Kevin Drum - January 2013

The State of Pensions in America

| Wed Jan. 9, 2013 6:40 PM EST

Jared Bernstein examines the state of retiree income:

Take a look at this useful set of pictures from the BLS on the not-very-healthful status of defined benefit (DB) private pension plans in America today (DB pensions provide guaranteed, periodic payments in retirement). A quick glance led me to believe that these data points should be a front-and-center defense against those who would cut deeply into Social Security and Medicare benefits.

In sum, as DB private pensions weaken, we need to strengthen public ones. The loss of DB private pensions—and their partial replacement by financial-market-dependent defined contribution plans—represents a shift in the locus of risk of retirement insecurity from employers to workers.

Aside from my obduracy on the issue of minting a $1 trillion platinum coin, probably the biggest pushback I get from fellow liberals on any subject is about my willingness to modestly cut the future growth of Social Security as part of a bigger deal to improve the long-term solvency of the system. One of the most compelling arguments my critics have is the one above: Social Security isn't especially generous as it is, and with private pensions on the decline it's more important than ever to keep benefit growth at least at current levels.

So why haven't I changed my tune on this? Well, Jared excerpts a bunch of charts showing how defined-benefit pensions have declined over the years, but there's another chart that he doesn't show. It's the one on the right, and it shows median household income for both middle-aged workers and those over age 65. (Adjusted for inflation, of course.) Despite the decline of DB pensions, the median income of retirees has grown 75 percent over the past four decades. The median income of middle-aged workers has grown a bit less than 8 percent.

So am I thrilled about increasing taxes on middle-class workers in order to prevent benefits for retirees from growing even the slightest bit more slowly? Not really, because relatively speaking, retirees are the ones doing better in recent years. What's more, these numbers don't include the value of health benefits. Since retirees are 100% covered by Medicare, the relative growth rates would probably be even more dramatically in their favor if you counted that.

Now, there are a bunch of things you can say about this. Perhaps we should tax the rich instead of the middle class to keep Social Security solvent? I'm in favor of taxing the rich at higher rates, but the truth is that there's a limit to this. We're going to need to raise taxes to keep Medicare solvent too, and we can't get it all solely from the rich. At some point we're going to have to raise taxes on the middle class too.

Alternatively, you can argue that the real problem here is that middle-class incomes have stagnated so badly. So instead of moderating the growth of retiree income, we should stimulate the growth of worker income. I couldn't agree more. Unfortunately, I'm not sure how to do that, and in the meantime we still have to consider whether or not we want to tax the middle class at higher rates for the benefit of the elderly.

Finally, you might criticize me for showing only median income. What about the poorest seniors, who rely solely on Social Security? There I agree. Any change to Social Security should have no impact on the poorest retirees. In fact, most of the reforms I like end up cutting benefits more heavily on the better-off in order to increase benefits a bit at the low end.

In the end, we're going to have to increase taxes to fund pension and healthcare benefits for an aging society. If I have my way, the bulk of those taxes will come from the rich, who have seen their incomes skyrocket over the past few decades. But there's not much question that at least some of the taxes will have to come from middle-class workers. Given how poorly they've done over the past 40 years, I think those taxes should be kept to a minimum. And like it or not, that means tightening up a bit on the future growth of retiree benefits.

So if you've ever wondered what motivates my persistence on this issue, this is it. There's just a limit to my appetite for increasing taxes on the middle class in order to fund benefit increases for retirees.

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Assessing the Lead-Crime Evidence: A Followup

| Wed Jan. 9, 2013 4:58 PM EST

Yesterday I linked to some criticism of my article about lead and crime from Scott Firestone, a public health researcher in Chicago. If you'd like to follow the conversation further, statistician Andrew Gelman has more here, and Firestone responds in comments.

Democrats Need to Gear Up For a Tough 2014

| Wed Jan. 9, 2013 1:50 PM EST

Ed Kilgore warns liberals not to get complacent about demographic trends that seemingly favor Democrats for years to come:

There has been a lot of talk in both parties about the implications for future elections of the coalition-building strategies of both candidates, mainly revolving around the demographic trends that are likely to make the Obama Vote gradually more dominant in future presidential cycles.

But before we get to the next presidential election....the huge strategic challenge for Democrats is finding a way to win a midterm election where the turnout patterns inherently favor the opposition, thanks to the unusual alignment of the two parties with elements of the electorate that do (older white voters) and don't (younger and minority voters) tend to participate in midterms, for reasons that have little or nothing to do with the issues on the table. Over-enthusiastic assessments of the value of the Obama GOTV operation—even assuming it can be deployed by the party as a whole in a midterm—may underestimate the difficulty of a very different landscape, aside from the historical evidence about the exceptional difficulty of "sixth-year" elections for the party holding the White House.

As Ed says in another post, "Midterms always, always produce an electorate that is older and whiter than presidential cycles." And that's obviously a boost for Republicans, as is the "six-year itch" that generally favors the party not in control of the White House.

In other words, even if Obama's stunningly successful GOTV operation can be replicated by Democrats in the 2014 midterms, it's probably not enough. The next two years are going to be tough ones for Democrats.

Quote of the Day: The Scene That is Davos

| Wed Jan. 9, 2013 12:40 PM EST

From Felix Salmon on the Google party, formerly the biggest annual shindig at the Davos conference:

Every year, the scene is the same: late at night, when all the dinners are over, the world’s plutocrats converge into a narrow hallway, at the end of which are ID scanners telling bouncers whether you’re On The List or not. If you manage to get past them, you find yourself in an insanely hot and loud party, with lots of drinks, a little food, and seemingly infinite numbers of drunk men in dark suits. It’s essentially unbearable for more than a couple of minutes, and there’s absolutely nothing pleasurable about it.

I think he's just jealous. But do read the whole thing, which explains some of the sociology of Davos, and how Google has moved up the food chain. Today, instead of hosting the gigantic "must attend" party of the insecure upstart, they host the intimate "only a select few can attend" gourmet dinner of the confident global titan. I'm sure that no evil is ever conducted at these dinners.

Can the Treasury Department Create a Platinum T-Bill?

| Wed Jan. 9, 2013 12:28 PM EST

Here is Matt Yglesias on today's most pressing public policy topic:

The biggest and weirdest myth out there about the $1 trillion platinum coin is the idea that it would require a large quantity of platinum to make one....This is total nonsense....Saying that the government would need a lot of platinum is like saying a $100 bill needs to have 100 times as much cotton in it as a $1 bill....The metallic content of a coin is entirely irrelevant to its monetary value and has been for a long time. Even under the gold standard the value of coins was a pure legal convention.

This is true, of course. In a way, though, I wonder if this is yet another reason to think that the trillion dollar coin wouldn't be legal. Remember that its authorization comes in a sentence devoted to the minting of bullion coins. But as a lawyer friend emailed to me this morning, "bullion coins are generally understood by other statutes within the US Code to be coins with a value effectively equal to the market value of the precious metal bullion in them. The trillion dollar coin is not that."

This is one of the problems with the argument that the "plain text" of the law allows the Treasury Secretary to mint a platinum coin in any denomination, even a trillion dollars: it's only plain if you rip a single sentence out of the context of the rest of the statute. But I don't think that's how the Supreme Court looks at things. They routinely consider the meaning of individual parts of bills within the context of the entire statute (as well as other relevant statutes). And in this case, the rest of the statute, at the very least, makes that meaning unsettled. Certainly unsettled enough to give them the leeway to take on the case and consider the rather obvious real-world meaning of the platinum coin provision.

(Ironically, my recollection of the real-world motivation for giving Treasury the authorization to mint "any denomination" of platinum coin was to allow them to respond quickly to the desire of collectors for smaller denominations than a single ounce. Lots of people couldn't afford a one-ounce coin, and the idea was to give Treasury the ability to play around with smaller coins that might be more marketable.)

In any case, as long as we're all spitballing about this, here's something else to think about. There's no requirement that a treasury bond be printed on paper. If the government wanted to, I imagine that treasury bonds could be etched onto metal plates. In fact they could be etched onto small, round, metal plates. Round platinum plates, for example.

In other words, I wouldn't be surprised if you could make a case that a $1 trillion platinum coin is really just a $1 trillion treasury bond. It serves precisely the same purpose, after all. And if Treasury isn't allowed to deposit a $1 trillion bond at the Fed, why would they be allowed to deposit a $1 trillion coin?

POSTSCRIPT: I should note a bit of an irony here. There are several legal arguments about ways that Obama could evade the debt limit, and I'm actually pretty sympathetic to some of them. To me, the strongest is the simple argument that if the debt limit isn't raised, Congress is forcing Obama to do something illegal. He has to either withhold funds that he's obligated to spend (illegal) or he has to break through the debt limit (also illegal). Given that, he could simply decide that breaking through the debt limit is the least illegal of the options open to him, and order Treasury to continue issuing debt.

I have no idea how the courts would react to that, but it seems like a more plausible argument than the whole platinum coin weirdness.

Learning About Policy Not on Radar for New Members of Congress

| Wed Jan. 9, 2013 11:08 AM EST

Ryan Grim and Sabrina Siddiqui of the Huffington Post got hold of a PowerPoint presentation for incoming members of Congress. It comes from the Democratic Congressional Campaign Committee and lays out, as the authors says, "the dreary existence awaiting these new back-benchers." In particular note that they expect five hours out of every day to be devoted to fundraising (call time + strategic outreach).

That's no surprise, really. What's also no surprise, I suppose, is the number of hours they expect new members to engage in studying up on the issues. That number would be zero. I guess that's what staffers are for. No need to fill their beautiful minds with tedious policy stuff when there's money to be raised, after all.

This is why I don't understand the bipartisan opposition to publicly funded elections. I mean, every member of Congress hates this stuff:

It's miserable business. "What’s my experience with it? You might as well be putting bamboo shoots under my fingernails," said Rep. John Larson (D-Conn.), a high-ranking Democrat.

....On Capitol Hill, call time evokes a rare bipartisan accord. "An hour and a half is about as much as I can tolerate. There's no way to make it enjoyable," Rep. Reid Ribble (R-Wis.) told HuffPost....Former Rep. Tom Perriello (D-Va.), now a top official at the Center for American Progress, said that the four hours allocated to fundraising may even be "low-balling the figure so as not to scare the new Members too much."

Right. So for purely selfish reasons, why not relieve themselves of this nasty business and agree to 100% publicly funded elections? Are they masochists?

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Obama's Superior Organization Probably Didn't Win the Election for Him

| Tue Jan. 8, 2013 8:58 PM EST

I'm not a fundamentals absolutist. That is to say, I don't believe that presidential elections are won and lost based on the state of the economy and not much else. Still, fundamentals play a huge role, and Larry Bartels reminds us today that despite all the hue and cry about how Obama won despite a lousy economy, he actually did about as well as you'd expect a one-term incumbent to do with the economy he had:

We have lots of distinct but broadly consistent statistical analyses of presidential election outcomes. My own favorite is based on just two factors: the income growth rate in the second and third quarters of the election year and the incumbent party’s tenure in office.

.... The 2012 election outcome []  fits the historical pattern of post-war presidential election results splendidly; Obama’s popular vote margin was 3.8%, while his expected margin (based on the preliminary tabulations of real disposable income currently available from the Bureau of Economic Analysis) was 4.6%.

....Anyone who wants to believe that Obama’s “formidable campaign” (or whatever) won him more votes than an ordinary campaign would have won should feel free to do so, but should be required to propose some equally plausible source(s) of vote losses to balance the ledger.

Bartels' regression line is based on a simple formula that takes into account two things: number of years in office and the growth of real disposable income per capita between Q1 and Q3 of the election year. Income growth this year between Q1 and Q3 was about 0.3 percent, and when you plug that into his formula you get a prediction that Obama would win the election by 4.6 percentage points. Read his whole post for all the usual caveats and warnings.

In comments, Bartels notes that one implication of this formula is that "events before the start of the election year have no effect, for better or worse." This isn't quite true, of course. The real implication is that presidents should do anything they can to make sure the economy is on an upward trajectory in the fourth year of their term. Income growth doesn't come out of the blue, after all. Conversely, the out party should do everything it can to sabotage the economy. If Republican obstructionism had managed to shave another point or so off the growth rate, Mitt Romney might have won.

Chart of the Day #2: Last Year Was Hottest Ever in U.S.

| Tue Jan. 8, 2013 8:27 PM EST

NOAA released its end-of-year temperature records for 2012 today, and the chart below tells the story. For the contiguous 48 states, 2012 was the hottest year on record by an enormous margin. It was a full degree hotter than the previous two record-setting years in 1998 and 2006.

This doesn't mean that the entire globe was a degree warmer this year than its previous record. It wasn't. But climate change is chugging along whether we like it or not. More details here and here.

Chart of the Day: Deficit Reduction So Far = $2.4 Trillion

| Tue Jan. 8, 2013 3:43 PM EST

Michael Linden and Michael Ettlinger provide us today with a handy chart of all the deficit reduction we've implemented over the past couple of years. In all, we've reduced spending by $1.8 trillion and increased taxes by $600 billion, for a total of $2.4 trillion. More details here. This may not be the grand bargain of Beltway dreams, but it's pretty good progress in a short period of time.

And three-quarters of it has been from spending cuts. If you're wondering why President Obama thinks the sequestration negotiations should include a balance of both spending reductions and tax increases, now you know.

Lead and Crime: Assessing the Evidence

| Tue Jan. 8, 2013 1:51 PM EST

Over at the Guardian, George Monbiot read my article on lead and and thought it sounded preposterous:

The hypothesis was so exotic that I laughed. The rise and fall of violent crime during the second half of the 20th century and first years of the 21st were caused, it proposed, not by changes in policing or imprisonment, single parenthood, recession, crack cocaine or the legalisation of abortion, but mainly by ... lead.

....It's ridiculous — until you see the evidence....I began by reading the papers. Do they say what the article claims? They do. Then I looked up the citations: the discussion of those papers in the scientific literature. The three whose citations I checked have been mentioned, between them, 301 times. I went through all these papers (except the handful in foreign languages), as well as dozens of others. To my astonishment, I could find just one study attacking the thesis, and this was sponsored by the Ethyl Corporation, which happens to have been a major manufacturer of the petrol additive tetraethyl lead. I found many more supporting it. Crazy as this seems, it really does look as if lead poisoning could be the major cause of the rise and fall of violent crime.

It's important to understand that there are at least three independent strands of evidence linking lead to violent crime:

  1. Ecological studies. These look at correlations between lead exposure and crime rates at a population level. There are now multiple rigorous studies using different methodologies that demonstrate this correlation at the city level, the state level, the national level, and in different countries at different times.
  2. Longitudinal studies. A University of Cincinnati team began following a group of children starting in the early 80s. Every six months they measured lead levels in their blood. At age 7, kids with higher lead levels were doing worse in school. At age 17 they were more heavily involved in juvenile delinquency. At age 27 they had higher arrest rates for violent crimes.
  3. Imaging studies. The Cincinnati team recently did a series of MRI scans of their subjects and found that participants with higher childhood lead levels had permanent damage to areas of the brain that are responsible for things like impulse control, judgment, and emotional regulation. We've long known that lead poisoning at high levels makes you more aggressive and prone to violence, and this study strongly suggests that the same thing is true even at moderate levels.

For a more skeptical take on this, check out this post by Scott Firestone. I think he's right to question this stuff, but I also think he might be a little too skeptical here. If there were only one study showing a single correlation, that would be one thing. But there are multiple high-quality population studies showing the same result, and there also longitudinal studies and imaging studies to back them up. And beyond that, there are plenty of studies I didn't cite in my article that point in exactly the same direction. It's really a pretty strong body of evidence—much stronger, I think, than any of the traditional explanations for the huge crime wave and crime decline of the past 50 years.

That said, Firestone is right to want further research. In particular, he's right to point out that my cost-benefit numbers involved a fair amount of handwaving. That's because no one has done a truly comprehensive analysis that I could draw on. So the truth is that we're both on the same track here. My goal wasn't to pretend that a magazine article can make an airtight scientific case for the association of lead and crime. My goal was to lay out the evidence and get the scientific community to take it seriously enough to take the next step. That next step would be to conduct a rigorous review of the evidence and a rigorous analysis of the costs and benefits of cleaning up the remaining lead in our environment. At the very least, I think the work on lead and crime done over the past decade demands that we do at least that.