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Home Publications Blogs Beat the Press It’s Friday Morning; That Means It’s Time to Beat Up David Brooks

It’s Friday Morning; That Means It’s Time to Beat Up David Brooks

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Friday, 30 July 2010 11:14
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As we all know, there are two types of people in the world: those who say that there are two types of people in the world, and those who don’t. David Brooks tells us today that he is in the former category.

 

He etches out two fundamental positions in economic policy debates. On the one hand are the Obama liberals who believe in an expanded role for government in directing the economy. Brooks’ Obama liberals believe that the government has to rein in business and protect the citizenry.

 

His other pole is the Paul Ryan conservative. Paul Ryan conservatives believe in unleashing the power of individual entrepreneurs. They want to get the government out of the way by privatizing Social Security, Medicare, and other programs currently provided by the government.

 

The David Brooks categorization gives us a great fairy tale about the battle of big government liberals versus market-oriented conservatives. But, suppose we step back to the real world for a moment. Let’s imagine that we want to structure the government and market to provide services in the most efficient way and don’t particularly care about whether that means big or small government, which are not well-defined concepts in any case. Outside of David Brooksland, there are many people who hold this view.

 

When we consider a program like Social Security, we would ask how to carry through its purpose – ensuring workers a core retirement income— at the least possible cost. Any serious analysis would almost certainly show that some public Social Security type program fits the bill.

 

The administrative costs of the Social Security program are approximately 0.6 percent of what is paid out in benefits each year. By contrast, the administrative costs of privatized systems like the ones in Chile and the U.K. are on the order of 15-20 percent of the benefits paid out annually.

 

Furthermore, these privatized systems do not allow individuals to do what they want with their money. They threaten them with jail if they don’t turn over a fraction of their earnings to the financial industry each year. So the commitment to a privatized Social Security system seems more like a commitment to force people to give money to Merrill Lynch than a commitment to individual freedom.

 

The same applies to privatizing Medicare. We can hand people vouchers and tell them to buy the health care they want. However, this would require a massive array of laws and bureaucracy to ensure that the providers accepting these vouchers were not gaming the system and ripping off beneficiaries and the government. This approach can increase profits for insurers and providers but there is no evidence whatsoever to suggest that it would make it possible to provide the elderly with health care at a lower cost.

 

We can take steps to lower costs and reduce the role of government that will send David Brooks’ small government types fleeing in horror. Suppose that we got rid of government patent monopolies and allowed all prescription drugs to be sold at generic prices in a competitive market. Free market types should love this one. Instead of drugs selling for hundreds, or even thousands, of dollars per prescription, they could be bought at chain drug stores for five or ten bucks.

 

The research could be supported by government research grants awarded through competitive contracts. The government already spends $30 billion a year on biomedical research through the National Institutes of Health. If this sum was doubled, then it would probably be sufficient to replace the industry’s funding; especially if a requirement of getting grants was that all research findings would be posted on the Internet where they would be freely available to other researchers.

 

We could also try a variation of the Paul Ryan approach to Medicare vouchers. Instead of creating an incredibly burdensome task of policing a privatized system in the United States, we can allow beneficiaries the option to buy into the much more efficient systems in Europe, Canada and elsewhere. Free market types should love this win-win situation where giving beneficiaries a choice will allow taxpayers to save money on Medicare and put large sums of money (more than $10,000 a year in many cases) into the pockets of our retired workers. But, this voucher system means less money for the insurers, the drug companies and other providers, so Paul Ryan would not support it.

 

There are many other cases where smaller government can be used to accomplish the progressive goals of providing basic needs and limiting inequality[CSN]. But Paul Ryan and his friends are not likely to be interested in these policies. This might suggest that, in spite of what David Brooks tells us, Mr. Ryan’s concern is not reducing the size of government, but rather redistributing income upward.

 

Of course, upward redistribution of income is not a very good political platform since there are many more people who end up losers in this story than winners. And, in a democracy, politicians are unlikely to win elections if they promise to take money out of most voters’ pockets.

 

So, Mr. Ryan and David Brooks come up with stories about how conservatives want to limit government and unleash individual entrepreneurs. The story might have little basis in reality, but that doesn’t mean that you can’t get it in the NYT and persuade lots of people to take it seriously.   

Comments (14)Add Comment
2 types of people- we the people, and...
written by frankenduf, July 30, 2010 12:11
the other weird thing about anti-government propaganda is that we are the government- it would be one thing to argue under fascism that government power needs to be limited, but quite another under co-governance- the most facile understanding of human affairs knows that power expands when we work together, and that this has driven civilization- arguing that we need less government in this case is sort of like the religious propaganda that we shouldn't try to encroach on god's sovereignty (although the malaysian towers make the tower of babel look like an anthill)- just modernize it by filling in "goldman" for "god"
The truth told cleverly is the greatest lie
written by Scott ffolliott, July 30, 2010 12:25
As Thomas Hardy wrote:
The truth told cleverly is the greatest lie

Mr. Brooks and his forebears in our newspapers and in our schools have told working people their clever truth. Shall we just stop listen?
...
written by AndrewDover, July 30, 2010 1:07
Where is the reference for this wild statement:

"By contrast, the administrative costs of privatized systems like the ones in Chile and the U.K. are on the order of 15-20 percent of the benefits paid out annually."


There are 10 kinds of people
written by S. Druben, July 30, 2010 1:25
"There are 10 kinds of people: those who understand binary and those who don't."

In an America not dominated by corporate media and their top-down framings, Mr. Brooks' commentaries would be considered humor, like the quote above.

If only we lived in such an alternative reality ...
Absolute or Comparative Advantage Freedoms
written by izzatzo, July 30, 2010 2:04
The ultimate economic "freedom" manifests in absolute advantage, by avoiding comparative advantage, and can be deadly as in North Korea, or willfully ignorant of reality as with "energy independence" in the US.

Efficiency be damned if competition and trade can be corrupted to avoid comparative advantage in return for absolute amounts of concentrated wealth for the few extracted from concentrated markets for the many.

Efficiency has also evolved to depend on technologies dominated by natural and network monopolies to achieve scale and scope economies which cannot be achieved in competitive markets, simply because too many providers drives up the unit cost.

Yet the regulation of these markets necessary to mimic competitive outcomes and distribute efficiency gains to society, instead has been captured by the ultra rich as well. If they're not avoiding competition, then they're avoiding effective regulation, either one to concentrate wealth by extracting efficiency gains or preventing them in the first place.

Popular claims of threats to "freedoms" couched in teabaggerist fears of "big government" are shameful, vulgar caricatures of economic freedoms that existed in prior decades of the US, before 1% of the population acquired over 90% of the wealth.

Since when did economic "freedom" mean the freedom of the ultra rich to undermine comparative advantage, trade, competition and ultimately economic efficiency, in the name of being "free" in an absolute sense, to dominate and reduce the freedoms of everyone else?
UK current administrative costs of private pensions
written by AndrewDover, July 30, 2010 2:08
See page 227 of http://www.pensions-institute....wp0004.pdf for the justification of how some people were misled into buying dishonest pension schemes with horrible cost ratios. However, Dean should not project 15% onto all private pensions schemes in the UK.
Yeah
written by Ryan Toso, July 30, 2010 3:39
Yeah, Izzatzo, you're absolutely right.
Chile's pension costs
written by nadezhda, July 30, 2010 4:53
I think the 15-20% number may be a bit misleading. I haven't worked on the Chilean system in about a decade, but during the '90s the Chilean government was quite unhappy with the cost structure of their system (as well as some corporate governance problems it presented, given the huge concentration of ownership by the funds). In Chile's system, the fees are front-loaded and reflect heavy sales and marketing expenses of competing AFPs (fund managers) as well as future administrative expenses. The sales costs are ridiculous for what is effectively a government-mandated forced-savings program. And when it's time to withdraw at retirement and roll-over into an annuity, there's another big hit.

But at least a decade ago, the expense structure was in the neighborhood of an effective annual 5% of invested funds. Still ridiculously high, but not in the range that Dean's figure might suggest.

I'm not sure what the "benefits paid out annually" measurement is supposed to suggest, but one would expect a front-loaded system that's always growing is going to have a higher percentage vis a vis payouts than one that spreads its charges over time. So in trying to make US SocSec charges comparable to the fees in the Chilean system, we may have actually produced apples and cumquats.

However, there's no question that privatized mandatory pension funds have generally involved much higher sales and administrative costs than the equivalent government-administered program without achieving significantly higher returns to participants when measured over decades (rather than periods dominated by bull equity markets). Though Chile certainly got some benefits from its privatized pension scheme, for a country with an reasonably-functioning public retirement scheme, copying Chile would be a very bad deal for everybody but the financial sector, as most Chilean economists (other than the Chicago school guys) would tell you.
Journalism's Culture of Judith Miller at the NYT.
written by Union Member, July 30, 2010 6:15


We ( long-time daily readers of the NYT) are all supposed to believe and trust that Judith Miller was just an aberration. Not the norm. Not the preferred overarching Editorial stance of the Times.

I know only one thing for sure: that once Social Security is gone, it ain't comm'in back. And America will be no more. Some other beast will rule this land.

i can scarcely believe I have to post a comment like this. I'm just a working stiff. But I know that my VOTE doesn't count. It hasn't for years. My Social Security, however, isn't just my retirement money, it is the ONLY political power I have.

Some thought that Obama was Hope for Change, including me; but something seemed rotten in the fall of '08 when David Brooks went around telling and retelling a story about a conversation he'd had with candidate Obama. The whole point of the telling of this story was so that Brooks could intellectually name drop Reinhold Niebur. Nothing more. What is any thinking person to make of this? If anyone thinks that Brooks knows or endorses anything Reinhold Niebur was about I got some aluminum tubes you can buy. And people think Glenn Beck is a sicko. Beck said one honest thing once. He described himself as a "Rodeo Clown." That is the best description of the role our media plays in our Democracy.


And I pay for it!
written by Union Member, July 30, 2010 6:29


My Social Security is the only political power I have, and I PAY FOR IT!
Chile's pension costs
written by AndrewDover, July 30, 2010 8:46
As nadezhda said
"In Chile's system, the fees are front-loaded and reflect heavy sales and marketing expenses of competing AFPs (fund managers) as well as future administrative expenses."

See
http://info.worldbank.org/etools/docs/library/80379/james.pdf
Page 41-42
...
written by fuller schmidt, July 31, 2010 8:57
What a great column and comment section.
Is social security being ripped off by millions of beneficiaries?
written by BigAl, August 02, 2010 2:30
Please refute the following criticism of your point that social security's administrative costs are lower than those of a privatized system:

People are ripping off social security left and right and the government doesn't spend enough on careful administration to prevent it. If the government really started to scrutinize and evaluate social security claims, government administrative costs would rise to a level comparable to that of a privately administered system.

Without arguing the other merits of a private or public system, I am skeptical that such savings really exist in the government model. Please prove me wrong.
Big Al
written by MitchK, August 05, 2010 1:15
Please give your evidence for your statement that "people are ripping off social security left and right..." and some examples of how they do this.

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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.

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