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30 September 2010

Comment on Winton Bates' blog entry Will the elderly poor fare better under pensions means tests?

Another blog comment gone wild. What can I say? Some topics really get me going—and going and… Again, second person ('you') pronouns reference Winton Bates, author of this.

The present essay strikes me primarily as calculated to score zingers on behalf of Public Choice Theory. The assumption taken as axiomatic here is that a voter is simply a specimen of Homo economicus in a ballot box, which can be used as an instrument of extraction from the 'golden goose,' by which I can only assume you mean that portion of the population actually worthy of dignity, or even existence.

Public Choice Theory, like any conservative school of thought, is predicated on reductionist assumptions about human nature. In this case it is assumed that voter behavior relative to public policy governing retirement finance, like all human decisions, are implicit in the voter's individual self-interest. So, the main stakeholders are the older voters and to a lesser extent the middle aged. I suppose the assumption is that younger and prime-working-age voters are the actual golden geese and accordingly view retirement pensions as a burden on themselves. Please correct me if I'm misreading your editorial statement. While not stated explicitly, it's not exactly subtle.

Let's assume for the sake of argument that the population breaks down neatly into golden geese who create wealth and parasitic pensioners and other people on benefits, who only consume it. "As the number of retirees rises relative to numbers of people in the workforce, their interests are increasingly aligned with those of the community at large in maintaining incentives for the goose to continue laying golden eggs." What you seem to be saying is that even low income retirees are smart enough to realize that being 'entitled' (right-wingers here in America absolutely love that word) to a slice of the pie is only worth something if the pie actually exists. Fair enough. If means testing shrinks the total outlay of the retirement program, it is more likely that the GDP will be sufficient to its funding.

My concerns about means testing are dramatized (perhaps overdramatized) in the made-for-TV movie Prairie Giant, about the life story of Tommy Douglas, preacher, activist, politician, Father of Medicare, and voted 'greatest Canadian' in a nationwide poll by the CBC. In one of the opening scenes in this film, the Rev. Douglas is present at a 'means test,' in which some elderly farm woman who as applied for aid is examined to see how many ribs are showing. While I understand the folly of getting one's worldview from the movies/TV, it rather galvanized my position that 'means tests are mean.' Realistically, I think means tests need not be an affront to dignity if one gets the implementation right. It is best, I think, if the means test is simply an income test, with the income tax return the only document necessary for reporting income. This is the basis of America's Earned Income Tax Credit, a crude approximation of a 'negative income tax.' A version of the EITC for seniors should probably allow some investment income to count as earned income for such purposes. Eligibility income should not be a cut-off, but a phase-out. Another policy mathematically equivalent to means testing Social Security benefits (or the equivalent in other countries) would be taxing a portion of benefits for high-income recipients. Of course, this idea has so far been soundly defeated by conservative interests in America, who have been remarkably successful in cultivating in their support base a reliable knee-jerk reaction against taxes, regardless of who is affected. While I don't agree with this particular political tendency, I should point out that it doesn't exactly fit the Public Choice Theory model of what a voter is and does.

The debate here in America on how to 'save Social Security' has largely become a matter of 'pick your poison.' It is widely accepted that the centerpiece of the program will be diminished expectations. The question is whether future retirees will take the hit in the form of higher payroll taxes (contributions to the plan), lower benefit levels or later retirement age. As indicated in the previous paragraph, taxes are always a non-starter in America's mythic 'rugged individual'-bound culture. Social Security benefits are already way below the poverty line. What is the point in a safety net program which does not provide safety? So, later retirement is the probable outcome. Happily, later retirement is more palatable to me than the other two options. I'm a career 'late bloomer' (to put it charitably) as it is. Knowing my luck, and at the rate I'm 'going,' I'll probably run into some mandatory retirement age; very shortly after finally somehow advancing my pitiful introverted self, in this salesy boiler room called a market economy, to a position of actual responsibility, or professional esteem, or a job actually requiring intelligence; if not before. So, my cherished hope is that I actually have the opportunity to work long enough to actually accomplish something worthy of my underrecognized and underutilized talents, which in my case could be well into advanced age. So, I'm worried not just about whether Social Security will still be there when I'm old, but even more, whether there will be some actually-actionable recourse against age discrimination in the workplace.

Like most conservative and some progressive thinkers, you seem to think that the demographic crunch is the main threat to the future of retirement. I'm worried not so much whether the working-age population will be large enough to support me when I'm old, as whether the GDP will be sufficient. For the good of society, and the good of future generations, which is actually important to me, in spite of the implications of Public Choice Theory, my sincere hope is that future generations enter adulthood in a climate in which there are enough jobs to go around. If there is mass unemployment, the question of whether the worker-to-retiree ratio is sufficient becomes moot. It also doesn't help if the lion's share of the GDP is literally the lion's share, concentrated at the top of the food chain as the returns on investment in automation accrue to capital, not labor. In such a future neither the young nor the old will flourish; only the wealthy.


Poor Richard said...

I don't like mean testing either. To come out on the good side of the mean test you have to be proved to be a bum. This is inherently demeaning even when it works in your favor. More often it excludes people who should be included.

Bates is a bozo who would "strain out a gnat and swallow a camel" (that's how Jesus reportedly described a fool).

The benefit should not be means tested, the retirement age should be lowered to 50 to end unemployment, and the benefit should provide a very comfortable living (though not more, of course).

The fix for social retirement programs (or any other kind of social program) is just to tax the rich very progressively, and for pete sake tax every buck they make with no crazy fat-cat exemption. It isn't rocket science. If the rich pay their fair share of the tax, I don't mind if they collect a social security check. Forget the means testing BS.

What, somebody's fortune wasn't built on the backs of poor laborers, consumers, and taxpayers? The rich OWE us. We should tax the bejesus out of them.

Or be their drooling collaborators and maybe they'll take good care of us in our old age.

Poor Richard

Poor Richard's Almanack 2010

Winton Bates said...

First, the goose that lays the golden eggs. I see the goose as the economy, rather than the working age population. The point is that redistribution may adversely affect incentives and thus reduce total product eg through effects of tax rates on investment location as well as work-leisure choices.
Second, how important is the demographic crunch? Its importance depends on how much birth rates have been declining - not so much in the US as Europe. It also depends on what else is happening in an economy. Its importance diminishes if productivity is rising rapidly, or if there is a terms of trade improvement (as in Australia in recent years), or if pension levels are relatively low etc.
You make a valid point about the relevance of the assumptions of public choice. Other factors are also relevant. When deciding what kind of public support to provide to the elderly poor I think voters would have some regard to the way alternative approaches might impact on their grandchildren if they were aware of the path dependency involved in universal PAYG systems. My point is somewhat Rawlsian - people don't really have much idea what position their grandchildren are likely to have on the income distribution.

Winton Bates said...

One further point. Having now read the article about robots that you linked to, I would like to draw your attention to this:

(By the way, talking about technology, can you tell me how you manage to link to other pages when making comments?)

Lorraine said...

Blogger and most other blog engines accept <a href=" tags in comments. The list of accepted tags tends to be shorter for comments than for posts, but a tags (links) are included. On some blog platforms they are not, and some blogs have an editorial policy of regarding links as spam. I only delete those comments that read like an infomercial. I think links are great. They're what puts the hyper in hypertext.

Winton Bates said...

Thanks very much for that advice, Lorraine. I used the information you gave me to find a site talking about that stuff here. Just practicing.

Winton Bates said...

Well, I messed that up. Perhaps Poor Richard could be right about me being a fool!
I will try again: The site was here

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