Behavioral economics and retirement savings — March 26, 2016

Behavioral economics and retirement savings

This NYT article about using behavioral nudges to get people to save more is fine, so far as it goes. But it’s another example of policies which go through an outrageous amount of complexity to encourage people to do the right thing, instead of doing the right thing for them.

There are a lot of potholes on the way to a happy retirement. First is to save enough. Second is to save in appropriately diversified vehicles (e.g., index funds). Third is to choose a mix of assets that’s appropriate for your particular stage of life — e.g., more stocks when you’re young, and more bonds when you near retirement. Fourth is to not outlive your savings; the way to do this would be to buy an annuity, but the annuity market (as I understand it) is not as well developed as the rest of the retirement-savings industry.

So then we (as a society) compile all of this knowledge about financial best practices, then try to convince people to use it, then outsource preparations for retirement to employers, then encourage employers to nudge their employees into doing the right thing. Not only is this ineffective; it’s infuriating and exhausting.

Until fairly recently, we tried another outsourcing approach: encourage employers to provide pensions (“defined-benefit retirement plans,” in the jargon, as opposed to “defined contribution” plans like 401(k)s). Pensions required employers to set aside money today for their employees’ retirement, but this of course presents a problem: what if the employer goes out of business before paying out those retirement benefits? To address this possibility, we built a regulatory infrastructure to try to regulate these pensions. If all else failed, we created a government agency as a backstop.

Somehow the straightforward approach of just providing strong retirement benefits to all Americans, then paying for those benefits with progressive taxes, hasn’t yet taken hold. In the U.S., “inflation-protected retirement annuity with survivor benefits, paid for through taxes” is pronounced “Social Security.” Social Security is expected to be part of a three-legged stool, the other two legs of which are pensions (nowadays IRAs and 401(k)s) and private savings. Those other two legs are increasingly weak: the overall national private saving rate has been declining for decades, and briefly went negative in 2005. That savings rate already includes 401(k) and IRA contributions, so one of the legs of that stool is practically nonexistent. As for the 401(k) leg: only 66% of private employers even offer retirement benefits, and only about 3/4 of the people who have access to them use them. I can’t find statistics on how much people contribute to such plans, but the amount must be less than the low overall savings rate. [1]

In this light, behavioral workplace nudges to get people to save more seem like a last-gasp rearguard effort. If we, as a society, believe that saving for retirement is important, why don’t we, as a society, reflect this belief in our policies? The standard nudgey answer is “libertarian paternalism”: set appropriate defaults on retirement savings, and allow people to override those defaults if they wish. It seems pretty clear that libertarian paternalism doesn’t work. Libertarian paternalism seems like nothing so much as resignation in the face of a hostile political climate; it resembles the early Obama administration, hoping against all evidence that the GOP would take half a loaf. “Conservatives and liberals disagree on a lot of things,” I imagine libertarian paternalists saying, “but surely they’ll agree on market-friendly solutions like behavioral nudges.”

Even if these nudges worked, Social Security would still be better. First, there are enormous economies of scale from administering Social Security centrally rather than outsourcing pension management to millions of employers. Second, those employers can’t be expected to be any good at choosing retirement options for their employees. My employer makes software; it doesn’t make retirement funds. Why would we expect my employer to be any good at offering 401(k)s? Why would it want to offer 401(k)s? It wants to make software and it wants to lure talented employees with high salaries; all else is noise.

Social Security isn’t perfect. It’s not progressively taxed, for one thing: it’s a flat tax, and you don’t contribute on any dollars you earn above $118,500. It’s regressive on what’s paid in, but progressive in what’s paid out: higher earners can expect to get back a smaller fraction of what they paid into Social Security than lower earners do. And it only pays out $1,335 per month on average, which still amounts to 39% of elderly people’s income. So it needs to be more generous and more progressive. But it’s a start, and the infrastructure is already in place. Removing the taxable maximum would be a hard-fought battle, but would be comparatively easy to implement once we’d made the decision to do so.

I like to imagine a thought experiment. Back in 1970, I imagine someone told my parents (who weren’t yet parents) that in 50 years they would be nearly four times as wealthy as they were back then. My imaginary interlocutor would then ask my parents what to do with that windfall. They might have felt perfectly well off with the income they were earning back then, so the thought of quadrupling it might have seemed outrageous. Maybe they should set some of it aside for retirement? Set aside even more of it and allow themselves to retire early? How about setting aside some of it to provide the world’s best universities, for free? There’d be a long list of choices they could make. They could choose to buy a larger house, though maybe they’d look around at the house they have and think, “No, this is a fine size house; we’ll choose to spend our money on other things” (unlike Americans as a whole, whose homes are 42% larger at the median than they were in 1973).

Like Odysseus tied to the mast, every decision that my parents made in their mid-twenties would bind them in their working years and on into retirement, and the binding would be handled through the tax code. Would they lament the money that never made it to their wallets, but rather was spent on social goods? Rather than after-tax paychecks that were on their way to quadrupling, they’d get free university educations for their children, and they’d have enough money to retire comfortably. A lot of the arms races that we fight with our neighbors would never have been fought: rather than build a larger house simply because that’s what everyone around us does, and because we must keep up with the Joneses, the tax code would disarm everyone at once. To the extent that we build larger homes out of an arms-race mentality, rather than because any individual person wants a larger home, this multilateral disarmament would help everyone.

Of course this story isn’t complete. For one thing, real per-capita disposable personal income doesn’t capture the story of rising income inequality over the last 30-40 years; the story of American growth hasn’t been a story of rising tides lifting all boats. A more accurate measure might be median household income, which has barely budged since the early 80s. This may, in fact, strengthen my story. Which do we prefer, as a society: quadrupling our income, but putting most of that extra income into a few hands, or sharing it more broadly and investing in our future through strong public universities, public-health spending, and basic research that helps everyone?

The story of increasing wealth may also be missing a key component: health care. Maybe our parents would have loved to have set aside money to build for the future, but they didn’t have that choice: much of what would have gone into their pockets as increased wages went, instead, into health-care costs borne by their employers. First, I have my doubts that this was actually a problem: the real disposable personal income number already factors in the health-care CPI. And second, the fact of rising health-care costs in the U.S. results, at least in part, from our fragmented system of care. That is, rising health-care costs have been very much a social choice. Imagine again that our parents, bound like Ulysses, were asked in the early 70s to make a choice: organize medical spending in a deliberate way (à la the VA medical system, or à la Medicare), or continue with the chaotic and spectacularly inefficient way we’ve organized it.

Barney Frank is supposed to have said that “government…is simply the name we give to the things we choose to do together.” Let’s get back to thinking of things we can do better together, as a society. Social Security is a good start, but it’s just a start.

[1] – I don’t know whether home equity is counted in the NIPA definition of savings. Even if it is, I’m a little confused about how owners’ equity is counted. How could equity be cut in half and then return to trend? In any case, equity per capita only hit a peak of about $45,000, so it alone won’t rescue Americans’ savings rates. And we can’t compare savings rates to equity amounts; that’s comparing a flow to a stock. The relevant comparison would be either the rate of change in equity to the rate of change in savings, or the total amount of savings to the total amount of equity. I can’t figure out a quick way to do the former; the latter doesn’t seem particularly valuable.

A cynical take on limiting Social Security eligibility — October 22, 2015

A cynical take on limiting Social Security eligibility

Eric Laursen today describes the GOP desire to limit Social Security only to those people who are too sick to work, then goes into the research describing why it’s not so easy to identify who’s too sick to work. He doesn’t say so (Jacob Hacker does, I believe in The Great Risk Shift), but the same is true of income variability. We might have a mental model of “the poor” as those who always and everywhere have low income, and there may be such people, but there are a great many more who suffer periodic negative shocks to their income. (Same sort of thing is true of “the homeless”; see Malcolm Gladwell.)

So here’s my cynical take:

  1. Sorting out eligible from the ineligible requires huge administrative overhead rather than simple age-based eligibility. This is exactly what the GOP wants: a Federal program that works poorly. Two examples of the GOP playbook come to mind here. First, consider their demand that abortions be allowed only when the mother’s life is in danger. Along with all the other things we could say about this, just imagine the regulatory and legal overhead it creates; how many times will doctors be sued because they allowed an abortion when the mother’s life wasn’t at risk? Even if they always win those lawsuits, a great many doctors will opt out of providing abortions purely to avoid a lawsuit.

    Second, I think of Bill Kristol’s famous memo on defeating the Clinton health-insurance initiative, particularly this:

    “Health care will prove to be an enormously healthy project for Clinton… and for the Democratic Party.” So predicts Stanley Greenberg, the president’s strategist and pollster. If a Clinton health care plan succeeds without principled Republican opposition, Mr. Greenberg will be right. Because the initiative’s inevitably destructive effect on American medical services will not be practically apparent for several years–no Carter-like gas lines, in other words–its passage in the short run will do nothing to hurt (and everything to help) Democratic electoral prospects in 1996. But the long-term political effects of a successful Clinton health care bill will be even worse–much worse. It will relegitimize middle-class dependence for “security” on government spending and regulation. It will revive the reputation of the party that spends and regulates, the Democrats, as the generous protector of middle-class interests. And it will at the same time strike a punishing blow against Republican claims to defend the middle class by restraining government.

    What possible interpretation of this paragraph could there be other than “it will work, so we have to defeat it”?

    The ease of separating eligible from ineligible is one of the big arguments for single-payer health care, by the way. Hospitals will no longer have to employ teams of people who specialize in dealing with individual insurers; there will be just the one insurer. And identifying eligibility is easy: you’re a citizen, so you’re eligible. There may be other knocks against single-payer health care, but low administrative overhead is one of its main selling points.

  2. There’s a maxim that “a program for the poor becomes a poor program”. A great way to remove mass support from Social Security is to isolate its constituency. If it’s those people over there who get Social Security rather than you and me, then we’re less willing to fight for what’s ours. If this model is right, then increasing the generosity of Social Security — so long, of course, as the funding increases commensurately — might raise its likelihood of survival, by increasing the political support behind it.

    Consider: when the average Social Security benefit is $1335 a month, you and I might fight for it; but if it gives us a hefty monthly payout in retirement, we might fight a lot harder. What would “hefty monthly payout in retirement” mean? Well, the usual story is that you should save enough to earn 80% of your pre-retirement income in retirement. Median household income nationwide is $53,046 per year. 80% of that is $3,536.40. How hard would you be willing to fight for Social Security if you knew that you’d be receiving $3500 per month from it in retirement?

    And that’s not at all an insane number to expect. Social Security was assumed to be part of a three-legged stool of retirement savings: your company’s pension, your savings, and Social Security. Pensions have significantly weakened, and 401(k)s have not kept up. (I’ll want to look around for the numbers: total assets held in defined-benefit retirement vehicles and total assets held in defined-contribution vehicles over time.) As for the saving rate: I’ve not looked into how it’s defined, but this quick FRED graph doesn’t say anything optimistic. So why not increase the monthly Social Security payout to 80% of the monthly median household income?

    My model of political support might be wrong, of course: that maxim needs to be backed up by empirical support. But enough people believe it’s true that I read a book a few years ago, a significant part of which was devoted to understanding why Medicaid is still alive. Shouldn’t Medicaid have become “a poor program” long ago?

The more our welfare-state programs apply to everyone, I believe, the more politically secure they’ll become. And along the way, they’ll be cheaper to administer. We should all want these things.

I appreciate the sentiment, but this is basically false — July 8, 2014

I appreciate the sentiment, but this is basically false

> Your health care decisions are not your bosss business, said Senator Patty Murray, Democrat of Washington
–[newspaper: New York Times] story about a Democratic bill to override the Supreme Court’s Hobby Lobby decision

I’m as unhappy about the Hobby Lobby decision as anyone else, especially since the U.S. Conference of Catholic Bishops say they don’t object to insurance covering Viagra. There’s an obvious double standard, and I hate it.

But really. Here’s reality:

1. By ‘Your health care decisions’, what Murray means is ‘what your insurer is required to pay for.’ Let’s be clear on that, because you can still go ahead and pay for contraception on your own. Again, I’d like to see insurance plans pay for contraception, but let’s be clear on what “Your health care decisions” means.
2. Your health-care decisions, by that standard, are never entirely up to you. Insurance pays for some things and not for others.
3. This would still be true even if — as I would prefer — we had a single-payer health system. The government would still pay for some things and not pay for other things.

I think it’s hopelessly muddled to frame this in the language of “your health-care decisions”. What the big debate is about is simply this: what do we believe that the our insurers — whether it’s the government or a private insurer — should be required to pay for? That’s an ethical and economic decision. And our insurers will sometimes make decisions at variance with our own ethics. And that sucks. Those on the other side would, presumably, say that it sucks when they need to go against *their* ethics to pay for something that they consider objectionable. My response to that would be: how far are you willing to take that? If my religion forbids male doctors from palpating naked female patients unless the doctor is married to the patient, are you willing to deny coverage in that case? Are you willing to make female patients seek out female doctors if they want the insurer to pay for it?

Indeed, I think I need to read more on the Religious Freedom Restoration Act and the Hobby Lobby decision, because I’m confused why religion here doesn’t excuse just about everything. SCOTUS describes the RFRA as follows:

> The [RFRA –SRL] prohibits the Government [from] substantially burden[ing] a persons exercise of religion even if the burden results from a rule of general applicability unless the Government demonstrates that application of the burden to the person(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest. 42 U. S. C. 2000bb1(a), (b). As amended by the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA), RFRA covers any exercise of religion, whether or not compelled by, or central to, a system of religious belief. 2000cc5(7)(A).

I’m tempted to find some excellent regulatory arbitrage out of this, whereby I can make a lot of money by hiding fraud under cover of religion. More than that, though, I find it offensive that I have to pay, through my taxes, for wars that I don’t agree with. Did the government use the least restrictive means of furthering its compelling government interest in destabilizing Iraq when it taxed me? Okay, arguably yes. Was the government’s decision to require coverage of contraception 1) not in furtherance of a compelling governmental interest? Or was it 2) not the least restrictive means of furthering that interest? I guess I need to read the decision.

So anyway: yes, this sucks, and it conflicts with my ethics. Let’s be clear that this is an ethical objection, not an objection — as Murray would have it — about someone interfering in your health decisions. Someone’s always going to interfere in your health decisions.

The war on the bros — January 18, 2014

The war on the bros

What Uwe Reinhardt said. In short: if you think that it’s an outrage that you have to pay more for your health insurance so that everyone can pay the same premium, including women and the elderly and the sick, then you should have been upset at the existing system of employer-based health insurance. Women and the old and the sick *at your company* are also paying the same premium as you, even though they likely go to the doctor more.

Reinhardt doesn’t even touch on the other obvious fact: one of these days you will be sick. One of these days you and your spouse may want to have a child. One of these days you will be old. When that happens, you’ll benefit from the same community rating that supposedly harms the “bros” today.

Did this country at some point lose the notions that we’re all in this together, that we’re sharing burdens, and that we’re all only one accident away from catastrophe? The phrase is “there but for the grace of god go I”; a just society protects everyone from unexpected, uncontrollable disaster. I hope we can relearn this.

Business confidence? How about middle-class confidence? — January 10, 2014

Business confidence? How about middle-class confidence?

I’ve thought for a while that the focus on business confidence — specially, businessmen’s purported inability to make forecasts about the future, because policies ostensibly keep changing out from under them — came at the expense of *everyone else’s* confidence. Here’s an example by the banker Bob Rubin from today, via Paul Krugman:

> The US recovery remains slow by historical standards even if recent signs of improvement are borne out. One reason is that our unsound fiscal trajectory undermines business confidence, and thus job creation, by creating uncertainty about future policy and exacerbating concerns about the will of Congress to govern. Business leaders frequently cite our fiscal outlook as a deterrent to hiring and investment.

To be very specific about it: suppose you believe that you’ll lose your job tomorrow. That’s going to change your behavior today, isn’t it? It’s going to cause you to save a lot of money in the bank(assuming you have money to save), rather than spend it. In a world without universal health insurance, fear of job loss might, for instance, make you head to the hospital and the dentist’s office for all the checkups you’ve been avoiding.

I’ve not put together the economic model, but I could easily see a story under which the effects of consumer uncertainty dwarf the effects of business uncertainty. Businesses, owing to their economies of scale, can prepare for policy uncertainty more easily than I can prepare for unemployment. Really large businesses can engage in hedging schemes, wherein they’re protected from rises and falls in interest rates, for instance. I cannot so easily prepare for the loss of my job. And in an environment of high involuntary unemployment, employers have an advantage over me: they have more people waiting in line for every job opening. So my uncertainty over the future, and my ability to hedge against downturns, would seem to get worse during recessions.

But now imagine that there’s a strong social-safety net, such that, whatever else happens, you’re going to be able to get medical care even if you’re unemployed. Imagine that unemployment insurance is so strong that you breathe a little more easily and sleep a little more soundly at night. (For that matter, imagine that everyone gets a guaranteed minimum income.)

Imagine a safety net so strong that you could consider starting a new business without fear that you would impoverish your family.

Imagine that your kids’ school offered them free lunch, regardless of their income level (thereby removing the stigma of poor kids receiving free lunch), 365 days a year; that would remove the uncertainty over whether they’d be fed; in turn this would, it’s fairly easy to imagine, reduce your fear and increase your freedom of action.

Imagine that, no matter which neighborhood you lived in, you could live free of fear that your kids would be hit by stray bullets, and you could send them to whichever school was best for them (in Boston, you could live in Roxbury and send your kids to school in Brookline). You could choose to live anywhere in this world without fear. That would remove some more uncertainty from your life.

My strong suspicion is that Bob Rubin doesn’t care about these things, because he doesn’t have to. Bob Rubin’s class cares about interest rates far more than it cares about involuntary mass unemployment. Bob Rubin’s class lives in neighborhoods without fear. Bob Rubin’s class has the spare money to start new businesses without fear of their failing. The only sort of uncertainty that Bob Rubin’s class cares about is the uncertainty in interest rates.

Let’s aim for a society where the bulk of middle-class people both a) understand the real sources of uncertainty and b) don’t come to identify our needs with those of the bankers. Their needs are not ours. Their fears are not ours.

Corey Robin gets at what’s so annoying about Obamacare — December 10, 2013

Corey Robin gets at what’s so annoying about Obamacare

Excellent post. Just one sample:

> A version of this notion came home to me not long ago when my wifes employer announced that they were changing their healthcare coverage. It used to be that our entire familymy wife, daughter, and Iwere covered under her plan, which provided great insurance for fairly low cost. Very old school. Then the employer announced that from now on any member of the familyi.e., mewho was eligible for coverage from their employer would have to use that insurance first. But, and heres the kicker, if that insurance didnt cover some particular procedure or doctors visit, then my wifes insurance would cover it. So now, on certain procedures or visits, I have to submit two claims: one to my insurance, and then, once they refuse to provide coverage, one to my wifes insurance. And then, because we have one of those health care accounts that makes the right so giddy, I can submit a third claim to that company (in the event that my wifes insurance does not provide full coverage).
>
> One procedure, three claims, all to get what, in more mature democracies, would be mine by right. Thats some freedom.

That comes by way of Robin’s post at Crooked Timber. Like Robin, “Im not interested in arguing here over what was possible with health care reform and what wasnt; weve had that debate a thousand times.” I too would like single-payer. I too think it would just be radically simpler. You pay your taxes, you get your services. Done.

I’m feeling this lately in particular. Our insurance has decided to emphasize “consumer-directed health care,” which means “making the user of health insurance pay more attention to how much things cost.” (We’ve also been offered a new, low-premium, higher-deductible health-insurance plan, paired with a health savings account. An HSA is like a 401(k) for your medical expenses. I hate 401(k)s and love Social Security for the same reason that I hate HSAs and love Medicare.) Two things to note about this:

1. Most of us are not responsible for most of this country’s health-care costs. Getting me to buy a generic medication rather than a name-brand one is just not going to solve any problems. So when a health-insurance company tells me that it’s “consumer-directed,” that’s when I reach for my revolver.
2. There are numerous points of negotiation in the health-care system. There’s the insurer negotiating with the provider (refusing to pay for certain services, say). There’s the insurer negotiating with the health-services consumer (refusing to cover certain procedures). There’s the health-services consumer negotiating with the provider (insisting on generics, or opting for a CAT scan at a scan center rather than at a hospital). And then there’s the government interacting with all the other parties. “Consumer-directed health care,” as I understand it, only works on the provider-consumer side. I’m not convinced that there’s very much negotiation to be had there.

Health care in this country costs more because it’s more expensive. This is not a tautology. For a given unit of care, we pay more for it. You can break down costs in various ways, but basically (total health care cost) = (cost per unit) times (number of units consumed). We don’t consume more units of care; we use hospitals less, in fact. We just spend more for a given unit of care than other countries do. One very obvious way to pay less for a given service is to change the balance of power between the provider (the doctor) and the insurer. If there were only one insurer out there that paid for all of your medical services, it could strong-arm the doctors. This is not rocket science; it’s how Wal-Mart offers low prices. It’s how Medicare offers low prices.

So whose problems is the insurance company solving when it makes me negotiate more with my doctor? It’s not solving the health system’s problem as a whole. It’s not likely to lower my prices. [foreign: A priori], my assumption is just that this is a disguised way for the insurer to make more money, by covering a smaller fraction of my costs with Obamacare’s blessing and with a friendly pat on the back while they tell me I’m on my own. If we had perfect price transparency, then maybe our negotiating power would have some teeth. And maybe Obamacare has some innovations to push in that direction; it certainly is filled with experiments that may really pay off. And Medicare is putting price data for individual providers up on the web. It’s not consumer-friendly at the moment, but it’s a start. With that sort of transparency, maybe we could actually make some use of “consumer-directed health care.” Even then, I’d still prefer that someone else — someone who spends all his or her time working to get good deals on health care — do this for me. Someone like my employer, say. But then, why would my employer want to do this? My employer is good at building software; there’s no reason to expect that it’s any good at judging which tests the doctor should give me. Let’s centralize the bargaining.

Incidentally, I’m also convinced that, within my employer, everyone is going to end up on bronze plans, or what would be called bronze plans if we were buying them through the exchanges rather than through our employers. Imagine that you have a choice between a high-deductible, low-premium plan and a low-deductible, high-premium plan. People who believe that they’re not going to need much health care (the young, the healthy) will opt for the high-deductible plan. Those who are more worried about their health will opt for the low-deductible one. This will lead to something that looks a lot like the classic adverse-selection death spiral: since the high-deductible plan is getting the healthy people, the low-deductible plan will have higher costs this time next year, which means it’ll have to raise its premiums. But then more people (now a somewhat sicker group) will rationally decide that the low-deductible plan doesn’t make financial sense for them, and will opt for the high-deductible plan. And so on.

I don’t know how much of this was planned ahead of time, but it seems perfectly obvious now. The cynical but, I’m afraid, probably correct take on it is that we now have two choices:

> to be ground down a bit at a time by technocrats who either wont admit to or do not understand the ultimate consequences of the policy infrastructures they so busily construct or to be demolished by fundamentalists who want to dissolve the modern nation-state into a panoptic enforcer of their privileged morality, a massive security and military colossus and an enfeebled social actor that occasionally says nice things about how it would be nice if no one died from tainted food and everyone had a chance to get an education but hey, thats why you have lawyers and businesses.

“Why I Wont Do the Food Stamp Challenge” — November 23, 2013

“Why I Wont Do the Food Stamp Challenge”

> Or perhaps like with two of my children, a 6 year old cares for her 18 month old brother after school alone every day and all day on weekends while her mother works her food options are limited to what her mother feels she can safely prepare microwave popcorn, microwave hot dogs, cereal, canned soup.

> I can buy enough brown rice, cabbage and dried beans to live cheaply and on food stamps but what I cant do is mimic the circumstances and realities that accompany life on food stamps.

Why I Wont Do the Food Stamp Challenge (via Cosma Shalizi‘s Pinboard)

“Conservative” health reform —

“Conservative” health reform

You should go read Uwe Reinhardt. That’s true 100% of the time, but it’s especially true here. Reinhardt writes about “conservative” health reform, where “conservative” somehow means “involving a great deal of intrusion into everyone’s life.” Remember how one of the big problems with HealthCare.gov is that it’s required to connect to so many other systems to confirm details of the beneficiary’s life? It needs to confirm that you’re not in the U.S. illegally; needs to confirm that your income is low enough to qualify for subsidies; needs to connect to private insurers’ websites; etc. How is that conservative? It’s likely to make an already inefficient system even less efficient.

Why is this so hard? I don’t need to sign up for bronze, silver, and gold national defense. I pay my taxes, and I get a service in response. Let’s just expand Medicare to everyone and call it a day. Or extend the VA hospital system to everyone and call it a day. Inasmuch as ‘conservative’ should mean ‘delivering a given level of service as cheaply efficiently as possible’, those approaches would be highly conservative. Instead we get systems that are more and more jerry-rigged over time, with more and more obvious flaws. Enough already.

How low an unemployment rate can we tolerate? — November 20, 2013

How low an unemployment rate can we tolerate?

On the occasion of Jared Bernstein’s and Dean Baker’s publishing an essay on how low an unemployment rate we can tolerate before inflation spirals out of control, it’s worth linking back to a something I wrote in 2010 about James Galbraith’s views on the matter.

Even supposing that there actually is a NAIRU (i.e., a level of unemployment below which inflation will start accelerating), and even supposing that something bad will happen if we cross below that line, it’s not as though we lose control of the ship right then. At that point we know what happens: the Federal Reserve jacks up interest rates, unemployment skyrockets (particularly as mortgage rates rise and employment in the housing sector collapses), and inflation drops back down. It’s happened before. We have control over this. Doesn’t the Federal Reserve just need to signal that it takes its dual mandate seriously? If everyone believes that the Federal Reserve will bring the hammer down if inflation rises too high, what’s the big deal? Better to let inflation rise too high because unemployment was allowed to drop too low, and correct the problem later, than allow millions of people to remain involuntarily idle.

Elizabeth Warren on the insane drive to cut Social Security — November 19, 2013

Elizabeth Warren on the insane drive to cut Social Security

> The call to cut Social Security has an uglier side to it, too. The Washington Post framed the choice as more children in poverty versus more seniors in poverty. The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong. This is about our values, and our values tell us that we dont build a future by first deciding who among our most vulnerable will be left to starve.

Thank you, Senator Warren (via Matt Yglesias). I’m really proud to have voted for you.