get to and from work), and on and on and on.Warren tells us that the factory owner would be worse off without the rest of us. Fine. But, we would all be worse off, too, without the factory owner.

Warren's limited view and misunderstanding of the relationships among the state, individuals, and public goods would be harmless enough tucked away in her next law review article, but she wants to be a rock throwing United States Senator. As I wrote earlier,
Elizabeth Warren is many wonderful things, but she is also exactly the sort of partisan busybody who likes to think she knows how to make better choices for other people than they do and is eerily comfortable using the coercive power of government to push the rest of us into making the kinds of choices she likes and punish those who disagree with her.
Frankly, the combination of her statist urges and her inclination toward describing herself as a destructive or violent partisan (depending on if she is throwing her rocks at things or people) gives me the heebie-jeebies.

Given the huge Democratic advantages in Massachusetts, it is sadly likely that Warren will end up in the Senate. Scott Brown remains personally popular in the state, though, and barring a major economic turnaround, there is some chance that the anti-Democratic tide that started in 2010 may come in high enough in 2012 to deliver her safely back to Harvard Yard. Early polls are pointing to a tight race. So, there is some hope, I suppose.

Tuesday, September 20, 2011

United Kingdom, Great Britain, England...

This great video, which I discovered via John Transue, explains the complex geography and political associations of the nations and territories of the former British Empire.

Friday, September 9, 2011

Perry, Ponzi Schemes, and Social Security

Rick Perry's comments labeling Social Security a Ponzi scheme have generated a lot of unflattering attention from many liberals (not surprising) and from other Republicans (a little surprising). In particular, Governor Perry's principal rival for the Republican presidential nomination, former Massachusetts Governor Mitt Romney, has argued that a political attack on Social Security would be a major electoral liability for the GOP in next year's elections. In an interview with Sean Hannity, Romney said:
If we nominate someone who the Democrats can correctly characterize as being opposed to Social Security, we will be obliterated as a party.
As someone who is on record defending the Ponzi scheme label for Social Security, it is probably not surprising that I come down on Governor Perry's side of this spat:
Social Security works by paying cash benefits to retirees and the disabled from taxes contributed by those currently working who are, int turn, promised benefits when they retire or should they become disabled. Neither a Ponzi scheme nor Social Security use contributions from "existing investors" to purchase assets that might provide returns to those investors. Instead, both a Ponzi scheme and Social Security depend on the contributions of new "investors" to redeem promises made to "existing investors." As a result, both a Ponzi scheme and Social Security will continue to make good on promises to "existing investors" so long as a sufficient stream of "new investors" are brought into its system. However, both a Ponzi scheme and Social Security will ultimately fail to pay promised returns if inputs from "new investors" are insufficient to cover the payments due "existing investors."
Social Security is especially egregious in its self-representation as some sort of investment plan. It even sends out annual statements of "contributions" that  Americans have made into the Social Security system and the "credits" that workers have earned. Of course, unlike an actual investment, Americans have no proprietary claim to Social Security benefits and the government has no contractual obligation to pay benefits that anyone has "earned."

Whether "Ponzi scheme" is a fair description of Social Security is one thing, but whether it is good politics for a presidential candidate, like Governor Perry, to employ it is another question. The conventional wisdom, of course, is that this is a bad idea. Americans, as a group, like Social Security, and older people, who are especially likely to vote, are apt to punish politicians who are perceived as a threat to Social Security. So, the thinking goes, denigrating the program, especially in a way that suggests an openness to reductions in benefits in the foreseeable future, is politically dangerous.

I will freely admit that there are risks to an aggressive stance on Social Security, but there are some big potential rewards, too. Social Security *is* in trouble, and every payroll tax holiday just makes that trouble just a little bit bigger. Sooner or later, the Social Security status quo has to be changed: benefits will have to be cut or means-tested, eligibility ages will have to go up, payroll taxes will have to be raised, or some combination of these things. Pointing out that Social Security is not an earned asset, but a program of taxing and spending that is not actuarially sound, is both true and a potentially a good political posture.

*If* voters see that Social Security is in trouble, then the politician who pulled the fire alarm can get some traction. Politicians who defend the status quo can be painted as the threat to Social Security. Those who are aggressive about criticizing the status quo and proposing reforms can make reasonable claims to be the program's savior.

Getting voters to buy the notion that Social Security is in trouble shouldn't be that hard. It is, and the recent deficit debates should help emphasize the general theme of Washington's irresponsibility and the unsustainablility of our fiscal policies. Moreover, the president and his record of deficit, debt, stimulus, bailouts, and paying for policies on layaway is, in some ways, the personification of Social Security's problems. President Obama did not create the seriously underfunded federal entitlements, but he has been utterly unwilling to deal with them.

The more difficult part is putting together a reform plan that cannot plausibly be portrayed as an effort to undermine the progam. Some combination of means-testing benefits, slowly raising retirement ages, and further incentivizing private retirement savings, so fewer people will draw out of the (means tested)  system later, wouldn't fundamentally change the nature of the Social Security system, but it would make it more sustainable and help more people become independent of the federal government during their retirement in the future.

So long as Governor Perry's tough talk on Social Security is a prelude to offering a plan for seriously reforming it (and hopefully, other federal entitlements), he call call it whatever he wants and leave those telling him to play it safe safely behind, too.