Thursday, January 30, 2014

"Somewhere Pavlov is smiling"

A beloved teacher frequently admonished our class when we would reflexively start to pack up our things at the sound of the dismissal warning bell, "somewhere Pavlov is smiling."

She was referring, of course, to Ivan Pavlov, who conditioned dogs to reflexively salivate at the sound of a buzzer.

Somewhere Pavlov is smiling about Republicans' reflexive rejection of President Obama's announcement that he is creating a myRA program to help people begin saving.

The program allows for voluntary, after-tax payroll deductions--as little as $5 per week--that can be used to purchase risk-free Treasury securities with no fees charged to either the worker or his/her employer. Funds in accounts would accumulate tax free. The program mimics, on a small scale, a risk-free retirement savings option that is available to federal civil servants.

Republicans' reactions to this and nearly every other Obama initiative have followed a drearily predictable path--if the President is for it, they're against it.

This latest rejection may be one of the oddest yet, because the President's program, modest though it is, actually advances conservative principles.

Consider that by making saving easier, the program promotes self-sufficiency and ownership.

Also, the savings would be entirely privately-funded--indeed, funded by workers themselves.

In addition, every aspect of the program is voluntary. Employers are free to offer this or not as they wish; eligible employees are free to contribute or not as they wish. The only mandatory component is that employees must move their funds to a regular retirement account once their myRA savings reach $15,000.

And the returns on the savings escape taxation.

Effectively, the only thing that this program does is to eliminate the transactions costs associated with setting up or contributing to retirement accounts. As transaction costs interfere with the beneficial outcomes with free-markets (especially the amounts traded are small), the program facilitates a free-market outcome.

This may be why the Heritage Foundation and other conservative organizations have advocated for exactly these types of savings vehicles.

Right up to the point where the President agreed with them.

Come to think of it, Bugs Bunny might be smiling too.