I did a blogging heads with Megan Mcardle that’s up this morning. I don’t think Modeled Behavior’s host lets me pop in anything but pictures and videos that are verified by YouTube, but you can find the whole thing here.
A couple of points on content.
- I see with both this and the last one with Robin that I might have a tendency to give to much space to the other side. l tend to think of the discussion as trying to understand and come to common ground but in the realm of talking heads its probably more engaging for the viewers to push harder on my point of view
- The point I didn’t get out about the multipliers is that they forecast how much the overall economy will grow in response to government stimulus. If you were to get them high enough – in the mid 3s – then stimulus pays for itself during a recession. That is, the economy grows so much from stimulus that tax revenue will increase and the effect on the deficit will be negative. Most economists regard this as highly unlikely.
- The point I didn’t get out about the Greenspan commission is that it did come at the point of crisis and it did solve the problem primarily by raising short term taxes, though there were so longer run benefit cuts. However, in general it was in the spirit of – when the shit hits the fan the government does move on the problem.
- I want to give Megan a chance to explain her numbers but I think based on this projection from the CBO, I was more or less right about inflow and outflows. In 2035 the estimated gap peaks with 6% of GDP in outflow and around 4.5% in inflow for a gap of 1.5% of GDP. That’s also a 75% funding level. A payroll tax increase of 1.55 percentage points for both the employer and the employee would clear the gap. That’s not nothing but its not exactly Armageddon. To put into perspective from 1980 to 1990 the payroll tax increased 1.1 percentage points for both employers and employees and that was the primary mechanism that the Greenspan commission used to close the gap.
- As a larger point I agree that if we could create a more optimal tax and spending system then we would have a more optimal tax and spending system. Yet, I don’t see anything in the current environment numbers wise that points to us having a fatal tax and spending system.
- We didn’t get into health care entitlements which are a totally separate issue and I think bring up different points about social preferences, morality and politics, etc.
In the comments on BHTV Conn Carroll points to the following chart as scary but it more or less shows how trivial the projected problem is in the medium term.
The primary surplus line tells us how much SS will cost if we treat the trust fund as fictional, which is my preferred accounting method. In that case, we average a deficit in the neighborhood of $50B a year for the next ten years. Starts at 37B and grows to $118B.
Which is to say that the drain on the general fund from Social Security is slightly less than the drain from AG subsidies.