Krugman: Little Black Lies

The New York Times > Opinion > Op-Ed Columnist: Little Black Lies

Little Black Lies
By PAUL KRUGMAN

ocial Security privatization really is like tax cuts, or the Iraq war: the administration keeps on coming up with new rationales, but the plan remains the same. President Bush's claim that we must privatize Social Security to avert an imminent crisis has evidently fallen flat. So now he's playing the race card.

This week, in a closed meeting with African-Americans, Mr. Bush asserted that Social Security was a bad deal for their race, repeating his earlier claim that "African-American males die sooner than other males do, which means the system is inherently unfair to a certain group of people." In other words, blacks don't live long enough to collect their fair share of benefits.

This isn't a new argument; privatizers have been making it for years. But the claim that blacks get a bad deal from Social Security is false. And Mr. Bush's use of that false argument is doubly shameful, because he's exploiting the tragedy of high black mortality for political gain instead of treating it as a problem we should solve.

Let's start with the facts. Mr. Bush's argument goes back at least seven years, to a report issued by the Heritage Foundation - a report so badly misleading that the deputy chief actuary (now the chief actuary) of the Social Security Administration wrote a memo pointing out "major errors in the methodology." That's actuary-speak for "damned lies."

In fact, the actuary said, "careful research reflecting actual work histories for workers by race indicate that the nonwhite population actually enjoys the same or better expected rates of return from Social Security" as whites.

Here's why. First, Mr. Bush's remarks on African-Americans perpetuate a crude misunderstanding about what life expectancy means. It's true that the current life expectancy for black males at birth is only 68.8 years - but that doesn't mean that a black man who has worked all his life can expect to die after collecting only a few years' worth of Social Security benefits. Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood. African-American men who make it to age 65 can expect to live, and collect benefits, for an additional 14.6 years - not that far short of the 16.6-year figure for white men.

Second, the formula determining Social Security benefits is progressive: it provides more benefits, as a percentage of earnings, to low-income workers than to high-income workers. Since African-Americans are paid much less, on average, than whites, this works to their advantage.

Finally, Social Security isn't just a retirement program; it's also a disability insurance program. And blacks are much more likely than whites to receive disability benefits.

Put it all together, and the deal African-Americans get from Social Security turns out, according to various calculations, to be either about the same as that for whites or somewhat better. Hispanics, by the way, clearly do better than either.

So the claim that Social Security is unfair to blacks is just false. And the fact that privatizers keep making that claim, after their calculations have repeatedly been shown to be wrong, is yet another indicator of the fundamental dishonesty of their sales pitch.

What's really shameful about Mr. Bush's exploitation of the black death rate, however, is what it takes for granted.

The persistent gap in life expectancy between African-Americans and whites is one measure of the deep inequalities that remain in our society - including highly unequal access to good-quality health care. We ought to be trying to diminish that gap, especially given the fact that black infants are two and half times as likely as white babies to die in their first year.

Now nobody can expect instant progress in reducing health inequalities. But the benefits of Social Security privatization, if any, won't materialize for many decades. By using blacks' low life expectancy as an argument for privatization, Mr. Bush is in effect taking it as a given that 40 or 50 years from now, large numbers of African-Americans will still be dying before their time.

Is this an example of what Mr. Bush famously called "the soft bigotry of low expectations?" Maybe not: it isn't particularly soft to treat premature black deaths not as a tragedy we must end but as just another way to push your ideological agenda. But bigotry - yes, that sounds like the right word.

The Free Lunch Bunch - Krugman

The Free Lunch Bunch
By PAUL KRUGMAN

Did they believe they would be welcomed as liberators? Administration plans to privatize Social Security have clearly run into unexpected opposition. Even Republicans are balking; Representative Bill Thomas says that the initial Bush plan will soon be a "dead horse."

That may be overstating it, but for privatizers the worst is yet to come. If people are rightly skeptical about claims that Social Security faces an imminent crisis, just wait until they start looking closely at the supposed solution.

President Bush is like a financial adviser who tells you that at the rate you're going, you won't be able to afford retirement - but that you shouldn't do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains.

That, once you cut through all the fine phrases about an "ownership society," is how the Bush privatization plan works. Payroll taxes would be diverted into private accounts, forcing the government to borrow to replace the lost revenue. The government would make up for this borrowing by reducing future benefits; yet workers would supposedly end up better off, in spite of reduced benefits, through the returns on their accounts.

The whole scheme ignores the most basic principle of economics: there is no free lunch.
There are several ways to explain why this particular lunch isn't free, but the clearest comes from Michael Kinsley, editorial and opinion editor of The Los Angeles Times. He points out that the math of Bush-style privatization works only if you assume both that stocks are a much better investment than government bonds and that somebody out there in the private sector will nonetheless sell those private accounts lots of stocks while buying lots of government bonds.
So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn't such an assertion very peculiar coming from people who claim to trust markets?

When I ask privatizers that question, I get two responses.

One is that the diversion of revenue into private accounts doesn't have to lead to government borrowing, that the money can come from, um, someplace else. Of course, many schemes look good if you assume that they will be subsidized with large sums shipped in from an undisclosed location.

Alternatively, they point out that stocks on average were a very good investment over the last several decades. But remember the disclaimer that mutual funds are obliged to include in their ads: "past performance is no guarantee of future results."

Fifty years ago most people, remembering 1929, were afraid of the stock market. As a result, those who did buy stocks got to buy them cheap: on average, the value of a company's stock was only about 13 times that company's profits. Because stocks were cheap, they yielded high returns in dividends and capital gains.

But high returns always get competed away, once people know about them: stocks are no longer cheap. Today, the value of a typical company's stock is more than 20 times its profits. The more you pay for an asset, the lower the rate of return you can expect to earn. That's why even Jeremy Siegel, whose "Stocks for the Long Run" is often cited by those who favor stocks over bonds, has conceded that "returns on stocks over bonds won't be as large as in the past."

But a very high return on stocks over bonds is essential in privatization schemes; otherwise private accounts created with borrowed money won't earn enough to compensate for their risks. And if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition.

Sometimes I do find myself puzzled: why don't privatizers understand that their schemes rest on the peculiar belief that there is a giant free lunch there for the taking? But then I remember what Upton Sinclair wrote: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

Social Security

Social Security

Social Security
Are private accounts a good idea?


To give America's struggling seniors a lifeline out of poverty, Franklin D. Roosevelt 70 years ago established the Social Security system. The program was never intended to be particularly generous -- and even after increases over the decades, the average check totals just $14,000 a year. Yet Social Security remains a mainstay for America's 36 million seniors; two out of three of them count on it for half their income.

Now, a cash squeeze endangers Social Security's future, as the huge Baby Boom population heads into retirement. If nothing is done, the system may only have enough money to pay today's young workers about two-thirds of their benefits when they retire. So President Bush and other free-market advocates are suggesting the most sweeping change to this core social program since its inception, based on a simple premise: Let the stock market help fix it.

On Jan. 11, Bush kicked off his new campaign by telling a town hall meeting that younger workers should be able to take some of their payroll tax and "set it aside in the form of a personal savings account." Social Security only provides returns of about 2% a year after inflation, and private accounts, says the President, could top that easily if they were invested even partially in stocks. Explained Bush at a press conference back on Dec. 20: "Over time, that rate of return would enable that person to...make up for the deficiencies in the current system...and more likely get that which was promised."

Is he right? Are private accounts really a good idea? The short answer is, they could be -- but only if Americans are willing to wait several generations for the higher returns to make up for Social Security's expected shortfall. The gap is so large -- $3.7 trillion in today's dollars -- that even if the stock market matched its historical average, private accounts wouldn't fill the gap for something like 90 to 100 years. And that doesn't even count the extra $1 trillion to $2 trillion in transition costs required to set up such accounts.

"NOT A MAGIC BULLET"
Still, private accounts have their appeal. They could be a way to encourage savings. They could partially prefund a system that is now pay-as-you-go. Another plus: the nest egg that builds up, something older Americans may be able to pass on to their heirs.

The details of the plan that the President will ultimately ask the country to consider are very much in flux. Now that Bush has put fixing Social Security at the top of his domestic agenda, there's a profusion of proposals across the political spectrum, and horse-trading between Republicans and Democrats over the coming year will certainly influence the shape of the final program. For now, Social Security reform is a moving target.

Even so, the President has pointed repeatedly to the suggestions of his 2001 Commission to Strengthen Social Security. Because that group's blueprint contains the rudiments of just about any of the private-account schemes out there, it's a good starting point to assess how a partially privatized system might play out over the long haul. Its primary plan calls for allowing workers under 55 to divert four percentage points of their 12.4% annual Social Security payroll tax into private accounts, up to a maximum of $1,000 a year. It also slashes the future growth of Social Security benefits to wipe out the shortfall -- relying on the accounts to make up what amounts to only a portion of the difference. Indeed, today's 20-year-olds would see their promised benefit cut nearly in half, leaving them a check equal to just 15% of their annual income when they retire.

Of course, no politician wants to be the first to deliver bad news, so Bush hasn't yet indicated that his plan might involve reducing benefits from today's promised levels. But now, some Administration officials are starting to concede that private accounts can't earn enough to fix all of Social Security's ills. White House adviser Peter H. Wehner made the point explicitly in a memo widely circulated in early January.

If Americans go for private accounts, then, it won't be so they themselves receive the retirement Social Security currently promises. Instead, those working today would be accepting smaller benefits, as would their children when they join the workforce, so that their grandchildren could count on a fully funded system. Says David C. John, a research fellow at the conservative Heritage Foundation who is a leading advocate of private accounts: "It's wrong to say that private accounts can fill Social Security's shortfall. They're not a magic bullet. But do you want to leave the world better for your grandchildren or just tell them to make do?"

THE OWNERSHIP AGENDA
Of course, politics weighs just as heavily as economics in the great Social Security debate. Bush's desire for personal accounts is part of his larger vision of an "ownership society," in which the power of the market is unleashed to better the lives of average Americans. This view motivated the savings- and investment-oriented tax cuts of his first term. It drives his enthusiasm for such ideas as health savings accounts, with their tax incentives aimed at giving Americans more control over a basic aspect of their lives. And it's at the core of his desire for partial privatization of Social Security.

Democrats, deeply at odds with Bush's sweeping ownership agenda, largely oppose schemes featuring private accounts. Instead, they're expected to push for a hike in payroll taxes along with some benefit cuts, though smaller ones than Bush's plan would entail. Of course, there would be no stock-market offset, either. "Maybe we don't have to solve the whole problem right now, since it's still so far off," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "But we've got to make a start with some combination of small tax hikes and benefit reductions." Even larger problems loom, she notes, such as Medicare's huge deficit, which is twice as large as Social Security's.

Some critics even argue that stronger economic and demographic growth alone could solve the problem, so we should wait a while longer before taking drastic steps. After all, the $3.7 trillion shortfall occurs in part from the looming Baby Boom retirement wave and in part from pessimistic projections of a steep slowdown in economic and population growth. But if the U.S. matched its growth rates of the past 75 years for the next 75, there would be no shortfall at all, according to projections by the Social Security Administration (SSA). Paradoxically, "if the pessimists are right, and there's a shortfall, you can't [also] have 7% returns in stocks, so private accounts can't solve the problem," says Jeremy J. Siegel, a finance professor at the University of Pennsylvania's Wharton School.

The Social Security system is facing today's conundrum as a result of its initial design. Because Social Security was set up with no up-front funding, retirees back then began receiving benefit checks even though they hadn't paid any payroll tax. Ever since, the system has run on a pay-as-you-go basis.

SQUEEZED BENEFITS
The official fiction is that workers' payroll deductions plus employers' contributions go into a trust fund that builds up savings for retirement. But in reality, the trust fund is filled with government IOUs, while workers' and employers' taxes go right out the door to pay the Social Security checks of today's retirees. Currently, with most boomers still in the workforce, there's a surplus in the SSA accounts (although Congress spends every penny of it each year on other federal programs).

By 2018, however, Social Security's surplus could disappear as rising numbers of boomer retirees demand more cash from the system. After that, Social Security still can pay all promised benefits with payroll taxes until about 2042, according to the SSA's Office of the Actuary. (A separate analysis by the Congressional Budget Office puts the date at 2052, largely because of different economic and demographic assumptions.)

But if the crisis actually hits, the payroll tax will cover only about two-thirds of the promised benefits. An average retiree in 2042, one of today's twentysomethings, would get a Social Security check for only $1,080 a month in today's dollars, 27% less than the $1,478 he or she is currently slated for, according to the Actuary. The drain on Social Security's coffers would continue to mount, and by 2075, the average retiree would collect $1,362, or 33% less than the $2,032 now scheduled.

Virtually none of the private-account plans would try to make up this difference. Instead, they eliminate it by switching the way retirees' initial benefits are calculated. Right now, the SSA adjusts the benefit level future retirees will receive each year according to the change in average U.S. wages. Although pay often lagged inflation in the 1970s and '80s, over the long term it has outpaced consumer prices by roughly 1% a year. That's why today's Social Security check of $1,184 a month is projected to jump to $2,032 after inflation over 75 years.

The Bush Commission would switch the formula so that benefits keep pace with prices instead of wages. Sounds reasonable. But if wages grow faster, then over the decades the average Social Security check would shrink as a share of future workers' pay. Right now, that $1,184 works out to nearly 42% of the average worker's pay, a ratio that would remain if wage indexing is kept in place. But price indexing would gradually reduce benefits to the vanishing point as wages outpaced prices. Seventy-five years from now, the average retiree would still get roughly $1,184 in today's dollars. But with wages running 1% a year ahead of inflation, it would come to less than a fifth of what the average worker would earn by that time.

If Social Security checks had been adjusted for inflation ever since the program started in 1935, retirees today would take home only $425 a month. "Price indexing may not be sustainable when retirees in the future see that they have the same purchasing power as 50 years ago," says Kent Smetters, a Wharton insurance professor who as a U.S. Treasury official helped the President's Commission crunch all these numbers.

What's more, the result of price indexing is so extreme that it would wildly overshoot the shortfall, transferring more than $1 trillion in surplus taxes to federal coffers, according to Stephen C. Goss, the SSA's chief actuary. Even some commission members concede that this would be unsustainable. "It's true that with price indexing, Social Security benefits would keep falling while the revenue to the government keeps rising, but we said at that point a future Congress can change it," says Olivia S. Mitchell, a public policy professor at Wharton who was a Democratic member of the President's Commission.

Higher returns from private accounts wouldn't offset these lower benefits for well over 75 years, even in the best-case scenario. To see why, take a look at the analysis Goss did of the commission's primary plan, the one that allows 4% of payroll to go into individual accounts. (The commission suggested three plans, but the Bush Administration has embraced the second, more moderate one.)

Goss assumed, as most privatization proponents do, that the stock market would average 6.5% a year after inflation for the full 75 years. He also used their assumption that most workers would participate and would invest prudently by splitting their account 50/50 between stocks and bonds. They would use their earnings to buy an annuity when they retire, leaving a net return of 4.25% a year. (At that rate, the private account of a young worker today would be worth $149,000 at age 67.) Goss found that average workers after 75 years would wind up with the equivalent of $1,615 a month in today's dollars, leaving them 20% short of matching the promised $2,032 benefit. "You can't use private accounts to make up the Social Security shortfall; the hole is just too deep," says Michael Tanner, director of the Project on Social Security Choice at the libertarian Cato Institute in Washington, who nonetheless supports private accounts.

What's more, over time, private accounts would eclipse traditional Social Security. Just look at what average workers would collect. The $1,615 would come from two sources. The 4% of payroll they had diligently invested in personal accounts would yield $989, according to Goss. Meanwhile, the 8.4% workers and employers had continued to fork over to the traditional Social Security fund would pay the remaining $626.

At the same time, the stock market can't provide enough extra returns for private accounts to close the entire gap within 75 years. Look at what would happen to Social Security in the aggregate, rather than from the perspective of an individual. If all workers 55 and younger invested 4% of their pay into a private account, that would create a $4.6 trillion hole over this time. Assuming a 6.5% annual stock market return on that 4%, however, about $8 trillion would pile up after 75 years, according to calculations by Dean Baker, co-director of the Center for Economic & Policy Research, a liberal think tank in Washington that opposes personal accounts. Net it all out, and that would still leave the system $300 billion shy of plugging the $3.7 trillion hole. "You can't solve the shortfall without slower benefit growth or some source of added funds," agrees Harvard University economics professor Martin S. Feldstein, a leading privatization proponent.

Remember, too, that none of this includes the $1 trillion to $2 trillion in transition costs that would be required to set up private accounts. Because Social Security is a pay-as-you-go system, allowing workers to divert 4% of their pay into private accounts would leave the SSA short of funds to cover current retirees' benefit checks. This cost is by definition transitory, since the diverted money eventually would be put back into the system. After all, as workers with private accounts retired, their check from the traditional Social Security system would be lower, to offset the money that went into their account. However, that wouldn't happen for several decades, forcing the government to borrow the difference to keep the system afloat in the interim.

The true nature of this cost has ignited an almost theological debate. The Bush Commission plan would require Washington to borrow at least $160 billion a year in the early years. Since the federal government is already running a $400 billion-plus deficit, the central question is what the economic impact would be of jacking up Uncle Sam's indebtedness by 40%. The traditional view: The bond market would hike interest rates, slowing U.S. economic growth. Higher deficits or national debt also could weigh down a weakened dollar. "If you pile on another $1 trillion to $2 trillion to the national debt we've already got, it could trigger an economic crisis," warns Massachusetts Institute of Technology economics professor Peter A. Diamond.

Recently, though, Administration officials have begun to argue that since the borrowed money eventually would be paid back, it shouldn't count as an increase to the deficit. Backed by economists such as former Council of Economic Advisers chief R. Glenn Hubbard, now dean of Columbia University's Graduate School of Business, private-account advocates point out that any transition costs would be offset by a corresponding reduction in the U.S. government's long-term debt -- leaving no net change in its borrowing. "This is different than normal deficits, because the money is saved, not spent, so the effect on the financial markets would be very small," says Feldstein.

ALTERNATE ROUTES
While the debate may seem abstract, the answer matters. If Washington can sell up to $2 trillion worth of bonds at essentially no economic cost, leaving them off the federal balance sheet, personal accounts would be much easier to sell politically. But if the money must be accounted for in the federal budget, Bush would have to retreat from his pledge to slash the deficit in half. Either that, or slice other social programs -- or hike taxes, which Republicans won't touch.

By contrast, one liberal proposal that has received much attention, from MIT's Diamond and Brookings Institution economist Peter R. Orszag, would make tax hikes its centerpiece, combined with benefit cuts in roughly equal proportions. They suggest raising the cap on the payroll tax, currently set at the first $90,000 of income (it increases with average wages each year). The reason: Affluent people are more likely to live longer than Social Security intended. So they're getting more out of the system than they pay into it. They would also lift the 12.4% payroll tax for everyone starting two decades hence. Benefits would come down, though by much less than what price indexing would do. A 25-year-old, for example, would get an 8.6% reduction in the growth of promised benefits.

The most audacious position may be to do nothing at all, at least for a decade or so. The $3.7 trillion shortfall that has spurred Bush into action is based on Goss's projections that the U.S. economy will grow at a slower rate over the next 75 years. Inflation-adjusted GDP gains will drop to 2% a year, he projects, vs. the 3% average that has held for the past 75 years. And the labor force will inch up at a mere 0.35% a year, vs. an historic average of 1.4%. But the SSA has adjusted these numbers every year since the mid-1990s economic and immigration booms, lowering the shortfall and pushing back the crunch date each time.

Goss's reliance on conservative assumptions is perfectly reasonable, especially since no one can really project anything over 75 years. But his more optimistic scenario, based largely on historic growth rates, shows no shortfall at all. Since the U.S. economy has produced pleasant surprises for nearly a decade, little might be lost by waiting to see if those trends continue. For those unwilling to wait, private accounts will help -- eventually. "It's all a matter of patience," says Diamond. "It could take many years for stocks to pay off, and the question is, does anyone really want to wait that long?" The challenge for private-account advocates is to convince Americans that reinventing Social Security for their grandchildren is the right thing to do.

Frank Rich: All the President's Newsmen

The New York Times > Arts > Frank Rich: All the President's Newsmen

January 16, 2005
FRANK RICH
All the President's Newsmen

NE day after the co-host Tucker Carlson made his farewell appearance and two days after the new president of CNN made the admirable announcement that he would soon kill the program altogether, a television news miracle occurred: even as it staggered through its last nine yards to the network guillotine, "Crossfire" came up with the worst show in its fabled 23-year history.

This was a half-hour of television so egregious that it makes Jon Stewart's famous pre-election rant seem, if anything, too kind. This time "Crossfire" wasn't just "hurting America," as Mr. Stewart put it, by turning news into a nonsensical gong show. It was unwittingly, or perhaps wittingly, complicit in the cover-up of a scandal.

I do not mean to minimize the CBS News debacle and other recent journalistic outrages at The New York Times and elsewhere. But the Jan. 7 edition of CNN's signature show can stand as an exceptionally ripe paradigm of what is happening to the free flow of information in a country in which a timid news media, the fierce (and often covert) Bush administration propaganda machine, lax and sometimes corrupt journalistic practices, and a celebrity culture all combine to keep the public at many more than six degrees of separation from anything that might resemble the truth.

On this particular "Crossfire," the featured guest was Armstrong Williams, a conservative commentator, talk-show host and newspaper columnist (for papers like The Washington Times and The Detroit Free Press, among many others, according to his Web site). Thanks to investigative reporting by USA Today, he had just been unmasked as the frontman for a scheme in which $240,000 of taxpayers' money was quietly siphoned to him through the Department of Education and a private p.r. firm so that he would "regularly comment" upon (translation: shill for) the Bush administration's No Child Left Behind policy in various media venues during an election year. Given that "Crossfire" was initially conceived as a program for tough interrogation and debate, you'd think that the co-hosts still on duty after Mr. Carlson's departure might try to get some answers about this scandal, whose full contours, I suspect, we are only just beginning to discern.

But there is nothing if not honor among bloviators. "On the left," as they say at "Crossfire," Paul Begala, a Democratic political consultant, offered condemnations of the Bush administration but had only soft questions and plaudits for Mr. Williams. Three times in scarcely as many minutes Mr. Begala congratulated his guest for being "a stand-up guy" simply for appearing in the show's purportedly hostile but entirely friendly confines. When Mr. Williams apologized for having crossed "some ethical lines," that was enough to earn Mr. Begala's benediction: "God bless you for that."

"On the right" was the columnist Robert Novak, who "in the interests of full disclosure" told the audience he is a "personal friend" of Mr. Williams, whom he "greatly" admires as "one of the foremost voices for conservatism in America." Needless to say, Mr. Novak didn't have any tough questions, either, but we should pause a moment to analyze this "Crossfire" co-host's disingenuous use of the term "full disclosure."

Last year Mr. Novak had failed to fully disclose - until others in the press called him on it - that his son is the director of marketing for Regnery, the company that published "Unfit for Command," the Swift boat veterans' anti-Kerry screed that Mr. Novak flogged relentlessly on CNN and elsewhere throughout the campaign. Nor had he fully disclosed, as Mary Jacoby of Salon reported, that Regnery's owner also publishes his subscription newsletter ($297 a year). Nor has Mr. Novak fully disclosed why he has so far eluded any censure in the federal investigation of his outing of a C.I.A. operative, Valerie Plame, while two other reporters, Judith Miller of The Times and Matt Cooper of Time, are facing possible prison terms in the same case. In this context, Mr. Novak's "full disclosure" of his friendship with Mr. Williams is so anomalous that it raised many more questions than it answers.

That he and Mr. Begala would be allowed to lob softballs at a man who may have been a cog in illegal government wrongdoing, on a show produced by television's self-proclaimed "most trusted" news network, is bad enough. That almost no one would notice, let alone protest, is a snapshot of our cultural moment, in which hidden agendas in the presentation of "news" metastasize daily into a Kafkaesque hall of mirrors that could drive even the most earnest American into abject cynicism. But the ugly bigger picture reaches well beyond "Crossfire" and CNN.

Mr. Williams has repeatedly said in his damage-control press appearances that he was being paid the $240,000 only to promote No Child Left Behind. He also routinely says that he made the mistake of taking the payola because he wasn't part of the "media elite" and therefore didn't know "the rules and guidelines" of journalistic conflict-of-interest. His own public record tells us another story entirely. While on the administration payroll he was not only a cheerleader for No Child Left Behind but also for President Bush's Iraq policy and his performance in the presidential debates. And for a man who purports to have learned of media ethics only this month, Mr. Williams has spent an undue amount of time appearing as a media ethicist on both CNN and the cable news networks of NBC.

He took to CNN last October to give his own critique of the CBS News scandal, pointing out that the producer of the Bush-National Guard story, Mary Mapes, was guilty of a conflict of interest because she introduced her source, the anti-Bush partisan Bill Burkett, to a Kerry campaign operative, Joe Lockhart. In this Mr. Williams's judgment was correct, but grave as Ms. Mapes's infraction was, it isn't quite in the same league as receiving $240,000 from the United States Treasury to propagandize for the Bush campaign on camera. Mr. Williams also appeared with Alan Murray on CNBC to trash Kitty Kelley's book on the Bush family, on CNN to accuse the media of being Michael Moore's "p.r. machine" and on Tina Brown's CNBC talk show to lambaste Mr. Stewart for doing a "puff interview" with John Kerry on "The Daily Show" (which Mr. Williams, unsurprisingly, seems to think is a real, not a fake, news program).

But perhaps the most fascinating Williams TV appearance took place in December 2003, the same month that he was first contracted by the government to receive his payoffs. At a time when no one in television news could get an interview with Dick Cheney, Mr. Williams, of all "journalists," was rewarded with an extended sit-down with the vice president for the Sinclair Broadcast Group, a nationwide owner of local stations affiliated with all the major networks. In that chat, Mr. Cheney criticized the press for its coverage of Halliburton and denounced "cheap shot journalism" in which "the press portray themselves as objective observers of the passing scene, when they obviously are not objective."

This is a scenario out of "The Manchurian Candidate." Here we find Mr. Cheney criticizing the press for a sin his own government was at that same moment signing up Mr. Williams to commit. The interview is broadcast by the same company that would later order its ABC affiliates to ban Ted Koppel's "Nightline" recitation of American casualties in Iraq and then propose showing an anti-Kerry documentary, "Stolen Honor," under the rubric of "news" in prime time just before Election Day. (After fierce criticism, Sinclair retreated from that plan.) Thus the Williams interview with the vice president, implicitly presented as an example of the kind of "objective" news Mr. Cheney endorses, was in reality a completely subjective, bought-and-paid-for fake news event for a broadcast company that barely bothers to fake objectivity and both of whose chief executives were major contributors to the Bush-Cheney campaign. The Soviets couldn't have constructed a more ingenious or insidious plot to bamboozle the citizenry.

Ever since Mr. Williams was exposed by USA Today, he has been stonewalling all questions about what the Bush administration knew of his activities and when it knew it. In his account, he was merely a lowly "subcontractor" of the education department. "Never was the White House ever mentioned anytime during this," he told NBC's Campbell Brown, as if that were enough to deflect Ms. Brown's observation that "the Department of Education works for the White House." For its part, the White House is saying that the whole affair is, in the words of the press secretary, Scott McClellan, "a contracting matter" and "a decision by the Department of Education." In other words, the buck stops (or started) with Rod Paige, the elusive outgoing education secretary who often appeared with Mr. Williams in his pay-for-play propaganda.

But we now know that there have been at least three other cases in which federal agencies have succeeded in placing fake news reports on television during the Bush presidency. The Department of Health and Human Services, the Census Bureau and the Office of National Drug Control Policy have all sent out news "reports" in which, to take one example, fake newsmen purport to be "reporting" why the administration's Medicare prescription-drug policy is the best thing to come our way since the Salk vaccine. So far two Government Accountability Office investigations have found that these Orwellian stunts violated federal law that prohibits "covert propaganda" purchased with taxpayers' money. But the Williams case is the first one in which a well-known talking head has been recruited as the public face for the fake news instead of bogus correspondents (recruited from p.r. companies) with generic eyewitness-news team names like Karen Ryan and Mike Morris.

Or is Mr. Williams merely the first one of his ilk to be exposed? Every time this administration puts out fiction through the news media - the "Rambo" exploits of Jessica Lynch, the initial cover-up of Pat Tillman's death by friendly fire - it's assumed that a credulous and excessively deferential press was duped. But might there be more paid agents at loose in the media machine? In response to questions at the White House, Mr. McClellan has said that he is "not aware" of any other such case and that he hasn't "heard" whether the administration's senior staff knew of the Williams contract - nondenial denials with miles of wiggle room. Mr. Williams, meanwhile, has told both James Rainey of The Los Angeles Times and David Corn of The Nation that he has "no doubt" that there are "others" like him being paid for purveying administration propaganda and that "this happens all the time." So far he is refusing to name names - a vow of omertà all too reminiscent of that taken by the low-level operatives first apprehended in that "third-rate burglary" during the Nixon administration.

If CNN, just under new management, wants to make amends for the sins of "Crossfire," it might dispatch some real reporters to find out just which "others" Mr. Williams is talking about and to follow his money all the way back to its source.

Krugman: The Iceberg Cometh

The New York Times > Opinion > Op-Ed Columnist: The Iceberg Cometh

OP-ED COLUMNIST
The Iceberg Cometh
By PAUL KRUGMAN

ast week someone leaked a memo written by Peter Wehner, an aide to Karl Rove, about how to sell Social Security privatization. The public, says Mr. Wehner, must be convinced that "the current system is heading for an iceberg."

It's the standard Bush administration tactic: invent a fake crisis to bully people into doing what you want. "For the first time in six decades," the memo says, "the Social Security battle is one we can win." One thing I haven't seen pointed out, however, is the extent to which the White House expects the public and the media to believe two contradictory things.

The administration expects us to believe that drastic change is needed, and needed right away, because of the looming cost of paying for the baby boomers' retirement.

The administration expects us not to notice, however, that the supposed solution would do nothing to reduce that cost. Even with the most favorable assumptions, the benefits of privatization wouldn't kick in until most of the baby boomers were long gone. For the next 45 years, privatization would cost much more money than it saved.

Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front, and then the system will become self-sustaining. The Wehner memo talks of borrowing $1 trillion to $2 trillion "to cover transition costs." Similar numbers have been widely reported in the news media.

But that's just the borrowing over the next decade. Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt.

These numbers are based on a Congressional Budget Office analysis of Plan 2, which was devised by a special presidential commission in 2001 and is widely expected to be the basis for President Bush's plan.

Under Plan 2, payroll taxes would be diverted into private accounts while future benefits would be cut. In the short run, this would worsen the budget deficit. In the long run, if all went well, cutting benefit payments would reduce the deficit.

All wouldn't go well; I'll explain why in another column. But suppose that everything went according to plan. Even in that unlikely case, privatization wouldn't even begin to reduce the budget deficit until 2050. This is supposed to be the answer to an imminent crisis?

While we waited 45 years for something good to happen, there would be a real risk of a crisis - not in Social Security, but in the budget as a whole. And privatization would increase that risk.

We already have a large budget deficit, the result of President Bush's insistence on cutting taxes while waging a war. And it will get worse: a rise in spending on entitlements - mainly because of Medicare, but with a smaller contribution from Medicaid and, in a minor supporting role, Social Security - looks set to sharply increase the deficit after 2010.

Add borrowing for privatization to the mix, and the budget deficit might well exceed 8 percent of G.D.P. at some time during the next decade. That's a deficit that would make Carlos Menem's Argentina look like a model of responsibility. It would be sure to cause a collapse of investor confidence, sending the dollar through the floor, interest rates through the roof and the economy into a tailspin.

And when investors started fleeing because they believed that America had turned into a banana republic, they wouldn't be reassured by claims that someday, in the distant future, privatization would do great things for the budget. Just ask the Argentines: their version of Social Security privatization was also supposed to save money in the long run, but all it did was move forward the date of their crisis.

A responsible administration would reverse course on tax cuts and the botched 2003 Medicare drug bill, both of which pose much greater threats to the government's solvency than the modest financial shortfall of the Social Security system. But Mr. Bush has declared his tax cuts inviolable, and he says that his drug bill will actually save money. (The Medicare trustees say it will cost $8 trillion.)

There's an iceberg in front of us, all right. And Mr. Bush wants us to steam right into it, full speed ahead.

Exit, Snarling

The New York Times > Opinion > Editorial: Exit, Snarling

January 9, 2005
EDITORIAL
Exit, Snarling

s it turns out, an important moment in the annals of modern culture may have occurred when Jon Stewart of Comedy Central went on CNN's "Crossfire" last October and decided to be serious. He told Paul Begala, on the left, and Tucker Carlson, on the right, that their show, which specializes in encouraging midlevel political types to yell slogans at each other, was "partisan hackery" that was lowering the level of political discourse. At the time, he was widely denounced for failing to be funny.

But the fact that Mr. Stewart, a comedian, is perhaps the most influential political commentator on television is in itself a sign of the times, and it turns out he may be prescient about programming as well. Jonathan Klein, president of CNN, announced last week that he was canceling "Crossfire" and steering CNN back toward actual news.

Maybe this could be the start of something big. We have lived through a generation now in which television news operations grew more and more dependent on "talking heads" shows because they are inexpensive. Since conversation is not normally high-octane viewing, producers tried to raise the interest level by encouraging the guests to start yelling at one another. The Fox News network swept the decks when it combined the snarling heads with right-wing commentary. Soon, the all-news airwaves were awash with primal screams. People tuning in to hear how the election was going might very well have imagined they had clicked onto a pregame show for professional wrestling.

Perhaps this trend has gone as far as it can go. Mr. Stewart's "Daily Show," which is especially popular with young people, is a reminder that television was supposed to be a "cool" medium, best suited to people whose jugular veins aren't throbbing. And last month, when the tsunami hit Asia, viewers got a chance to notice what they were in danger of losing to talk TV. CNN, with a comparatively large international army of journalists at its disposal, went out and covered the story. Fox News and MSNBC had to depend more on conversationalists in the studio, all of whom agreed that tidal waves were very, very bad.

The New York Times > Arts > Frank Rich: We'll Win This War - on '24'

The New York Times > Arts > Frank Rich: We'll Win This War - on '24'

January 9, 2005
FRANK RICH
We'll Win This War - on '24'

OES anyone still remember the war on terror? On Sunday night, Jan. 9, it will be lobbed back onto the TV screen like a hand grenade with the new season of "24," Fox's all-cliffhangers, all-the-time series about Jack Bauer, the relentless American intelligence agent played by Kiefer Sutherland. You will find no plot surprises divulged here. But tune in, and you'll return, not necessarily nostalgically, to the do-or-die post-9/11 battle that has been all but forgotten as we remain trapped in its nominally connected sequel, the war against Saddam Hussein.

This show is having none of President Bush's notion that Iraq is "the central front in the war on terror." In "24," the central front of that war is the American home front, not Mosul. "We weren't thinking of the war in Iraq when we came up with this story," said Joel Surnow, the show's co-creator, when I spoke with him last week. On "24," they're thinking about Islamic terrorism instead of Baathist insurgents, about homeland security instead of the prospects for an election in the Sunni triangle.

In the America of "24," as in the real one, government bureaucrats are busier fighting each other than Al Qaeda. Trains are unprotected from terrorists, and so is the Internet. The handsome Turkish family next door in sun-dappled Southern California is a sleeper cell the F.B.I. didn't find. The secretary of defense must not only contend with terrorists but also with a glib antiwar son who, in his view, has succumbed to "sixth-grade Michael Moore logic." Dad, amusingly enough, is played by William Devane, the actor who first became famous 30 years ago impersonating John F. Kennedy in a television drama ("The Missiles of October") about a colder war where the battle lines were clearly drawn.

In its own way, "24" is as provocative as a Moore manifesto. It shows but does not moralize about the use of abuse and torture by Americans interrogating terrorists; the results cut both ways in the four hours of the season I've seen, and there's a hint, as vibrant as an orange jumpsuit, that American criminality at Guantánamo may guarantee ugly payback in the O.C. as well as in the Middle East. The Council on American-Islamic Relations, meanwhile, has already protested this season's portrayal of Muslims. Though Mr. Surnow says that later episodes will include positive Muslim characters, he makes no apologies for focusing on the bad guys (and one very bad woman, played by the Iranian actress Shohreh Aghdashloo, of "The House of Sand and Fog"). He regrets that he "pulled punches" a couple of seasons back by using generic terrorists of murky provenance with indefinable accents. "This year we deal with it," he says. "This is what we fear - Islamic terrorism. This is what we are fighting."

Richard Clarke, the former American counterterrorism chief who once helped lead that fight, has yet to catch up with "24." But in coincidental tandem with its premiere, he is giving it some competition: for the cover of the January-February issue of The Atlantic Monthly, he has written his own distressing piece of fiction about the war he feels has been sabotaged if not lost by mismanagement, complacency and the squandering of resources in Iraq.

Titled "Ten Years Later," it takes the form of a 10th-anniversary 9/11 lecture given by Professor Roger McBride at the Kennedy School of Government. This professor, like Jack in "24," does not buy into what Jonathan Raban, writing in The New York Review of Books, calls "the pretense of fighting terrorists abroad to prevent them from attacking us at home." As McBride looks back at our decade from the vantage point of 2011, he finds that we have prevented little by fighting in Iraq. He sees an America that has endured horrors at home strikingly similar to those on Fox's show: assaults on rail transportation, a computer virus that wipes out the nation's cyber infrastructure, the rise of "Al Qaeda of North America" and the panicky instigation of new Patriot Acts that remake America into Philip Roth's nightmare of a fascistic Lindbergh presidency.

This fictional lecture is heavily footnoted with actual sources and hard, detailed information about our current security shortfalls. The reader learns that Mr. Clarke is not indulging in idle fantasy when he speculates that the next terrorist assault on American economic might is less likely to involve airplanes and financial district skyscrapers than backpacks and Winnebagos wreaking havoc at the Mouseworld theme park in Florida, the Lion's Grand casino in Las Vegas and the Mall of the States in Minnesota. But why would Mr. Clarke choose fiction as a vehicle for this dark, fact-based scenario?

"In both the Clinton and Bush administrations, the only time I was really effective in getting senior officers to pay attention was when I had tabletop war games," he said in an interview. "That did more than any briefing paper I might write." Few critics of the American fight against terrorism, both before and since 9/11, have had more of a public forum than Mr. Clarke, who gave dramatic, widely televised testimony before the 9/11 commission and published one of 2004's biggest sellers, "Against All Enemies." Yet he still feels, not without reason, that his message has failed to land. "On 9/11 my staff was consoling me," he says. "They said, 'You didn't stop it but at least everything you wanted to get done will get done. It will just happen.' For a while it did. Then it petered out. It's sad. We had the window of opportunity and just didn't know how to use it."

His next attempt to make himself heard will also be fiction: a novel steeped in national security and foreign policy, scheduled to be published in October. Though it may not have sex scenes - "it's one of those things I'm debating" - Mr. Clarke sees popular fiction, which can outsell nonfiction by several multiples, as a way of reaching a still larger audience. He has also contributed some ideas to the script of "Dirty War," an HBO-BBC docudrama (to be shown Jan. 24 on HBO) that "24"-style portrays a self-satisfied British government as woefully ill-equipped to either prevent or respond to Islamic terrorists' detonation of a dirty bomb in central London.

"Pop culture is frequently ahead of where the news media are on these things," he says. And ahead of the government as well. Condoleezza Rice famously said in 2002, "I don't think anybody could have predicted that these people would take an airplane and slam it into the World Trade Center." As we've since learned from several investigations, threat reports circulated within the American government predicted such airplane scenarios repeatedly before 9/11; one 1998 threat specifically targeted the twin towers. But fiction had been there earlier still. Mr. Clarke, like many others, cites the prescience of Tom Clancy's 1994 novel, "Debt of Honor," in which a Boeing 747 is crashed into the Capitol by a Japanese airman during a joint session of Congress, and the 1996 movie "Executive Decision," in which Kurt Russell battles Islamic terrorists who have seized control of another 747 so they can detonate a biological weapon in Washington.

Mr. Clarke says that friends who have read early copies of his Atlantic piece are e-mailing him to say, "See, it's already happening." But in his view we've hardly seen anything yet. "Madrid - 3/11 - could happen today in any of our major cities," he says. "There was security for the trains going from Washington to New York for the Republican National Convention, but what about the rest of the year?" Private security, he adds, is just as porous as government security: "When I go to an office building, I routinely sign in as Benjamin Franklin and no one ever objects. I show them my driver's license, which doesn't say 'Benjamin Franklin,' and they don't care."

Care must begin at the top, of course. In retrospect, Bernie Kerik's short-lived nomination as the new homeland security czar - "mind-blowing," as Mr. Clarke puts it - shows just how little concern there is. If homeland security were a top priority for the White House, someone would have discovered that the man selected to run the most sprawling new federal bureaucracy since the Defense Department in 1947 could not even manage his own personal finances, let alone his sex life. Were homeland security still a top priority for the country, the Kerik implosion might have whipped up some of the public outcry once sparked by the whistle-blowing F.B.I. agent Coleen Rowley (who quietly retired last month). But like duct tape and color-coded terror alerts before it, the Kerik nomination instead turned instantly into a Leno-Letterman gag that allowed us to dispel any lingering 9/11 fears with laughter.

Lost amid all those yuks was the full weight of last month's farewell confession of defeat by Tommy Thompson, the outgoing secretary of health and human services: "I, for the life of me, cannot understand why terrorists have not, you know, attacked our food supply, because it is so easy to do." He was followed out the administration's door in December by the Homeland Security Department's inspector general, Clark Kent Ervin (an actual official, despite his semifictional name), a Bush appointee whose history with the president goes back to the governor's office in Texas. Asked by Mimi Hall of USA Today what was wrong with his department, he replied, "It's difficult to figure out where to start," then described a dysfunctional agency that has failed to plug most holes in the nation's security net but has succeeded triumphantly in wasting taxpayers' money on bonuses and perks. His specific complaints overlap and confirm those in Mr. Clarke's "fiction" for The Atlantic.

But Mr. Ervin's final shots were barely noticed in the merriment that followed revelations of Mr. Kerik's ground zero love nest. He may now elucidate them further in a planned book, but you have to wonder if even best-selling nonfiction books written with the you-are-there zing of popular fiction - a description that fits both "Against All Enemies" and "The 9/11 Commission Report" - can wake up a country that has been so successfully distracted from the war initially declared after 9/11. As Mr. Clarke's Professor McBride says, "The several years without an attack on U.S. soil lulled some Americans into thinking that the war on terror was taking place only overseas." According to a roundup by the political newsletter Hotline, when some 20 Washington pundits made year-end talk-show predictions for the year to come, only one (Evan Thomas of Newsweek) foresaw the possibility of a domestic terrorist attack.

By common consent, 2004 was the year that Jon Stewart's fake news became more reliable for many viewers than real news. As 2005 begins, we must confront the prospect that a fictional TV action hero is more engaged with the war on terror than those in Washington who actually have his job.

Frank Rich: Washington's New Year War Cry: Party On!

The New York Times > Arts > Frank Rich: Washington's New Year War Cry: Party On!

FRANK RICH
Washington's New Year War Cry: Party On!

N the fourth day 'til Christmas, the day that news of the slaughter at the mess tent in Mosul slammed into the evening news, CBS had scheduled a special treat. That evening brought the annual broadcast of "The Kennedy Center Honors," the carefree variety show in which Washington's top dogs mingle with visitors from that mysterious land known as the Arts and do a passing (if fashion-challenged) imitation of revelers at the Oscars. This year, like any other, the show was handing out medals to those representing "the very best in American culture," as exemplified by honorees like Australia's Dame Joan Sutherland and Britain's Sir Elton John. Festive bipartisanship reigned. Though Sir Elton had said just three weeks earlier that "Bush and this administration are the worst thing that has ever happened to America," he and his boyfriend joined the president and Mrs. Bush in their box. John Kerry held forth in an orchestra seat below.

"The Kennedy Center Honors" is no ratings powerhouse; this year more adults under 50 elected to watch "The Real Gilligan's Island" on cable instead. But I tuned in, curious to see how this gathering of the capital's finest might be affected by the war. The honors had actually been staged and taped earlier in the month, on Dec. 5. That day the morning newspapers told of more deadly strikes by suicide bombers in Mosul and Baghdad, killing at least 26 Iraqi security officers, including 8 in a police station near the capital's protected Green Zone. There were also reports of at least four American casualties in other firefights.

But if anyone at the Kennedy Center so much as acknowledged this reality unfolding beyond the opera house, it was not to be found in the show presented on television. The only wars evoked were those scored by another honoree, John Williams, whose soundtrack music for "Saving Private Ryan" and "Star Wars" was merrily belted out by a military band. (Our delicate sensibilities were spared the sight of an actual "Private Ryan" battle scene, however, lest the broadcast risk being shut down for "indecency.") The razzle-dazzle Hollywood martial music, the what-me-worry Washington establishment, the glow of money and red plush: everything about the tableau reeked of the disconnect between the war in Iraq and the comfort of all of us at home, starting with those in government who had conceived, planned, rubber-stamped and managed our excellent adventure in spreading democracy.

Ordinary people beyond Washington, red and blue Americans alike, are feeling that disconnect more and more. On the same day that CBS broadcast the Kennedy Center special, an ABC News/Washington Post poll found that 70 percent of Americans believed that any gains in Iraq had come at the cost of "unacceptable" losses in casualties and that 56 percent believed the war wasn't "worth fighting" - up 8 percent since the summer. In other words, most Americans believe that our troops are dying for no good reason, even as a similar majority (58 percent) believes, contradictorily enough, that we should keep them in Iraq.

So the soldiers soldier on, and we party on. As James Dao wrote in The New York Times, "support our troops" became a verbal touchstone in 2004, yet "only for a minuscule portion of the populace, mainly those with loved ones overseas, does it have anything to do with sacrifice." Quite the contrary: we have our tax cuts, and a president who promises to make them permanent. Such is the disconnect between the country and the war that there is no national outrage when the president awards the Medal of Freedom to the clowns who undermined the troops by bungling intelligence (George Tenet) and Iraqi support (Paul Bremer). Such is the disconnect that Washington and the news media react with slack-jawed shock when one of those good soldiers we support so much speaks up at a town hall meeting in Kuwait and asks the secretary of defense why vehicles that take him and his brothers into battle lack proper armor.

Much has been made of this incident, yet it hardly constituted big news. It's no secret to anyone, including Donald Rumsfeld, that the troops have often been undersupplied. Dana Priest of The Washington Post heard soldiers asking the defense secretary "similar questions about their body armor" when traveling with him a year ago. In October, 23 members of an Army Reserve unit disobeyed a direct order to deliver fuel, partly because they decided that the vulnerability of their trucks made the journey tantamount to a suicide mission. As far back as last spring, Stars and Stripes was reporting that desperate troops were using sandbags as makeshift vehicle armor. Even now, reports The Los Angeles Times, National Guard soldiers are saying they have been shipped to war from Fort Bliss with "chronic illnesses, broken guns and trucks with blown transmissions."

When Mr. Rumsfeld told Specialist Thomas Wilson in Kuwait that the only reason the troops lacked armor was "a matter of production and capability," he was lying. The manufacturers that supply the armor were quick to respond that they had been telling the Pentagon for months that they could increase production, in the case of one company (ArmorWorks in Arizona) by as much as 100 percent. But that news was quickly drowned out by cable and talk radio arguments over whether Mr. Wilson should or should not have consulted with an embedded reporter about the phrasing of his question. Soon Mr. Rumsfeld was off to Iraq for a P.R. tour (message: I care) in which he used troops as photo-op accessories and thanked a soldier for asking a softball question "not planted by the media." Washington could go back to worrying about more pressing domestic problems, like how to cook the books so that Social Security can be fixed cost-free.

The truth is that for all the lip service paid to supporting the troops, out of sight is often out of mind. Even the minority that remains gung-ho about the war in Iraq is quick to blame the grunts for anything that goes wrong. Specialist Wilson, Rush Limbaugh said, was guilty of "near insubordination" for his question in Kuwait; the poor defense secretary "was set up," whined The New York Post. The same crowd tells us that a few low-level guards are solely responsible for the criminal abuse of prisoners at Abu Ghraib and in Guantánamo Bay, not any policy-setting higher-ups who may be sitting in that audience at Kennedy Center. President Bush even tried to pass the buck for his premature aircraft carrier victory jig to the troops, telling the press months later that "the 'Mission Accomplished' sign, of course, was put up by the members of the U.S.S. Abraham Lincoln, saying that their mission was accomplished." Of course.

Back then, the Pentagon projected that our military occupation of Iraq would end in December 2004. But two days after appearing in the box at the Kennedy Center Opera House, the president donned a snappy muted green "commander in chief" jacket - a casual Friday version of the full "Top Gun" costume he'd worn on the Lincoln - to address marines at Camp Pendleton in California who were going to war, not coming home. (Slate reported this week that "nearly one-quarter of U.S. combat dead in 2004 were stationed in Camp Pendleton.") It was the anniversary of Pearl Harbor, and Mr. Bush drew the expected analogy: "Just as we defeated the threats of fascism and imperial communism in the 20th century, we will defeat the threat of global terrorism." But three years into it, can we win a war that most of the country senses has gone astray in Iraq and that the party in power regards as a lower priority than lower taxes?

The ethos could hardly have been more different during the World War II so frequently invoked by Mr. Bush. As David Brinkley recounted in his 1988 history, "Washington Goes to War," the Roosevelt administration's first big push "was a tremendous voluntary program to reduce the deficit, encourage saving, trim spending and thus curb inflation - the sale of war bonds." Though bonds would not in the end pay for the war - that would require the sacrifice of paying taxes - F.D.R. believed that his campaign "would give the public a sense of involvement in a war being fought thousands of miles away, a war so distant many Americans had difficulty at times remembering it was there at all." Gen. George Marshall, the Army's chief of staff, took it on himself to write notes by hand to the family of each man killed in battle until the volume forced the use of Western Union telegrams.

Well, Mr. Rumsfeld has sworn he'll stop delegating condolence letters to his Autopen. But otherwise the contrast between the Washington that won World War II and the Washington fighting a war in Iraq is so striking it can even be found in the cultural lineage of the Kennedy Center show. That show's producer, as it happens, is George Stevens Jr., the son of the great Hollywood filmmaker George Stevens. In his day, the elder Stevens created his own wartime Washington entertainment: a glorious 1943 romantic comedy, "The More the Merrier" (just out on DVD), set in the newly mobilized capital, that, though fiction, is in itself a striking document of the difference between then and now. While it portrays a patriotic Washington as frivolously beset by party animals, bureaucrats and lobbyists as today's, there's an underlying ethos of shared sacrifice, literally down to the living arrangements necessitated by a housing shortage. It might as well be a different civilization.

Washington's next celebration will be the inauguration. Roosevelt decreed that the usual gaiety be set aside at his wartime inaugural in January 1945. There will be no such restraint in the $40 million, four-day extravaganza planned this time, with its top ticket package priced at $250,000. The official theme of the show is "Celebrating Freedom, Honoring Service." That's no guarantee that the troops in Iraq will get armor, but Washington will, at least, give home-front military personnel free admission to one of the nine inaugural balls and let them eat cake.

Executive Incompetence

The New York Times > Business > Your Money > Gretchen Morgenson: The Envelopes, Please

GRETCHEN MORGENSON
The Envelopes, Please
HILE investors were clearly cheered by the fact that stocks finished 2004 in the plus column, it was also obvious that three consecutive years of corporate scandals had finally begun to take their toll on executives.
In the years after Enron, many chief executives had been operating in a defensive crouch. Last year, however, they switched to offense, yelping about the new securities rules — way too strict and so time-consuming — and whining that Eliot Spitzer and his meddlesome investigations could wreck the nation’s economy. The United States Chamber of Commerce even sued the Securities and Exchange Commission, hoping to overturn its new rule requiring mutual fund chairmen to be independent.
Even as the old scandals inched through the court system, new ones cropped up. Aggressive accounting was at the heart of many of them, but a common theme was a need to propel a company’s stock price for a bigger and bigger executive payday.
So as 2005 dawns, it is again time to grant the Augustus Melmotte Memorial Prizes, named for the charlatan who parades through “The Way We Live Now,” the novel by Anthony Trollope. Mr. Melmotte, who would fit just fine into today’s business world, is a confidence man who takes London by storm in the late 1800’s.
Unlike many contemporary rogues, however, Mr. Melmotte gets what he deserves when both his scheme and his life collapse in ruins. If he were around today, he’d probably just settle with regulators, neither admit nor deny wrongdoing, charge his legal fees and penalties to his shareholders and start a hedge fund.
Here are the winners of the year’s prizes.
THE ROUND WHEEL AWARD To Franklin D. Raines, the former chief executive of Fannie Mae, the mortgage finance giant. After years of running roughshod over his company’s regulator, the Office of Federal Housing Enterprise Oversight, Mr. Raines and his swaggering colleagues learned that what goes around does indeed come around. The regulator accused Fannie Mae of cooking its books. The Securities and Exchange Commission agreed that it had misrepresented its financial statements, and all the lobbyists in the world couldn’t save it from a good, old-fashioned comeuppance. Mr. Raines lost his job but gained a munificent pension. Who knows? There may even be a hedge fund in his future.
THE THREEPEAT AWARD To Eliot Spitzer, the New York attorney general, for finding corruption in the third financial services industry in as many years. First it was Wall Street research, then the mutual fund industry. In 2004, it was the insurance business’s turn. Yes, it seems that those people who love to take your money and hate to pay your claims aren’t always on the up and up. Again, Mr. Spitzer found dubious industry practices that had been going on for years. But, as he made clear, that didn’t make them right.
THE SHOW AND DON’T TELL AWARD To Michael D. Eisner, the chief executive of Disney, and Michael S. Ovitz, Disney’s former president, for providing a much-needed glimpse into the gilded life of corporate executives. Thanks to their ugly employment spat, which wound up in Delaware Chancery Court, the two Mikes opened the door to that rarefied world where stockholders pay for million-dollar office renovations, $9,535 florist bills, $76,413 bills for limousines and rental cars, as well as annual subscriptions to Playboy.
What a swell place to live, that Magic Kingdom.
Disney also got into a scrape with the S.E.C. late last year over disclosure failings. It turns out that shareholders were not told that Disney employed three children of directors and that they received annual compensation ranging from $60,000 to more than $150,000. Nor were they informed that a unit that was half-owned by Disney had hired another director’s spouse who received compensation of more than $1 million annually, or that Disney had provided office space, secretarial services, a leased car and a driver to another Disney director — services valued at more than $200,000 annually. In settling with regulators, Disney promised to disclose all such arrangements in the future.
THE SILLIEST BILL AWARD To Senator Michael B. Enzi, Republican of Wyoming, and Senator Harry Reid, Democrat of Nevada who introduced legislation to thwart those who would reform the way stock options are treated in financial statements.
After years of letting companies get away with the pretense that stock options have no value, accounting rule makers this year will make companies deduct them from their books, as they would any expense. But the Enzi-Reid bill would overrule the rule makers and require companies to deduct only the cost of options granted to the top five executives of a company, not the options handed out to lower-level workers.
Rejecting economic reality, as it so often does, the House of Representatives passed the legislation. What's next, a bill decreeing that two plus two only sometimes equals five?
THE 'WHY CAN'T WE ALL JUST GET ALONG?' AWARD To Harvey L. Pitt, former S.E.C. chairman, who has returned to the private sector and is one of the creators of the Stillwater Directors Summit at Pebble Beach, a corporate governance confab that was scheduled for November but is now being put off until March.
In a letter written last May, Mr. Pitt, along with Peter Ueberroth, the former baseball commissioner, and Joel Kurtzman, whose title at PricewaterhouseCoopers, the accounting firm, is nothing less than global lead partner for thought leadership and innovation, invited independent directors to Pebble Beach, the golf resort in California.
"Government has overlegislated, overregulated and overprosecuted," Mr. Pitt's letter stated. "As a result, a new type of director has emerged - some through appointment, some through 'conversion' with a new sense of mission. In many cases collegiality has been replaced by skepticism and boards have become more risk-averse." The gathering, the letter promised, would help directors learn how to keep commitments to their companies while fulfilling commitments to independence.
Mr. Pitt said recently that he didn't, in fact, think that government had overstepped. "The letter may have been inarticulately worded," he said, "but the thought was, you can't sit around and look to the government for solutions.
"People have to seize control of the situation and make necessary changes," Mr. Pitt added. But those people won't suffer too much. "Every amenity of the Pebble Beach properties will be brought to bear to ensure a collegial, educational and ultimately rewarding weekend for your directors, your company and your shareholders," the letter said.
Gee, no mention of the shareholders' tee times?
WILIEST DEAL MAKER OF THE YEAR AWARD To Maurice R. Greenberg, chief executive of the American International Group, the insurance behemoth, for wriggling out of a tight spot with regulators recently. After finding that A.I.G. had sold products that allowed two companies to hide their financial problems from shareholders, the S.E.C. wanted to know how many more such deals A.I.G. had struck. So before regulators would settle the case, they forced the company to hire an outside expert to sift through its books and look for other earnings enhancement deals.
Mr. Greenberg may have the last laugh, however. The S.E.C. agreed to limit the period of the expert's search to 2000 through 2004, years when earnings-smoothing products were probably rare. During that period, demand for plain-vanilla insurance coverage was growing, and companies like A.I.G. did not need to resort to sales of such exotic products. An investigator would probably find far more interesting deals from 1997 to 2000, insurance experts say.
THE FOOL ME TWICE AWARD To investors who chased momentum stocks into the heavens last year as if they'd never heard of the crash of 2000. Adding to the 1999 feel of things, penny stocks soared, funky pro forma figures resurfaced and formerly disgraced Internet analysts dusted off their pompoms. All we need now is for a Wall Street strategist to say, "It's different this time."
Or maybe one already has.

Krugman on Social Security

The New York Times > Opinion > Op-Ed Columnist: Stopping the Bum's Rush

OP-ED COLUMNIST
Stopping the Bum's Rush
By PAUL KRUGMAN

he people who hustled America into a tax cut to eliminate an imaginary budget surplus and a war to eliminate imaginary weapons are now trying another bum's rush. If they succeed, we will do nothing about the real fiscal threat and will instead dismantle Social Security, a program that is in much better financial shape than the rest of the federal government.

In the next few weeks, I'll explain why privatization will fatally undermine Social Security, and suggest steps to strengthen the program. I'll also talk about the much more urgent fiscal problems the administration hopes you won't notice while it scares you about Social Security.

Today let's focus on one piece of those scare tactics: the claim that Social Security faces an imminent crisis.

That claim is simply false. Yet much of the press has reported the falsehood as a fact. For example, The Washington Post recently described 2018, when benefit payments are projected to exceed payroll tax revenues, as a "day of reckoning."

Here's the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (www.bepress.com/ev).

The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count.

Politically, that seems far-fetched. A general fiscal crisis, on the other hand, is a real possibility - but not because of Social Security. In fact, the Bush administration's scaremongering over Social Security is in large part an effort to distract the public from the real fiscal danger.

There are two serious threats to the federal government's solvency over the next couple of decades. One is the fact that the general fund has already plunged deeply into deficit, largely because of President Bush's unprecedented insistence on cutting taxes in the face of a war. The other is the rising cost of Medicare and Medicaid.

As a budget concern, Social Security isn't remotely in the same league. The long-term cost of the Bush tax cuts is five times the budget office's estimate of Social Security's deficit over the next 75 years. The botched prescription drug bill passed in 2003 does more, all by itself, to increase the long-run budget deficit than the projected rise in Social Security expenses.

That doesn't mean nothing should be done to improve Social Security's finances. But privatization is a fake solution to a fake crisis. In future articles on this subject I'll explain why, and also outline a real plan to strengthen Social Security.

Choose and Lose

The New York Times > Opinion > Op-Ed Contributor: Choose and Lose

OP-ED CONTRIBUTOR
Choose and Lose
By BARRY SCHWARTZ

warthmore, Pa.

THERE are three arguments being made in favor of privatizing part of Social Security. First, the Social Security Trust Fund needs money and privatization will, in the long run, increase the amount of money available to retirees. Second, privatization will give people choice, and choice is good. And third, "it's your money," and you ought to be able to do with it as you wish.

Each of these arguments is dubious, or disingenuous, or both.

Though experts differ on the urgency and the severity of the problem, most everyone agrees that the trust fund will eventually run out of money unless we do something. Two obvious and painful things we can do are decrease benefits or increase payroll taxes. Privatization, it is argued, solves the problem without the pain. Equity investments return about twice as much, historically, as Treasury bills. So by allowing people to put some of their payroll taxes into equity investments, we will increase the value of that part of their retirement account so we can then decrease the benefits paid out by the standard Social Security program and still leave retirees better off.

There are several problems with this argument, however. For starters, there is no guarantee that equities will return more than Treasury bills. One of the reasons that equities have a higher rate of return than other types of investments is that investors have to be compensated for taking risks. Perhaps equities will outperform Treasury bills in the long term but that doesn't mean that they will be outperforming Treasury bills at the specific moment you retire.

For example, a person who retired in 2000 after a lifetime of investing half in stocks and half in bonds would have had 50 percent more in his account than a person making the same investments who retired in 2003. A difference like this could mean that the lucky retiree can afford both food and medicine while the unlucky one must choose between them. The risk inherent in equity investments is unavoidable unless you can leave the investment alone indefinitely, which, of course, most retirees can't do.

What's more, the administrative costs of keeping track of these private accounts, according to President Bush's Commission to Strengthen Social Security, will be 10 to 30 times the cost of administering the current system, eating up almost all of the hypothetical gains that equity investments could provide.

Finally, even if we grant the advantages of putting trust fund money into equities, this is something that the government could do without privatizing anything by doing the investing itself. The government as investor can ride out risks better than any individual investor, and administrative costs would be vastly reduced. Only brokerage houses would suffer - from lost commissions. Thus investing in equities, which might be a good idea, is logically independent of privatization, which is a bad one. The Bush administration is deliberately conflating them.

This brings us to the second argument in favor of privatizing Social Security: giving people options makes them better off. There is now accumulating evidence that choice isn't always good. Whether people are choosing jam in a grocery store, essay topics in a college class, or even potential partners in an evening of "speed dating," the more options they have, the less likely they are to make a choice. In other words, increasing options induces people to opt out of choosing altogether, and this comes into play when people decide how to invest their money for retirement.

A study by Sheena Iyengar, a psychologist, and Wei Jiang, an economist, has shown that when employers increase the number of funds available to employees for voluntary 401(k) investments, the rate of participation goes down by 2 percent for every 10 funds offered. And this is true even when participating employees get free money - matching money - from employers.

So whereas there is no denying that choice is sometimes good, a case must be made for the specific benefits of choice in each particular context, rather than just assuming that the more choice people have, the better off they are. The appropriately abysmal early public response to the administration's Medicare prescription drug choice plan provides ample reason to suspect that many people will not regard being able to choose their Social Security investment instruments as a blessing.

This brings me to the final defense of privatization: the payroll taxes you pay are your money, and you ought to be able to do what you like with your money. This, I suspect, is the real justification behind the move to privatize, and it is the worst reason of all. The payroll tax is not "your" money; it's our money. Social Security was created as an insurance scheme, not a pension scheme. It was meant to provide a safety net, to protect the unlucky from immiseration in old age. The benefits we get are not payouts from accounts in which we have accumulated our own private stash. What we get is largely determined by what we earned, but we keep getting it even after we've taken out every penny we put in. And if we happen to die early, someone else reaps the benefits of our contributions.

The Bush administration should be honest with the American people and ask us if we want to do away with Social Security, without pretending that privatization will solve the problem of financing the trust fund without pain. I suspect that the American people would reject this effort to transform their "old-age insurance" into another opportunity to roll the dice in the investment casino.


Barry Schwartz, a professor of psychology at Swarthmore College, is the author of "The Paradox of Choice: Why More Is Less."

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