Neoliberalism 3.0: 'more forceful, much more statist approach to forced savings'
Five weeks ago, in response to my piece about the death of neoliberal contrarianism, Matthew Yglesias countered that "neoliberalism is alive and well" at his home perch of Slate. If that's true you sure couldn't tell by reading Yglesias this month.
Yesterday, to mark May Day, he asked the question "Should We All Become Marxists?" (Partial answer: "Capitalism is looking pretty shabby," and "In summary, I'm not a Marxist. But I worry that political conservatives are going to turn me into one.") And hours before that, Yglesias declared that we need aggressive government intervention to counteract the problem that the world of 401(k)s "basically sucks":
We know roughly how much people need to put away in order to retire with a standard of living they'll be comfortable with. And we definitely know what kind of investment vehicles are most appropriate for middle class savers. And we have abundant evidence that, left to their own devices, a very large share of middle class savers will make the wrong choices. What's more, because of the nature of the right choices it's obvious that the dominant business strategy for vendors of middle class investment products is to dedicate your time and energy to developing and marketing inferior products, since the essence of superior products in this field is that they're less remunerative.
In other words: A disaster. What's needed is a much more forceful, much more statist approach to forced savings, whether that's quasi-savings in the form of higher taxes and more Social Security benefits or something like a Singapore-style system where "private" savings are pooled into a state-run investment fund.
Setting aside the contested question of what "we know," a major problem with the Social Security model of forced savings, as Nick Gillespie and Veronique de Rugy spelled out in a Reason cover story last year, is that "current workers are indeed paying for current retirees, not for their future selves, which means that as the number of contributors falls, payouts cannot continue at the same rate." And the number of contributors is falling like a rock: "In 1940 there were 159 workers for each beneficiary. Today there are fewer than three."
Because of this fundamental design flaw, the only way to even tread water on payouts, let alone provide the "more Social Security benefits" that Yglesias advocates, is by jacking up taxes. Which will make an already crappy economy crappier, an already low labor-force participation rate lower (thereby reducing still further the number of current workers paying into the system), all while likely increasing the number of people eligible for unemployment or other safety-net benefits from the money-bleeding government. Neat!
You don't have to read ideologically blinkered libertarian magazines to reach similar conclusions. Here's then-President Bill Clinton in his 1999 State of the Union Address:
[B]y 2013, payroll taxes will no longer be sufficient to cover monthly payments. By 2032, the Trust Fund will be exhausted and Social Security will be unable to pay the full benefits older Americans have been promised.
The best way to keep Social Security a rocksolid guarantee is not to make drastic cuts in benefits, not to raise payroll tax rates, not to drain resources from Social Security in the name of saving it. Instead, I propose that we make the historic decision to invest the surplus to save Social Security.
Needless to say, there are no longer any surpluses to spend, and no amount of wishlist tax hikes will bridge the current chasm between federal government revenue and expenditure, mostly because the latter doubled in nominal terms between 2000 and 2010. So the Clintonian approach is out, and tax hikes are in, and at least some commentators are agitating for more payouts, not less. This is the kind of thing I mean when I keep saying that the economic-policy center of gravity on Planet Liberalism has in recent years moved noticeably to the left.
Certainly, it has become unmoored on this subject from the original thinking of the original neoliberal, Washington Monthly founder Charles Peters. Here's a section from Peters' 1983 "A Neoliberal's Manifesto":
Another way the practical and the idealistic merge in neoliberal thinking is in our attitude toward income maintenance programs like Social Security, welfare, veterans' pensions, and unemployment compensation. We want to eliminate duplication and apply a means test to these programs. They would all become one insurance program against need.
As a practical matter, the country can't afford to spend money on people who don't need it—my aunt who uses her Social Security check to go to Europe or your brother-in-law who uses his unemployment compensation to finance a trip to Florida. And as liberal idealists, we don't think the well-off should be getting money from these programs anyway—every cent we can afford should go to helping those really in need.
So much for that version of liberalism.
Glenn Reynolds makes another important point about the "state-run investment fund" aspect of Yglesian forced savings:
If you want to see a pooled state-run investment fund, look at CalPers. It's going broke amid horribly politicized mismanagement. And state-run pension funds are subject to all sorts of politicized investment decisions that have nothing to do with the interests of the pensioners. At least with 401k plans, the politicians aren't involved — though I sense a political move to change that, too…
More on CalPERS and politicized pension-fund spending in this Reason cover story. For a day-by-day account of CalPERSian economics, I recommend Pension Tsunami. And to see what kind of politics results from retirement statism, look no further than the headline on this call-to-arms from the gang that opposes a Koch Bros. purchase of the Tribune Company: "Tell State Controller John Chiang: CalPERS must act to save the Los Angeles Times."
Yglesias and I debated entitlements, spending, and sequestration politics two months ago on WHYY Philadelphia.