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January 04, 2005Cognitive dissonance watchBy Jim DallasColor me confused, but why is switching from wage-indexing to price-indexing of Social Security benefits such a big deal if wages haven't been going up? OK, granted, the time frame on these two phenomena are slightly different, but let's just say that the picture isn't quite as bad as liberal economists paint if you assume the same bunch of morons will be running the economy for the next 70 years. Which of course is a fundamental political assumption in any policy proposed by the modern Republican Party (what, them worry?). For what it's worth, I feel a little bad for even imagining that Model 2 could be worth it. MaxSpeak pretty much disects that one, although I'd like to see where he's getting his numbers from. (I'd like to see a middle-ground position on benefit indexing, personally. Under a pay-as-you-go system with wage-indexing, each individual retiree effectively lays claim to a certain percentage of the productive output of America. The more retirees (relatively speaking), the bigger the chunk for the entire retiree cohort. With price indexing, the individual and cohort shares of GDP eventually get whittled down. What I'd like to see, perhaps, is a benefit-indexing scheme where each retiree cohort lays claim to a constant share of economic output, because, after all, that's what the revenue-base is tied to - a constant share of wages paid in FICA taxes. I'm not sure, of course, how to define such a system in convenient terms.) Posted by Jim Dallas at January 4, 2005 04:19 PM | TrackBack
Comments
A small difference in growth rates over a long period adds up to a lot. It's possible for prices to grow faster than wages, and it's happened now and again, but it's unlikely over the long term. Of course, if wages don't grow, then workers are even worse off then if they reduced Social Security benefits. (Moreover, less wage growth would automatically reduce benefits, over and above the switch from wage to price indexing.) The results I flogged are from a Congressional Budget Office study (linked in the post). Other studies get different results. Your suggestion would amount to "GDP indexing." This could easily cost more than wage indexing, and it is very unlikely to cost less. As for coloring you confused, I thought we were supposed to color you orange. This is true. Thank you for your thoughts! Posted by: Jim D at January 4, 2005 05:22 PMI couldn't have exlained it better myself, which is why I'm glad Max said it and not me. Posted by: Nate at January 4, 2005 07:58 PM
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