Defending Mankiw – Not
David Altig summarizes some of the (unfair) comments on Cranky Brad You might get a sense of why this is unfair by skipping my comment and going straight to Brad’s right after mine. But on reading the explosion of comments since Brad challenged Mankiw’s contention that Bush’s privatization will not lower national savings, I may have been less than clear here on at least a couple of points – both related to why I raised Ricardian Equivalence, which is a starting point and not the end point for this discussion.
#1: I was not trying to add to the reasons why privatization might lower national savings. In fact, the reason I raised the Sargent-Wallace game of chicken was to suggest a move to fiscal integrity could raise national savings. Yes, the L in PGL stands for liberal, but notice that I often bring up the wisdom of conservatives as in my last commenting noting how Becker disagrees with the free lunch idea. And if a Bushie want the best explanation of why Becker and I may be shortchanging the benefits of investing Trust Fund assets in the stock market, read the writings of “liberal” Brad DeLong on this issue.
#2: I only stated without emphasis that Brad had noted a Mankiw-esque reason why national savings might fall so let me note the few line:
If holders of defined-contribution private accounts regard them as close substitutes for their other assets in a way that promised defined-benefit standard Social Security was not, then the Bush plan will be yet another budget-busting shift of the tax burden that will slow economic growth.
Now let me link to Mankiw’s The Savers-Spenders Theory of Fiscal Policy. Mankiw claims some households are liquidity constrained. Now I’m not sure if the Bush plan would relax those liquidity constraints precisely because Bush refuses to give specifics. But if it does and if one believes liquidity constraints are important as Mankiw does, then how can one appeal to Ricardian logic.
Incidentally, the fellow who said Brad declared that Trust Fund assets are not real has got to be kidding me. All he said was that the Bush plan might make them more liquid. I wish our friend David Altig had pointed this out.