A Repentant Economist

Those of us who have been somewhat “heterodox” economists have long argued that the neoclassical-neoliberal (really the same thing in economics), mainstream theories had long ago left the reservation for some other hypothetical universe not closely related to the one we actually live in.  Unfortunately there are still far too many mainstream economists who don’t see the role flawed economic theories played in the global financial crisis and “Great Recession” of the last 4 years.

It is encouraging though to see at least one significant economist repents and is questioning what he previously assumed he “knew”.  I quote Brad Delong’s beginning to a paper he presented at the American Economic Assoc. meetings in Denver, January 2011:

My name is Brad DeLong.

I am a Rubinite, a Greenspanist, a neoliberal, a neoclassical economist.

I stand here repentant.

I take my task to be a serious person and to set out all the things I believed in three or four years ago that now appear to be wrong…

He goes on of course, in detail yet in very readable prose (no technical math or highly technical jargon) to describe what’s changed in his post What Have We Unlearned from Our Great Recession? – Grasping Reality with Both Hands.

It’s only one and he’s only gotten to the “I have a problem” phase. But as they say in Alcoholics Anonymous, that’s the beginning.

By the way, anyone wanting a really good, easy read on the recent history of economic thought and how it was both wrong and contributed to the crisis should definitely read John Quiggin’s book,  Zombie Economics.

Another Social Security Myth Busted

Critics of Social Security and those who claim to support it but really want to cut benefits (despite SS being fiscally sound) often expound myths about Social Security to make it sound like a program doomed from the start.  They often call it a “Ponzi Scheme” despite SS’s dynamics not being at all dependent on exponential increases in members the way a Ponzi Scheme does.

Well, another myth that gets circulated is that the extension of longevity in recent generations, the so-called “graying of America”, was never foreseen by the creators of Social Security.  The implication, they say, is that SS has to pay too many benefits for too long to too many people.  This myth, as they say on TV, is BUSTED.  I’ll let Paul Krugman, following research by Bruce Webb, do the talking:

Well, it turns out that Table 9 in the 1945 report (pdf) shows high and low estimates of the population distribution looking forward as far as 2000, which we can compare with the actual population distribution in 2000.

What you can see right away is that the SSA expected a much smaller population than we actually ended up with — the baby boom and immigration weren’t anticipated. But they also expected a somewhat older population than we actually got: their “low” estimate put the ratio of seniors to adults under 65 at 20.8%, almost the same as the actual 21.1%, while the “high” estimate put the ratio at 29.1%. That is, in 1945 the Trustees thought that America would probably be a grayer, older country by 2000 than it actually ended up being.

via Early Social Security Projections – NYTimes.com.

So way back in 1945, less than 8 years after the program started, the Social Security trustees looked into their crystal ball and foresaw a much older America in 2010.  The reality is Social Security System works and is solvent. It does not contribute to the U.S. federal government deficit. But, of course, for people who object to any type of government program (except defense, of course) facts are not a barrier.