The Old Roman by Orlando Plumbe

NYT Article on Mobility Crticized

Link: The Becker-Posner Blog.

The NYTimes article that referred to my 1987 Presidential address to the American Economic Association badly misstated what I said. I did not claim that children’s income was not much related to the income of their parents. In fact I assumed for the sake of discussion that about 40% of the parents’ income advantage was passed on to children. Note that grandchildren would then only have about 16% of the advantages of their grandparents. It is true that some recent work claims the fraction passed on might be as high as 50% rather than 40%, but that is controversial, as Dean Lillard of Cornell and others have argued. I also stand by my claim that there is no credible evidence that the degree of intergenerational mobility has fallen during the past few decades.

Retirement at 70

From economiste grise Samuelson. Link: Retirement at 70.

Our Social Security problem is just one aspect of a larger retirement revolution -- an upheaval in medicine, life expectancy, work and lifestyles. Since Social Security's creation in 1935, life spans have increased dramatically. Someone who now reaches 65 can expect to live almost 20 more years. Meanwhile, government has constantly made Social Security and Medicare more generous. The result is "middle-aged retirement," as Eugene Steuerle of the Urban Institute calls it. If people retired for the same number of years now as in Social Security's early years, he says, they'd work until 74. In fact, half of Social Security recipients start getting benefits at age 62. We can no longer afford this system: It will overburden future generations and could weaken the economy. Congress ought to design a broad makeover of retirement. Americans should work longer. We're healthier (thanks to medical advances and the decline of physical labor) and -- as the number of new workers shrinks -- society will need older workers. Social Security and Medicare were intended to protect the neediest among the elderly; they should not subsidize ever-longer retirements.

Breathe esaier-Social mobility Still Exists

If you have been reading "Challenges to the American Dream." in the WSJ or the NYT series called "Class in America," both of which assert that  the U.S. is still a land of opportunity, you may want to check out. Link: WSJ.com - For the Record, a statistics rich and cogent argument against such arrant nonsense.

Yet the scholarship commonly cited in support of such assertions -- new research by Gary Solon of the University of Michigan, David I. Levine of Berkeley, and Bhashkar Mazumder of the Chicago Fed, among others -- says no such thing. A paper last fall by Mr. Solon observed that several of the newest estimates, including two from Messrs. Levine and Mazumder, suggest that it has become substantially easier to move from one economic class to another (as a 1997 Urban Institute study also concluded). Those new results were statistically weak, however, and an alternative estimate from Messrs. Levine and Mazumder pointed in the opposite direction -- implying family background might have grown more important between the early 1980s and early 1990s. But they described the latter result as merely "suggestive," and Mr. Solon now suspects the data were distorted. As for the latter's own research, he concluded that "our estimates are still too imprecise to rule out modest trends in either direction."

**** Reynolds adds an interesting inter-generational twist at the end.

A kernel of truth within the income mobility confusion is that good parenting matters to a child's lifetime success. Economics Nobel laureate James Heckman notes that "good families promote cognitive, social and behavioral skills," but "single parent families are known to produce impaired children who perform poorly in school, the workplace and society at large." Yes, there are many attentive parents with low incomes who spend hours reading to toddlers, and there are negligent parents with high incomes. But many dysfunctional families do have low incomes, and collecting more taxes from functional families in order to send more transfer payments to dysfunctional families can have perverse results. Mr. Heckman points out that "generous social welfare programs . . . discourage work and hence investment in workplace based skills. . . . Subsidizing work through the EITC . . . can reduce the incentives to acquire skills and so perpetuate poverty across generations."

Recent "news" reports implying it has become more difficult for young Americans to live better than their parents fail to identify any genuine problem.

Lagging Behind the Wealthy, Many Use Debt to Catch Up

More TNT getting packed into the baby boom finace bomb. The only real question is what is going to light the fuse.  WSJ.com - Lagging Behind the Wealthy, Many Use Debt to Catch Up.

More and more Americans are turning to debt to pay for lifestyles their current incomes can't support. They are determined to live better than their parents, seduced by TV shows like "The O.C." and "Desperate Housewives," which take upper-class life for granted, and bombarded with advertisements for expensive automobiles and big-screen TVs. Financial firms have turned credit for the masses into a huge business, aided by better technology for analyzing credit risks. For Americans who aren't getting a big boost from workplace raises, easy credit offers a way to get ahead, at least for the moment. Part One: As Wealth Gap Widens, Class Mobility Stalls 05/13/05 To some, the expansion of credit is a milestone of democracy, giving middle- and lower-income people financial flexibility that only the rich used to enjoy. Others see the borrowing binge as a way for average households to make up for sluggish growth in income over the past several decades. Since 1990, income for the median American household has risen only 11% after adjusting for inflation, while median household spending has jumped at 30%, according to an analysis by Economy.com. How could the typical family afford to spend so much? Median household debt outstanding leaped by 80%.

As lives get longer, benefits should come later

A demographic point so obvious it is in USToday.  Link: USATODAY.com - As lives get longer, benefits should come later.

But hate it or love it, Bush's idea at least creates a benchmark to measure other sacrifices against. No cost-free alternative exists, but we think a better tradeoff is available: Increase the retirement age. Like Bush's proposal, this is not popular. But unlike Bush's plan — in fact, unlike any other proposal — it addresses the principal reason Social Security has a problem to begin with: People are living longer and therefore collecting more in benefits. In 1941, the first year Social Security benefits were paid, the average person who made it to 65 would live another 13 years. Now, that same person is projected to live 18 more years. Health advances are expected to continue driving life expectancies upward.

***

Government of and for the retired. Forty cents of every federal dollar spent go to a retired person. That includes Social Security, Medicare and benefits for retired government workers. This amount, about $800 billion, is almost 10 times what government spends on education at all levels from Head Start to post-doctoral fellowships.

• A heavy tax burden on workers. The amount of benefits paid annually is more than 4,000 times what it was in 1941. To pay for these soaring benefits, the tax rate has been increased 22 times, taking it from 2% to 12.4%.

Calling Democrats' Bluff - New York Times

Link: Calling Democrats' Bluff - New York Times.

Over the past few weeks, the president has called their bluff. By embracing the progressive indexing of Social Security benefits, the president has asked us to make a shared sacrifice for the common good. He's asking middle- and upper-class folks to accept benefit cuts so there will be money for the people who are really facing poverty. He has asked us to redistribute money down the income scale. Why should programs for children and families be strangled so Donald Trump can get bigger benefit checks? He has made the hard choices. By facing up to the fact that there are going to be benefit cuts, he's offended Newt Gingrich, Jack Kemp, the supply siders and other important Republican constituencies. So how has the St. Francis of Assisi wing of the Democratic Party responded to Bush's challenge? Does it applaud him for doing what it has spent the past years telling him he should do? Of course not.

WSJ.com - An Inflation Debate Brews Over Intangibles at the Mall

Link: WSJ.com - An Inflation Debate Brews Over Intangibles at the Mall.

To most people, when the price of a 27-inch television set remains $329.99 from one month to the next, the price hasn't changed. But not to Tim LaFleur. He's a commodity specialist for televisions at the Bureau of Labor Statistics, the government agency that assembles the Consumer Price Index. In this case, which landed on his desk last December, he decided the newer set had important improvements, including a better screen. After running the changes through a complex government computer model, he determined that the improvement in the screen was valued at more than $135. Factoring that in, he concluded the price of the TV had actually fallen 29%.

Calling Democrats' Bluff - New York Times

From David Brooks: Calling Democrats' Bluff - New York Times.

Over the past few weeks, the president has called their bluff. By embracing the progressive indexing of Social Security benefits, the president has asked us to make a shared sacrifice for the common good. He's asking middle- and upper-class folks to accept benefit cuts so there will be money for the people who are really facing poverty.

Who Pays What

So much of the debate about who pays what tax is little mroe than kabuki theatre. Trusth is that the tax system is progressive and show now sign of changing. The real issue is what percentage of the GNP does the government take. The rest of it, tax rates, borrowing, etc is really no more tha how that take gets financed.  Granted how that take gets financed can affect productivity, but how much is the government spending is much more important than who pays what and when do they have to pay. WSJ.com - Who Pays What. 

An IRS study by a trio of tax wonks shows that, even after including Social Security taxes, the overall tax burden grew more progressive from 1979 to 1999. And while that burden became a tad less progressive after the Bush tax cuts of 2001 and 2003, the rich and upper middle class continued to pay far and away the bulk of U.S. taxes.

Social Security Watch

From My Way News. A small ackowledgement of demographic reality.

Bush also cited a proposal to further raise the retirement age, which is currently 65 and already being increased so that people born in 1960 or after will be able to receive full benefits at 67. Later, in an interview with CNBC, Bush was asked whether the retirement age should be raised to about 70. "Certainly one of the options. As I recall, President (Bill) Clinton, my predecessor, suggested that might be a good part of the fix," Bush said. "There's a variety of things on the table."