DRI-161 for week of 11-30-14: The Enemy Within: The Move to Strangle Welfare-State Reform In Its Crib

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The Enemy Within: The Move to Strangle Welfare-State Reform In Its Crib

The resurgence of the Republican Party after the overwhelming victory of Barack Obama and the Democrats in the 2008 elections was led by the Tea Party. This grassroots political movement began as a popular uprising and only gradually acquired formal organizational trappings. As yet, its ideological roots are so thin and shallow that they provide no support for the movement.

This contrasts sharply with the conservative movement, in which the order of development was reversed. Ideology came first, with roots implanted firmly by opposition to the New Deal and a foreign policy led by Sen. Robert Taft. The intellectual foundation laid by William F. Buckley, Jr. in National Review Magazine educated a generation of young Republicans and paved the way for the candidacy of Barry Goldwater in 1964. Goldwater’s landslide defeat nevertheless introduced Ronald Reagan to national politics. By the time Reagan became President in 1980, conservatism had become the dominant political paradigm.

Nowhere is a vacuum more abhorrent than in political ideology. Today’s victorious Republicans may purport to search for a mode of governance, but what they are really doing is belatedly deciding what they stand for. (The hapless domestic and foreign policies of the Obama administration gave them the luxury of winning the elections merely by signaling their lack of congruence with President Obama et al.) They enjoy a surfeit of advice from all quarters.

Nowhere is this advice more pointed than in its economic dimension.

 

Should Republicans “Take ‘Yes’ For an Answer?”

 

Although Buckley died in 2006, National Review still retains some of the intellectual momentum he generated. Its “Roving Correspondent,” Kevin Williamson, devoted a recent essay to an advisory for the Republican Party on post-victory strategy. Williamson sees the solid victory in the 2014 mid-term elections as “a chance to meet voters where they are.” To do that, Republicans need to “take ‘yes’ for an answer.”

Exactly how should we interpret these glib formulations? Williamson insists that Republicans should not treat electoral good fortune as the opportunity to create change. Instead, the Party should reverse the normal order of precedence and cater to popular disposition – “meet the voters where they are” instead of persuading the voters of the desirability or necessity of change. Don’t continue the campaign, Williamson pleads. The votes have already been counted; just “take ‘yes’ for an answer” and get on with the business of crafting a governing compromise that everybody can live with.

So much for the revolutionary stance of the Tea Party; the EPA won’t have to test BostonHarbor for caffeine contamination.

The reader’s instinctive reaction to Williamson’s essay is to flip the magazine over and re-check the cover. Can this really be National Review, legendary incubator of conservative thought, renowned for taking no prisoners in the ideological wars? We have just suffered six years under the lash of a Democrat regime whose marching order was “elections have consequences.” Now the flagship of American conservatism is preaching a gospel of preemptive surrender?

Williamson’s mood is apparently the product of disillusionment. The birth of NR, he reminds his readers, was a reaction to Eisenhower Republicanism. Instead of rolling back the welfare state installed by Roosevelt and Truman, Ike accepted it – thereby setting the tone for Republican policy thereafter. The magazine fulminated, but to no avail. Goldwaterism produced Reagan… “a self-described New Deal Democrat,” pouts Williamson, “who famously proclaimed that he hadn’t left eh Democratic Party but the party had left him.”

Reagan revisionism is part of a new NR realpolitik, it seems. “At the end of the Reagan years, the Soviet Union was dead on its feet, the United States was a resurgent force in the world… and spending and deficits both were up, thanks to the White House’s inability or unwillingness to put a leash on Tip O’Neill and congressional Democrats. The public sector was larger and more arrogant, there were more rather than fewer bureaucrats and bureaucracies, and nobody had made so much as a head fake in the direction of reforming such New Deal legacies as Social Security or even Great Society boondoggles such as Medicaid.”

The author’s psychological defeatism apparently so overwhelmed him that he lost touch with reality. The Soviet Union is “dead on its feet” but the singular responsibility of President Ronald Reagan for this fact is unmentioned. (One cannot help wondering whether this is an oversight or a deliberate omission.) But Reagan is held liable for the actions of the Democrat Speaker of the House and Congressional Democrats! Has anybody blamed Barack Obama for not “putting a leash on House Republicans” to achieve more of his agenda? Has Williamson published his Canine Theory of Congressional Fiscal Restraint in a peer-reviewed journal of political science?

One might have thought that winning the Cold War, taming hyperinflation and reviving moribund economic growth (also left unmentioned by Williamson) constituted sufficient labor unto a Presidential tenure. Various authors, ranging from Paul Craig Roberts to David Stockman, have chronicled the internecine warfare attending the Reagan administration’s efforts to cut the federal budget. Apparently Williamson has forgotten, if he ever knew, that Reagan enjoyed the reputation of a ferocious budget-cutter while in office. This dovetailed with his famous declaration that “government isn’t the solution – it’s the problem.” If, three decades after the fact, Reagan’s efforts seem puny, this may be because we hold him responsible for failing to effect a counterrevolution to match the permanency of FDR’s New Deal. One would think, though, that the only President since FDR to actually reduce the size of the Federal Register deserved better at Williamson’s hands.

Obviously, Williamson paints a false portrait of the Reagan years to justify the counsel of despair he gives today. “We did not undo the New Deal in the 1980s. We are not going to undo the New Deal before 2017 either… the fact remains that the American people are not as conservative as conservatives would like them to be, nor are they always conservative in the way conservatives would like them to be.” It seems that there is a “disconnect between the numbers of Americans who describe themselves as ‘conservative’ or ‘liberal’ and the policy preferences those Americans express.” Americans think of themselves as conservative but favor liberal policies. So, Williamson concludes, the only sensible thing to do is humor them.

“Americans …are, by and large, conservative in the same sense that Ronald Reagan was, not in the sense that Robert Taft was, or… Barry Goldwater was. They intuit that the federal government is overly large and intrusive, they resent the slackers and idlers who exploit that situation, and they worry that our long-term finances are upside down, but they do not wish to repeal the New Deal.”

“Example: A majority of voters believe that something must be done to rectify Social Security’s finances, and a plurality of voters believe that a combination of benefit cuts and tax increases should be adopted to achieve that… [but] strong majorities … of 56 percent… oppose Social Security benefit cuts and Social Security tax increases, according to Gallup. No doubt many of these voters think of themselves as conservatives… it is likely that the great majority of self-described conservatives would support continuing current Social Security policies indefinitely – if they believed it fiscally possible. The current Left-Right divide on Social Security is not a question of what we ought to do, but of what we can do.” Williamson cites Robert Taft’s eventual concession on Social Security as an example of the Right bending its principles to his form of pragmatism. After all, “populist measures are, to the surprise of nobody except scholars of political science, popular, hence the support among a majority of registered Republicans for raising the minimum wage.”

Instead of fighting among themselves on principle, Williamson contends, Republicans should be scanning the polls to find out where their base stands – and adjusting their stance accordingly. They should be meeting the voters where the voters are rather than persuading voters to see the light of sweet reason. They should take “yes” for an answer when they hear it from the networks on election night.

Rebutting Williamson’s “Populism”

 

No full-blooded Tea Party member will swallow Kevin Williamson’s argument, despite the author’s insistence that he is really enunciating their position. They didn’t overcome the twin obstacles of the Democrat Party and the Republican establishment only to be lectured on their extremism in the pages of National Review, for crying out loud. But we must go beyond visceral rejection of Williamson’s moral and psychological defeatism. Straightforward analysis indicts it.

Since the venue is National Review, it is fitting to recall Bill Buckley’s distinction between politics and economics: “The politician says: ‘What do you want? The economist says: What do you want the most?'” For many decades, voters have been offered big government as if it were a consumer product with zero price. That is the context in which to contemplate the poll responses that Williamson treats as commandments graven in stone. In the beginning, there was the word. And conservatives believed the word. But when the world around them changed and God neither smote the unbeliever nor struck down the evil Antichrist, conservatives eventually shrugged and went with the flow. After a while they began singing the same hymns to Baal as the liberals. They couldn’t very well go to jail for non-participation in the Social Security system and they discovered that the government checks always cashed – so why not go along? It was the only way they could get their money out.

In due course, conservatives found out along with the rest of society that they had been lied to and flimflammed by the pay-as-you-go status of Social Security. It was not a system of insurance, after all; the word “social” in the terms “social insurance” and “Social Security” should be taken to mean “not,” just as it does in terms like “social justice,” “social democracy” and “social responsibility.” By then, though, everybody was so thoroughly habituated to the system that it would have required something close to a revolution to change it. Something like what the colonists originally did when they revolted against the British and dumped tea in Boston harbor, for example.

When Williamson implies that conservatives are entirely comfortable with Social Security today, he is being disingenuous. (That either means “lacking in candor” or “naïve;” he is either lying to us or he is plain stupid.) In fact, conservatives (and just about everybody else) below the age of 50 no longer expect even to receive Social Security benefits – they expect the system to go bankrupt long before they collect. They are not comfortable with the system but resigned to it; there is a world of difference between the two. And considering that Williamson himself just published an article on “Generation Vexed” and its growing dissatisfaction with the Obama regime in the previous issue of NR, he cannot claim indifference to their electoral attitudes in this context.

But this attitude of resignation is wildly optimistic compared to the fiscal reality facing America and the rest of Western industrial society today. The welfare state is collapsing around our ears. Central bankers are in extremis; they are reduced to printing money to finance operations. The Eurozone staggers from crisis to crisis. Japan is now working on its third “lost decade.” Demography is a disaster; birth rates will not bail us out. Worse – they are falling like leaden raindrops, reducing the number of workers paying in per welfare-benefit recipient. The crisis is not in the far-off future but today – if the U.S. had to finance upcoming deficits at normal rates of interest rather than the “zero interest rates” of the last five years, the interest charges alone would eat up most of the federal budget. And the entitlement programs that Williamson views as sacred are now eating up most of that budget.

Williamson acts as if Social Security finance were a Starbucks menu. He treats longstanding conservative doctrine on Social Security as if it were excerpted from fundamentalist Scripture out of Inherit the Wind. But he is no Clarence Drummond; Social Security is exactly the Ponzi scheme that conservatives have always fulminated against. In fact, it is worse, because the Day of Judgment is arriving even sooner than prophesied.

True, it isn’t just Social Security – it’s also Medicare and Medicaid and the welfare system. (Welfare reform didn’t come close to reforming the whole system, just one of the six components of it.) The point is that we have passed the elective stage and have now entered the stage of imminent collapse. In that stage, monetary chaos and an uncertain fate for democracy await.

And what is Williamson’s reaction? When Americans protest, “I can be overdrawn; I still have checks,” Williamson nods, “Right you are.” But we’re not just overdrawn – we’re completely bankrupt.

Under these conditions, what are our choices? Suppose we remain in Obamaville. That will result in collapse. Suppose we go Williamson’s route, a route of picking and choosing a few pieces of low-hanging fruitful reform. That will also result in collapse.

We have nothing to lose and everything to gain by telling voters the truth and opting for revolutionary reform. If they reject us, we will be hung for offering a full-bodied sheep – limited government, free markets and freedom – rather than a bleating lamb of meekly pandering populism.

Popunomics

 

Williamson isn’t just selectively bad on economics – he has renounced economic logic entirely in favor of populist emotion. Take the minimum wage – Williamson’s shining example of popular Populism. The minimum wage is one of three or four most heavily researched measures in economics, having attracted empirical studies consistently since the late 1940s. Until the notorious Card-Krueger study in 1993, these found that the minimum wage adversely affected employment of low-skilled labor. These findings jibed with a priori theory, which predicted that a minimum wage would produce a surplus of labor (unemployment), increase the scope for discrimination by buyers of labor against sellers of labor, reduce the quality of labor and/or jobs, encourage businesses to offer fewer benefits and more part-time jobs and encourage businesses to substitute machinery and high-skilled labor for low-skilled labor. All these effects have been observed in conjunction with the minimum wage since its imposition. Card and Krueger offered no rebuttal to the eloquent testimony of the research record and were notably silent on the theory underpinning their own research result, which purported to find an increase in comparative employment in one state after an increase in the minimum wage. Both the validity of their data and the econometric soundness of their results were later challenged.

Having carefully chosen one of the most economically untenable of all Populist positions on which to “meet voters where they are,” Williamson next ups the ante. From the debased coin of the minimum wage, he turns to the fool’s gold of restrictionist anti-immigrationism. The late Richard Nadler painstakingly showed – and in NR to boot, in 2009’s “Great Immigration Shoot-Out” – that restrictionists were big and consistent electoral losers in Republican primaries and general elections. But Williamson is back at the same old stand, hawking “stronger border controls… mandatory use of E-verify… and like measures” because “voters are solidly on the conservatives’ side on this issue.”

Oh really? Just in time – net immigration has been roughly zero for the last few years. Market forces, not government quotas, control international migration; the quotas merely serve to criminalize violators. Immigration benefits America

on net balance, regardless of its legal dimension. Along with free trade and opposition to the minimum wage, place support of free international migration among the issues upon which economists strongly agree.

Wait a minute – Williamson has gone from supporting brain-dead economics because it is generally popular (the minimum wage) to supporting it because it is popular with NR’s constituency. Just as Buckley had to rescue the Right from the anti-Semitism of the American Mercury and the conspiratorial John Birch Society, we are now faced with the task of rehabilitating the right wing from the crank nativism and restrictionism that has asserted squatter’s rights at National Review. Calling Williamson’s version of expedience Populism gives ideology a bad name. The 19th-century Populism of Pitchfork Ben Tillman, et al, featured cheap money and fashionably bad economics but it was more consistent than Williamson’s proposal.

Borrowing the argot of the digital generation, Williamson is expounding not Populism but rather PLR – the “path of least resistance.” Put your finger to the wind and sense what we can get the voters to sign off on. See how many fundamental principles and how much government money we’ll have to sacrifice to win the next election. Williamson purports to be lecturing us on why Republicans fail – because they are too ideologically scrupulous, insisting on free markets, free trade, open borders, flexible prices, deregulation. But the encroachment of big government and the welfare state proceeded mostly unabated throughout the 20th century despite periods of Republican ascendancy. How could this have happened? Because Republicans were really heeding Williamson’s doctrine all along; PLR ruled, not ideological constancy. Goldwater never led the Republican Party, even when he won the nomination. Reagan was detested by the Party establishment and his philosophy was ditched the minute Air Force One lifted off the runway to return him to California. PLR was always the de facto rule of thumb – and forefinger, ring finger and all other digits. How else could a Party ostensibly supporting limited government have countenanced the transition to unlimited government?

Williamson treats the rise of the Tea Party as America’s version of China’s Cultural Revolution. Whew! We must cease all this senseless bloodletting and wild-eyed revolutionary fervor; return to our senses and settle for what we can get rather than striving for Utopia. Back to normalcy, back to pragmatism and compromise and half-a-loaf … well, maybe a quarter-loaf… or even a slice… hell, maybe even a few crumbs, just so its bread.

It is fitting that Keynesian economics has come home to roost in this time of Quantitative Easing and central-banking hegemony and liquidity everywhere with not a loan to drink. “In the long run, we are all dead” was Keynes’ most famous quip. Well, we can’t live in the short run forever. The procession of short runs eventually produces a long run. And the long run is here.

It’s time to pay up. The voters have given Republicans a gift – the chance to tell the truth and turn the ship around before we reach the falls. PLR is no longer sufficient. It’s time – no, it’s long past time to start doing all the things that Williamson says Republicans can’t do and mustn’t do.

The Anti-Economics Party of the Party of Sound Economics?

 

“The American public is in many ways conservative, but in many ways it is not, and its conservatism often is not the conservatism of Milton Friedman or Phil Gramm but that of somebody who fears the national debt and dreads bureaucracy but rather likes his Social Security check.” The Republican Party’s glory days of the post-World War II period came during the Great Moderation ushered in by the Reagan Presidency, beginning in late 1980 and continuing into the present millennium. This success and victory in the Cold War were the only departures from PLR. This period of prosperity was driven by an economic policy whose positive features were disinflation, sound money, low taxes and low inflation. This is a combination that Keynesian economics finds contradictory and now repudiates utterly. Williamson repudiates it, too, hence his explicit rejection of Milton Friedman and Phil Gramm as exponents of conservatism. (Once again, his use of Friedman, a libertarian rather than a conservative, is disingenuous.) He is still living in the past, the days when we could have our conservatism and our Social Security checks, too. Sorry, we have bigger problems now than how to buy votes from our own voter base to win the next election.

For years, Republicans have been able to win occasional elections the easy way, by adopting PLR. Those days are over. From now on, the Republicans will have to earn their money as a party of limited government by actually practicing the principles they profess. That is the bad news. But the good news is that they cannot lose by doing this. The very economics that Kevin Williamson looks down on tells us that.

Economics defines “cost” as the alternative foregone. If telling the truth will cause you to lose the election, you may well decide to lie; the cost of truth-telling will seem too high. But if winning the election and losing the election are reduced to equivalence by the consequences of economic collapse, then telling the truth suddenly becomes costly no longer. Now avoiding collapse becomes the only matter of consequence and the election outcome fades into insignificance.

Ironically, that is not only sound economics; it is also supremely pragmatic.

DRI-297 for week of 10-20-13: Bad News on the Journalism Watch

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Bad News on the Journalism Watch

“Never ascribe to venality that which can be explained by mere stupidity.” Many a pundit and commentator would profit from this bit of folk wisdom. Economists have more occasion to remember it than most – but heeding it sometimes requires more forbearance than any human should have to display.

“Bad News for Social Security Recipients”

A recent AP story appeared on MSN with the video caption reading: “Bad News for Social Security Recipients.” The sub-head broke the bad news: “Social Security Raise to be Among Lowest in Years.” The piece was bylined to one Stephen Ohlemacher.

The body of the story revealed that the facts were as advertised. “For the second straight year, millions of Social Security recipients can expect historically small increases in their benefits come January. Preliminary figures suggest a benefit increase of roughly 1.5%, which would be among the smallest since automatic increases were adopted in 1975, according to an analysis by the Associated Press.” So far, so good – or bad, depending on how you choose to put it. The story says that retirees saw an annual increase in those benefits of comparatively small magnitude. It relies on our casual understanding that most retirees depends on Social Security benefits for the bulk of their annual income.

The punchline – with the emphasis on “punch” – comes with the next line. “Next year’s raise will be small because consumer prices, as measured by the government’s Consumer Price Index, went up only 1.6% this past year.” If you’re an economist, you stare in silent disbelief at this line before the involuntary reaction hits, like the reflex when the doctor strikes your knee with the rubber hammer. You shout in disbelief, or derision, or anger, or merriment. You can’t believe what you just read – that anybody could write this as honest reporting or commentary.

Contrary to the headline, this isn’t bad news for social-security recipients. It is bad news for journalism.

The Return of the Broken-Window Fallacy

The purpose of a Cost of Living Index (COLA) is to compensate those covered by it for price changes. In theory, benefits indexed to consumer prices should rise by an amount just sufficient to enable consumer purchasing power to remain intact after price increases. That is, any combination of consumer goods affordable before the price increases should be affordable after the price increases and COLA adjustment. In practice, no price index works that well because the enormous number of goods and typically vast array of price changes defeat the best efforts of any price index to reflect every nuance and variation.

Nonetheless, it makes absolutely no sense to say that it is “bad news when prices don’t go up [much] because that results in only a small upward COLA adjustment.” That is tantamount to saying that you suffered the bad fortune of a minor auto accident because you could only collect a small collision-insurance reimbursement.

It is best that prices don’t go up at all, just as it is best that you suffer no auto accident whatsoever. It may be the case that, because your personal consumption pattern is so idiosyncratic, the price index that determines your COLA does not adequately compensate you for the actual price increases that your particular consumption goods suffered over the survey period. (Just as it may also be true that your insurance adjustor does not adequately reward you for the actual damages your car suffers in an accident.) If the price index or insurance adjustment fails to adequately protect you, that is “bad news,” but stable prices and safe driving are not bad things just because you cannot collect on the respective forms of insurance that protect you when they break down.

And to say otherwise, as reporter Ohlemacher plainly does, is just crazy.

The 19th-century French economic Frederic Bastiat earned immortality by identifying the fallacy of the broken window. Even as early as 1848, self-appointed economic savants were declaring that destructive events such as vandalism were disguised blessings because their cleanup and reconstruction afforded employment and income to carpenters, glaziers, stonemasons and such. It was Bastiat who pointed out the fallacy in this solemn nonsense. The time and effort spent in reconstruction is lost to new construction, while the end result simply gets us back to square one, prior to the destruction. If the destruction had never happened, those same carpenters, glaziers, stonemasons, et al, could have been building new structures, leaving us better off than before. It is clearly folly to suggest that wealth can be enhanced by destroying wealth, then building it up again.

In the present day, it is just as fallacious to claim that the relative lack of a disaster is a bad thing because it denies us the opportunity to be compensated for the disaster. At least in theory, all that compensation accomplishes is… well, compensation. It just gets us back to even, back to square one. At best. If the compensation is imperfect, it may not even do as well as that. And all forms of inflation indexation are imperfect.

The Nuts and Bolts of Indexation

A great microeconomist once described blackboard analysis in the classroom as “getting down on our hands and knees” to examine a problem closely. The issue of indexation for price changes affects so many people that it merits minute examination. Let’s haul out the nuts and bolts of the problem highlighted by this news story and get down on all fours with them.

Last year, many thousands of prices changed over the course of the calendar year. Enough of them rose to cause the Consumer Price Index – which we can think of as a kind of weighted average of all price changes – to rise by a modest amount just under 2%. This rise in the price index triggered a “cost-of-living-adjustment” (COLA) in the benefits paid out by the Social Security Administration. Hurrah!

But wait – we cheered when Social Security benefits went up, but we forgot to boo the price increases that occurred last year, before the benefit increase took place. After all, the benefit increase is only intended to compensate us for price increases that have already taken place in the past, when our Social Security payments were stuck at their previous lower level. Assuming the CPI perfectly adjusts to account for all the price increases, the price index change and the resulting upward revision in our benefits will exactly compensate us for the price increases. Now our buying power is back to where it was at the start of last year, before the price increases took place. So there is really no great reason to cheer, since the COLA is only getting us back to even, so to speak, in terms of our purchasing power.

Except we’re not even, are we? Or rather, we weren’t even last year, when we had to buy goods and services for the whole year with prices higher but possessing only our lower pre-indexation benefit amount. Alas, our COLA indexation comes in arrears; as long as inflation persists, our real income is like a dog always chasing its tail but never quite able to catch it. Of course, indexation is one heck of a lot better than nothing, but it is not a panacea for the detrimental effect of inflation on fixed incomes.

Think back to the news story. The bad news for Social Security recipients is that the coming year’s benefit adjustments are among the smallest ever. Why? “Next year’s raise will be small because consumer prices…haven’t gone up much in the past year.” Well, if small price increases produce small benefit increases and larger price increases would have produced larger benefit increases, then the author is clearly implying that larger price increases would have brought good news this year instead of bad news. But we just showed that larger price increases last year would have made recipients even worse off last year than they actually were – then this year’s benefit increase would merely have gotten them back to even.

So the author is wrong. No, that doesn’t quite capture it. He is gloriously, symmetrically wrong, in the sense that his flatfooted declaration is the exact opposite of the truth. This is truly industrial-strength stupidity. But that isn’t all.

No price index works perfectly. As soon as the statistician introduces more than one good or service into the index, unavoidable imprecision crops up. When thousands of goods are indexed, this problem mushrooms. That is why the Bureau of Labor Statistics calculates so many different versions and subsets of the various price indices, of which the Consumer Price Index is merely the best known. The statisticians are trying valiantly to tailor these sub-indices to the income and consumption patterns of identifiable groups. This is another way of saying that, in actual practice, indexation using the CPI as its base does not exactly compensate for the previous year’s price changes. Moreover, the degree of variance from the ideal differs from person to person and group to group.

At least in principle, this technical imprecision might work in either direction – either in or against the consumer’s favor. As it happens, though, our news story makes certain claims on that score. “Advocates for seniors say the government’s measure of inflation doesn’t accurately reflect price increases older Americans face because they tend to spend more of their income on health care. Medical costs went up less than in previous years but still outpaced other consumer prices, rising 2.5%. ‘This (COLA) is not enough to keep up with inflation, as it affects seniors,’ said Max Richtman, who heads the National Committee to Preserve Social Security and Medicare. ‘There are some things that became cheaper but they are not the things that seniors buy. Laptop computers have gone down dramatically but how many people at 70 are buying laptop computers?'”

In other words, the author of our news story has introduced evidence that the COLA fails to compensate Social Security recipients for purchasing power lost to inflation. He has introduced no counterbalancing evidence, even though ample evidence to the contrary is available. (Some will be adduced below.) Now how does the author’s central contention – that Social Security recipients face bad news created by the failure of prices to rise more last year – look? According to the logic and evidence the author has written into his own article, the author’s own conclusion looks even stupider than it did when first stated. To recipients’ disadvantage that the COLA adjustment is attained in arrears, the author has now added the further disadvantage that the adjustment allegedly fails to compensate Social Security recipients for the full effects of inflation on their purchasing power. Both of these disadvantages are triggered by price increases; the bigger the price increase, the more wounding the disadvantage.

The author’s industrial-strength stupidity has now ratcheted up to industrial-strength stupidity squared.

Stupidity, Yes – But What Else?

The author of this story displayed stupidity on an epic scale. That much is beyond doubt. Is stupidity alone enough to account for such a breathtaking display? Might there be a concealed agenda at work to motivate such blindness to elementary logic?

Not so long ago, a news story underwent a fairly rigorous editing process prior to publication. It is highly unlikely that any national publication would have allowed anything as ghastly as this to slip past its editors. But today, journalism as it once was no longer exists. Its place has been taken by advocacy thinly veiled as reporting or commentary.

The prevailing bias is leftward in general and pro-Obama-administration in particular. The Obama issue du jour is – or was, when the article appeared – the federal-government shutdown. Sure enough, much of the article’s content is intended to rake up sympathy for Social Security recipients, the largest entitlement group whose check receipts were threatened by the shutdown.

The bad-news recipients are characterized as “millions of Social Security recipients, disabled veterans and retirees.” They are wholly dependent on government for their incomes, which are now – for the second year in a row – “historically small.” And, to top it off, “the exact size of the cost-of-living adjustment, or COLA, won’t be known until the Labor Department releases the inflation report for September. That was supposed to happen Wednesday, but the report was delayed by the government shutdown. [emphasis added]…The Social Security Administration has given no indication that raises would be delayed because of the shutdown, but advocates for seniors said the uncertainty was unwelcome…More than one-fifth of the country is waiting for the news.”

A story can also be slanted by what is left out as well as what is included. While Mr. Ohlemacher’s story plants the impression of seniors as badly used by the CPI, economist Michael Boskin has the opposite impression in his Wall Street Journal op-eds over the years. In 2005, Boskin estimated that CPI indexing overestimated inflation by 80-90 basis points, or nearly one full percentage point. More recently, n the course of listing numerous ways in which the federal government can save money by eliminating waste, fraud and abuse in its budget, Boskin suggests switching Social Security indexation to the chained CPI, which would estimate inflation more conservatively than does the current version. (The chained CPI would adjust the index every month for “upper-level substitution bias” – a recondite way of describing the fact that the index currently captures economic substitution induced by price changes better for close substitute goods than for more distant substitutes.) Formerly, straight-news stories would have cited opposing views like this one, for “balance.” These days, a balanced story is a rarity.

It is tempting to believe that ideological or partisan political bias blinded the author to his egregious mistakes and nourished a single-minded search for stories that conformed to a pre-set template of “helpless victims endangered by short-sighted government shutdown.”

Another ideological agenda on display in the article is that of the victimized group. Here it is seniors. The above-quoted reference to COLA bias against senior consumption patterns is the tipoff. But there is no mention of the fact that economists warned for years that Social Security benefits over-compensated for inflation. Instead, we get bite-sized quotes from victims picked for their emotive power.

“‘It is very important to get the COLA because everything else you have in your life is on an upward swing, and if you’re on a downward swing, that means your quality of life is going down,’ said Gaskins [Alberta Gaskins, of the District of Columbia, who “is concerned about household bills], who retired from the Postal Service in 1989.” Somehow, the juxtaposition of Ohlemacher’s inane analysis of indexation, his dry technical explanations of COLAs and price changes and the “Gaskins Swing Index” lends a surreal aura to this article. It almost seems as though Ohlemacher approached a garden-fresh set of facts on Social Security and set out to knead, pound and stretch them into as much propaganda dough as he could mold. The result doesn’t rise and leaves a mess in the oven for the reader to deal with.

Yesterday’s Hack is Today’s Hero

In the journalistic jungle of yesteryear, writers who sold their soul for a buck were called “hacks.” They were understood to be willing to say anything on behalf of anybody who paid their (not too elevated) price. Today’s front-line reporters have adopted the work habits and standards of yesterday’s hacks. But unlike the hacks, they do not suffer for it by being relegated to the fringes and netherworld of journalism. A search on Mr. Ohlemacher reveals that he writes often for salon.com, MSN and the Associated Press. Copious samples of his work are available online. His do not appear to be the credentials of a hack. But the reasoning displayed in this article is an insult to the discipline of economics. The fact that Ohlemacher’s piece includes some technical details about COLAs and their calculation does not mitigate the gravity of his offense as outlined above.

Still… there is that old adage to contend with. “Never ascribe to venality that which can be explained by mere stupidity.”