The Electric Commentary

Friday, February 25, 2005

Krauthammer, Krugman, Kling

Charles on the historic Israeli withdrawal from Gaza:

Last Sunday Israel crossed two Rubicons. The Cabinet decided once and for all to withdraw from Gaza and dismantle 25 settlements -- 21 in Gaza and four in the upper West Bank. Yet, had Israel done only this, it would be seen, correctly, as a victory for terrorism, a unilateral retreat and surrender to the four-year intifada. That is why the second Israeli decision was so important. The Cabinet also voted to finish the security fence on the West Bank, which will separate Israeli and Palestinian populations and create the initial border between Israel and a nascent Palestine.

Pauly K on Social Security (shocking, I know):

The right wants to dismantle Social Security, a successful program that is a pillar of stability for working Americans.

Really? I thought that it was a pillar of stability for non-working Americans. That is the whole point after all. He also says:

So it doesn't matter that Social Security is a pro-family program that was created by and for America's greatest generation - and that it is especially crucial in poor but conservative states like Alabama and Arkansas, where it's the only thing keeping a majority of seniors above the poverty line.

I'm excited to see the left side adopting the whole "family values" idea. Now I can be annoyed by both parties equally. By the way, I'm still waiting for Krugman to actually explain why privatization is bad. The wait continues...

Arnold, logical fellow that he is, actually provides it, while at the same time explaining why one tiny little percent is so important when forecasting far into the future:

The other assumption that the actuaries make that troubles me is the assumption that the risk-free real rate of interest, meaning the interest rate after you take away inflation, will be 3 percent going forward. I think that this is way too high for a risk-free real interest rate in an economy growing at 2 percent. Moreover, we have a market-based measure of the long-term risk-free interest rate, derived from inflation-indexed Treasury securities. As J. Huston McCulloch's web site shows, that market estimate is closer to 2 percent.

What is the difference between assuming a risk-free real interest rate of 3 percent, as the actuaries do, and assuming that the rate is 2 percent, which is what I believe is more reasonable? This sounds like a trivial issue.

In fact, the assumption of a 3 percent risk-free real interest rate undermines Social Security reform in a number of ways. For example, it greatly reduces the "actuarial shortfall" of Social Security, making it appear that only small changes are needed to "fix" it.


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