We went over what the class talked about last time.
According to my notes, you spent a lot of time on what exactly a nudge is and whether there is a bright line between a nudge and what we called a shove. This was bound up with an evaluative assumption: that nudges are not objectionable in the way that shoves are.
There was also a lot of discussion of borderline cases, especially organ donations. Generally speaking, several people had a significant problem with a default in favor of organ donations, perhaps because there are some religions that frown on the practice. But a policy of forcing a choice to be an organ donor or not, say as a condition of getting a driver’s license, was broadly acceptable to the class.
I tried to argue that Thaler and Sunstein’s libertarianism is shallow. In practice, it seems to mean that if faced with a choice between two equally effective policies, they will prefer one that does not employ mandates or prohibitions over one that does.
A real libertarian would go beyond that and advocate reversing programs that employ mandates. For example, Social Security is a paternalistic program that relies on mandates: it forces people to save for retirement whether they want to or not. Committed libertarians want to get rid of it but I don’t see any indication that Thaler and Sunstein do. That’s why I think their libertarianism is shallow.
In the course of talking about this, I said that illegal immigrants pay into Social Security without collecting benefits. (And, as Sally reminded us, non-citizens working legally do too.) The Center for American Progress published a study that attempts to quantify this. It’s a lot of money.
The Social Security Administration has long identified the positive contributions undocumented immigrants have made to Social Security. Although undocumented immigrants are not legally allowed to work in the United States, roughly 3 million of the 8 million undocumented workers in the United States pay Social Security taxes. In 2010 alone the Social Security Administration estimates that a net $12 billion was paid in taxes on the earnings of undocumented workers.
These workers pay payroll taxes by either using someone else’s Social Security card or by using a false name and Social Security number. Often, the information a given worker uses does not match the Social Security Administration’s database of names and corresponding Social Security numbers. The Social Security Administration needs to know who is paying how much in taxes in order to calculate the level of benefits a worker will receive upon retirement. When a mismatch occurs, the administration cannot credit these taxes to any worker, so it holds the information on the tax contribution in a separate file—called the Earnings Suspense File—until the discrepancy is resolved. To be clear, some of the information in this file is the result of contributions by legally authorized workers who end up drawing benefits. If a person gets married and changes his or her name but fails to notify the administration, for example, then there may be a mismatch in the system, and the taxes paid by this worker are not credited to him or her until the mismatch is rectified.
The Earnings Suspense File, while not actually a fund of money, represents in part how much undocumented immigrants have contributed over the years. But these same immigrants will never be credited for these contributions—nor receive benefits from them—since they are barred from receiving Social Security. It is estimated that the file contains information on roughly $1 trillion worth of tax contributions.
Remember our discussion of the Tea Party? I think there is a significant part of the country that likes illegal immigration: illegal immigrants pay taxes and work for low wages but don’t have any legal rights or collect any benefits. It would be interesting to see whether the people who benefit the most from illegal immigration corresponds with those who are politically opposed to greater legal immigration.
Two or three weeks ago, I promised Patrick that I could put most of the financial planning he has to do on an index card.
This card comes from Harold Pollack, yet another University of Chicago professor. He summarized what he learned from talking with a financial planner on this card.
Basically, the recommendation is to avoid paying the government by maximizing your contributions to pre-tax retirement plans and avoid paying financial services companies by avoiding actively managed funds.
What are “actively managed funds?” These are funds whose managers try to beat the market. They are contrasted with passively managed funds, also known as index funds. The managers of index funds try to match an index of some financial asset like stocks or bonds. Since that is a lot easier to do, their fees are significantly lower. Research shows that index funds do much better than actively managed ones. Basically, it’s unlikely that any actively managed fund will beat the market over the long run but the fund manager’s fees will certainly add up.
Bookmark this page and come back to it when you get your first job.