I beg to differ with PGL, Martin Feldstein, and Steve Pearlstein. First, PGL:

Gee – the [Social Security] Trust Fund will have $5 trillion in bonds earning interest.

What that means is that over the past decades, Social Security has, when accrued interest is accounted for, taken in $5 trillion more in taxes than it has accrued in liabilities. However, under the “unified Budget,” enacted under Lyndon Johnson as a macroeconomic reform, Congress has managed to spend this entire $5 trillion–and more–over and above the other taxes it collected.

The economic planners want to blame consumers for not saving, and they want to “nudge” consumers to save more. But the most prodigious dis-saving has been done by the economic planners.

If Social Security consisted of personal accounts, then that $5 trillion would be sitting in what I once called the ultimate lockbox. Instead, it needs to be collected again in future taxes.

Feldstein writes,

The federal government would offer every homeowner with a mortgage the opportunity to replace 20 per cent of that mortgage with a low interest government loan – up to a loan limit of $80,000. . .that reflects the government’s lower borrowing rate. Creditors would be required to accept this partial mortgage pay-down and to reduce the monthly interest and principal by the same 20 per cent. That mortgage replacement loan would not be collateralised by the house but would be a loan that the government could enforce by lodging a claim on an individual who does not pay.

Feldstein is worried about house price declines “overshooting” their proper value. If he knows what the proper value of everyone’s house is, he should set up a hedge fund to buy houses that fall below that value, while shorting the market-traded house price indexes in cities where house prices are still too high.

In fact, Feldstein doesn’t know the proper value of everyone’s house. And I think it’s time to stop looking for ways for government to make more bets and enact more subsidies in that market.

Finally, Steven Pearlstein writes,

But over the past 35 years, the typical American household has managed to eke out only a 15 percent increase in its pretax income. During that same period, the productivity of the American worker — the value of the goods and services produced per hour worked — has increased by 90 percent.

In 1973, labor’s share of income was roughly 74 percent (see figure five here). According to Pearlstein’s narrative, the denominator (income) is up 90 percent, while the numerator (labor income) is up 15 percent. In that case, labor’s share today should be 45 percent. In fact, the share is below what it was in 1973, but it is much closer to 70 percent than to 45 percent. There is quite a discrepancy between Pearlstein’s reporting and reality.

What accounts for the discrepancy?

1. My guess is that the Census data do not include health benefits as income. Workers have no idea what their health benefits are worth, and so they do not report the value of those benefits to people doing the Census surveys. The fact is that worker compensation is up by far more than 15 percent, but a lot of that increased compensation consists of health benefits.

2. Pearlstein compares median worker salaries to average productivity growth. Adding low-wage immigrants will lower the median by more than the average. Increasing the wage premium for high-skilled workers will raise the average by more than the median.

I’m not denying that there has been a big increase in the dispersion of earnings. But there is no need to exaggerate it with baloneous numbers.

UPDATE: a comment points to an article by Terry Fitzgerald on reconciling the income numbers.