Friday, February 11, 2005

Punxsutawney Phil Says: Six More Weeks of Ignoring Becker and Posner

by Tom Bozzo

I've been trying to avoid blogs I don't like, but the temptation is occasionally irresistible. That is not so for the blog that shall not be named or linked, delightfully sent up along with some other Madison blogging icons (thankfully not including me, as far as I can tell) by Nina here.

I thought that Proud Dad Brian (congrats on the new baby!) was going to satisfy my local Becker-Posner Blog curiosity with an excerpt from a Becker post on tort reform, which separately inspired a post here almost perfectly orthogonal to Becker's original purpose.

The passage Brian excerpted was typical of what bugs me about Becker-Posner. Becker noted the non-identity of lost wages and the economic damages, which is a fairly obvious implication of the economics — certainly not anything that would earn you an economics Nobel — and then equated economic damages and what an individual is "willing to pay" to avoid harm. "Willingness to pay" is actually a term of art in this area of economic measurement that makes what Becker says troublesome in practice, though you wouldn't know it from Becker's post.

If Becker's observation on lost wages isn't obvious to non-economists, he's perhaps done some "public economics" service, but the lapses in the details are annoying.

looking at Becker-Posner again, and found that the eminences grises were onto Social Security this week. Given that neither of them is exactly a raging socialist, I was hardly shocked that both Becker and Posner favor privatization. Still, their reasoning might as well have been phoned in by Heritage Foundation hacks.

Becker concedes that privatization solves nothing in itself, and falls back to a personal preference that government get out of the retirement business. Judge Posner, too, after tweaking the left for not preferring that government take the long view and act now, simply asserts that everyone who can afford to should finance their own retirement; public pensions should be limited to the poor.

Posner in particular fails to explain why paying Social Security taxes now, in return for benefits not unrelated to the tax payments upon retirement, can not at least in some respect be construed as partly financing one's own retirement. The partial pay-as-you-go nature of the system is not a valid defense to the shortcomings of his reasoning, unless Posner would say that investing one's (private) retirement savings in government bonds does not constitute financing one's retirement.

It's a free country, so they can prefer what they prefer, but hey: they get one vote each (thank goodness).

A particularly irritating bit of hackwork by both is hanging out the chestnut of the declining worker to retiree ratio in service of their arguments. While the projected gradual decline from the current 3:1 worker-retiree ratio to 2:1 is one of Bush's perennial crisis-establishing talking points, it is almost totally irrelevant to the case for privatization. (See, for instance, Bob Somerby quoting Dean Baker and Mark Weisbrot's Social Security: The Phony Crisis [U. of Chicago Press].)

Other things equal, there is an identical problem of having to support 1 retiree, 2 workers, and the workers' non-retired dependents with the production of the two workers whether the retiree's pension comes from the public or private sector.

Relaxing the ceteris paribus condition, a plan that increased national savings would provide the 2 workers with additional capital and thereby allow them to produce more and permit everyone to consume more. But increasing national savings is in no way the exclusive province of privatization. And, alas, the nascent Bush Social Security plan doesn't actually increase national savings.

Since Becker and Posner ought to know this stuff, but act like they don't, I'm swearing off the Becker-Posner Blog again for a while.
Good move. I swore off them when I realised that Marginal Revolution was at least willing to defend its politics and leaps of logic, instead of the Becker/Posner "we rule by fiat."

Glad to see they haven't changed.
I couldn't agree more. Cowen and Tabarrok have a clear ideology (not that there's anything wrong with that), but ultimately they seem to respond to evidence. B/P write as if they're above all that.
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