Matthew Yglesias's Blog, page 2413

They Could Call It "Social Security"

Felix Salmon, inspired by a new Wade Pfau paper (PDF) talks about optimal retirement strategies:

Pfau makes a very basic calculation that for someone on a constant real wage, saving for 30 years and then living for another 30 years on 50% of their final salary, saving about 16% of your salary each year into a portfolio of 60% stocks and 40% bonds will put you into safe territory.

Of course, real wages aren't constant over time, and all the other figures are highly variable too. But the bigger message certainly resonates with me: spend less effort on trying to boost your annual returns, when you have very little reason to believe in your alpha-generation abilities, and spend more effort on maximizing your savings every year.

This seems to me like an area where public policy could play a useful role. Say that instead of "saving about 15 percent of your salary" each year, there was a payroll tax of about 16 percent. And then people who'd paid the tax would receive from the government a defined benefit pension, whose generosity would be proportional to the extent of your earlier tax payments and therefore your salary. Since the goal here is essentially to guarantee middle class retirement security, you could put a cap on the quantity of wages subject to the payroll tax and assume that high-income people who want to keep up with the high life in retirement will take some of that untaxed income and invest it in stock or bond markets.

Then you'd have a public program that helps ameliorate people's short-sighted and weak-willed qualities, thus ensuring a decent retirement for middle class people. And since those who pay higher taxes will receive greater benefits, it has no net impact on incentives. Great idea, right? We could call it "Social Security" since by socializing and spreading the risks, it ensures a decent, secure return for all participants rather than sending everyone to the casino.

Today as 1848

Back on Sunday I toyed around with the idea of trying to produce an analogy between the anti-regime movements active in the Arab world in 2011 to the European revolutions of 1848. But I couldn't actually come up with an actual point to make. Anne Applebaum pulls it off:

Television creates the illusion of a linear narrative and gives events the semblance of a beginning, a middle, and an end. Real life is never like that; 1848 wasn't like that. It's useful to ponder the messiness of history from time to time, because it reminds us that the present is really no different.

She's referring to the fact that most of the 1848 revolutions "failed." But many of the things failed revolutionaries wanted in Germany wound up happening. By contrast, the 1848 uprisings in France "succeeded," the July Monarchy was toppled and a Second Republic was established. But the Second Republic actually turned out to be a failure pretty quickly and ended up as a dictatorship/"empire" and a very witty Karl Marx essay.

Murder in Libya

Just a placeholder to note that I, along with the rest of the world, am aware of the massacres being perpetrated against protestors in Libya today and to express my hope that justice will be done.

Building DC Out

There's a giant surface parking lot amidst downtown Washington, where the convention center used to be but construction on the replacement will begin within months and then there's little space left for downtown development:

Gerry Widdicombe, Director of Economic Development for the Downtown Business Improvement District (BID) notes the difference 185,000 s.f. of retail will make for downtown. "This is really the capstone for downtown DC. We have about 5 million square feet [of buildable space] left on vacant lots or dilapidated office buildings…the old convention center site is about 2.5 million [s.f.] of that, 1.8 million is the air rights building, then we're almost built out." Widdicombe credits former city leaders with setting parameters of a strong residential presence rather than solely office space – despite the commercial's greater tax base value, and for fostering a vision of a retail center. "Everything's working pretty well. The thing we're lacking is retail, hopefully we'll have an Apple store, maybe a Bloomingdales, to get us over 500,000 s.f. of destination retail." He notes that when the BID formed downtown had 95 surface paking lots and 30 dilapidated buildings. "Now we've got 5."

What we need are some taller buildings. With taller buildings we wouldn't face this sharp tradeoff between "parameters of a strong residential presence . . . despite the commercial's greater tax base." Instead, we'd get a ton more office space up to the point where commercial rents decline enough to make the market indifferent between housing and offices. The denser volume of people and jobs would make downtown DC a more attractive place to locate destination retail." And the stronger tax base would allow us to have better public services and lower tax rates.

I know that many people like the look and feel of a city with no skyscrapers. But DC has both a lot of problems and a fair amount of extremely valuable land. Failing to use the land efficiently is extremely costly and makes it much harder for us to solve our problems.

Happy President's Day!

I thought this might be a fun occasion for a trip to the Confederate White House down in Richmond. After all, Jefferson Davis was a kind of President. We'll see….

The Value of Diversity

Debating Mike Pence's amendment to defund Planned Parenthood, Rep Jackie Speier talked about her abortion ("For you to stand on this floor and suggest that somehow this is a procedure that is either welcomed or done cavalierly or done without any thought, is preposterous") and Rep Gwen Moore discussed her experience as a teen mother.

Dana Goldstein makes a smart point about this:

These two women serve as reminders of why we need many more women and people of color serving in public office. To suggest so much is often derided as playing "identity politics," but really, it's just an acknowledgement that people with identities that differ from the status quo of political life–old, white, affluent, and male–have experiences that add something to the public debate and decision-making process. They've been single mothers. They've endured the tragedy of losing a wanted pregnancy. They've been poor.

I think people would appreciate this point better if they understood the fact that public opinion and interest group politics only constrain politicians very loosely. Both of those factors matter, of course, but politicians actually have a fair amount of autonomy. What they think in their heart—and especially which priorities are dear to them—actually makes quite a bit of difference. People with different backgrounds and life experiences are likely to have different ideas about what matters, and that can really change political outcomes.

Politics Under Autocracy

People sometimes look at the sometimes-pathological political process in the United States and then look at rapid economic growth in the People's Republic of China and conclude that somehow in an authoritarian country you don't have politics or special interests. But it's not true, politics happens everywhere—China, America, North Korea, anyplace. The recent events in Egypt have brought forth a lot of stories that illustrate the point well, including today's Anthony Shadid article on a town built by patronage.

The Fantastic Fitzgeralds

Gail Collins:

In Wisconsin, the new Republican governor, Scott Walker, wants to strip state employees of their collective-bargaining rights because: "We're broke. We've been broke in this state for years." Wisconsin's Democratic state senators went into hiding to deprive the Republican majority of the quorum they need to pass Walker's agenda. The Senate majority leader, Scott Fitzgerald — who happens to be the brother of the Assembly speaker, Jeff Fitzgerald — believes the governor is absolutely right about the need for draconian measures to cut spending in this crisis. So he's been sending state troopers out to look for the missing Democrats. The troopers are under the direction of the new chief of the state patrol, Stephen Fitzgerald. He is the 68-year-old father of Jeff and Scott and was appointed to the $105,678 post this month by Governor Walker. Perhaps the speaker's/majority leader's father was a super choice, and the fact that he was suddenly at liberty after having recently lost an election for county sheriff was simply a coincidence that allowed the governor to recruit the best possible person for the job. You'd still think that if things are so dire in Wisconsin, the Fitzgerald clan would want to set a better austerity example.

A helpful reminder that patronage is the practical alternative to bureaucratic civil service rules. Though to be fair, Charlie Peters memorably made the case for the spoils system over 20 years ago in The Washington Monthly.

What Does It Mean To Have An Overpaid Public Sector?

In the wake of yet another study comparing private sector and public sector compensation, I continue to think the question of is a bit ill-posed. You need some kind of concept of an alternative. Carmelo Anthony is "overpaid" in the sense that other players making identical salaries are clearly superior, to wit LeBron James. But viewed in another light, James and Anthony are both underpaid relative to what they could command on an open market unconstrained by salary caps and the details of the collective bargaining agreement. Yet on the third hand, James at least has already shown some willingness to forego salary in pursuit of playing alongside Dwayne Wade and Chris Bosh. Or maybe he's just savvy about the tax implications of playing in Florida. Alternatively, there's a "just price" account by which star athletes are systematically overpaid since the work of a mere entertainer is often thought to lack social value.

What does this have to do with the public sector? Think about your community. Or, rather, I'll think about my community. It seems to me that if we cut MPDC officers' compensation by ten percent, that this would end up having a deleterious impact on the crime situation. So I don't think the cops are overpaid. By contrast, though I have absolutely no idea what the eight manicure licensing enforcement officers employed by the state of Kentucky are paid, I'm certain that it's too much. What bad consequences will flow from cutting their pay? Nothing. But the issue here isn't "overpaid" manicure inspectors, it's that Kentucky doesn't need to be employing these people at all.

At the federal level, it's now cliché to deplore talk of cutting spending by cutting "waste and abuse." The recent focus on public sector pay largely strikes me as a revival of the same trope. In either case the name of the game is to persuade people that lower taxes are compatible with an identical level of government services. We'll have all the same people do all the same stuff but just pay them less! I don't buy it. Of course if you cut teacher salaries across the board they don't just all quit and leave to be replaced by worse people. But what happens at the margin is that the best people leave, to be replaced by worse ones. There are (big) problems with teacher compensation schemes in the United States, but that doesn't solve any of them.

Bad Ideas

Chris Hayes tweeted yesterday "Hard at moments of maximum polarization to retain an open mind and not demonize ideological foes. It's Power we stand against, not people."

It's a nice sentiment. But I think it also reflects a widespread tendency in political dialogue to underrate the idea that actual mistakes and bad ideas are a source of political problems. It gets easy to think that the broad public's ignorance is irremediable and the elites on "the other side" are either hopelessly corrupt or else hopelessly stupid. But if I think about myself, I think I'm constantly improving my own understanding of politics and policy. Does that mean I was hopelessly corrupt or hopelessly stupid 18 months ago? I don't think I was. So why should anyone else be any different? It's always possible to improve my own understanding and so I hope other people's understanding can and will be improved too. Meanwhile, sixty years ago most adults hadn't finished high school while even today a large share of adults can't read which is going to be a large barrier to both the formation and the expression of sound political ideas. But these are remediable problems, just as I could (and should! and will!) obtain actual information about what Swedish labor unions do instead of speculating as I do in the post below this one.