Dark Bilious Vapors

Daniel Gross in "Moneybox", gives Bush and his chief economic advisor, N. Gregory Mankiw, a load of well deserved crap over what Gross characterizes as "the most fatuous argument for privatizing Social Security":

The arguments for privatizing Social Security are growing more fatuous by the day. Will Saletan last week flagged President Bush's odd pitch to Hispanics and African-Americans. An even odder—and more telling—non-argument has just been put forth by the man who was until recently President Bush's top economic adviser, N. Gregory Mankiw.

In an article in the New Republic, Mankiw, the former chairman of Bush's Council of Economic Advisers, comes up with several reasons why liberals oppose President Bush's plans to change Social Security from a system of income insurance into something more closely resembling a 401(k)—notably that liberals hate Bush and hate the ownership of private property. Mankiw gets most impassioned about the hypocrisy of his lefty colleagues. After all, Harvard, where Mankiw works, is filled with liberal professors and it offers them a 401(k) plan. "I am perfectly happy with Harvard's retirement plan. I have the sense that my colleagues at Harvard are happy with it as well, as are millions of other workers who have similar arrangements." Mankiw concludes that what's good enough for Harvard should be good enough for the rest of the economy. Private accounts may not make the system solvent, but they can "give all Americans a retirement system as reliable as the one Harvard gives its faculty."

Set aside for the moment the fact that Harvard's faculty members depend on the guaranteed income of Social Security on top of their 401(k)s. The problem isn't that liberals like Harvard professors are hypocritical in not wishing for others what they welcome for themselves in their own workplace. It's the other way around. What's good enough for Harvard is not available for most Americans. Mankiw wants everyone to live like Harvard professors, but they can't because there are fewer and fewer places that offer the sort of job security and income stability that universities guarantee—in part because of economic policies advanced by Bush and Mankiw.

Mankiw and his colleagues are granted tenure—their jobs are guaranteed essentially for life, even if they call for the CEO to be fired. Mankiw was tenured at the tender age of 29. To receive tenure at 29 is to know, depending on your field, that you'll be guaranteed to earn $80,000, or $100,000, or $150,000 a year (in current dollars) for at least the next 36 years, that you'll receive pay raises, that you'll have the opportunity to earn extra cash through teaching, consulting, or writing textbooks. That you can go on sabbatical, or leave to work in the White House for a couple of years, and find your warm spot waiting for you on your return. That you can work into your 60s or 70s without any pressure to retire. And the perks? Tons of paid vacation, the free use of gyms and libraries, maybe even free tuition for your kids. Why, it's downright paternalistic! Welfare capitalism has long been on the decline, but it's alive and well at Harvard and other universities.

How many other professions make a similar promise today? Um, none. Most of corporate America has incentives to get rid of employees as they hit their 50s and early 60s—when their skills and commitment might decline, when they can be replaced by younger workers at lower cost, and when it costs more to insure them. For most workers, there is nothing remotely like tenure: Work is more and more contingent.

Peter Gosselin's excellent series in the Los Angeles Times about income volatility put names and faces on the story that economists have been telling through data for several years. The degree to which American workers' incomes fluctuate from year to year has risen sharply in recent decades.

Income volatility can be a positive—people start off making minimum wage and wind up making $300,000. And in certain high-risk, high-reward professions (baseball, investment banking) income volatility is a given. But volatility works on the downside, too. The data mined by Gosselin show that in the past few decades, such wild swings are becoming common for people whose salaries never approach lofty levels. What's more, income volatility has been rising even as the median income for those in the lower brackets has been stagnant. In other words, working-class people can't count on a regular income anymore: Every year is a crapshoot. And it's not just your job and income that are more volatile today. The benefits that are supposed to see you through retirement and near-retirement are also at risk. Companies (and entire industries) can go bankrupt and take promised pensions and health care into Chapter 11 with them.

Here's why this is important to Social Security. In times of volatility, insurance—a financial arrangement that guarantees certain minimum payments in certain eventualities—becomes more valuable, not less valuable. This basic fact may explain some of the popular resistance to Bush's plan. Maybe Harvard professors don't mind 401(k)s because they're so insulated from the kinds of risk to income that are rampant in the American economy. And maybe those not lucky enough to be tenured at Harvard, who find their incomes are being buffeted and job prospects are far from secure—like white-collar workers at General Motors—are leery about turning the one component of their retirement income that's supposed to be guaranteed, Social Security, into something that is also subject to volatility.

Len on 03.23.05 @ 07:32 AM CST