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Home Publications Blogs Beat the Press Correcting Ross Douthat in His Attack on Progressives

Correcting Ross Douthat in His Attack on Progressives

Monday, 15 November 2010 05:09

Ross Douthat denounced progressives who attacked the Bowles-Simpson proposals for cutting Social Security and Medicare to help finance lower taxes on the hard-pressed wealthy. He got a few things wrong in the process.

First, Douthat complains that businesses in the United States have to "labor under one of the higher corporate tax rates in the developed West." While the marginal tax rate in the United States is somewhat higher than the average, because of the extensive loopholes in the corporate tax, the effective tax rate in the United States is lower than the average for the OECD. There certainly is no general opposition among liberals to reform that would reduce the tax rate while offsetting the lower rates with fewer deductions.

He complains that in the liberal/progressive's world, "the Social Security retirement age never budges, no matter how high average life expectancy climbs." Mr. Douthat apparently has not heard that the Social Security retirement age is rising already. The age at which workers collect full benefits has already risen from 65 to 66. It will rise to 67 for workers who reach age 62 after 2022. Also, although life expectancy has been rising, this is mostly due to increases for workers in the top half of the income distribution. The increase in the retirement age already in law will eat up most of the increase in life expectancy over the last 40 years for workers in the bottom half of the wage distribution.

He also appears to believe that Social Security is a subsidy for middle class workers. This is not the case. Because of its progressive benefit structure, most middle income workers will get a real return of less than 2.0 percent on the money they paid in payroll taxes.

Douthat also complains about the government warping the health care marketplace. While this is true, the main distortions are not being primarily protected by liberals. Patent protection for prescription drugs cause them to be sold at prices that are several hundred percent above their competitive market price, however conservatives tend to be the biggest proponents of stronger patent protection. Increased international competition would also go far toward bringing our health care costs more in line with the rest of the world.

Douthat also compares the views of liberals in the United States unfavorably with Europe, noting that many European countries are cutting back on the generosity of their welfare states. Apparently Mr. Douthat didn't know that their welfare states are currently far more generous than the welfare states in the United States. This means that the cutbacks will still in most cases leave the welfare states in these countries considerably more generous than in the United States. For example, the recent hotly contested law in France raised its early retirement age to 62 and its age for full benefits to 67, the levels already in law in the United States. And, French workers have seen a much more rapid increase in life expectancy than workers in the United States over the last four decades.

Finally, Douthat apparently is a Neanderthal protectionist who fears international competition. He argues that the United States could have higher tax rates and a more generous welfare state in the early post-war period because its competitors had been destroyed by the war. Actually, in economic theory, the United States benefits from having wealthy countries from whom it can buy goods and services more cheaply than they can be produced domestically. It is not clear why Douthat thinks that this is a problem.


Comments (7)Add Comment
So Mr Douthat, Who is Your Nanny Anyway? Fascism?
written by izzatzo, November 15, 2010 7:03
Finally, Douthat apparently is a Neanderthal protectionist who fears international competition. He argues that the United States could have higher tax rates and a more generous welfare state in the early post-war period because its competitors had been destroyed by the war.

Douthat et al doesn't just fear international competition. The drumbeat of American Economic Fascism has crushed domestic competition as well.

Functional, serious, effective competition has been relegated to areas like spot market day labor with no benefits, eBay auctions and the housing market when prices are falling, but not when they were rising.

The mindless teabagger mantra that Douthat cloaks himself with is between private and public, government versus business, individual versus collective, regulation versus deregulation.

It's not between monopoly versus competition, economic rents versus competition, efficiency versus inefficiency.

Douthat et al have never seen a private monopoly that needs regulating. Because of technology, many monopolies have risen in the form of winner-take-all, necessary to maximize efficiency.

They must be allowed to capture the efficiencies, but regulated as well to offset the absence of competition and dissipate the economic rents to users instead of owners. Rents do nothing towards efficiency otherwise.

Then, where monopolies are not necessary for efficiency, like in health care and pharmaceuticals, what does Douthat et al do when Baker reminds them day in and day out that competition could actually cure the deficit-debt "crisis" with huge efficiency gains?

They ignore him. Exactly where the "free market" could actually work to have the maximum effect and what do the free marketeers do? Suddenly "competition" is conveniently branded as "socialism", because it would threaten economic rent somewhere, which is exactly what it's supposed to do under effective "free markets".

And these people are "supply siders"? They want efficiency gains from "austerity"? While they do everything in their power to block efficiency gains by blocking the competition that would bring these gains?

That's economic fascism. It's the use of Douthat's Big Nanny Government to preserve big business. Douthat et al would rue the day that they get what they wish for - true competition - because today they'd be on the street looking for work, unemployed with no economic rent to protect in their income.
written by AndrewDover, November 15, 2010 9:06
A classic straw man argument, as this specific belief is not seen in the article:
"He also appears to believe that Social Security is a subsidy for middle class workers."

Notice that this statement was not attacked:
"Social Security, for instance, would be strengthened through a mix of tax increases and benefit cuts for wealthier seniors; retirees close to the poverty line would see their benefits increase."
Austerity by any other name would smell like...
written by diesel, November 15, 2010 10:50
The Tea Party and evangelicals want to:

Rescue the community from decadence and decline. (We the People, Constitutional originalism)

Save the Nation from contamination by alien peoples and culture. (Immigration Reform, European values)

Save the Nation from the confusion and corruption of democratic politics. (Elect theocratic Washington outsiders)

Save the Nation from the flabbiness of bourgeois materialism. (Austerity)

Assure the people of their privileged relation with History, the unique destiny of their country. (American exceptionalism, God Bless America)

Rearm and expand the Nation through War. (Bomb, Bomb, Bomb...)

Engage in violence against enemies, both external and internal. (War on terrorism at home and abroad)

Head off the threatened revolution against property with a revolution of values. (Family values, We are a Christian nation)

Totally immerse the individual in the community. (You're either one of us or a terrorist)

Actually, the enumerated traits are characteristics of Fascist movements, as laid out by Robert Paxton in his book The Anatomy of Fascism. Those appearing in parentheses are Tea Party equivalents.

Fascism is like mycelium living beneath the surface of the soil. It is always alive but sprouts only when conditions are ripe. High unemployment, loss of wealth and security, political gridlock and loss of faith in the system etc.

The turning point comes when people accept the need to impose austerity (punishment) upon themselves. Flogging themselves (or allowing themselves to be flogged), they acquiesce to the flogging of others. And if others protest, if they refuse to take part in the communal purification ritual then they must be killed. The austerity comes on the heels of War, though the causal relationship is unacknowledged. Fascism and War are inseparable. War leads to the graying down of society as there is no money to support the general good. We're headed towards a gray city cordoned off with strands of electrified wire.

deez needs prozac (ok, generic fluoxetine from canada, etc)
written by frankenduf, November 15, 2010 1:19
yo deez- i like ur post, but a bit 2 pessimistic- even in the worst case ethical scenario, where we stimulate the economy via guns instead of butter, we could rebound into a freer society- this is what happened post WW2, as the middle class blossomed and spurred the liberal civil society movements of the 60s- while it may be true that we are ripe for a fascist movement, it could just as easily spur a progressive movement- after all, disenchantment with bush fascist policy led to a rising tide of support for the green party, and then for hope/change (rather than the fear/resentment cycle u warn of)- so, whaddya say we at least leave it up to the powers of divine comedy and flip a coin- after the repubs further gut our civil society we will get heads: president palin and the brownshirts, or tails: president nader and a new deal?
What? Me prozac?
written by diesel, November 15, 2010 4:51
War results in inadequate funding for necessary social institutions, facilities and programs. Enduring austerity evokes a feeling of sacrifice. Feeling that one has sacrificed much, one feels justified in inflicting deprivation on others less privileged than one's self. Depriving those less fortunate is persecution of outsiders. Persecution of outsiders constitutes war crimes. War crimes are crimes against humanity. Committing crimes against humanity elicits feelings of guilt. Feelings of guilt must be repressed, transmuted or denied to prevent their disrupting one's daily existence. Denying the truth about one's behavior dissociates the personality. A dissociated personality is incapable of reasoned, objective behavior. Being incapable of reasoned objective behavior is insanity. Insane people need prozac to cope.
written by MB, November 15, 2010 6:15
Regarding the value of investing in the payroll tax:

He also appears to believe that Social Security is a subsidy for middle class workers. This is not the case. Because of its progressive benefit structure, most middle income workers will get a real return of less than 2.0 percent on the money they paid in payroll taxes.

Is the real return larger than 2% if you factor in that the payroll tax pays not just for retirement income indexed to inflation but also disability and survivor benefits? Also, eligibility for SS is established just by drawing a paycheck, no matter how small. Credits are earned whether or not it's a full-time job or a part-time job. They are earned cumulatively across every job ever worked; there are no losses to the account as a consequence of changing jobs (unless the new job pays less than the old). Credits are earned on all income, unlike some pension formulas that count only base-pay and exclude credits from bonuses.

The terms of the benefits are defined by Congress and changes are subject to extensive public debate. Whereas private pensions can be promised and earned but the obligations to pay-out can be dissolved somewhat easily.

In contrast to 401K's, SS's annual statements provide reliable numbers to plan around but 401K statements are filled with disclaimers and uncertainty about how balances can go up, or can go down. SS's benefits structure is somewhat easily understood and I have heard from friends and family at retirement age that the people at SS give out excellent information (free) about making the best of the options for an ordinary person's situation. However, private pensions and 401K's have extremely complex rules and advice is typically provided by salesmen for financial services. Objective, expert financial planning advice can be expensive and its quality hard to evaluate. Those services seem to be exclusively for sophisticated investors.

So for a payroll tax investment of 6% employee/6% employer, an ordinary person can rely on 25% to 40% of replacement income from Social Security. However, a tax-sheltered payroll deduction of 6% employee/3% employer match (a typical "benefit"), will yield an unknown amount, estimated but uncertain until withdrawal. And at that point, an individual's history of attachment to the workforce is but one from an expansive list of risk factors placing downward pressures on ultimate pay-outs. The 2008 market collapse wiped out retirement accounts across the board with no (official) warning. But SS's risk factors are foreseen 27 years in advance.

Can a 401K saver/investor rely with certainty on 25% to 40% of replacement income in retirement until death after traveling through a lifetime of typical patterns of employment and capricious terms for private accounts? So for a 12% split between employee and employer, the security in Social Security is pretty good in comparison with the insecurity offered by an additional 12% or even more of tax sheltered payroll deductions within the confining, hard to understand rules for private accounts regarding vesting, plan changes, job changes etc.

I'm not contradicting your argument against the logic of the cat-food commission. Just giving a shout-out for Social Security after recently going through open enrollment, experiencing confusing online resources provided by the employer, finding clarity on SS's website (and the labor department, interestingly), and spending some quality time with a collection of account statements and a spreadsheet. The SS payroll tax does not seem like a burden or a bad idea from that perspective.
How little we know.
written by Scott ffolliott, November 15, 2010 10:25
"Douthat graduated magna cum laude from Harvard University in 2002, where he was also elected to Phi Beta Kappa. While there he contributed to The Harvard Crimson and edited the Harvard Salient.[7] As an adolescent Douthat converted to Pentecostalism and then, with the rest of his family,[8] to Catholicism.[9] His mother is writer Patricia Snow.[10] His father, Charles Douthat, is a partner in a New Haven law firm.[11] In 2007 he married Abigail Tucker, a reporter for The Baltimore Sun and a writer for Smithsonian.[11] He and his family live in Washington, D.C.[12"

Well here is one guy who doesn't know what it is like to be "Nickel and Dimed."

Poor Ross born with a silver spoon in his mouth. Need we listen to him further?

Servant of the ruling class.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.