Can Europe just keep muddling along for years without ever really addressing Greece's problems? Matt Yglesias suggests the odds are better than you think:

[The] sage words I keep reading in the American press about how Europe’s leaders can’t just keep kicking the can down the road and need to deal with Greece’s basic insolvency strike me as unwarranted. In general, the capacity of large wealthy societies to allow festering problems to go un-addressed seems perennially underrated. I’ll be thirty next week and for as long as I can remember people have been talking about how the United States needs to address entitlement spending and trade imbalances. And as best I can tell, we do need to address those things. Presumably at some point something will happen. But in practice we’ve managed a great deal of can-kicking, seem to have more can-kicking in us, and actually the public and the political elite alike are quite averse to the kind of steps that would address these issues.

I think this is true in general terms, and probably underappreciated. But in the case of Greece I think there's a bigger problem than just the possibility of contagion that forces the EU to act because some bigger country like Spain ends up in trouble.

Roughly speaking, U.S. entitlement spending and trade imbalances are purely economic problems. They can't last forever, but yes, they can last longer than most people think. Greece, though, is different: not only are its economic woes far, far bigger than ours, but it's a political problem too, and it's a political problem on two sides. On the European side, keeping Greece alive requires periodic bailouts, and the German/French/etc. public is getting increasingly edgy about putting up with this forever. Economically it may not be a huge burden, but eventually public animosity toward those Southern wastrels will overwhelm policymaking and the bailouts will have to stop. In Greece, however, the political problem is the mirror image. The austerity required by the end of bailouts is so mind-numbingly severe that the public simply won't stand for it. Eventually, if EU demands become too heavy, the public will demand that Greece default and exit the euro.

Now, it's true that there are two "eventuallys" in that paragraph. And maybe eventually will take a longer time than I think. Still, you're dealing here not primarily with an economic problem, but with a political problem in which public hostility on both sides is rising steadily. That's the kind of thing that's hard to mask with smoke and mirrors forever. If the economy stays sluggish for a lengthy period — and all signs suggest that it will — public acrimony is going to combine with economic nationalism to force something to happen sooner rather than later. If I were an EU/Greek policymaker, I'd assume that I had a pretty limited time to take serious action before the public revolts.

I've never been a fan of raising the Social Security retirement age. It's a blunt instrument mainly favored by journalists and policymakers who don't plan to retire at age 65 anyway and figure that asking people to work a little bit longer than they used to is no big deal. But people who don't have white collar jobs quite plainly don't feel the same way about it, as the skyrocketing number of people who retire early at age 62 demonstrates. We've already raised the full retirement age to 67 (this was part of the 1983 Social Security deal put in place by the Greenspan Commission), and I think there are plenty of better ways of bringing Social Security into balance than by raising it yet again.

Aaron Carroll demonstrates this dramatically with the chart below, taken from a paper by Hilary Waldren. As you can see, life expectancy in the top half of the income distribution has indeed risen dramatically over the past few decades. But in the bottom half of the income distribution, it's barely risen at all.

I want to make it crystal clear what this means, using further data from Waldren's paper combined with the increase in retirement age that's already scheduled to take effect. This is for workers in the bottom half of the income distribution:

  • If you retired in 1977 at age 65, your life expectancy was 14.8 years.
  • If you retired in 2006 at age 65 years and 8 months, your life expectancy was 15.4 years.
  • Using a simple linear extrapolation, if you retire in 2025 at age 67, your life expectancy will be 14.9 years.

So that's it. Over the course of half a century, thanks to the increase in retirement age already scheduled by law1, the poor and the working class will have seen the length of their retirements increase by a grand total of one month. Yippee!

Keep this firmly in mind whenever someone talks about how life expectancies have skyrocketed and we can't afford long, leisurely retirements anymore. If you're fairly well off and work at a white collar job, there's something to this. If you're not, it's bunk.

If you want to use rising life expectancy as an argument for means testing Social Security, or perhaps for reducing benefits for high earners, the data here gives you some good ammunition. Personally, I'm not sure this is the best way of tackling Social Security solvency either, but it's certainly an arguable point. Maybe modest means testing should be part of a bigger solution.

But raising the retirement age? Go tell that to a clerk or a factory worker. They won't be quite as thrilled about this as people who write newspaper columns for a living, and they have pretty good reason not to be. It's a lousy idea.

1You can still take early retirement at age 62 no matter what year you retire, but you get reduced benefits — and those benefits are being gradually reduced even further as the full retirement age goes up. Actuarially, early retirement doesn't change a thing. If you're in the bottom half of the income distribution, the total expected payout of your Social Security benefits will have risen by one month's worth between 1977 and 2025 no matter what age you choose to retire.

Front page image: Celine Nadeau

From DNC Chair Debbie Wasserman Schultz on Good Morning America today:

What I think is unfortunate about Mitt Romney is he doesn’t even know who he is.

I appreciate the sentiment, but Wasserman Schultz is wrong about this. Mitt Romney knows exactly who he is: he's a guy who wants to be president at any cost. If he has to pretend not to believe in global warming, then that's what he'll do. If he has to pretend to believe that the individual mandate is a sign of impending tyranny, then that's what he'll do. If he has to pretend that we can balance the budget with spending cuts alone, then that's what he'll do. If has to pretend to hate gay people, love guns, and believe that every blastocyst is a precious human life, then that's what he'll do.

Romney is keenly aware that given the state of the modern Republican Party, jettisoning every vestige of self respect is the price of getting a crack at the Oval Office. He decided long ago he was willing to pay that price.

This is how path dependence happens:

Democratic opposition is growing to a draft proposal under consideration by President Obama to force prospective government contractors to reveal political contributions.

....The draft executive order would require companies bidding for federal contracts to disclose contributions made by directors and officers to federal candidates and parties. It would also require the disclosure of corporate donations to third-party advocacy groups that support or oppose federal candidates with campaign ads.

....“The requirement that businesses disclose political expenditures as part of the offer process creates the appearance that this type of information could become a factor in the award of federal contracts,” [two Democratic] senators wrote.

Up until a few years ago, everyone was in favor of requiring disclosure of political contributions. Then Republicans figured out a shiny new way to conceal big donations and decided they were no longer in favor of transparency. Democrats complained, but then quickly copied Republican fundraising tactics. Now that they're getting big secret donations too, they're starting to lose their enthusiasm for transparency the same way Republicans did. In a couple of years, secret donations from giant corporations and the rich will be so entrenched that it will be inconceivable it was ever any other way. Isn't politics grand?

Enforcing the Rules

The New York Times reports that contributions to a new breed of super-advocacy groups might start getting taxed:

Big donors like David H. Koch and George Soros may owe taxes on their millions of dollars in contributions to nonprofit advocacy groups that are playing an increasing role in American politics.

....The organizations in question were established as nonprofit corporations under a section of the tax law, 501(c)(4), and the rules governing them say their primary purpose cannot be political. Unlike contributions to charities, however, donations to these groups have always been subject to a gift tax. But tax experts and campaign finance experts say the I.R.S. had not enforced that rule, until now.

I'm confused. Why hasn't the IRS enforced this rule until now? Isn't its job enforcing tax rules?

Is Harvard Worth It?

What's the value of a college education? Quite a bit, if the wage premium for college grads means anything. But maybe it doesn't. After all, smart kids go to college, and smart kids are going to earn more regardless. Maybe college doesn't have any independent effect at all. Annie Lowrey explores that question here.

But what about elite colleges? Are they really worth the skyrocketing prices they charge? Here we have much better data. A few months ago Stacy Dale and Alan Krueger updated a paper they wrote a decade ago that examined the earnings of college grads, and what they found was that elite universities don't seem to provide much benefit over lesser universities. What they did was clever: instead of just looking at SAT scores and college selectivity, they also looked at which colleges students originally applied to. David Leonhardt summarizes:

Once the two economists added these new variables, the earnings difference [of elite universities] disappeared. In fact, it went away merely by including the colleges that students had applied to — and not taking into account whether they were accepted. A student with a 1,400 SAT score who went to Penn State but applied to Penn earned as much, on average, as a student with a 1,400 who went to Penn.

“Even applying to a school, even if you get rejected, says a lot about you,” Mr. Krueger told me. He points out that the average SAT score at the most selective college students apply to turns out to be a better predictor of their earnings than the average SAT score at the college they attended.1

I'm a pretty good example of this phenomenon. I ended up graduating from Cal State Long Beach, and I did pretty well during my pre-blogging career. But what schools did I apply to? Answer: Caltech, Stanford, and UC San Diego. That, it turns out, was a better predictor of my future success than which school I eventually ended up at.

For what it's worth, then, high school seniors probably shouldn't worry quite as much about which university they attend as they do. If you're good enough to get into Harvard, you'll probably do just as well if you end up going to the University of Michigan instead. Having a degree is important (though even here the jury is out on exactly why it's important), but having an elite degree probably isn't. If you can only afford to go to a state university, don't fret about it too much. You'll do fine anyway.

1It's worth noting that this isn't universally true. It's true for white and middle-class kids, but minority and low-income students seem to benefit at least somewhat from attending elite universities.

Jon Chait takes a closer look at a Wall Street Journal chart intended to suggest that the middle class has all the money:

The chart has been making the conservative blog rounds, from Powerline to Hoosierpundit to Reihan Salam to (not really conservative) Andrew Sullivan, who reproduces it under the headline "Where the Money Is." The chart most certainly does not demonstrate the Journal's point. It instead relies upon an optical illusion. Democrats have been arguing that their tax increases should solely affect income over $250,00 a year. The Journal makes that pot of income appear small by divvying it up into seven different lines. See, the $100,000-$200,000 line is tall, and all the other lines to the right of it are short. That tall line must be where the money is!

As a public service, I've redrawn the chart for the Journal. On the left is the original. On the right is the chart that shows the actual amount of money earned by the tiny handful of people making over $200,000. It's a lot.

NYT Paywall Update

So how's that new paywall working out for the New York Times?

The paywall introduced by The New York Times at the end of March is hurting traffic to its website, as expected, but perhaps within acceptable levels....Page views from March to April declined 24.4% at The New York Times Online while slipping just 7.5% for newspaper sites as a group, according to the new ComScore numbers.

...."Our framework suggests that even if The New York Times loses 20% of its web traffic, it will need to add about 107k subscribers to break even," Citi analyst Leo Kulp said in a note to investors. Times Co. management said during its first-quarter conference call on April 21 that it had already added 100,000 subscribers, Mr. Kulp noted. That doesn't count home-delivery subscribers who get digital access free or the heavy users enjoying free access all year courtesy of a Lincoln promotion, but it does count people still enjoying a 99-cent introductory rate for their first four weeks.

I'm not sure why I'm highlighting this. I don't really have anything insightful to say about it. But since I had to buy a subscription after the paywall went up, I feel a sort of proprietary interest in following its success or lack thereof. Despite the happy talk from Times honchos, however, this doesn't really sound like a great launch to me. I suspect that page views will decline some more, lots of trial subscribers will quit after the trial period is over, and that heavy users will migrate toward cheating to get access instead of paying for it.

But we'll see. I actually wish them the best of luck, since I think news should be worth paying for. And if the news at the New York Times isn't worth paying for, then pretty much no one else's news is either.

On Tuesday night I was idly flipping through TV channels and happened upon Sean Hannity and Karl Rove going ballistic over something. An invitation to the White House, it turned out. For some rapper. He'd called for the assassination of George Bush, Rove said. He was a thug. (A black thug, entirely by coincidence.) Hannity was outraged. Etc. etc.

The whole thing pegged the needle on the ridiculo-meter so hard that I hardly knew how to react. It was like Fox was doing a parody of Fox. I couldn't even bring myself to blog or tweet about it. Luckily, Jon Stewart did the job last night. Enjoy.

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Reihan Salam says that although Alan Simpson may have proven himself to be a moron when it comes to life expectancies and Social Security, we lefties shouldn't laugh quite so hard:

But here’s the thing: what really matters in a pay-as-you-go system is the dependency ratio, i.e., the ratio of workers paying into the Social Security system to the number of Social Security beneficiaries.....The dependency ratio is the pressing issue, not increasing life expectancy per se. So while some of our friends poke fun at Alan Simpson, I’d suggest that the rest of us think through the implications of the changing dependency ratio.

At the risk of repeating myself endlessly on this topic: no, we don't need to think through the implications of the changing dependency ratio. Or life expectancies. Or immigration rates. Or productivity levels. Or much of anything else.

Why not? Because the Social Security trustees have already done that for us. If you want to argue with the trustees' model, that's one thing. Then you need to dive into the details. But most of us don't want to do that. We accept their basic model, and once you accept their model then the solvency of Social Security boils down to precisely one thing: how much money is going in and how much money is getting paid out. That's it. And here's the chart that shows it:

This is the great thing about Social Security from a policy point of view: it's pretty easy. It's fundamentally a pure accounting exercise. By 20301, the income-outgo gap is about 1.5% of GDP, so all you have to do is pick and choose from a menu of options that gradually raise revenue and cut benefits by a combined total of 1.5% of GDP. That's it. Your choices will depend a lot on your values and your priorities, but in the end the only thing you have to do is make sure the numbers add up. Simple.

POSTSCRIPT: Go ahead! Give it a try! This CBO report lists 30 options for you to choose from (summarized in Table 2 on page 33). They use the 75-year gap as their unit of account, rather than the annual gap, which they peg at 0.6% of GDP. So pick a basket of options that adds up to 0.6% and you've fixed Social Security. Congratulations!

1Actually, the trust fund makes up for the gap between 2015 and about 2040. So you only really need to close the gap after that. But eventually you have to come up with about 1.5% of GDP.