David R. Henderson  

David Stockman's Time Horizon

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"I'm just not going to spend a lot of political capital solving some other guy's problem in 2010."
--David Stockman, in William Greider, "The Education of David Stockman," Atlantic, December 1981.

One of the biggest "inside politics" articles in 1981 was William Greider's devastating cover story on Ronald Reagan's 34-year-old director of the Office of Management and Budget, David Stockman. This came out just before I was about to move from Santa Clara University to work in the Reagan administration, and the stir it caused reduced Reagan's running room for budget cuts.

But when I read the article, what I found most troubling about Stockman was not all the "we didn't totally understand the numbers" emphasis that the mainstream media and the chattering class in D.C. gave it because I knew enough about government to know that it rarely understands, or even gets roughly right, all the numbers. Look, for example, at Larry Lindsey's being fired by George W. Bush shortly after he said the cost of the 2003 Iraq war would be $100 billion to $200 billion. Many people in the White House, including OMB director Mitch Daniels, thought he had way overstated the number. Of course, we now know, and I had thought even then, that he understated it.

No, for me the troubling part about Stockman was the quote with which I began this post. He had been explaining to Greider why he had gone for almost-immediate cuts in Social Security rather than supporting a growing movement on Capitol Hill, led by Jake Pickle, a Democratic member of the House of Representatives from Texas and a protege of Lyndon Johnson. Pickle had been pushing for a more-realistic age for people to receive full Social Security benefits. At the time, the age was 65. But Stockman didn't care about 2010. That was "some other guy's problem."

What was Pickle's specific proposal? In his 1986 book, The Triumph of Politics, Stockman tells us:

The only structural change the Pickle bill proposed was raising the normal retirement age from sixty-five to sixty-eight; but not until 1990, and even then it would be phased in so gradually that the change would not become fully effective until the year 2000.

OMG! In other words, if Pickle's bill had passed, we would now be 12 years past the point where the full-benefit age for Social Security is 68, rather than 15 years before the point at which it becomes 67.

Would the Pickle bill have passed? Here's what Stockman writes:

The problem was that by April 1981, the helpful but extremely limited step of raising the retirement age had become everyone's favorite Social Security reform fetish. This was true even among conservative politicians who had the guts actually to face the issue, such as Barber Conable, Bill Archer, and Bill Armstrong. All three were on the key congressional committees.

Conable was the well-respected ranking minority member of the House Ways and Means Committee. Bill Archer was one of the most respected members of House Ways and Means. Bill Armstrong was an up-and-coming Republican member of the Senate Budget Committee.

Would age reform have passed with Stockman's opposition? Note Stockman's use of the word "even" in front of their names. In other words, the bipartisan view was that the age needed to be raised. With "even" conservatives supporting it, it probably would have been. Just with that one change, the U.S. federal debt would likely be at least $1 trillion lower today and would, by 2027, be at least $3 trillion lower than it will be.

Incidentally, the reason we even got an increase from age 65 to 67 is that Jake Pickle insisted on it. Many people mistakenly think that the proposed reforms that came out of the Greenspan Commission in 1983 included an increase in the age. Not true. Pickle was the one who tacked it on to the "reform" bill.


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COMMENTS (11 to date)
John Thacker writes:

I am not surprised that, according to your post, politicians in 1981 could easily have agreed to a plan that would have raised the retirement age, "but not until 1990." But does that demonstrate that the changes would actually have taken place in 1990? Doing something later is always popular in government. It's uncertain.

I also think that if the age increase had been included, then the other cuts would not have been included, so I disagree with the counterfactual claim that the federal debt "would likely be" at least $1T lower today. I agree that I personally would have preferred the increased retirement age to the payroll tax increase that we got instead (IIRC the major provision of the 1983 Act, though there were perhaps benefit cuts as well), but I think that with a higher retirement age (in the future) we would not have seen as much of a tax increase.

David R. Henderson writes:

@John Thacker,
But does that demonstrate that the changes would actually have taken place in 1990?
I think so. Look at the fact that the age increase has been phased in for the last few years with very little, if any, attempt to stop the increase.
but I think that with a higher retirement age (in the future) we would not have seen as much of a tax increase.
If true, that would have been even better, although you’re right that I would need to alter my debt guesstimate. But remember that the only tax increase in the 1983 Act was a speeding up (by only 2 years, IIRC) a tax increase that Congress had passed and Carter had signed in 1977. So we were in 1990 exactly where we would have been taxwise.

Joe Cushing writes:

I don't get why we can't start raising the age today. Just bump it up 3 months for every year. I don't think a person about to retire this year would mind much about waiting 3 months. Next year 6 months? People planning to retire 3 years from now probably don't even have a definite date planned out yet. We should continue with this 3 month increase for eternity until the whole system is no longer in play.

David R. Henderson writes:

@Joe Cushing,
I like your proposal. But I know a number of people within 2 or 3 years of retirement who are counting off the months. I love my job and so for me it’s no big deal. But I know a number of people who don’t. I’m curious, if you’re willing to share: how old are you?

Jim Glass writes:

"I'm just not going to spend a lot of political capital solving some other guy's problem in 2010."

This was the exact attitude of Congress in 1939 when taking FDR's "actuarially sound and out of the Treasury forever" Social Security Act of 1935 and converting it to paygo as soon as the payroll tax revenue started coming in -- cutting the tax and ramping up the benefits, making constituents everywhere happy, short-term.

FDR's head of SS, Arthur Altmyer, protested to Congress that this would make SS financially unsound and inevitably unfairly force future participants to get less from the program as they subsidized earlier ones -- exactly as things worked out. He reported that the Congressional leaders told him, "that will be somebody else's problem". FDR vetoed the funding change but Congress over-rode it.

As a young puppy lawyer doing some labor work I was in the room twice when these words were spoken. In each case the union heads and top managers (say: "agency problem") were talking about a deal that they knew would effectively loot the business in the long run, but which would give them short-term kudos including sendoffs with big bonuses into happy early retirement. "But what will this do to the business in the long run, for both owners and union member employees?" "That will be somebody else's problem." You have to actually hear the words spoken to feel the force in them. In one case the owners were apathetic and trusting, the deal went through, and that company is long gone. In the other the owners were on top of things, never let it be considered, and all these years later that company is still doing fine.

Point here is Stockman's "I won't help anyone in 2010" wasn't any moral failure on his part, it is how all politics works -- exclusively in real time, current political costs incurred to get current political benefits. It is how modern democracies are constitutionally structured.

That is why disabling debt is piling up higher and higher in countries all over the world. If it were a Democratic/Republican thing it would be so only in the USA. If it were a "quality of leaders" thing, some govts who've had good leadership would be low-debt sound, others would be bust. But in fact all are loading up these debts, the only difference is between very bad and much worse.

With private businesses there is a party possessing a self-interested motive to protect the long-term future fiscal condition of the organization and also the power to do it: the owner.

In government there is no such party. So nobody does it. And there is no reason to think anyone will start doing it. No reason at all, I fear. Until, as with SS in 1977 and 1983, the long run finally arrives in the short run (but on a far larger fiscal scale than in 1977 and 1983).


Joe Cushing writes:

I'm 35. So under my proposal, that puts my retirement age at something like 74, but calling it a retirement age is a misnomer. It's just the age people draw payments. People can retire at any time before or after that date. That means for the people who are about to retire in say, 2 years they could wait the 6 months or fund more of their own retirement for 6 months.

David R. Henderson writes:

@Jim Glass,
Good story. Also, you write:
Point here is Stockman's "I won't help anyone in 2010" wasn't any moral failure on his part, it is how all politics works -- exclusively in real time, current political costs incurred to get current political benefits.
I agree with the second part but not the first part. That is how politics works and I think it’s profoundly immoral. Nothing in my post was meant to imply that Stockman was unusual. In fact, that’s my point. Here’s this guy who says he’s unusual, that he wants to turn around the welfare state, and then he reverts to short time horizons.
@Joe Cushing,
calling it a retirement age is a misnomer
I agree, and notice that I didn’t; Stockman did.
That means for the people who are about to retire in say, 2 years they could wait the 6 months or fund more of their own retirement for 6 months.
That’s absolutely correct and that’s the advice I give, when asked, to all my friends under 60 because I think there’s a huge storm coming. You might be surprised, though, at the percent of people close to retirement who have no such cushion.

Jim Glass writes:

"That is how politics works and I think it’s profoundly immoral."

Well, I kind of agree with you but the implication is moral people shouldn't go into politics, not that we can expect politicians to act differently.

It's really simple economics: Political survival depends entirely on short-term returns (at the next election). Politicians who expend their resources on long-term returns sacrifice their short-term returns -- and so are culled from the pool. So politicians focus on short-term returns. QED.

When nothing else is possible I don't see the point in calling something immoral -- that carries weight only if there is an alternative course. People follow incentives. Saying it is immoral for people to follow incentives doesn't work much for me. It certainly won't stop them from doing it. Much better to change the incentives. But nobody is having that argument -- as it is a constitutional one, not a partisan one.

Again, this fiscal condition is world-wide. If it were a matter of the individual character of politicians or moral failure or local political corruption, it would be in some countries but not others -- but it is *everywhere*, look at all Europe.

The political constitutions of our societies evolved before politicians had the power to drop massive burdens on the future for short-term gain. So they have no mechanism to prevent it. Amid the fiscal calamities that have started in Europe and will certainly spread as the boomers age, perhaps constitutions will evolve mechanisms to deal with that problem going forward.

Until then I can accept politicians who act as they must -- but have a much harder time with all the "analysts" who sell out in the partisan wars supporting one side or the other. These are the people who should be informing the public, and be arguing the case for the constitutional change, but are being Stockmans by choice, not necessity.

As on example that struck me, Krugman back in the Bush years notably told the Asia Times about the USA "We should be getting 28% of GDP in revenue. We are only collecting 17%," suggesting a 65% tax increase was needed to not be "a banana republic" and instead soundly fund then-existing programs (since expanded).

Now he is actually correct about that! But he's never made a peep about this in his own column in the USA, in all the years since. Why not?

I suspect because if he ever tied a responsible Democratic agenda to "65% tax increase" he would be immediately kicked into the political wastelands by the Democratic/Liberal establishment. End of him as an esteemed and influential figure with them, pronto.

But why should he fear that? He's got a Nobel, tenure at Princeton, millions of dollars ... he'd gain a whole new kind of moral authority and influence. Instead he makes himself a Stockman out of voluntary choice.

It's these partisan "analysts" who further future insolvency to promote left and right political agendas at the next election who offend me.

Stockmans-by-necessity I don't blame. Stockmans-by-choice are a whole 'nother moral thing.

[Econlib Apology: This comment was accidentally deleted and has been restored. We apologize for the inconvenience. --Econlib Ed.]

Ken B writes:

"Today is already the tomorrow which the bad economist yesterday urged us to ignore."

David R. Henderson writes:

@Jim Glass,
Well, I kind of agree with you but the implication is moral people shouldn't go into politics, not that we can expect politicians to act differently.
I seem to find myself half-agreeing with you a lot. I think some moral people should go into politics, especially if, along with their strong morality, they have strong stomachs. But I agree that we probably shouldn’t expect (the vast majority of) politicians to act differently.
I think the most successful politician in the Reagan administration, in the sense of someone who came in with (I think) strong moral values that agreed with mine and pursued them and then left was Bill Baxter. My guess is that almost no one who reads this site has heard of him. He was an antitrust critic who headed the Antitrust Division of the Justice Department. He came in and implemented a lot of reforms that antitrust critics had been talking about. He also ended the IBM suit. Then he left.

Jim Glass writes:

@Jim Glass ... I seem to find myself half-agreeing with you a lot.

That's pretty good, especially for a subject like this. I take it as a compliment.

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