This Week:

Quote of the Week

Nygaard Notes Publication Schedule Change: No Longer A Weekly
Social Security: The Fundamental Issue

Greetings,

Yippee!  I get to talk about Social Security again.  I love talking about this program, because it's so easy.  Easy, that is, in the sense that the issues are clear, and the facts are easy to find.  This will be the first of numerous pieces on the subject, I expect.  You can clip and save them!

I haven't finished the “Fantasy Versus Reality” series yet, in case you were wondering.  You know, the one that started out being about sex education, drug education, and teen crime.  I honestly haven't figured out how to tie it all together.  Plus, a lot of people wanted me to get back to Social Security.  So I haven't done it yet, but I will.  Trust me.

I'm sorry if the announcement of the cutback of Nygaard Notes from a weekly to an occasional publication comes as a shock to some of you.  It's not a decision I made lightly.  Much agonizing and emotion went into it.  But I can't figure out how to make it work as a weekly, given what I now have to go on.  (See the details in the article in this issue.)  Hopefully it will be temporary.

Until next time,

Nygaard

"Quote" of the Week:

In a column in the Business Section of the New York Times (All The News That's Fit To Print!) of February 17th, economist Robert Frank discussed “rational-actor model,” popular in the economics field.  This is the model that “assumes that people are selfish in the narrow sense.”  After going on for a while (as economists often do), Frank offers what I consider the “Quote” of the Week:

“In an experimental study of private contributions to a common project, two sociologists from the University of Wisconsin, Gerald Marwell and Ruth Ames, found that first-year graduate students in economics contributed an average of less than half the amount contributed by students from other disciplines.

“Other studies have found that repeated exposure to the self-interest model makes selfish behavior more likely.  In one experiment, for example, the cooperation rates of economics majors fell short of those of nonmajors, and the difference grew the longer the students had been in their respective majors.

“My point is not that my fellow economists are wrong to stress the importance of self-interest.  But those who insist that it is the only important human motive are missing something important.  Even more troubling, the narrow self-interest model, which encourages us to expect the worst in others, often brings out the worst in us as well.”

Nygaard Notes Publication Schedule Change: No Longer A Weekly

Did you notice that the tag line on this week's issue is different?  It used to be “Nygaard Notes: Independent Weekly News and Analysis.”  Now it's “Independent Periodic News And Analysis.”  That's because, after six-and-a-half years of putting out Nygaard Notes on a weekly basis, I have to cut back my publication schedule to a “whenever I can find the time” basis.  I expect to put out an issue roughly every other week, but I don't know for sure.  This decision is driven by economics, and I'll explain it briefly here, for those who are interested.

First of all, I have to thank all of you who have been so unbelievably generous with your pledges of financial support for this humble newsletter.  You are AMAZING!  Without you, there is no way that Nygaard Notes could exist in any form, weekly or not.  I never in my wildest dreams imagined that this would last for even 6 months, let alone six years!  Thank you.

So, why the cutback?  Here's the deal:  Because of your pledges, I now pay myself about $125 for each issue that I put out.  Now, each issue is different, but it seems to take me between 15 and 25 hours to put out each issue.  Writing is the least of it.  The time-consuming parts are the thinking, the research, and the “business” parts of the project.  Mostly the research, although the bookkeeping, promotion, layout, mailing, and so forth take a certain amount of time, as well.

So, that's $125 per week, and guess what?  It costs more than that to live, even for someone with my rather austere lifestyle (the details of which I will spare you!)  When you add in the hours that I spend at my (several) other jobs, there is almost no time for me to do anything but work.  This is not a good thing, and to top it off, even though I work all the time, I still don't have enough money!  Money, that is, for luxuries like dental work, new glasses, and the occasional vacation, or at least a long weekend now and again.  I have no retirement money saved, not a penny.  And I'm almost 51 years old.  See what I mean?

It can't go on like this, I've decided, so I am starting to take on more paying work, which means that I just won't have time to put out the Notes every week.  The unfortunate thing is that I have such a backlog of things to write about that I wish I could publish three times a week, rather than cutting back!

So, this decision makes me sad, and I feel like I am letting down you, my faithful readers.  But I have to deal with reality, and this is reality, at least for now.  The quality of Nygaard Notes won't suffer, I don't expect.  Just the quantity.

Note to Pledge-makers:  Those of you who have current pledges know that a Nygaard Notes pledge period has been one year, during which I commit to putting out no fewer than 44 issues.  A pledge period now will simply be 44 issues, regardless of how long it takes (it'll be longer than a year, I'm sure).  I'll keep track, so don't worry about your renewal until you get your reminder notice.  If this change makes the Notes less desirable for you, let me know and I will refund the remaining amount of your current pledge, no hard feelings.

Oh, and, by the way: If I somehow miraculously get a grant or gift for $10,000 a year or more, I'll  go back to the weekly schedule immediately!

Thanks for understanding.

Social Security: The Fundamental Issue

It is so easy to get caught up in the details of the debate about the future of Social Security that the most fundamental point is often overlooked.  The most fundamental point is this: Social Security is, and was intended to be, a program of SOCIAL INSURANCE, not a program of INDIVIDUAL INVESTMENT.  This is not just a game of words.  Indeed, understanding the difference between these two ideas is the key to having even a glimmer of understanding about what is at stake in this huge public debate. 

To illustrate the difference, I will look at two aspects in turn.  First I'll explain the difference between INSURANCE and INVESTMENT.  Then I'll look at the difference between SOCIAL and INDIVIDUAL.

INSURANCE versus INVESTMENT

When you invest money – for retirement or anything else – it makes sense to evaluate your investment in terms of what you get out of it, or your “rate of return.”  After all, that is why people invest money: to make more money.  Unless you are a philanthropist, an investment that leaves you with less money than you started with is a bad deal, and you would be a fool to pursue such an investment.

After years of propaganda, most public assessments of the value of the Social Security program start from this premise: How good a “deal” is it, in terms of what you “get back” on your “investment.”  For example, my local paper the Star Tribune (Newspaper of the Twin Cities!) on a recent Sunday ran a major feature on the Social Security debate, headlined, “Social Security: What's at Stake?”  The very first sentence of this “analysis” piece (and you can find similar ones in the major media anywhere you look) reads like this:  “Social Security looks like a good deal to Robert Potter.”

The article points out that “Over the years, Potter, 57, has paid about $155,000 in Social Security taxes.  When he retires, he'll collect about $23,000 a year in Social Security benefits.”  Therefore, it's obvious to the Star Trib that this is a “good deal” to Potter, since he looks to “get back what he paid out in about seven years.”  This way of evaluating Social Security is so common that it likely doesn't seem strange to most readers.  Let me point out how strange it is.

This sort of “analysis” only makes sense if you think of Social Security as a system of investment.  Why is that strange?  Because, as I said above, the program was never intended to be an investment program.

If you think of Social Security as a system of insurance – which it is – then this “good deal/bad deal” line of thinking makes no sense at all.  Here's why:  With insurance, you only get something back if you lose something.  I hope I never collect anything on my home insurance, for example, since that would mean my house has burned down, or some other horrible thing has happened.  Still, I pay my home insurance premium every year and I don't think I am wasting my money.  Why not?  Because I know that, if and when I do lose something, I have insurance.  If I never “get back what I paid in,” that's a good thing.  And, if I lose something, and DO get back some of what I paid in, what I get back is related to what I lost, not to what I paid in.  And that, too, is a good thing.  That's the nature of insurance.  It's not the nature of investment.

SOCIAL versus INDIVIDUAL

Insurance, even in it's most commercial form, is a social program.  That is, it is based on what we know, as opposed to what we don't know.  What we know are aggregate numbers, or social statistics.  To use the example of my home insurance, what we know is roughly how many houses are going to burn down in a given year.  What we don't know is which ones they will be.  So, we insure the group.  Everyone, then, who wants to be in the insured group agrees to pay a premium that amounts to their proportionate share of the costs of replacing all of the homes that will burn down this year, not knowing whether or not one of them will be their own.

When you are part of an insurance “pool,” what you get in exchange for your premium is two things: you get to express solidarity with your neighbors and fellow insurees by paying your share of the social costs of property replacement, and you get the security of knowing that, should you have a loss, all of your neighbors will share in the costs of replacing what was lost, and you won't have to bear the burden yourself.

That, in fact, is the essence of insurance: Everyone chips in to help out those who lose something.  If it is standard insurance, we chip in by paying “premiums.”  If it is Social Security, we chip in by paying taxes.  What is the loss that Social Security is intended to insure us against?  It's the loss of wages, or income, due to old age, death, or disability. (The program is sometimes referred to as “OASDI,” for “Old Age, Survivors, and Disability Insurance.”)

The essence of the social insurance program known as Social Security is that it's a deal between the generations, where those who are working chip in to help those who are not, knowing that the same giving will come their way when the time comes.

Now, in the world of commercial insurance, there is also the matter of making a profit for shareholders, who care not about solidarity, but about self-enrichment.  For them it is an investment, which introduces the tremendous irony of having people investing in other people's bad luck, which turns out to be a sort of “anti-solidarity.”  That's an important issue, but is not our concern at the moment.

It's not our concern because making a profit is not part of the Social Security program.  Unlike commercial insurance, Social Security enriches no individual, nor is it supposed to.  It is a social program, the success of which is based on how well it protects all of its participants against the loss of income.  And, for the past 70 years or so, it's protected people fairly well.  (I think it could be a lot better, but that, too, is not our concern at the moment.)

At the moment, all I ask is that you consider whether you prefer a system of INDIVIDUAL INVESTMENT – such as the one being pushed by Mr.  Bush and his allies – which says that some people can get a “good deal” even when some of their neighbors are getting a “bad deal.”  Or do you prefer a system of SOCIAL INSURANCE – such as the current system of Social Security – in which everyone pays in a proportional share and everyone receives in return the security of knowing that they are protected against poverty and deprivation?

When you strip away all of the charts, and the graphs, and actuarial debates, and the endless parade of numbers in the billions and trillions, this is the fundamental issue in the debate about Social Security.