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Friday, February 18, 2005

Aren't Economists Supposed to Understand "National Savings"?? 

Steven Landsberg is an economist. He writes "everyday economics" for Slate. Today, he writes about Social Security, claiming this whole debate is a major red herring. I agree with this, more or less. He also, correctly, states that what is far more important in terms of the future is national savings:
In other words: If you want to address the Social Security crisis of the future, you must adopt laws that encourage saving in the present. There's nothing else you can do.
So far, so good. This is very much true. Then, however, he falls off a cliff, apparently not understanding that national savings=public savings + private savings. He writes:
Which brings us to the president's proposal for private accounts. I like that proposal for three reasons. First, it will encourage people to save.Second, it will give people choices, and choices are good. And third, it will give more voters a stake in the capitalist system, making them more likely to vote for the sort of pro-growth policies that will improve the quality of life for us in our old age and our grandchildren.

What really matters, though, is not private accounts. It's the saving and pro-growth policies that private accounts will encourage. If we can get the same things in other ways, that's just as good. [emphasis added]
Ok, so encouraging people to save is good policy. However, the president's plan (to the extent there is a plan) is going to be financed by the borrowing of trillions upon trillions of dollars! Therefore, it will decrease national savings, not increase it! Which, then, will actually be a drag on the economy, not a boon to it. What the hell is Steven Landsberg thinking!?! Good God this stuff makes me upset. Either Landsberg is a liar or profoundly incompetent at his job.
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