State of the Union - Part 3

Here are the links for Part 1 and Part 2. You can also follow the transcript on cnn.com.

It looks like President Bush is going to put a large chunk of his political capital in attempting to touch the third rail of American politics. And the problem is that I really don't see how his plan could work right now.

The first thing he starts off with is a reassurance to all 55 and over Americans that he isn't going to touch their benefits. Of course, the problem is that he then goes on to say that indexing benefit increases from wages to prices could be a possible fix. Of course, one of these things is going to have to give. Either current retirees are going to have their benefit increases change or there's not going to be a change. And since older Americans vote in droves, I have a feeling that the AARP will fight any changes in the formula tooth and nail.

President Bush also goes through a laundry list reforms that other people have proposed. Notice that all of them are former politicians. Well, Clinton was term-limited out but we know how much mileage he got out of raising the retirement age. So in the end it'll take a real political gamble to get any of these proposed reforms out of the gate. Of course, Pres. Bush didn't mention raising the payroll tax as a possible reform, but I can definitely see Democrats insisting on increasing revenues as a trade off for other reforms. He did say that he didn't want to jeopardize economic growth by increasing the payroll tax, but I honestly don't see him getting what he wants without it.

That said, President Bush has his own plan for reforming Social Security... replacing it with personal accounts. Here is where I'm skeptical of the President's plan: He first says that "your account will provide money for retirement over and above the check you will receive from Social Security." So it's not really replacing Social Security, it's creating another government mandated program to go on top of Social Security. Of course, if forced savings (which is what his plan is) goes through, then it shouldn't matter if Social Security goes into the toilet because personal savings accounts will make up the difference.

The second problem I have with the proposal as far as I can tell from the President's speech is here:

And best of all, the money in the account is yours, and the government can never take it away.

So the President believes that the government wouldn't have any say in how the money is invested. But in the next paragraph, he goes through an entire laundry list of restricitions on "your" money. And don't think for a second to think that "your" money won't count as an asset in things like bankrupcy, divorce proceedings, and other ways that money can be taken away. Speaking of bankrupcy, I've seen this criticism of the plan elsewhere on the net, so I can't take total credit for this, but if the money is mine, then why wouldn't I be able to take a loan out for the personal account. It is my money after all. But then that wouldn't have the desired effect that politicians like President Bush want.

He does mention that Federal employees already have something like this in place. But I'd like to see a study of what kinds of effects the Thrift Savings Plan would have on current consumption and future income. That would be a good test case for whether the President's plan could work or not.

Ideally, I would have to say that I would much rather means test Social Security now... which should have some considerable savings. But the AARP and liberals don't want that to happen because then Social Security would be exposed as the welfare program for old people that it is. And nothing tests as poorly in the United States as welfare.

The final part of this section of speech has to deal with social issues. Not much to do with Social Security, but blame CNN for that, not me.

First thing he talks about, and not for too long, is the amendment to define marriage as between a man and a woman. Amending the constitution is a second-best solution to the problem. That is if you think of it being a problem. Dan would disagree with me, but I would say that there is a social benefit to having marriage as being between a man and a woman. But of course, the solution is what the President alluded to, that is we need to get rid of activist judges on the bench. That's also something that he mentions at the end of this section. And this gives gives the President a political winner. There is evidence that people are sick of the Democrats holding up political nominations until it suits them. But unfortunately, it may be a long time until it suits them just for the reason that they're holding up nominations in the first place.

The final topic that the President touches on in this part of the speech is medical ethical research issues. I agree with most of what the President says. But the economist in me says that we should be able to sell our body parts if we want to. But then again, human life is something that should be just above the allocation of scarce resources. Economically, human life should be more important than cost. But then that would mean that health care is something that should be provided for all, regardless of cost. And that's something that I don't see right now. So that's a dichotomy that I have to think through.