Two Infinities

Wed, 09 Feb 2005

New name for blog
I'm naming my blog "Two infinities" after Blaise Pascal's "pensee" that we are suspended between the infinitely greater and the infinitely smaller than ourselves (II.72). I thought I would be able to find the reference at the Gutenberg Project but I don't see it there, strange. However, the Pensees do appear here, the Classical Library.

posted at: 20:41 | path: | permanent link to this entry

Social security risk
I wrote to NY times columnist Paul Krugman as follows in response to his opinion piece of February 4, 2005. Of course, he did NOT write me right back praising me for removing the scales from his eyes. Nevertheless, yesterday his column did address the issue of what the minimum guaranteed benefit would be under the Bush plan. He provides an all-in estimate that a worker's guaranteed benefit would fall from the current 35% of salary to 8% of salary. He attributes the estimate to Jason Furman of the Center on Budget and Policy Priorities. I looked over the Social Security related articles there but I fail to see how they get to a 75% reduction.

Dear Mr Krugman,

I worry that you are doing disservice to your own cause by trying to have it both ways. You seem to conflate opportunity cost with buying on margin.

It seems to me if Bush's plan passes and everyone directs their private savings to Treasurys, then modulo possible transaction costs we end up with exactly the same system but with the virtue of more transparent accounting. To the extent monies are directed to other assets, the govt will borrow to pay benefits, not to buy stocks. A benign govt borrows because it believes future returns on the borrowed funds will outweigh the cost of repayment.

It also seems that by allowing 1/3 of ss tax to be used to buy risky assets, we would simply be agreeing that 2/3 of the current benefit is sufficient to fulfill social security's social contract: insuring the elderly against destitution.

So what's really in play are the terms of the social contact. What pension are we willing to promise retired or disabled working people? Bush proposes to scale the promise down by 1/3 plus whatever benefit cuts are included. Of course we are probably just seeing the edge of the wedge; true believers intend a larger factor.

Thanks for reading.

Mark Copper