BUDGET BABEL: Kessler details The Facts!


Part 3—Still hazy after all these years: How well do We the People understand our current budget debate, involving the so-called fiscal cliff?

Did you even have to ask? Drum delivers the news:
DRUM (12/4/12): More polling fun: Business Insider conducted an internet survey that asked people what would happen to the deficit if we go over the fiscal cliff. Nearly half thought the deficit would increase. The correct answer, of course, is that the fiscal cliff involves tax increases and spending cuts, which would dramatically reduce the deficit.
According to Business Insider, 47.4 percent of respondents said the deficit would increase if we go over the so-called cliff; only 12.6 percent said it would be reduced. But according to the CBO, going over the so-called cliff (and staying there) would “result in a reduction in the National Deficit of $607 billion between fiscal years 2012 and 2013.”

A reduction of $607 billion! Given the size of the annual deficit, that is a giant reduction.

It’s one of the least-discussed facts in all of American politics. We the people are constantly uninformed, misinformed, disinformed about basic budget matters.

This isn’t necessarily the press corps’ fault, although the corps rarely helps. But We the People rarely know squat about budget debates—and They the Journalists are very reluctant to discuss this primal fact.

In the case of the so-called fiscal cliff, our total confusion concerns a very recent discussion. By way of contrast, let’s consider the decades of total confusion concerning Social Security.

In this case, our ongoing state of super-confusion really is the fault of the press. It’s also the fault of our liberal elites, the laziest, least effective elites found on the face of the earth.

We liberals! If you can’t call it racist, we can’t explain it! In part for that reason, the liberal world has never even tried to address the massive confusion which surrounds the workings of Social Security—confusion which has resulted, in large part, from a decades-old disinformation campaign driven from the right.

Disinformation from the right? Sloth and slumber from the left? That’s a recipe for total confusion—and that’s what we still have.

How total is the confusion? Consider what happened when Glenn Kessler tried to explain what Senator Durbin said.

As we noted yesterday, Durbin said that Social Security shouldn’t be part of the deficit talks because it “has not added one penny to the deficit.” Last Friday, Charles Krauthammer rejected Durbin’s statement, strewing time-honored gorilla dust through a fiery column.

The Social Security trust fund is “a fiction,” Krauthammer wrote in his column, “a mere bookkeeping device.” According to Charles, “Social Security adds $165 billion to the deficit” in just this year alone!

That same day, Kessler addressed Durbin’s statement in the Washington Post’s Fact-Checker blog. This Sunday, Kessler’s piece appeared in the hard-copy Post.

Kessler discussed the statement by Durbin, not the subsequent statements by Charles. As he did, we marveled at the mammoth confusion which still surrounds this topic.

After quoting what Durbin said, Kessler offered a section he headlined “The Facts.” In this section, he gave an overview of the basic way the Social Security program works.

Let’s get one thing straight—Brother Kessler isn’t dumb or anything like it. But by our reckoning, he couldn’t even get through his first paragraph without encountering trouble.

In our view, Kessler facts were wrecked on the rocks by just his third sentence:
KESSLER (12/2/12): The Facts

Social Security is a pay-as-you-go system, which means that payments collected today are immediately used to pay benefits. Until recently, more payments were collected than were needed for benefits. So Social Security loaned the money to the U.S. government, which used it for other things, which in effect masked the overall size of the federal budget deficit. In exchange, Social Security received interest-bearing Treasury securities, which now total more than $2.7 trillion.
Things got much murkier as Kessler proceeded—but let’s consider that one short paragraph. It was his very first paragraph explaining “The Facts” about a very important program—a very important program which is almost eighty years old.

Kessler makes it safely through his opening sentence:

“Social Security is a pay-as-you-go system, which means that payments collected today are immediately used to pay benefits.”

We score that sentence as accurate. It’s true: The payments submitted by current workers are not buried beneath the mall until those workers retire. Those payments are used to pay the benefits of this year’s recipients of Social Security.

We also score his second sentence as accurate:

“Until recently, more payments were collected than were needed for benefits.”

Also accurate, as everyone understands. From 1983 on, annual payments to Social Security were larger than necessary. More money was submitted than was needed to pay the benefits of that year’s retirees.

(As everyone knows, the system was designed this way by President Reagan and Speaker O’Neill in their 1983 reform of Social Security. As everyone knows, the tax rate they implemented was designed to generate excess revenue during those many years.)

Kessler’s first two sentences were spot-on. We give the same rating to his third sentence—or at least to these opening clauses:

“So Social Security loaned the money to the U.S. government, which used it for other things...”

Also accurate! Each year since 1983, those excess submissions have been loaned to the federal government. The government borrowed that extra money, just as it borrowed money from other sources during these years.

Obviously, the government “used the money [spent it] for other things.” That’s why the money was borrowed!

(Here too, this is the way the program was designed by Reagan and O’Neill. By law, the trustees of the Social Security program were required to loan the extra money to the federal government.)

By now, we’d made it through more than two sentences—and we had scored everything accurate. But uh-oh! The analysts balked at what followed:

“So Social Security loaned the money to the U.S. government, which used it for other things, which in effect masked the overall size of the federal budget deficit.” (Our italics)

We were only on Kessler’s third sentence. But the analysts were now pulling alarms all through our sprawling headquarters.

Do you understand what Kessler means in the italicized clause? Do you understand how the simple transactions he described “in effect masked the overall size of the federal budget deficit?”

For ourselves, we don’t understand, and Kessler makes no attempt to explain. He seems to think his statement is self-evident—but it simply isn’t.

The average reader has no way to know what this statement means. For that reason, he or she will have no idea whether the satement is accurate.

As Kessler continues with “The Facts,” his work keeps getting murkier. By the time he has finished three paragraphs, he has gone deep into various weeds. Average readers won’t understand what he’s saying. By the time they reach a sentence like this, most folk will have stopped reading:

“To keep things simple, we will include transfers made for the payroll tax holiday as part of ‘other income.’”

That counts as “keeping things simple” on the dark side of Neptune. And yet, this murk appears in the first three paragraphs as Kessler lays out “The Facts.”

By our reckoning, Kessler’s explanation of Social Security fails in its opening paragraph. But good grief! By our reckoning, the same thing happened when Kevin Drum assigned himself this same task.

Drum is one of our favorite writers. Obviously, he’s very smart—and he’s highly rational, to the point of being rationalistic. That’s why we like his work!

Drum is smart—and Social Security isn’t some new-fangled program. But when he explained the way it works, he made a statement right in his opening paragraph which we would score as false.

Drum was directly challenging Krauthammer. This is the way he started:
DRUM (11/29/12): [T]he idea that the trust fund is a "fiction" is absolutely wrong. And since this zombie notion is bound to come up repeatedly over the next few weeks, it's worth explaining why it's wrong. So here it is.

Starting in 1983, the payroll tax was deliberately set higher than it needed to be to cover payments to retirees. For the next 30 years, this extra money was sent to the Treasury, and this windfall allowed income tax rates to be lower than they otherwise would have been...
Say what? When the extra money was borrowed, did that “allow income tax rates to be lower than they otherwise would have been?” As with Kessler’s first paragraph, so too with Drum’s:

Most readers won’t even understand what this statement means—and Drum makes no attempt to explain it. Absent some sort of explanation, we would regard it as false.

As the Waterboys once noted, we’re sailing in a strange boat. We the People have no idea how the fiscal cliff would work. Much more amazingly, our intellectual elites consistently have a very hard time explaining how Social Security works, even though its current structure has been in place for almost thirty years.

Drum is one of our favorite writers. As for Kessler, we publicly judged, in September 2000, that he might be “The Man!”

And yet, Kessler’s account of The Facts is as clear as a very thick puddle of mud. Drum’s account quickly seems to include some statements which simply don’t seem to be accurate.

In the midst of this familiar confusion, Krauthammer’s familiar images continue to shine bright and clear. Social Security’s trust fund is a fiction, he says—a mere book-keeping device. The trust fund is just a pile of (worthless) IOUs.

The money isn’t there—we’ve already spent it! Charles didn’t torment us with this (perfectly accurate) formulation. But other pseudo-conservatives have confused the public with that misleading claim for a large number of years.

For thirty years, these and other familiar claims have grossly misled the American public. As this happened, our liberal elites slept in the woods, making no serious attempt to clarify all this confusion.

We liberals! We’re very dumb and very feckless—unless you let us tell it.

Coming: Missing in action


  1. Why do so many people think the deficit would increase if we go over the "fiscal cliff." I agree with Bob that many people just don't understand. IMHO one specific reason may be that many people don't know the difference between the national deficit and the national debt. The national debt will get worse under any scenario.

    Also, the supposed $607 billion reduction in the deficit is a static estimate, i.e. it ignores changes in the economy. But, everyone from Mr. Obama on down says that the fiscal cliff would harm the economy. So, the real reduction in the deficit would be less than the projected $607 billion.

    Bob mentions two ways to look at the impact of Social Security. For us actuaries, there's a third way -- include the full unfunded liability. That's the way a private company would look at its results. On an actuarial basis, things are even worse than the consolidated budget POV.

  2. A private company *wouldn't* look at Social Security the way you suggest, David.

    And that's because no private company can enjoy the right to tax the current income needed to fund it as the government does.

    There is NO reason to include "unfunded liability" in examining the Social Security system's health.

    There is no "even worse" situation for SS -- and the actual state of its health is quite good.

    Relative to GDP, it only requires a VERY small increase in SS income (taxes) to create a situation where benefits would be fully funded over any time horizon you choose.

    Pleas stop your endless bullshit about Social Security, you wretched little troll.

  3. From the 2012 Social Security and Medicare Trustees Reports:

    The long-run actuarial deficits of the Social Security and Medicare programs worsened in 2012, though in each case for different reasons. The actuarial deficit in the Medicare Hospital Insurance program increased primarily because the Trustees incorporated recommendations of the 2010-11 Medicare Technical Panel that long-run Medicare cost growth rate assumptions be somewhat increased. The actuarial deficit in Social Security increased largely because of the incorporation of updated economic data and assumptions. Both Medicare and Social Security cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers.

    Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

    See http://www.ssa.gov/oact/TRSUM/tr12summary.pdf

    1. Uh, that doesn't validate your earlier bullshit, you know.

      Not by a country mile.

      It you really want to contribute, you'll be thanked for contributing your absence.

  4. "The money isn’t there—we’ve already spent it!"

    TDH described that as "perfectly accurate" but misleading. It is not perfectly accurate in any sense whatsoever. It is false, period. Lending money and taking in return treasury bonds backed by the Full Faith and Credit of the United States of America, as with any other Treasury instrument and the safest form of investment in the world, is not "spending" it. That's like saying a bank has "spent" the funds in your account even though you are entitled to its full amount upon demand because the Bank lends the funds deposited with it.

    Legally, the Social Security Trust Fund is completely separate from the general fund. The money is still in the Trust Fund. It has not been spent. As a matter of law, the Social Security Trust Fund is not part of a unified budget, and therefore all the right wing canards are ridiculous.

  5. Kessler's sentence about payments into the SS Trust Fund masking the size of deficits is perfectly correct. Deficits are normally reported on the basis of the "unified" budget, which counts those payments as income. The total national debt is normally reported including the Trust Fund as an obligation, so the annual "deficits" which are reported in the media do not add up to the National Debt (the difference is the SS Trust Fund, plus some other trust funds and miscellany).

    Kessler's explanation does get confusing, especially when he brings in the disability trust fund, which has some problems that the retirement SS fund does not. I doubt if the average citizen would understand the situation from Kessler's piece, but that is not its intention. He is supposed to be scoring the "truth" of the claim, but I find that Kessler's definitions are often bent towards finding equal fault with both sides, and this is another example. I don't count Kessler as a "liberal".

    The point about how payments into the Trust Fund concealed the size of deficits is actually important because you didn't hear politicians complaining about its role in deficits when money was flowing into the Trust Fund. In fact most liberals still count the surpluses in 1999 and 2000 in terms of the "unified" budget, which implies dishonoring the Trust Fund obligation. If you count that obligation, those surpluses were small. Jump on liberals for that distortion.