My last column on KidSave generated a lot of responses. What I have found most interesting about the reaction to the column—setting aside a number of gleeful blogposts and tweets seizing on the numbers, addressed below—are the knee-jerk, snarky reactions to the fundamental idea behind KidSave.
Emblematic is the response of Powerline's John Hinderaker, who called it "a lefty idea." It was otherwise labeled a government giveaway to undeserving people, another example of quasi-socialism, etc., etc., by a long list of conservatives. How an idea that got the endorsement of Rick Santorum—yes, RICK SANTORUM—and Chuck Grassley could be a "lefty idea" is, shall we say, puzzling.
But it reflects, I think, the state of contemplation and discourse in the country, something very different than we had even a decade ago. A typical comment:
What an asinine idea! That money would be spent on diapers by the parents! The kid would never see one dime and the author knows it. It sounds good though doesn't it? Give every kid a welfare payment from day one. But it is progressive, Marxist nonsense.
What KidSave would do is create a universal investor class in America. Everyone would become an investor with a real stake in economic growth, in a robust stock market, in a country that worked. Everyone would have a piece of the American Pie, and not feel entirely on the outside looking in. The money saved and invested would be used to help grow the economy. And, I am sure, some GOPers thought a sizable portion of a new investor class would look more favorably on the Republican brand.
Now I am sure that some fiscal hawks also saw KidSave as a way to justify major adjustments in Social Security; at least one commentator on the left called it "a wedge to undo the last tattered remnants of the social safety net." To be sure, giving everyone some additional cushion in a retirement account would create more wiggle room to make Social Security solvent over the long haul. But here is what I would suggest: Pay for KidSave from revenues created by ratcheting up the income levels subject to the FICA tax, using an idea floated by Al Franken—a doughnut hole, where payroll income from say $100,000 to $200,000 would not be subject to the tax, but every dollar over that amount would be. At the same time, beef up the minimum Social Security payment for retirees significantly, so that no one, including those with no or few other sources of retirement income, would have to struggle to get by in their sunset years, and change the cost-of-living formula on a means-tested basis—keeping the status quo for those with limited income other than Social Security, and applying chained CPI for those with more than, say, $50,000 a year in income over and above their Social Security.
Many of the responses to the column gleefully slammed an error—a big one. I want to acknowledge the mistake. I had data from the original analysis of the Kerrey/Lieberman plan on what the initial investments would accrue to after 60 years—but based on an 8.5 percent rate of return, the middle alternative from the Thrift Savings Plan, a not unreasonable ROR if one invested in an indexed stock fund like the S&P 500 which over long stretches has yielded considerably more. I am not sure why I wrote 5 percent and did not correct it in the editing; I will have to do a deep dive into aging brain synapses to get the answer. But the result was I used a dramatically overstated nest-egg projection. My apologies. A 5 percent return would actually yield $70,000 or so—more than the current average net worth of Americans, but no huge honeypot. Meanwhile, 8.5 percent would yield somewhere between $600,000 and $720,000 depending on assumptions of accrual rates.
KidSave is no panacea. It would not create a Lake Wobegon society, where everybody's wealth is above average. It would not do much for the problem of income inequality, but over the long haul would help significantly ease the problem of wealth inequality. Some people would do extraordinarily well; others would not. Some would earn much less by being super-conservative with investments; others might not begin to adjust their mix of investments in stocks and fixed-income assets as they grew older, leaving them vulnerable to the timing of market drops or collapse. If we allowed individuals to withdraw some of their money before 65, some would misuse it or fritter it away. But there is no deep-seated ideological or philosophical reason why this basic idea should attract such deep, at times pathological aversion on the right, or suspicion on the left. It is the tenor of the times, and the knee-jerk, snarky synapses in some commentators' brains.
That knee-jerk and tribal reaction, I should note, plays out on many issues, and it has been especially interesting to see the comments by some Republican leaders about the stimulus plan—and contrast them with the reactions of the widest range of economists. By overwhelming margins, economists believe that the stimulus plan kept the economy from much additional, deep damage, and kept job levels from dropping even further. The stimulus was designed mostly for triage, and by any standard, it worked—not as well as it could have, to be sure, but enough to stave off a depression and create millions of jobs or job equivalents. It also, as journalist Michael Grunwald pointed out in his superb book, The New New Deal, and in a recent column, did a lot more in policy areas ranging from health IT to green energy to broadband expansion. It was designed to be a shot of adrenalin into a fading patient, not a miracle drug to cure all the patient's long-term health problems.
Economists of all stripes understand the importance of a stimulus for a collapsing economy. But our tribal politicians, even in dire circumstances, reacted differently. We know that Jerry Lewis, the ranking Republican on the House Appropriations Committee, followed orders from on high not to cooperate with Dave Obey, the appropriations chairman, to come up with a bipartisan approach. We know that despite the near-universal GOP opposition, the stimulus had big tax cuts—making up 36 percent of the total, giving major tax breaks to 160 million families. We know that the largest tax cut, the extension of the fix to the Alternative Minimum Tax—one that provided little stimulus—was included at the insistence of Grassley, who then voted against the plan.
And we know what John Boehner and Marco Rubio said on the fifth anniversary of passage of the plan. Boehner: "More Americans believe Elvis is alive than believe the stimulus created jobs." Rubio: "If you recall five years ago, the notion was that if the government spent all this money—that, by the way, was borrowed—that somehow the economy would begin to grow and create jobs. Well, of course, it clearly failed." Rubio added that the stimulus is "proof that massive government spending, particularly debt spending, is not the solution to our economic-growth problems." Whether he really believes that the stimulus was created or portrayed as "the solution to our economic-growth problems" and not as triage, or is cynically changing the terms in order to denounce, does not much matter.
A real bipartisan stimulus plan would have included more enduring spending on infrastructure, better targeted tax cuts, and contained fewer boondoggles. Too bad that a permanent campaign mentality, along with knee-jerk, snarky tribalism, kept a very positive plan from being a much better one.
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