Vilsacking

Julian Sanchez | September 28, 2005

Iowa Gov. Tom Vilsack is guestblogging at TPMCafe, where he writes:

Abraham Lincoln once said: "government should only do what citizens can not do for themselves or what citizens can not do better." Katrina and Rita prove the wisdom of that approach. Organizing mass evacuations, rescuing stranded homeowners, securing abandoned neighborhoods, financing long term and temporary housing, rebuilding public infrastructure, attending to medical needs, and avoiding future tragedies -- those are items that government must do. Individuals, non-profits, and the private sector cannot, and should not, handle them.

The first half of the Lincoln principle sounds good, and I suppose I technically agree with the second for a narrow set of relatively important goods where the gap in (efficient) quality or quanitity between public and private provision is very large, though the curse of public provision is you never get to find out whether citizens might have done better. But what I'm really interested in is that bill of particulars, where a whole bunch of relatively disparate things are crammed together. I'll buy the first three and the "rebuilding public infrastructure" to varying extents, though on some of those fronts, the execution by government was so inept in the instance that it seems ordinary citizens often did do a better job at, say, rescuing stranded homeowners.

But... providing medical aid? Financing at least long term housing? Why on earth can't "individuals, non-profits, and the private sector" do those things? As plenty of pundits have remarked, if we hadn't been "financing long term housing" by way of subsidized flood insurance, we might not have had so many people in the path of disaster. And as for "preventing future disasters," well, I'm not sure what exactly that means beyond the specific items already listed—though, again, not distorting the cost of living in dangerous places might be a good start.

Then we get some very vaguely sketched idea for a "Patriot Bond"—presumably to establish "I'm full of innovative ideas" cred in case he opts for a longshot presidential run in '08 after all—as a mechanism for encouraging people to save more. Of course, not taking a 12 percent bite out of people's paychecks for a government pension might have a similar effect, and in any event it's not obvious that this would increase saving much, as opposed to displacing private capital formation.

Comments

|9.28.05 @ 12:10PM|#

Why do you hate America, Julian?

|9.28.05 @ 12:10PM|#

How would "not taking a 12 percent bite out of people's paychecks for a government pension" "encourag[e] people to save more"?

|9.28.05 @ 12:37PM|#

Vilsacking

You know, with a dirty mind that term could take on any number of meanings...

|9.28.05 @ 12:45PM|#

Why can't individuals, non-profits, and the private sector do such things? Well, they can. Some of the most effective relief work has been done by non govt entities. In some cases, it was the govt getting in the way that caused relief problems.

At the same time, individuals, non-profits, and the private sector are not necessarily very good at what they do. Private organizations can have unwieldy bureaucracies like any other, in addition to arbitrary rules, poor staff, and so on.

|9.28.05 @ 12:47PM|#

How would "not taking a 12 percent bite out of people's paychecks for a government pension" "encourag[e] people to save more"?

I don't think Julian's suggesting that. I think he's saying that issuing Patriot Bonds is less of a savings incentive than removing the social security tax. And I think that math ain't too fuzzy: ({your paycheck} - {fed/state taxes} - {no SSA tax} - {Patriot bond money}) > ({your paycheck} - {fed/state taxes} - {SSA tax} - {Patriot bond money})

Or were you were arguing that by opposing an idea(that Patriot bonds are a great savings incentive than removing the SSA tax), Julian must necessarily be arguing FOR the converse (removing the SSA tax is a greater savings incentive than Patriot bonds). A logical fallacy? In the comments section of Reason? Perish the thought!

Phil|9.28.05 @ 12:48PM|#

theCoach, I believe the conventional wisdom is that if we weren't hitting people for 12% in SS taxes, and telling them that we're putting away for their future, people would save more on their own; but since someone else is doing it for them, they don't.

My impression is that that is generally not true, and that people will -- if they aren't already wealthy -- tend to consume all their income every month. SS is something that should be considered on its own merits, not on an unsupported argument that if we got rid of it people would save on their own.

|9.28.05 @ 12:53PM|#

After what we just witnessed with Katrina and Rita this guy is either a moron or a liar. Since he happens to be politician, I'd be willing to bet both are correct.

|9.28.05 @ 12:56PM|#

We already have a Patriot Bond, and have had it for years. It doesn't seem to be all that popular.

Vilsack's comments are here.

|9.28.05 @ 1:39PM|#

My impression is that that is generally not true, and that people will -- if they aren't already wealthy -- tend to consume all their income every month.

How are you arriving at this impression. My impression is the complete opposite.

Of course, it's all based on the words people use: you "spend money" on a house whereas you put "savings" into the bank. In both cases you're buying an investment vehicle, although a house has additional utility. The only way you can actually "save" money is by putting your cash under your mattress, and I think we can all pretty much agree cash is a depreciating asset when it's under the mattress.

After work tonight I'm gonna invest in a few beers.

|9.28.05 @ 2:29PM|#

rafuzo,
maybe my math skills have become fuzzy (actually, I am sure they have), but I am simply not following.

Your notation of subtracting (no SSA Tax) is at the very least confusing. The big thing though is it appears that you think, and this is my original problem, that the %12 goes into some black hole, rather than to a savings vehicle, the SS Trustfund.

Theoretically, I see two potential arguments, both implausible.
1) By removing the requirement to save the 12% tax, people will actually divert MORE as a percentage of their money into savings vehicles.
2) By removing the requirement people will invest a smaller proportion of their money into more efficient savings vehicles.

2) is somewhat more plausible than 1), but only if the SS money is almost wholly displaced by other investments.

|9.28.05 @ 2:42PM|#

If Vilsack were one of the blind guys feeling up an elephant, he'd describe it as a feather mattress.

In emergencies like Katrina: Break glass and pull out the ANARCHY.

|9.28.05 @ 2:56PM|#

Everything Old Is New Again

And everything right is wrong again!

Larry A|9.28.05 @ 3:10PM|#

I just love it when someone starts with a "government should only do what citizens can not do for themselves" quote by someone famous and transitions to "the government ought to do more and more and more."

Coach: The big thing though is it appears that you think, and this is my original problem, that the %12 goes into some black hole, rather than to a savings vehicle, the SS Trustfund.

The 12% actually goes into the general budget. The only thing in the SS "Trust" Fund is IOUs which say some future Congress will pay back the funds as needed.

And as for "preventing future disasters," well, I'm not sure what exactly that means beyond the specific items already listed

"Preventing Future Disasters" means we need a Federal Beaurocracy that can spend billions of dollars hiring thousands of (unionized federal employee) people to write and publish hundreds of volumes of plans and stockpile tons of supplies that would have been useful in the disaster we just had, so when the next disaster comes along we'll be prepared. If the mayor in question has sense enough to dust off the plans before it's too late to implement them. And if the problems arising from the new disaster are enough like the old one that the plans and supplies will actually do more good than harm. And if the money allocated actually is used to make plans and store supplies instead of building bridges in Alaska, etc.

|9.28.05 @ 3:12PM|#

How are you arriving at this impression. My impression is the complete opposite.

If someone returned 12% of my income to me, I'd probably wind up frittering it away on worthless crap like healthcare. Stupid of me, I know, but the fact is that I, like most people of very limited means, have to carefully decide where my money is going. Providing for retirement is not as important as seeing to some other concerns. Stupid of me, I realize, but I'd rather pay for insurance and be able to see a doctor than be able to think about how great it is that I have money saved when I'm sitting at home with pneumonia. For this reason I'm glad that Social Security is taken out, it makes life much easier by lessening the struggle I have to go through to see to it that my money is being spread properly.

I realize that, having advocated the use of government to solve a problem that affects caucasian people, I've just demonstrated that I'm not in line with libertarian dogma. If you guys feel the need to change the handshake then I'll understand.

|9.28.05 @ 3:39PM|#

Larry A,
..and this ten dollar bill in my wallet is an IOU that the government says will be backed up by the full faith and credit of the United States.
The Fed could target a 100% inflation rate, or congress could declare it no longer will recognize bills made before Treasury Secretary Snow was signing them.

You are simply not addressing the relevent question.

|9.28.05 @ 3:40PM|#

Shem,

Stupid of you yes, but you have no right to ask me to cover your ass.

|9.28.05 @ 3:45PM|#

That's absolutely right, no one will save for anything without government taking it to build bridges and promising it back later. That's exactly why as a first job post school kind of guy, I'm choosing to invest in an IRA and living with a couple roommates since moving out of the parents to save extra money for a house some day. Perhaps if we skipped some of the sensitivity training in the public schools for some finance (wasn't it called home economincs one time). I must be a horrible person to be a little bitter that the government takes 12% of my paycheck to help out my ex-ceo/president grandfather with the payments on his motorhome. God what kind of dick am I?

|9.28.05 @ 3:54PM|#

Cap'n,
You can be pissed off about it, and I won't think you are a horrible person. But if you argue that by removing the requirement to put money into a savings vehicle, you will increase savings you are making an argument that is wrong -- nothing moral or immoral about it.

|9.28.05 @ 3:56PM|#

Shem, you were being sarcastic, right? Hard to tell sometimes, but if not, it's more like you're not inline with simple thoughtfulness than just libertarian dogma.

If you really feel you have no discipline then you could surely contract with some financial institution to take 12% out and put it away in a fund that you cannot touch until some future date. But instead you see the preferable solution as including a huge federal agency to make your choice for you while at the same time compelling everyone else to make the same (Hobson's) choice? That seems pretty selfish and thoughtless, so I hope it was just sarcasm.

|9.28.05 @ 5:08PM|#

Social Security as a "savings vehicle"?

Now I've heard everything!!!

The money isn't saved, and it isn't put into a trust fund. It's spent by Congress for partial reimbursement of prior victims of the Social Security tax (even if they are currently wealthy), payments on the national debt, and pork barrel projects.

Government receipts from the Social Security tax in excess of payments to current retirees may be earmarked with Treasury bonds, but guess who pays those back? Hint -- it ain't Congress. It's the hardworking American taxpayer.

When current victims of the Social Security tax retire, perhaps future young working people will also be taxed to partially reimburse them. Perhaps not. Who knows?

Now, if every working person in America no longer had 12% stolen from every paycheck, and the shaky promise to pay some of it back later were removed, would savings go up?

I think the answer is obvious -- of course savings would go up. Many people would spend all of the increase, of course, and most wouldn't save all of it, but some would. Maybe the average savings rate would be 5%, or 1%, or 10%; it's hard to say. Any rate greater than 0% is greater than the current savings rate, since none of the Social Security tax collected is saved.

Larry A|9.28.05 @ 5:13PM|#

What if, instead of SS, the government simply required your parents to set up a retirement account at your birth, and required you to pay into it 12% of everything you earn. The account is yours, and may be invested in any reasonable way. (Stock market, mutual fund, etc.) Set it up at an approved financial institution, say a bank or financial service.

At anything over 8% compound interest you would have enough principle to retire at your pre-retirement income after 30 working years, live on the interest only until you died, then leave the principle to your heirs. This is true at any rate of income.

For instance, a person earning $8 an hour starting at age 18 could retire at age 48, have a retirement income for the rest of his life just over $16,000 per year, and leave his heirs about $230,000. He could also continue working or start another $8 an hour career, save 30% of his income, (since he also has his retirement income to live on) and retire with $32,000 per year at age 68.

That's a heck of a better deal than Social Security, which requires you to work until 65 and pays only a fraction of your paycheck.

R C Dean|9.28.05 @ 6:13PM|#

Since not one penny of the money collected as Social Security tax is saved, I think it is a very safe conclusion that repealing the tax would increase savings.

Even if only 1% of workers saved 1% of the money that used to go for SSI taxes, that would be an increase.

|9.28.05 @ 7:24PM|#

I purposefully overstated my own ignorance and concerns about the issue in order to make a point. Of course I already have a certain part of my pay put aside for retirement issues, but for a variety of reasons that's not feasible for some people. I came by the advisement that allowed me to set the plan up by lucky coincidence; had one of my cousins not have been in the finance business I would never have known the options available to me, and, even if I had I probably would never have known where to go to get assistance. Ignorant of me, I realize, but just giving people like me a giant kiss-off seems rather inhumane, especially given how unlikely it seems that the couple working full-time to support children will take time out to seek these sorts of programs. Stupid of me and irresponsible of them, I realize, but those of us who are more concerned with the well-being of our fellow human beings than a cluster of abstract principles occasionally like to consider how our actions and their consequences will affect others before we call for a complete alteration of the status quo in order to assuage some real or perceived injustice.

Don't get me wrong, I'm deeply ambivalent about the colossal salary grab that happens every paycheck. I think everyone who works is. But, although it's a big deal, it's not such a big deal that I could immediately support a complete overhaul of a system that people have been betting their futures on. Social Security is a huge deal, and immediate, massive changes have tremendous risks that nobody can foresee. Small changes over the course of years are the only real way that risk can be minimized to levels that are acceptable, at least in my mind. Maybe private accounts are a good idea. Maybe complete abolition is the best solution, I don't know. But, none of the big ideas are any good at all if the attempt is made to implement them right now.

|9.29.05 @ 3:03PM|#

Lex,
And the banks would then put that money in a vault?

Larry, that sounds like a great deal -- in just a generation or two evry US citizen will be living off of interest payments -- I can't wait to go lobby my congressman for your new plan.

On a serious note, the excessive borrowing of the US government is a problem for savings, but it is unrelated to SS Trustfund, accept that Republicans use it to obscure their figures (Can anyone say lockbox?).

|9.29.05 @ 3:44PM|#

Yes, let's pretend there's a "lockbox" for the imaginary "trust fund".