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May 2005

New research finds that the secret to a happy marriage is to be deluded about the qualities of your spouse.

Coming next: research that shows the secret to a happy life is to be deluded about things in general.

I keep telling my students that markets don't necessarily work immediately, but they do tend to work well given time. Having said this, one must confront profound questions such as why do hot dogs come in packs of twelve and hot dog buns in packages of eight?

Ta da!

Another in a nearly infinite set of reasons why I'm not a physicist: I fail utterly at understanding quantum entanglement, aka "spooky action at a distance". Here is some very rudimentary background. Here is an explanation by Gary Felder, brother of Raleigh Charter High School's Kenny Felder, of Bell's Theorem. It's quite nice but it ends this way:

Nonetheless, we have not explained our result. It's one thing to say the electrons must affect each other instantly, but you might still wonder how an electron here instantly knows what is happening millions of miles away. Moreover, in order to explain the results we got, we had to say that the measurement of one electron somehow changed the other one. Why should the electron, either one, be affected at all by my measuring it? My intent was simply to measure a property of the electron, not to change it. This result demonstrates one of the other strange results of modern physics, which is that the act of measuring a property always changes the system you are measuring. In this case the "system" apparently includes not only the electron you are measuring, but also the other one which isn't even there at the time. Physicists have been trying for over fifty years to understand these results, and there is no consensus on how to interpret them. There is clear agreement, however, that the results occur. Spooky action at a distance is part of nature.

A roundup of some recent articles about Social Security.

Tom Joseph makes three points: 1) the Democratic Party, the workingman's friend, has long played politics with Social Security (yes, the Republicans have sometimes, too, but the other party is worse; deal with it), 2) Social Security reform is usefully analogized to S & L reform in the 80s, and 3) if Social Security is a fine system in need of no major repair, why shouldn't all Federal workers--including retired Congresspersons--be in the system?

(This last is a good point generally: with rare exceptions, Congress should apply the laws it makes to itself. In fact, Congress should try, to the greatest extent practical, to live under the same policies it advocates for us Little People. If Congresspersons had to fill out their own tax returns and send their own kids to the same public schools as most of us, we'd see rapid improvement in at least those two problems.)

Or as Russell Roberts asks, "If the current system is such a good deal, why isn't it voluntary?"

Tony Blankley offers this mordant observation: "Those politicians who say solve Medicare before Social Security are in effect saying don't solve Social Security. If we don't have the political will to solve the easier problem of Social Security, my advice to boomers as they get older is: Don't get sick."

Jude Blanchette usefully points out that the politicians who frequently exhort us to do things "for our children", should recognize that Social Security's greatest burden will fall on the young. And to those who claim there is no crisis, he snaps, "Even if we assume for the moment that there is no financial crisis in Social Security and that its future is rosy, I maintain that a moral crisis looms even larger. In the name of financial 'security,' we’re increasingly willing to trade in our principles of self-governance, self-reliance, and economic freedom. What could be more 'risky' than this?"

Further help for those who can't understand what the fuss is all about is provided by Robert Samuelson. He summarizes a recent Brookings Institution report as follows: "It proves, if proof were needed, that an aging society is the central budget problem and that almost everything else is a footnote. Indeed, the report usefully shows that, depending on how rapidly health costs grow, the budget outlook goes from abysmal to catastrophic."

Need more? With colorful graphs? Try this brief paper from research economists at the Fed Bank of Dallas. (Link via John Palmer.)

Philip Klein nicely exposits the primary reason private accounts should be part of Social Security reform:

But over, say, a 40-year time frame, short-term market fluctuations are rendered irrelevant. Since 1965, the Standard and Poor's 500 Index has enjoyed average annual returns, including dividends, of nearly 12 percent. And this is a 40-year period that included Vietnam, Watergate, two oil crises, two wars in Iraq, the Sept. 11 attacks, five recessions and seven bear markets.

This is not meant as an absolute prediction of what returns would look like if today's 25 year-olds were able to take advantage of personal accounts, but it merely demonstrates the potential to improve upon the pathetic 1.4 percent rate of return that can be expected under the nation's current "successful" retirement system.

Alan Reynolds presents more detail. Kevin A. Hassett and Maya MacGuineas address one of the most commonly advanced, but bogus, arguments against reform.

In an article becoming justly famous, at least in the blogosphere, New York Times(!) columnist John Tierney compares his expected Social Security benefits to the retirement benefits of his childhood friend Pablo Serra, who is contributing to the privatized Chilean system. The comparison is no contest: Mr. Serra stands to collect three times as much as Mr. Tierney. (I note that the comparison between Chile's system and ours is not quite as clear as Tierney's column suggests. There is vigorous debate among economists about what lessons Chile's system has for us. But I think this is a debate well worth having.)

Final word goes to Debra Saunders, columnist for the San Francisco Chronicle, in a piece titled, "Is Dubya D.C.'s Only Adult?"

While 99 percent of Washington pols have been talking as if Americans have a sacred right to expect something for nothing, Bush backed a plan by a Democrat, lawyer and mutual-fund executive Robert Pozen, called "progressive indexing." Pozen's plan would maintain Social Security benefit increases for lower-income workers, while limiting increases for high-income and middle-income workers, by tying the growth in their benefits to a price index. The White House claims this plan would fix 70 percent of the system's projected shortfall.

Bush "definitely put his neck out and he deserves a lot of credit for offering a concrete suggestion for how to rein in benefits," said Zeeve. No lie.

Meanwhile, the Democrats in Congress have spent the last two months acting as if a few tweaks would fix Social Security's woes. They still have no plan, and they still aren't leveling with the American voter.