Sunday, January 09, 2005

Conservatives debate Free Lunch

Today, the National Review Online debates the political merits of a free lunch , where we get to divert up to 40% or more of Social Security old age revenue to private accounts without cutting benefits. Excerpt below: .

The going is getting tough in Washington, so a lot of conservatives are going the other way. The White House is considering a Social Security reform that includes a substantial reduction in the growth of benefits. A number of influential conservatives say this would be "political suicide," to use the phrase favored by Newt Gingrich. Among the balkers are people who are usually White House allies, such as Gingrich and Grover Norquist. They are joined by Jack Kemp, longtime Social Security reformer Peter Ferrara, and some congressmen, all of whom want to push a personal-accounts bill with no benefit cuts. John Shadegg of Arizona, an influential House conservative, leans toward this camp.

I'm not prepared to endorse their argument, at least yet. In a future article, I'll explain some of my reasons for holding back. But it must be admitted that the so-called free lunchers make a strong case.

That case is almost entirely political. The argument is not chiefly that reducing the growth of Social Security benefits would be a bad policy, but that proposing such a reduction is too risky politically.

Anchoring the other side of the war among conservative factions, here's an economist's case against the free lunch bunch.

This progressive wonders why accelerating the date when revenues go negative from 2018 to 2006, while still leaving benefit payments in excess of revenues all the way out till 2050, is fiscally responsible in an era when "transition costs" are only accounted for during the first 10 year budget plan.

If you think it's bad that we'll have acknowledged "transition cost" of $1-2 Trillion during the next "10 year plan", it's worse that these "transition costs" will recur during the 10 year plans for the 2010s, 2020s, 2030s, and 2040s.

But worse still, all it would take would be an act of congress to switch back from "price indexing" to "wage indexing" anytime between now and 2050 to make those "transition costs" go out to infinity.

I suspect Newt Gingrich will win this debate, especially if the Bush administration leaves the heavy lifting up to congress.

Who can turn down a free lunch?


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