HOW TO TALK: What the ombudsman said!


Part 2—The fruit of our (lack of) labor: On Sunday morning, October 30, the featured report in the Washington Post concerned the Social Security program (see THE DAILY HOWLER, 11/7/11).

On Sunday morning, November 6, Patrick Pexton, the ombudsman, reviewed this sprawling report. On our side of the tribal divide, Dean Baker criticized Pexton’s review, just as he had criticized the original report one week earlier.

Tomorrow, we’ll look at what Baker said. Today, let’s review what the ombudsman said about the Post’s justifiably maligned, sprawling front-page report.

In fairness, Pexton did make some good points. In this part of his review, he made a very basic point—a basic point we rarely see liberals make:
PEXTON (11/6/11): Social Security did reach a turning point in 2010. Until then, payroll taxes produced enough annual revenues (“cash” in Montgomery’s parlance) to pay current retirees.

The huge number of baby boomer retirees will continue to be paid largely with payroll taxes, plus—very important—the proceeds from $2.6 trillion in government bonds. The Social Security Administration bought these bonds from the Treasury during the years when the trust fund was intentionally building up a surplus of payroll tax receipts because the baby boomers hadn’t started to retire.

The 1983 reforms to Social Security, agreed to by Democrats and President Reagan, designed it this way. It’s working precisely as planned. These bonds are a sovereign obligation by one part of the government, the Treasury, to pay an institutional investor, the Social Security Administration, which is another part of the government. It’s an obligation to one and an asset to another. That’s why the trust fund is in balance and does not contribute to annual deficits. Retirees will get their benefits, at least through 2036, unless the Treasury defaults, which isn’t going to happen.
Baker seems to dispute Pexton’s claim that Social Security reached a turning point in 2010. (More on that tomorrow.) But however once assesses that claim, Pexton makes a key point in the highlighted passage. Thanks to a decades-long disinformation campaign—a campaign the liberal world has quite passively accepted—this country is full of voters who believe that Congress pulled some sort of scam in the past few decades regarding the Social Security trust fund. (The excess payments which rolled into the system as a result of the 1983 reforms.)

Voters believe that Congress borrowed and spent this $2.6 trillion in some sort of nefarious way. This compliments the general belief that Congress cannot be trusted—and so we probably ought to start closing these big programs down.

In fact, Congress has acted in precisely the way the system was designed by the sainted Ronald Reagan (among others). No one pulled a subsequent scam, absconding with all that swag. In our view, Pexton makes a rhetorical mistake when he wanders off into deep weeds, discussing this matter in terms of “sovereign obligations,” “assets” and “institutional investors.” But tens of millions of voters vaguely believe that Congress pulled some sort of big-spending scam after Saint Ronnie put in his reforms. It’s especially important that conservatives learn that no such thing ever occurred—that the system has continued to work exactly as Saint Reagan planned it.

We liberals have been too dumb, too feckless, too self-enthralled, to explain this basic point. Too self-impressed; too unintelligent; too convinced of our own tribal greatness. Too lazy, too fat and happy.

Pexton made another good point near the end of his piece, although this point has been widely made by liberals in recent years:
PEXTON: So, is Social Security part of the government’s debt problem? Yes, it is, ultimately. Is it a major contributor? No, not in the short run, relative to other debt and tax issues, a point the story should have made clearer.
If we choose to get into rhetorical weeds, we can argue about whether Social Security will be a contributor to the government’s “debt problem” at all, at any point. But Pexton at least gets credit for pointing out that Social Security doesn’t represent a major budget problem, a point which has been widely made by liberals in recent years.

Those are the two strongest points in Pexton's review of Montgomery's work. In our view, his failures were more striking. Indeed, we think he missed the overall problem with Montgomery’s alarmist screed.

What was wrong with Pexton’s review? As he started his piece, he indulged himself in a very standard press corps reaction. “Eek, a mouse,” he seemed to say, complaining that critics of the report had been much too shrill:
PEXTON: If I ever had doubts that Social Security is the proverbial third rail of American politics, they were dispelled this week by readers who criticized a front-page story last Sunday on the subject by Post economic policy reporter Lori Montgomery.

Paul Krugman, the Nobel Prize-winning economist and columnist for the New York Times, criticized the story in his blog, saying it was “negative journalistic value added.” Dean Baker, an economist and co-founder of the Center for Economic and Policy Research, said on his “Beat the Press” blog that the story “discards all journalistic standards.” And dozens of readers said the story was misleading, inaccurate and intended to sensationalize, not to analyze.
Groan. Social Security is very important. It’s hardly surprising that a report like the Post’s would produce spirited reaction, from Nobel Prize-winning economists and regular readers alike. But for decades, mainstream journalists have struck this pose when readers complain about highly significant work. Pexton sounds like a grouchy old man in that passage—like the type of old-school pseudo-journalist who thinks the work of the press elite should somehow be immune from comment from below (or from above). And as he continued, his basic approach only got that much worse:
PEXTON (continuing directly): I spent a couple of days last week talking to Social Security experts across the ideological spectrum. Some, mainly those on the left, didn’t like the story, while those on the right did. But some in the middle, like Jonathan Cowan of the Third Way, declared it realistic and on point.
Groan. In this passage, Pexton takes the tired old Goldilocks approach; he suggests the two extremes may be too shrill and that the correct approach must of course be found “in the middle,” where Pexton says he found Cowan. Of course, nothing he says gives us any way to evaluate Cowan’s claims on the merits—and yet this folderol comes at the start of his piece.

Through the use of the tired old construct, Pexton implies that the Post’s approach must be “realistic and on point” without offering any evidence in support of this notion.

Quite justifiably, that last paragraph was the most heavily criticized part of Pexton’s report. But as he continued with his review, the ombudsfellow made larger mistakes. Indeed: In our view, he failed to see the basic problem with Montgomery’s gruesome report.

What was wrong with Montgomery’s report? Its principal problem was its shrieking alarmist tone, a tone which drove the report from its triple headline down. Through her shrieking alarmism, Montgomery advanced a million right-wing fantasies—fantasies which have been sold to the public through three decades of disinformation. Pexton understands the fact that Social Security isn’t “a major contributor” to the nation’s budget problems; he even says so at the end of his piece. But three decades of disinformation have been designed to make voters think otherwise—and Montgomery drove that belief along through her alarmist rhetoric.

Pexton seems completely oblivious with regard to this problem. Note the way he comments on Montgomery’s first piece of shrieking alarmism:
PEXTON: Now for the points of this story. Did Social Security “pass a treacherous milestone” in 2010 and go “cash negative,” as Montgomery wrote in her lead? I’m not sure a milestone can ever be treacherous—the path after it might be—but the demarcation point is well, just that.

Social Security did reach a turning point in 2010. Until then, payroll taxes produced enough annual revenues (“cash” in Montgomery’s parlance) to pay current retirees.
Pexton sees that there is a problem with the term, “treacherous.” But he fails to see the ways this alarmist rhetoric supports three decades of disinformation—disinformation designed to make the public think that Social Security is likely to collapse in the future. (Go bankrupt, go belly-up.) Pexton seems to know that this isn’t the case; he seems to know that Social Security doesn’t face an existential crisis. But he fails to see the problem involved in Montgomery’s second piece of alarmist rhetoric:
PEXTON: However, with the payroll tax holiday enacted by Congress and signed by President Obama last year to boost the economy, less money is coming in. That law required this new gap to be covered not from the trust fund, but from the government’s general fund. That’s why Montgomery wrote that Social Security is now sucking money out of the Treasury. It is.
Groan. Shrieking and screeching in familiar old ways, Montgomery told readers that the system has passed “a treacherous milestone”—and that, as a result, it is now “sucking money out of the Treasury!” Pexton knows that this vast sucking sound comes from a system “working precisely as planned”—from a system which isn’t “a major contributor” to the government’s budget problems. But he fails to see that Montgomery’s rhetoric conveys the opposite impression—an impression which has been pimped very hard over the past thirty years.

To state the obvious, this is why critics said that Montgomery’s report was “intended to sensationalize, not to analyze.” Pexton whines about this criticism when he reports it, then completely fails to see why the complaint was lodged.

Pexton fails to see the problem with alarmist rhetoric. Indeed, before too long, Pexton succumbs to this pleasing temptation himself! Here is a fuller sample of something we quoted above:
PEXTON: However, with the payroll tax holiday enacted by Congress and signed by President Obama last year to boost the economy, less money is coming in. That law required this new gap to be covered not from the trust fund, but from the government’s general fund. That’s why Montgomery wrote that Social Security is now sucking money out of the Treasury. It is.

And, because more people are out of work and for longer periods in this financial crisis, payroll taxes are lower than planned. That puts more pressure on the trust fund to make up the gap in payments to current retirees by using the interests and proceeds from the bonds earlier and faster than anticipated in 1983. That’s why, at some point, Social Security will have to be addressed; otherwise the trust fund will evaporate in 2036.
The trust fund will “evaporate” in 2036? Pexton uses some colorful language himself, then fails to explain that the system will continue to function after the trust find has expired, though payments will have to be reduced absent new revenue. This country is currently crawling with voters who simply don’t understand that fact. They don’t understand it because they've been misled—for example, by people like President Bush, who kept saying the system would “go bankrupt” after the trust fund expires.

Hustlers and con men have labored for decades to disinform the public about the future of Social Security. Pexton explains a few more points than most journalists do, but he doesn’t seem to understand the overall shape of this problem. Lori Montgomery’s shrieking tone advanced the feeling that we have entered a very dangerous ("treacherous") time. Hustlers and con men have worked for decades to spread that fear around town.

At one point, Pexton complains that Montgomery should have explained “the Social Security trust fund more detail.” Ironically, he then fails to explain this matter himself. He doesn’t seem to understand the way the various cons of the disinformation campaign have actually worked. But then, when people like Pexton seem unprepared to discuss such points, can we liberals really blame anyone but ourselves?

We have slept the decades away, sleepily failing to tackle these matters. Truth to tell, we liberals don't know how to talk about Social Security, so how can we possibly help someone else? Indeed, when Baker responded to Pexton’s work, he didn’t exactly set the woods on fire. As usual, we liberals—so self-impressed—failed to notice this problem.

Pexton doesn’t seem to grasp the way this decades-long scam has worked. Isn’t this really one more fruit of our own (lack of) labor?

Tomorrow: What Baker said


  1. Krugman has played a trick, which ensnared Bob Somerby. He has muddled the two views of SS.

    SS can be looked upon two ways: as a stand-alone insurance plan or as a part of the unified federal budget. Taking the first view, SS has a $2 trillion cash surplus, but its unfunded liability is over $21 trillion. Taking the second view, there's no surplus and SS is now adding to the unified federal deficit.

    If SS is regarded as a stand-alone insurance program, its $2 trillion surplus or Trust Fund is separate from the federal budget. SS has contributed nothing to the federal budget and it is taking nothing out. It's not increasing the federal deficit. The situation is essentially the same as if SS had invested this $2 trillion in foreign bonds and the Treasury had borrowed an additional $2 trillion of foreign bonds, instead of borrowing the SS Trust Fund.

    However, when SS is simply viewed as a part of a unified budget, there is no Trust Fund. SS's excess of money collected over money paid out has added $2 trillion to federal surplus on this basis. The reduction of that figure is adding to the deficit in the combined budget basis.

    Let's take the first POV, which is the way Krugman and Bob Somerby are looking at things. As an insurance program, SS is mostly unfunded. The official estimate of the unfunded liability is $21 trillion, and that figure is quite optimistic. Furthermore, SS is $6 trillion insolvent by the less conservative 75 year rule used by SS actuaries.

    When SS is viewed as a stand alone insurance plan, it's decretive to point to its cash surplus. An insurance program is supposed to have socked away enough money to pay out all accumulated benefits if the program were to cease as of today. To say SS has a cash surplus is like saying Madoff had a cash surplus. The statements are literally true, but deceptive. A cash surplus is not the appropriate standard.

  2. "However, when SS is simply viewed as a part of a unified budget, there is no Trust Fund."

    Ergo, you cannot view SS as "simply part of a unified budget," because there most certainly is a Trust Fund; it was established in 1983 by TipNRonnie. Which fact therefore renders your whole lengthy comment moot, which in fact it was before you even wrote it. Nice work illustrating Bob's point about hustlers and con-men working for decades to confuse and obfuscate, though.

  3. "SS can be looked upon two ways: as a stand-alone insurance plan or as a part of the unified federal budget."

    False. It is neither. But again nice work; by declaring at the outset two false premises as the only two legitimate ways to look upon SS, you get to win either way. Very slick.

  4. Actually, Rob, I lose either way. We all do.

    Why do you, and other liberals, consider fiscal overoptimism to be a win?

  5. David, why are neo-cons so eager to scream "The sky is falling" over a trust fund and SS system that will continue to pay benefits exactly as planned for at least another 25 years?

    And that's not "fiscal overoptimism". That is the cold, hard, most conservative, truth.

    And no, we don't "lose" anything. Even after the trust fund is exhausted to pay for the benefits of retiring baby boomers --- exactly its purpose and only purpose --- SS will continue to pay retirement benefits as far into the future as can be predicted.

    Please stop telling the lie that SS won't be there for present workers. That will only come true if some definitive action is taken by Congress to end SS.

    And the likelihood of that happening?

  6. David in Cal, yet again? No shame, at all?

    "The official estimate of the unfunded liability is $21 trillion, and that figure is quite optimistic."

    Where does that preposterous, "optimistic" $21 trillion figure come from? According to your own link (and the figure is $25 trillion, bro), it's not SS, it's medical spending, which no one disputes will become a big problem down the road, thanks to our "free market" approach to delivering medical care. But that's an entirely different issue. And then there's this:

    "When SS is viewed as a stand alone insurance plan, it's decretive to point to its cash surplus. An insurance program is supposed to have socked away enough money to pay out all accumulated benefits if the program were to cease as of today. "

    Absurd! SS is NOT viewed as a "stand alone insurance program, by anyone but you. It's an ongoing income transfer program. The notion that it has an obligation to amass, today enough money to pay all future benefits is ridiculous. This is like saying your retirement isn't secure if, by age 35, you haven't accumulated enough money to last you until you reach 100.

    And on (and on) the misinformation goes, in standard merry David in Cal fashion.

    What the hell is the matter with you? Are you paid to do this?

  7. Bob, you can thank Al Gore for perpetuating some of the worst nonsense here. Remember that ridiculous "lock box" he was going to establish?

    True, nobody in America knew what the hell he was talking, but he fully bought into the lie that Congress was "spending" the SS surplus

  8. D in C is perpetuating the myth of the unfunded liability. It's an academic number that has no bearing on the long term solvency of Social Security.

    Social Security was set up as a pay as you go system, with contributions from the younger generations funding the system for retirees. In the 70's 80's it became clear that a trust fund would be needed to fund baby boomers' retirements. The Social Security reform act of '83 created a trust fund though an increase in contributions rates.

    The creation of the trust fund was never intended to fully fund the liability. The intent was to get past the demographic bulge of the baby boomers. Projections show that Social Security becomes solvent even without a trust fund after the baby boomers cycle out of the system

    D in C gives the impression that there is a current shortfall of $6 trillion. I find this number hightly doubtful, given that the trust fund will continue to grow even after annual current cash flows are negative due to interest earned on the trust fund. I would expect the actual current trust fund shortfall to be under $3 trillion.

    The cost of funding a $3 trillion current trust fund deficit over 25 years would be under $100 billion per year, assuming an average real rate of return of 2%. So why not make the liberal talking point be that spending $100 billion per year to ensure permanent solvency of the Social Security system is not only doable, it's a great idea?

  9. C'mon man! The only reason for D in C's presence in TDH comments is to peddle right-wing talking points and link to utter foolishness. Don't believe anything he says! Ignore his posts! He's part and parcel of the same disinformation campaign that Bob's original post discusses. That's his only purpose. Nothing you or I say will ever change his mind! Nothing. Ignore him.

  10. Anonymous, I agree that the SS is best viewed as simply a part of the federal budget, rather than as a stand-alone insurance plan. One reason is that that SS is not insurance. Unlike real insurance, SS makes no promises to participants. With real insurance, a participant has a contractual right to benefits, which cannot be taken away by some new law. OTOH Congress has the legal right to eliminate all SS benefits at any moment (although such a course is politically unthinkable.)

    I think you're trying to estimate the combined (rise in assessments + cut in benefits) that would make SS sustainable long term. I like that approach. Unfortunately, I think the right figure is a lot higher than $100 billion/year. The current shortfall of $6 trillion is the official SS actuarial figure. So, perhaps that should be your starting point. Another approach would be to look at the rate at which the unfunded liability is rising. Of course, any of these back-of-the-envelope calcuations would be quite crude. No doubt the SS actuaries have an official figure for this. It's probably some where in the report of the SS Trustees at

  11. "With real insurance, a participant has a contractual right to benefits, which cannot be taken away by some new law."

    Oh, horse hockey! Turns out you know nothing about either SS or insurance. Or even the real actuarial meaning of "unfunded liability."

    Except talking points.

  12. Ever notice that "unfunded liability" is only used to describe "entitlement" benefits? And that the formulation only examines one side of the ledger (the debit side)?

    We could, for example, extrapolate the cost of the "defense" budget for the next 75 years, to argue that the U.S. simply must retire its army, navy and air-force, otherwise we'll go "bankrupt". Or we could point out that 100% of corporate subsidies are *currently* unfunded liabilities, as are the Bush tax cuts -- so they and it had better be terminated immediately.

    It would appear that only programs the right-wing doesn't like are "unfunded"....

  13. Uh, Anonymous, I'm not the one who decided that SS has an unfunded liability. That's an official figure, calculated by the SS actuaries and reported as a part of the Annual Report of SS Trustees.

  14. Please note that the Annual Report of SS Trustees is required to make this report and comment on the long-term (75-year) viability of the trust funds, regardless of whether exhaustion of the trust funds was something planned for or not:

    "The Social Security Act requires that the Board, among other duties, report
    annually to the Congress on the actuarial (financial) status of the OASI and
    DI Trust Funds."

    Repeat after me: THE TRUST FUNDS ARE SUPPOSED TO RUN OUT. They were designed that way on purpose. We only have the trust funds at all because it became clear by 1983 that the retiring Baby Boomers would overwhelm the system; so these trust funds were established to temporarily bring in more money than was paid out in order to cover the expected shortfalls from what the traditional financing would have brought in. The fact that the trust funds have an "unfunded liability" and are going to be drawn down and run out is not at all alarming. That is what was meant to happen!

  15. "The dollar level of the combined trust funds is projected to be drawn
    down beginning in 2023 until assets are exhausted in 2036. Individually, the
    DI Trust Fund is projected to be exhausted in 2018 and the OASI Trust Fund
    in 2038."

    In 2038 I will (hopefully) celebrate my 71st birthday. The Baby Boomers will all be in their 80's and 90's and (presumably) dropping like flies. In fact it's likely that most of them will already be dead and no longer drawing SS benefits. Until 2038, SS will be able to pay full benefits; around that time, once we know what the death rate truly turns out to be for the Baby Boomers, we can decide whether anything needs to be done to keep me from having to live in a van down by the river. If I'm still alive!

  16. Rob, you write as if the passing of the baby boomers will return SS to some sort of normal situation when the today's level of assessments will again support the today's level of benefits. That's not the case. People are living longer and longer. As a result, the ratio of SS recipients to SS contributers will continue to decline. So, higher and higher assessments (or lower and lower benefits) will be needed as the years go by. Or, SS will be permanently non-self-supporting, with the General Fund picking up part of the cost.