At this time, the Bush administration was coalescing around the idea of allowing workers to divert some payroll tax money out of the Social Security trust fund and into private investment accounts.Yglesias goes on to explain why this sort of thing is so common: because Congressmen have no incentive to learn about policy. They spend most of their time raising money, flying home to keep in touch with their constituents, politicking with other members of their party, or working on the crisis of the day (viz., government shutdowns). When they need detailed information, they usually turn to lobbyists or allied think tanks, which give them talking points they hardly have time to read, let alone understand.
Pence was, at the time, the head of the Republican Study Committee, which was an influential right-wing factional group inside the GOP caucus that sometimes rebelled from the right against Bush’s gestures at domestic policy moderation. So when I had the chance to hear Pence speak about Social Security privatization at a small think tank event, I was eager to see what he had to say. And what he said surprised me.
At the time, one of the big liberal objections to privatization was that private accounts were far riskier than conventional Social Security — and retirees could be left in the lurch if their investments went south.
In his talk, Pence had a strange answer to this: He argued that the average rate of return on investments in the stock market would be so much larger than the average Social Security benefit that it would be simple for the government to guarantee nobody would end up with less money in the new private system than they would have been entitled to under the old system. After all, most people would do so much better under the new system that the government would only need to pay up to make the guarantee work for a small number of people.
I raised what I thought was an obvious objection to this: moral hazard. If you promise people they’ll get a bailout if their private investments go south, you encourage excessive risk taking and bigger losses in the future.
My expectation was that Pence would have some kind of answer to this: a technical solution or a plan for a regulatory fix or a promise to think about it harder or something. But he had nothing. He seemed to just not understand at all what the problem was. The idea that a government guarantee could change behavior appeared to be totally unfamiliar to him, even though in most cases it’s a bedrock of conservative economic policy thinking.
Friday, July 15, 2016
Mike Pence and Congressional Ignorance
Matt Yglesias recalls that when he first arrived in Washington as a young reporter he wrote some scathing things about then-Congressman Mike Pence. He was shocked to encounter Pence speaking in public about a topic he knew nothing about, so he trashed Pence in a column. Now that Pence is being considered as Donald Trump's running mate, Yglesias wants to make it clear that he was too mean to Pence Actually Congressmen talk all the time about things they don't understand, so Pence is the norm, not the exception: