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The War On Social Security

[ 58 ] October 31, 2011 | Scott Lemieux

The Washington Post can always be counted on to be leading the charge.

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  1. wiley says:
    October 31, 2011 at 2:05 am

    Shouldn’t that accursed Gollum be facing jail-time right about now? Where is the justice? The court’s in the U.K. and U.S. should be drawing a lot of lines demarcating boundaries that the Murdoch Empire have, in no uncertain terms, violated. When we will be rid of this manipulator of public opinion, profligate liar, and Republican maker of Kings and Pharaohs(see Reagan’s funeral)?

    Reply
  2. rea says:
    October 31, 2011 at 6:25 am

    It’s a good thing these people don’t beleive in global warming, because when they abolish social security they will need a lot of icebergs for the old people.

    Reply
  3. Tybalt says:
    October 31, 2011 at 6:53 am

    Why is WaPo so bad? Its awfulness seems to advance daily, and in every field of failure. What, structurally or institutionally, has caused this? To what possible end is this unfolding?

    I don’t understand it, and it puzzles and saddens me. (And yes, it’s a real question I am asking – I can’t figure out why.)

    Reply
  4. TT says:
    October 31, 2011 at 7:31 am

    Self-financing programs cannot under any circumstances be allowed to continue self-financing, but a spare $2 trillion can always be found for whichever war Fred Hiatt wants to launch that particular day. That’s the kind of math they teach at neocon school.

    Also, self-financing programs cannot under any circumstances be allowed to continue self-financing, or else Jamie Dimon will say that we’ve lost our one shot to make the confidence fairy magically appear and lead us to 1.2% unemployment by January, and Al Simpson will tell some folksy folksism about how cows and mountain goats can’t go on dates together despite what AARP says and Social Security will kill us all in our beds unless we kill that mountain goat first and Kaplan Test Prep Daily stenographers won’t understand what the hell he’s saying but they know he’s folksy and is THE authority on Social Security–because nothing screams “Social Security Expert” to Hiatt & Co. quite like a flagrant inability to understand basic actuarial tables.

    Reply
    • BradP says:
      October 31, 2011 at 8:22 am

      Self-financing programs cannot under any circumstances be allowed to continue self-financing, but a spare $2 trillion can always be found for whichever war Fred Hiatt wants to launch that particular day. That’s the kind of math they teach at neocon school.

      I would agree with this if social security were self-financing. It is a growing set of obligations into perpetuity, but its cash flows have gone into the red, and the trust fund is projected to run out in 25 years.

      Reply
      • rea says:
        October 31, 2011 at 9:39 am

        Well, of course its cash flows have gone into the red! This was predicted long ago, and was why FICA taxes were raised so that the program ran well in the black for 30 years or so. Rather than maintain that surplus, Bush the Lesser cut taxes for the very rich, which leads to our present situation. But of course, raising taxes on the very rich to make up for raiding the social security surplus to finance earlier tax cuts for them is right out of the question.

        Reply
      • TT says:
        October 31, 2011 at 10:48 am

        “….and the trust fund is projected to run out in 25 years.”

        Ah yes, why tackle a massive unemployment crisis today when clearly the most urgent task facing the nation is to eviscerate and hand over to Wall Street a financing system whose trust fund might, might “run out” a quarter-centuary from now, at least according to its Annual Report, which has never ever been revised to reflect present economic conditions.

        Reply
  5. BradP says:
    October 31, 2011 at 8:15 am

    Dean Baker does a really poor job of explaining why the WaPo article was untrue, and the reliance on the legal existence of the trust fund is getting ridiculous.

    When Baker says this:

    This is the same situation the the government faces when Wall Street investment banker Peter Peterson or any other holder of government bonds decides to cash in their bonds when they become due. In such cases it “must raise taxes, cut spending or borrow more heavily from outside investors.” The Post’s reporters and editors should understand this fact.

    He completely talks past his opponents. First, isn’t the fact that SS went cash negative and forcing the government to generate funds extra funds to finance the repayment of the treasury obligations the problem? Believe it or not, but the people who have a problem with social security’s “cash negative” status are not going to draw much of a difference between government raising taxes to pay for social security and government raising taxes to repay the financial obligations it created to finance social security. The 2.6T does not provide any budgetary relief, as the government will simply have to redirect funds to pay off the bonds that the trust contains.

    Paul Krugman got is exactly wrong:

    Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget.

    Both views are valid, depending on what questions you’re trying to answer.

    What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program. Yet that’s exactly what the WaPo claims.

    Of course, Krugman believes it perfectly valid to argue that the trust fund is a meaningful method for funding social security and that depleting that fund faster than expected in a time where SS costs are growing rapidly does not present a problem.

    An 18 year old today will see the Trust Fund completely depleted by the time he hits 45. That number is constantly revised forward. The Disability Insurance portion of SS will be depleted by 2018.

    And in the meantime, while the trust fund is making up the difference in cash flows for social security, the government will be forced to use funds to satisfy the bonds.

    To respond to Krugman directly:

    What I can do is state that the Trust Fund is a legal creation that does little to nothing to alleviate the budget pressure current and future social security obligations create.

    Then I can also state that the system Alan Greenspan created to make the system solvent into 2050 also has remarkable problems and will not come close to fulfilling its promise.

    Those are responses to common defenses of the system, not a bait and switch.

    Does Professors Baker and Krugman think the argument “Whether or not you think the trust fund is a legal fiction or not, you cannot deny the government can raise taxes to pay for social security” is going to win over a single opponent?

    Reply
    • DrDick says:
      October 31, 2011 at 8:55 am

      As usual, it is not Krugman who gets this wrong.

      Reply
      • BradP says:
        October 31, 2011 at 9:32 am

        He gets all sorts of things correct.

        Like this prescient 1997 article on the subject.

        For example:

        First, I think Freeman is over-optimistic when he asserts that there is consensus on the fact of drastically increased inequality. It is true that all reasonable people are now agreed on this fact, but unreasonable people have a lot of influence in this country.

        I like Freeman’s idea of providing each individual with a trust fund when young rather than retirement benefits when old, but we had better realize that this is a significant change in the character of the social insurance system. Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

        1997 Krugman was very usually spot on.

        Reply
        • Malaclypse says:
          October 31, 2011 at 9:36 am

          As always, you should read what I actually wrote… Notice what I didn’t say. I didn’t say that the system was a fraud; I didn’t say that it would collapse. I said that in the past it had benefited from the fact that each generation paying in to the system was bigger than the generation that preceded it, and that this luxury would be ending in the years ahead… I explained what I meant in that Boston Review article, and it was nothing at all like the claims that Social Security is a fraud, is destined to collapse, and all that. Social Security is and always has been mainly a pay-as-you-go system, which is nothing at all like a classic Ponzi scheme.

          Reply
          • DrDick says:
            October 31, 2011 at 9:55 am

            The truth, always cruel to libertarians, is not something they ever wish to confront, or even admit.

            Reply
            • Malaclypse says:
              October 31, 2011 at 10:00 am

              Now, that blog post is the top result when you google “krugman ponzi” which might make you think that Brad knew about the explanation, and simply failed to admit it.

              Reply
            • BradP says:
              October 31, 2011 at 10:06 am

              DrDick = Grover Dill

              Reply
              • DrDick says:
                October 31, 2011 at 12:26 pm

                Brad = delusional libertarian.

                When you grossly misrepresent the facts on the ground (along with Krugman) and the law, we will call you on it. You used up all your goodwill the other day with your spirited defense of serial criminals and crony capitalists extraordinaire, the Koch brothers.

                Reply
                • BradP says:
                  October 31, 2011 at 2:07 pm

                  we will call you on it.

                  Other people will engage. You just sit on the sidelines until you can make a snide comment about libertarians in hope that it raises your status with the other folks on the blog.

                • Malaclypse says:
                  October 31, 2011 at 2:17 pm

                  He engaged you, extensively, here. You stopped responding when he did that.

                • BradP says:
                  October 31, 2011 at 2:44 pm

                  I stopped responding before that. But I will revisit it.

                  Guarantee I can prove this statement is remarkably stupid, though:

                  Hayek was quite simply a free market extremist zealot and monumentally wrong about almost everything.

                • Malaclypse says:
                  October 31, 2011 at 2:49 pm

                  Guarantee I can prove this statement is remarkably stupid, though:

                  A good place to start with that can be found here. I look forward to your rebuttal.

                • DrDick says:
                  October 31, 2011 at 5:54 pm

                  Brad -

                  I engage you when you say something at least remotely reasonable or sane. When you pull this kind of lunatic BS out of your butt, I respond as is appropriate.

          • BradP says:
            October 31, 2011 at 9:59 am

            He didn’t just say the luxury would end, he said: “(and today’s young may well get less than they put in)”.

            Now it is a fact that today’s young will get less than they put in. And Krugman’s constant defense against that has been the government’s virtually inexhaustable sources of funds.

            Lets break down the differences in Krugman’s own words:

            1. The system is not a fraud.
            2. The system will not collapse.
            3. SS is a pay-as-you-go system.

            So again, the Paul Krugman from 1997 is spot on. Social security is just like a ponzi scheme, except the government can openly force new investors to absorb decreasing returns in order to keep the program liquid. If Bernie Madoff had the legal right to force people into a system where they consistently got diminishing returns, he wouldn’t have been a ponzi schemer either.

            Reply
            • Malaclypse says:
              October 31, 2011 at 10:03 am

              Now it is a fact that today’s young will get less than they put in.

              Only if we let people gut it. Nothing about budgets 10 years out is a “fact.”

              Now, your statement may become a self-fulfilling prophecy, but that does not make it, by any stretch of definition, a “fact.”

              Reply
              • BradP says:
                October 31, 2011 at 10:08 am

                Only if we let people gut it. Nothing about budgets 10 years out is a “fact.”

                Now, your statement may become a self-fulfilling prophecy, but that does not make it, by any stretch of definition, a “fact.”

                How can it possibly be otherwise, considering demographic shifts?

                Reply
                • Malaclypse says:
                  October 31, 2011 at 10:18 am

                  Dear Cthulhu, even with no funding changes, we can pay out 75-80% of expected benefits forever.

                  See, this works because over time, per capita income rises. That has been true for the last 300 years or so. Anybody who discusses the future of SS without discussing increases in per-capita GDP is either ignorant or lying.

                  Now, I will grant you that if Republicans succeed in creating a future based on the Mad Max trilogy, that this long-term trend will stop. That is why sane people don’t vote Republican.

                • joe from Lowell says:
                  October 31, 2011 at 12:18 pm

                  How can it possibly be otherwise, considering demographic shifts?

                  1. Immigration.

                  2. Economic recovery.

                  3. Increasing productivity.

                • mpowell says:
                  October 31, 2011 at 1:33 pm

                  Dear lord. Please try to learn something. malaclypse already makes the most relevant point. The only thing I would add: 9% unemployment. Fix that and the picture gets a lot better.

                • BradP says:
                  October 31, 2011 at 2:33 pm

                  First off, the models that are predicting the demise of the fund by 2037 account for economic recovery.

                  Secondly, the SSA says

                  The effect of changes in real wage growth, productivity, labor force participation, price inflation, unemployment rates, and other economic factors all have significant impact on the future cost of Social Security. However, most of these variables, and in particular real average wage growth, affect both the tax income and the benefits of the program—as a result having offsetting effects on the program as a whole. In addition, shifts in these parameters have not been as dramatic as the change in birth rates.

                  Also, immigration rates are also declining, mimicking the same negative effects of the stagnating effects of the low birth rate.

                  In sum, the SSA projects that the ratio of worker to beneficiary is going to drop from 3.3 to around 2. That means the average worker is going to need to contribute about 40% more to maintain benefit levels than they do now.

                  How much growth do you expect?

                • Malaclypse says:
                  October 31, 2011 at 2:45 pm

                  How much growth do you expect?

                  If real per-capita growth averages 1.5% per year over the next 26 years, then in 26 years, the average person will earn 145% of what they do now (this assumes we get the growth that flows disproportionately to the 1%, but that is a problem of politics, not of math.)

                • mpowell says:
                  October 31, 2011 at 3:55 pm

                  We can discuss growth projections and demographics shifts all day, but the projecting anything 30 years out is a mug’s game. What I will say is this: it’s all just accounting. In 30 years you will have a bunch of people who are too old to do any more work and you will have a bunch of young people who are working. Whether the retired folks have private savings or SS obligations won’t change anything about this picture. We have an economy that is way too big to be anything but primarily self dependent. We’ll be able to consume what we produce. If we get back to growing our productivity and employing people, there will be a lot more stuff available in 30 years.

                  If we fail to grow productivity we’ll be cutting benefits or raising taxes and we can have that fight when the time comes. There is literally no sense in which we can save anything for that future because money is only accounting. You can’t save a trip to the doctor to use in 30 years anymore than you can save fresh vegetables. If there was a supply shortage today we could talk about whether we should be investing money in growing our productive capacity instead of consuming goods but the problem with the economy is not a shortage of supply but of demand.

            • Hogan says:
              October 31, 2011 at 10:49 am

              new investors

              That’s a big part of your problem right there. SS is an insurance program, not a mutual fund.

              Reply
              • DrDick says:
                October 31, 2011 at 12:28 pm

                Don’t confuse him with the facts. Hayek and Mises told him it was evil.

                Reply
              • BradP says:
                October 31, 2011 at 2:41 pm

                Ponzi schemes have investors, so the comparison demanded that I call new entrants to social security as investors.

                Reply
                • Ed Marshall says:
                  October 31, 2011 at 2:47 pm

                  This is just crap. If SS is a Ponzi scheme, your bank account isn’t real either. It’s just debt at the bank, your money isn’t
                  *really* there. If you are headed down this rabbit hole, go all the way down and turn into a crank and horde food and ammo.

                • Substance McGravitas says:
                  October 31, 2011 at 2:51 pm

                  It didn’t, but it does prove it is oh-so-hard for you to learn from corrections put right in front of your fucking face.

                • Substance McGravitas says:
                  October 31, 2011 at 2:52 pm

                  Responding, despite the futility, to BradP and not Ed of course.

                • Malaclypse says:
                  October 31, 2011 at 2:59 pm

                  Ponzi schemes have investors, so the comparison demanded that I call new entrants to social security as investors.

                  Dear Cthulhu.

                  Please look up “Affirming the Consequent.” We’ll wait.

                  Back?

                  Ponzi schemes are described using words.
                  Brad’s posts use words.
                  Therefore, Brad’s posts are a Ponzi scheme.

                • Hogan says:
                  October 31, 2011 at 3:01 pm

                  So much the worse for the comparison, then. Why not just call them “suckers” and be done with it?

                • DrDick says:
                  October 31, 2011 at 6:07 pm

                  And Brad wonders why I don’t “engage” him on this. What is there to engage in this Cato class moronic BS? There is simply no regard for the actual facts in any of his statements here. It would be more productive to “engage” a brick wall.

          • wiley says:
            October 31, 2011 at 12:35 pm

            Odd. I just noticed that Krugman is attractive. He has a nice face. I like his face. I like his commentary on economics better, but doesn’t a person have to be decent to have such a nice face with such a genuine smile? He smiles all the way up to his eyes.

            Reply
    • Malaclypse says:
      October 31, 2011 at 9:00 am

      Does Professors Baker and Krugman think the argument “Whether or not you think the trust fund is a legal fiction or not, you cannot deny the government can raise taxes to pay for social security” is going to win over a single opponent?

      Ahem.

      Reply
      • BradP says:
        October 31, 2011 at 9:27 am

        Yeah, I get that.

        My point was that Krugman is directing his argument at people who are trying their best to show that social security will need substantial tax increases to remain solvent (the question of whether tax increases are good or bad is a rather settled issue for them).

        His argument that there is somehow a bait and switch on the side of his opponents goes to prove his opponents point.

        Reply
        • mpowell says:
          October 31, 2011 at 3:57 pm

          But the problem is that his opponent’s want to gut SS for no reason other than to reduce the tax burden for the 1% a little bit more. That’s the bait and switch.

          Reply
  6. Anonymous says:
    October 31, 2011 at 8:37 am

    “Does Professors Baker and Krugman think the argument “Whether or not you think the trust fund is a legal fiction or not, you cannot deny the government can raise taxes to pay for social security” is going to win over a single opponent?”

    I don’t know – does they?

    Reply
  7. Substance McGravitas says:
    October 31, 2011 at 10:03 am

    Yay! Another BradP-doesn’t-get-something thread!

    Will he eventually get it? I say NO.

    Reply
  8. IM says:
    October 31, 2011 at 10:33 am

    Isn’t SS still running a surplus? If I understand the numbers even the crisis in 2009 and 2010 only diminished the surplus.

    Reply
    • Malaclypse says:
      October 31, 2011 at 10:48 am

      Isn’t SS still running a surplus?

      Yes.

      According to the 2010 Trustees report, the Social Security trust funds will have an annual surplus of $77 billion in 2010. Annual surpluses are projected to continue for the next 15 years (2010-24) and reserves are projected to grow to $4,200 billion by the end of 2024. Beginning in 2025, reserves will start to be drawn down to pay benefits. In 2037, the reserves are projected to be depleted. At that time, tax income coming into the trust funds will cover about 78 percent of benefits due, according to the 2010 report of the Social Security Trustees.

      Reply
      • mpowell says:
        October 31, 2011 at 1:34 pm

        So how is the Post claiming there is no surplus? Is it just for this particular month or something?

        Reply
        • Malaclypse says:
          October 31, 2011 at 1:47 pm

          As I read it, the Post has decided that interest income doesn’t count, because shut up, that’s why.

          Considering that interest income on $2.6T is roughly $78M/year, that is quite the omission.

          Reply
          • Malaclypse says:
            October 31, 2011 at 1:49 pm

            I’m sorry, I borrowed McMegan’s calculator. The interest is $78B/year.

            Reply
            • wengler says:
              October 31, 2011 at 2:09 pm

              All the money sittin’ around, just sittin’ around. Boy that would look good if it was thrown into the Grand Casino.

              Reply
              • Malaclypse says:
                October 31, 2011 at 2:14 pm

                Boy that would look good if it was thrown into the Grand Casino.

                What could possibly go wrong?

                What kills me is that the same people who go on and on about Solyndra and “Government should not pick winners and losers” are the ones who advocate direct purchases of corporate stock by the government as part of their hack privatization schemes.

                Reply
                • mpowell says:
                  October 31, 2011 at 4:00 pm

                  Well, it’s also stupid. If the SS fund pulls that money out of the bond market and puts it in equity, the treasury will just have to find other buyers for those bonds, which will come primarily from equity. So it will be a wash. Unless the fed just monetizes the debt, which they could do anyways if they wanted to without involving SS at all.

                  The problem with these people is not just that they’re venal and greedy, but they’re also stupid and don’t have the first clue about how central bank accounting works, much less macroeconomics.

                • DrDick says:
                  October 31, 2011 at 6:11 pm

                  The problem with these people is not just that they’re venal and greedy, but they’re also stupid

                  DING! DING! DING!

                  Give the man his prize!

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