Part 1—Ombudsman speaks: One Sunday ago, on October 30, the Washington Post published a sprawling, front-page report about the status of Social Security.
This sprawling report was the featured report on the Washington Post’s front page. It ran more than 2400 words; in addition, the report was accompanied by a large, sprawling graphic. And did we mention that this was a Sunday? All over the Washington region, the nation’s movers and shakers awoke to find Lori Montgomery proclaiming thusly, in the capital’s paper of record, about this seminal program. We’ll include the hard-copy headlines atop Montgomery’s report:
MONTGOMERY (10/30/11): Social Security adding billions to U.S. budget woes“[W]hile talk about fixing the nation's finances has grown more urgent, fixing Social Security has largely vanished from the conversation,” Montgomery said as she continued.
‘CASH NEGATIVE’ MILESTONE CAME EARLY
Fearing backlash, parties reluctant to pursue fix
Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went "cash negative."
For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.
Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation's budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
Ruefully, we shook our heads. We almost wished it were so!
Montgomery’s sprawling report produced a pretty good chunk of discussion in the next few days. Paul Krugman and Dean Baker pushed back on their blogs, complaining about her effort. Quite a few liberal bloggers, like Digby, linked in turn to their work. Yesterday, the Post’s ombudsman, Patrick Pexton, reacted to these complaints, provoking a new wave of liberal/progressive protest. To read his report, just click here.
This lets us ask ourselves a question: Over here in the liberal world, do we know how to talk?
Do we liberals know how to talk? More specifically, do we know how to talk about Social Security? Do we know how to explain the way the venerable program works? Do we know how to explain the challenges it faces? Do we know how to respond to the welter of disinformation which has been crafted to speed its demise? These talking-points about Social Security have ruled the waves of our bungled discourse for the past thirty years:
Disinformative talking-points concerning Social Security:To these tireless work horses, we might consider adding Montgomery’s more recent claims:
The trust fund is just an accounting fiction/a pile of worthless IOUs.
The money isn’t there—we’ve already spent it!
To repay the money it took from the trust fund, Congress will have to raise taxes, cut spending or borrow more money.
Life expectancy has increased by [xx] years since 1935.
The number of workers per retiree will drop from [xx] in 1935 to [xx] by the year 20xx.
The program will go bankrupt/belly-up in the year 20xx.
Younger people know/believe the program won’t be there for them.
Montgomery’s assertions:Do we know how to talk about these claims? We find this basic question intriguing, for two basic reasons:
Social Security has now passed a treacherous milestone.
Social Security is sucking money out of the treasury.
The $2.6 trillion Social Security trust fund will provide little relief.
First, Social Security is one of the nation’s most important programs. At any given point in time, it forms the basis for the retirements of tens of millions of citizens. As such, Social Security represents one of the basic building-blocks of this country’s “public discourse.”
Beyond that, Social Security has been around for a very long time. It thus provides an excellent test of our seriousness—and our basic intelligence—as a political movement. If we liberals don’t know how to talk about something like this, what do we actually know on our side? Is there any subject we self-impressed souls do know how to discuss?
What do we know over here on our side? We’d offer this possible answer: Not much! For starters, let’s look at what Ombudsman Pexton said when he reviewed the Post’s report. From there, let’s review the way our side has talked about Monty’s front-pager.
Tomorrow: What the ombudsman said
I don't understand why Bob Somerby thinks it's a fallacy that
ReplyDeleteThe money isn’t there—we’ve already spent it!
To repay the money it took from the trust fund, Congress will have to raise taxes, cut spending or borrow more money.
SS can be looked as either as a stand-alone insurance plan or as a part of the unified federal budget. If we take the former view, the SS Trust Fund should be an offset to the national debt. Howver, because of Reagan's phony accounting, it isn't. Although the Trust Fund is an asset on the books of SS, there isn't a corresponding liability on the federal accounting books. And, the second point seems to me to be clearly true. The federal government has no surplus, to say the least. The full amount of the SS Trust Fund has been lent to the federal government. Where will th federal government find the money pay back to SS the money it borrowed? Only in the three ways listed: additional taxes, other borrowing, or spending cuts.
OTOH looking at SS as part of the unified federal spending, it's clear that we've already spent every nickel that came into SS as well as every tax dollar. In fact, we've spent $15 trillion more tha we've taken in. From this POV the Trust Fund has no significance. However, it can be said that as SS runs deficits, these deficits will raise the national debt, unless they're made up via tax increases (or SS assessment increases) or spending cuts.
David in Cal says, "Although the Trust Fund is an asset on the books of SS, there isn't a corresponding liability on the federal accounting books."
ReplyDeleteYes, there is. It is called "Treasury Bonds" and is listed as money owed to the SS Trust Fund. Sheesh.
However, the statement that "Now, Social Security is sucking money out of the Treasury" is not actually untrue, because Social Security is saying the the federal government that it must pay back some of the money that it has borrowed. So the question is whether or not this nation is or is not willing to pay its debts.
Actually, we don't really need to worry about debt repayment because we can simply sell more Treasury Bonds to replace the ones that the Social Security Trust Fund is cashing out. Treasury Bonds are selling like hotcakes on Shrove Tuesday, so I have no idea what everyone is getting so upset about.
Jayhawk, I believe you are correct. This seems to confirm that Reagan did make the change I claimed he did, but that accounting treatment apparently ended in 1990.
ReplyDeleteFor all the abuse David in Cal gets around here, I'm a fan. It takes a real man (or woman, of course) to admit when he/she is wrong. It certainly is not something you see everyday on comments sections, so I have to say kudos to D in C and I hope he continues to post here.
ReplyDeleteWell put, Jayhawk. Treasury Bonds are selling like hotcakes on Shrove Tuesday. Ten-year bonds with an annual yield to maturity of only 2%! This is in a year when inflation is running 3% - 5%, and who knows how high it will go during the next ten years. I'm not puttiong my retirement savings into US 10-year bonds at that price.
ReplyDeleteHowever, the price of US bonds could change rapidly, as our debt continues to soar. Italy's ten year bond is now yielding 6.5%. What would it mean if the world's lenders pushed US bond yields up to 6.5%?
The new interest rates wouldn't hit the entire national debt all at once. They would affect increases in borrowing and rollovers of maturing bonds. Anyhow, as a rough guide, an additional 4.5% interest on a debt of $15 trillion would mean $675 billion added to each year's deficit. Consider how hard it is to try to cut $120 billion from the annual deficit, which will still leave a deficit of well over $1 trillion. It's frightening to think that we might need to cut not only the remaining deficit of over $1 trillion PLUS an additional $675 billion in annual interest. That's why I'm panicked.
OMG muh guru panicked!
ReplyDeleteSS is an old and very successful program. However, its solvency was helped by certain things that are no longer the case:
ReplyDelete1. For a long time, benefits weren't indexed to inflation. Meanwhile, SS income went up with inflation, as wages increased. The actuarial projections didn't assume any inflationary increase in wages. As a result, calculated solvency was conservative and Congress could raise SS benefits every few years. Robert Myers (first SS Head Actuary) praised Democratic Congressman Wilbur Mills for seeing to it that benefits were not raise beyond the level of actuarial solvency. This conservatism ended when SS benefits were automatically tied to inflation. Myers also told me that in his opinion, financial responsibility ended when Mills left Congress. (He was forced out in a scandal involving a stripper.)
2. At one time, wages (which relate to SS income) were rising faster than the CPI (which relates to SS outgo). However, today the CPI is rising faster than wage inflation. That differential means SS costs are going up faster than SS income.
3. During the years 1970 - 2000 enormous numbers of women entered the workforce. That was a bonanza for SS, in two ways. The larger number of people paying in boosted SS income. But, also, married women often receive the same benefits as a covered employee that they would have gotten as a spouse. So, these wives' entrance into the workplace increased SS income with little increase in future benefits,
4. Today's high unemployment rate and low rate of economic growth are holding down SS income. These conditions may last for some time.
The bottom line is that SS's success for 75 years doesn't mean it can succeed today. It needs substantial benefit cuts and/or assessment increases to get back into balance.
What I wonder is why today's liberals insist in denying or minimizing the current financial problems in SS. It wasn't always this way. Wilbur Mills was a liberal Democrat (on spending, if not on race.) He had no problem with following actuarial recommendations to maintain solvency.
One theory is that Dems want to blame Reps for the coming adjustments to SS assessments and payouts. So, it helps Dems politically not to admit that the adjustments are actuarially necessary, but to claim that they're being demanded by those wascally Wepublicans.
What I wonder is why today's liberals insist in denying or minimizing the current financial problems in SS
ReplyDeleteThere you go again. Who of today's liberals or better yet, how many of them deny a problem with Social Security. All the ones I read, including Krugman, Baker, Quiggin etc. seem to believe that only modest adjustments are necessary such as removing the current cap on wages or certainly raising the cap to get back to where the target was with the Reagan Greenspan fix of 90% of payroll. The program currently takes in only about 82% of payroll.
If you would stop constructing those straw men and just lay out a suggestion, you might be thought to have a point to make. Instead, the today's liberals construction is just idiotic which can make certain inferences about your larger points rather easy to make.