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a scratch pad for half-formed thoughts by a liberal political junkie who's nobody special. ''Hard Heads, Soft Hearts'' is the title of a book by Princeton economist Alan Blinder, and tends to be a favorite motto of neoliberals, especially liberal economists. mobile
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Friday, June 14, 2002
You've debunked one clear social security misconception, which is that you can't just give the money in the Social Security Trust Fund to younger workers, because that money is earmarked for baby boomers. But there's one other more opaque misconception (in fact, I'm not quite sure its a misconception) which I believe gets to the very heart of the matter, namely, the belief that it is *always* superior to invest a surplus in stocks rather than Treasury Bonds (or paying down the federal debt, which amounts to the same thing) because stocks *always* have a higher return. I suspect this belief is what allows conservatives to wave away your columns with bromides about "transition costs": what they seem to implicitly believe is that the trust fund can be given to investors to achieve a 7% real return, and that the resulting trust fund shortfall can be made up by borrowing bonds at a 2 or 3% real return, using the "magic of the market" and the "magic of compound interest". (and perhaps a little voodoo as well) Some people like Dean Baker have pointed out that this belief is identical to believing that the Federal government can create wealth by floating bonds and investing the proceeds in stocks, but still, one has the feeling this isn't the last word. This column by Andrew Tobias is one of the clearer explanations of privatization. On the issue of shifting money from stocks to bonds, Tobias writes: "But whether the money were invested in stocks efficiently, without appreciable fees, commissions or paperwork . . . or inefficiently, with 150 million amateur managers . . . the larger question is: would shifting this 2% of the Social Security tax into stocks really make us collectively richer? If so, it would presumably be because the current capital structure in the U.S. suffers from a lack of equity capital. Starved for equity, we do not start or expand businesses as we might, and thus stunt our future prosperity." I'm not sure what Tobias means here, and I suspect that the best explantion will depend on parameters as well as principles. Some of the very early columns you wrote about PE's being abnormally high I have a hunch are relevant, but it needs to be put all together in a coherent way, in the context of the privatization debate. In other words, it needs to be spelt out for the economically unsophisticated, myself included.(I have a good economic intuition, which alas, currently does not include much precise knowledge) In any case, I think this is a subject you could write some very good and much needed columns on. another minor column suggestion: this very good report on the beginnings of the California power crisis shows that the PUC and lawmakers deregulated in part because they were mucho impressed by a March 1994 tour of the UK's National Grid. I remember you writing in Peddling Prosperity that Britain had lots of excess capacity at the time because of their previous deregulation. I think an interesting column could be written on why the Grid system worked in the UK in '94 but not in California in 2000, and in general examining what makes for a successful electricity regime. |