March 05, 2003

The Committee on Economic Development Is Scared

The Committee on Economic Development is scared of George W. Bush. David Broder summarizes its--frightened, anxious, and nearly panicked--view. And they're right. The baby boomers are going to start retiring. Slashing their benefits will--given their numbers and their propensity to vote--be a political impossibility. It's past time to start dealing with the consequences of Bush Administration fiscal policy for the long-term health of the American economy.


washingtonpost.com: The CEOs' Dim View of Deficits: "Staying on our present track, spending for Social Security, Medicare and Medicaid skyrockets, while revenues fail to keep pace. The federal government deficit would balloon," weakening an already poor savings rate, and "by the 2020s, per-capita income growth would have fallen by more than half, and by 2040 the model predicts growth rates very nearly zero. . . . Perhaps for the first time in this country's history, most Americans could no longer expect their children and grandchildren to have higher living standards than their own."

The hardheaded executives dismiss as unrealistic any hope that the United States can simply "grow its way out of" the interlinked challenges of dangerous deficits and rising demands from its aging population.

Given the scale of the challenge, no single fix -- whether on the spending or revenue side -- will be sufficient. The policy recommendations embrace reform of Social Security and Medicare, careful scrutiny of Pentagon and homeland defense priorities and provision for expanded investment in education, research and infrastructure -- the building blocks of future growth.

But the main point of the report is that "we must begin immediately in the 2004 budget to deal with the explosion of the long-term deficit."

That does not mean raising taxes or cutting spending now, while the economy is still struggling. But it does mean the government should not adopt "any short-term stimulus program that is not combined with a plan to restore longer-term budget balance. We are specifically concerned that the Jobs and Growth Package proposed by the administration, which would raise the cumulative 2004-2013 deficit by about $920 billion (including interest) and raise the annual deficit 10 years from now by about $100 billion, does not meet this test."

Over the decades ahead, considering the demands of an aging population, the threat of terrorism and the growing international obligations of the United States, the Committee for Economic Development says it is "extremely unlikely that the long-term budget problem can be solved without additional revenues. We therefore urge the administration and Congress to forgo at this time any additional tax reductions," including any move to make permanent the tax cuts passed in the make-believe atmosphere of projected budget surpluses in 2001.

Posted by DeLong at March 5, 2003 02:29 PM | TrackBack

Comments

A shorter version of the comments above: "The baby boomers insist on grabbing other people's property, regardless of need, so it is imperative that taxes be raised." When one frames the debate in this fashion, the outcome is pre-ordained.

Luckily, for the generations that follow the supposedly completely self-aggrandizing boomers (I don't think they are nearly so uniform in attitude as posited here) , the First Amendment is still operative, and the minorities are not yet completely without power, as much as it may seem so at times. If the boomers are are as covetously self-centered as is posited here, the generations that follow may have to engage in some hard-core, but peaceful, civil disobediance, to send the message to the boomers that the purpose of younger generations in this life is not to provide people born between 1946 and 1964 a life that involves guaranteed retirement at age 67, and subsidized medical care, regardless of the material circumstances of those receiving the care.

Posted by: Will Allen on March 5, 2003 03:28 PM

Cutting Social Security and Medicare spending might move the costs a few steps away from the government, but it's a very short term fix.

Most of the elderly are still going to get treatment, and the citizenry is going to pay for it one way or another. Everyone else's health care cost goes up, insurers raise rates, etc. If you think of this spending as a tax, the tax just shifts a bit. If you want to cut out the financial burden of caring for the elderly you have to pass laws allowing emergency rooms to refuse treatment. (I'm not advocating that, I'm pointing out that it doesn't do any good to just cut the budget at the Fed level.)

Cutting Social Security spending might also make the government's books look better in the short term, but then you're talking about the elderly cutting THEIR spending in response, so the grocery stores, landlords, etc. suffer, and the tax base erodes. And for those lucky enough to have kids that make enough, they will send a few hundred a month, and cut their spending accordingly. (A side note - the 80's ALSO began a wave of cutting off of pensions and companies moving to 401Ks which only benefit the upper middle... which raised stock prices, which passed the pension money up to the rich instead.)

So the Reagan/Bush tax cuts for the rich lead to government spending cut which lead to costs increasing for the poor and middle class, (and companies that offer insurance.)

Posted by: IssuesGuy on March 5, 2003 03:33 PM

The assertion seems to be made that retirees with means will stop eating and begin sleeping outside if they no longer receive Social Security checks. Well, I guess everybody is entitled to their opinion.

As to medical costs, I would be more charitable to those who advocate a single payer system (although still in opposition) if they would forthrightly acknowledge how much more infrequent it is for single payer systems to spend a half million dollars in the last month of a 85 year old's life. The current medicare system devotes a gigantic amount of resources to people for whom very little can be done. Now, when one is face to face with one's mortality, it is understandable that economic considerations go out the window, which is why single payer countries do not not leave treatment options solely in the hands of the patient or the patient's family; their systems would be even more economically unviable than they already are.

How to fix health care delivery in this country is a topic that entails tens of thousands of words; not really practical in this forum. It is not unreasonable, however, to ask retirees with the means to pay a high deductible to do so, in order to keep costs down until that time when the prevention of death becomes extraordinarily costly. The need to address how we treat people in their last days is eventually unavoidable, and it's gonna make the debate regarding Social Security look like a mutual admiration society.

Finally, regarding methods of taxation, I would happily trade a repeal of all FICA taxes in return for means testing of retiree benefits, and income taxes as the primary means of revenue collection, or consumption taxes with some base level of consumption exempted, if spending could be reduced to sufficiently to make consumption taxes practical.

Posted by: Will Allen on March 5, 2003 04:19 PM

"Slashing their benefits will--given their numbers and their propensity to vote--be a political impossibility."

OK, lets play some Hard Ball on Social Security:

1) Will Dr. DeLong agree to stipulate that Social Security is a Ponzi scheme, and is therefore immoral?

2) Will Dr. DeLong agree to stipulate that there is no Social Security Trust Fund, and there never has been?

I'm always surprised by how few people are willing to start discussion of Social Security by agreeing to those two inarguable--unless one considers an involuntary Ponzi scheme "moral"-- facts.

Apologies for the prosecutorial tone. Never really watched Hard Ball for more than a couple of minutes. ;-)

Posted by: Mark Bahner on March 5, 2003 05:41 PM

"The policy recommendations embrace...provision for expanded investment in education..."

It seems surprising to me that any CEO would support taking money from people in the 50 states, putting it all into a big pool, and then passing it out to whomever has the most political influence.

I have no doubt that many U.S. citizens think the federal government's money just grows on trees, or falls from the sky...but it's hard to imagine a CEO who doesn't understand that more money in the federal government's hands means less money in individual parents' hands.

Posted by: Mark Bahner on March 5, 2003 05:57 PM

MB:
1) It is not a Ponzi scheme. There is only a temporary pyrimid, unless you think that population in the US will dwindle cointinually.
2) Semantics. In what way does this have anything to do with the stated Social Security plan.

I am not against means testing it. I am not against doing away with the payroll and taking the cost out of general revenue. I am not against tinkering with the formula, although I would be very cautious with the age, especially of physical laborers. I happen to believe that productivity will alleviate this problem in the long term, but in the short term how is playing hard ball going to help?

Posted by: theCoach on March 5, 2003 06:09 PM

Some truly remarkable comments here. Somehow Will and Mark have completely misread the committee on economic development's comments.

They were not only talking about social security and medicare. They were talking about the monstrous collapse of fiscal discipline under the Bush Administration, a topic that any honest observer must acknowledge.

This collapse is a function of social security and medicare - it is a function of a manic and obscene insistence upon tax cutting without any corresponding effort to cut spending (see, for instance, alan murray's excellent commentary in yesterday's wall street journal that prof delong posted).

As for will, mark, and social security and medicare: unless i was completely misled by sensation-seeking journalists, the two candidates with the highest vote totals (that would be gore and bush, and the total would be 98%) both promised to secure the "lockbox," a metaphor (not a Ponzi scheme, will) for maintaining fiscal discipline while also maintaining the existing benefits structure. When did we the people (and not only baby boomers) withdraw that vote?

Yes, sooner or later, one way or another, changes need to be made in both programs. There are many variations in those changes, and there is plenty of time to address them, since neither program, on its own merits, is causing a problem today.

Now, guys, would you please address the actual substance of the committee's comments?

Posted by: howard on March 5, 2003 06:17 PM

oops - "this collapse is NOT a function of social security and medicare."

Posted by: howard on March 5, 2003 06:20 PM

OK, Will. Then let's have Bush say that we're going to pay for tax cuts by means-testing Social Security and Medicare.

If there's a case to be made, let him make it, and stop with the fairy tales.

Posted by: Bernard Yomtov on March 5, 2003 07:16 PM

The Committee for Economic Development report on Exploding deficits is here:

http://www.ced.org/docs/report/report_deficit.pdf

A big PDF file, but worth the reading.
Read the report. The report makes it clear that there is no budget surplus, there probably never was a budget surplus, and the fiscal picture is much worse than portrayed by CBO because Congress requires weird accounting rules. However, a true picture can be made by adding on to the CBO baseline. We are still paying for the Reagan legacy with debt service that is over 15% of budget. Now Bush is doing the same thing, racking up $640 Billion in new debt since FY01. When I look at the Federal Budget, the debt service cost is the one item that stands out where it would be easy to cut spending. Unfortunately, it will require many years of fiscal discipline. We got our groove back in the 90s, but Bush lacks rhythm when it comes to fiscal policy.

If you read the report, it is not about the selfishness of the boomers. If anything, the boomers have contributed more than any other generation. My grandparents got a lot of government largess from the New Deal, from the GI Bill, from GI loans, profited from a large rise in housing prices and have been on SS and Medicare for decades. The boomers have lived through a time of retrenchment, while paying the tax bills for SS and Medicare for their parents AND, the boomers have been paying extra in payroll taxes since the 1980s so that their SS would be less of a burden on their children or so they were promised by Presidents Reagan, Bush, Clinton and Bush. The boomers even consented to raising the retirement age. Admittedly, the so-called "Greatest Generation" went through some hard times with the Depression and WWII, but they also lived through some of the best economic times of the 50s and 60s.

Most of the boomers have contributed a lot. There are a few greedheads like the tax cutters in the Bush administration that want to empty the Treasury Coffers into the pockets of their campaign supporters. Bush wants to raise $250 million for the 2004 campaign. If he promises enough future tax cuts, the rich will support a good looking investment with campaign contibutions.

Posted by: bakho on March 5, 2003 08:11 PM

Of course CEOs are scared -- they are smart and rich, and know that 20 years and out in the future they are going to be a lot richer yet. They also know that when the big deficits start piling up then, the first rational reaction will be to means test them out of their transfers from people poorer than they are. After all, not a whole lot of people have to be means tested out to get rid of the crisis. Just means test out only the 20% richest seniors from SS and *poof* its contribution (now $11 trillion discounted to current value) to future national insolvency is gone! We all know how much richer the top 20% are than everyone else today, and they are going to be a whole lot more so in 2040.

So they are staking out their claim now, to make supporting future transfers from the poorer to the rich as becoming a permanent national policy objective adopted as of today, with present fiscal policy subordinated to it. They don't want some "class warriors" coming along 20 years from now and saying, "Hey, if tax cuts for the rich that merely let them keep a little more of their own income were such a bad idea back in 2002, then incurring tax hikes and massive deficits today to support direct transfers from the poorer to the rich who are even richer now has got to be a much *worse* idea! So let them pay for their own retirements...." No, no, no, ...

"All told, the new budget proposals, if enacted, would raise the 10-year deficit by about $2.7 trillion..."

Looks bad, but then it's *visible*. Of course, if the government adopted accrual accounting, as Greenspan recently recommended, then the $2 trillion in additional debt to for SS & Medicare benefits that is being accrued each year, in excess of the taxes expected to be available to pay for them (as per the recent Analytical Perspectives on the Budget) would become visible too. And then deficit worriers and voters and taxpayers who see that $2T per year adding up a whole lot faster than a one-shot $2.7T over 10 years might form different priorities about what to tackle to head off future national bankruptcy.

Perhaps the class warriors would get a head start on thinking: "Maybe it is not really greatly progressive policy to assure full transfers from the poorer to the much richer in the future after all..." Nah, the CEOs are smarter than the class warriors, who never start thinking in this contest until it is too late.

Posted by: Jim Glass on March 5, 2003 10:42 PM

How influential is this 'Committee for Economic Development"? Their web page is impressively dignified and corporate-looking, but doesn't tell me what I want to know, which is: how much clout do they have? In other words, would ignoring this report impact Republican fund-raising?

Posted by: Canadian Reader on March 5, 2003 10:46 PM

I can't believe no one's yet asked the key question about this group: how many of its members have PhD's in economics?

Posted by: Paul Zrimsek on March 6, 2003 04:33 AM

>The current medicare system devotes a gigantic amount of resources to people for whom very little can be done.

OT (but related to current events), but isn't it kindof ironic that the people of supposedly the most devout Western nation has such a hard time letting go? They say "there are no atheists in foxholes" but there sure don't seem to be too many "true believers" in emergency rooms, either. I wish I knew the author of this quote:

"Everybody wants to go to heaven, but no one wants to die."

Posted by: a different chris on March 6, 2003 06:10 AM

I agree with the comment about removing SS entirely from the federal budget and accounting for it separately. The same should be done with military pensions, medicare/medicaid and other government commitments and obligations. That is what any corporation would have to do and it would indeed put future obligations front and center.

I don't understand why the Bush administration never addresses the problems outlined in the Committee's report. Do they truly believe deficits are a non-issue? Is DiLulio correct that all policy is being made by the political advisors and the experts are being ignored? Why is the Bush administration saying the deficits do not matter?

I can understand running a deficit in a recession if that deficit is being INVESTED in the economy- worker training, infrastructure, etc. However, much of the Bush tax cut has little stimulus. Give $300 to a poor student like me and I will spend it or borrow less. Give $300 to my parents or grandparents and they will buy government bonds issued to cover the federal debt. (They are among the millions that have fled the stock market recently.) Did the millionaire senators waving their $300 checks do anything prodcutive with the rebate? I don't see much stimulus in tax cut policies at this time. If a recession is caused by overcapacity, and industry is sitting on cash that it cannot productively invest, how is giving tax cuts to wealthy investors helpful? A better stimulus would be to the demand side, infrastructure projects, supporting the states so they don't take more money out of the economy by raising taxes and increase tuition. As the report suggests, stimulus should be temporary and the revenue recovered after the economy recovers.

The administration fiscal policy has me confused. Is there any reason that I should believe that the policy has a sound economic basis? The analysis of the fiscal situation as seen by the Bush administration points to structural deficits. However, there is no discussion of the consequences of long term structural deficits. There is only a denial that deficits matter and smoke and mirrors to disguise the true deficits by going from 10 year to 5 year projections. Can you convince me that the Bush fiscal policy is rational? that it is not just a political program to reward wealthy campaign donors for their generous contributions in 2000 and keep them on the gravy train for 2004? I'm all ears.

Posted by: bakho on March 6, 2003 07:33 AM

Have to go with bakho on the contributions of various generations to government transfer schemes. Since the working generation has always paid for benefits to the retired generation (this ain't a savings plan), the advent of more generous benefits has meant boomers have paid plenty.

I take it from Will Allen's first post that he is not convinced the soon-to-retire generation is all that greedy. That strikes me as right. Two things seem to drive the politics of this issue. One is the impact of political organization by groups like AARP. Even among their members, there is probably not as whole-heated support for "getting our share" as the AARP's lobbying effort suggests. The political dynamic pretty much assure, though, that lobbies for the elderly will be at the extreme. The other thing that probably drives this issue is expectations. When my payroll taxes were boosted to extend the life of the trust fund, I didn't clap my hands and say "oh, boy", but over time, I came to expect that this greater contribution would mean a certain level of benefit. Politicians and the AARP encourage me in this expectation. I adjust my behavior accordingly. If I had been told that the higher level of tax was not assurance of that certain level of benefits, I might not have liked it, but I would have adjusted.

Changing the rules is inherently unfair. Greed is simply the wrong word in this situation. Some need their entire alottment, some don't, but all have come to expect it. We need to admit those expectations are wrong, sooner rather than later, on the way to thinking of the fairest system for keeping the eldery out of poverty and eligible for medical care.

Posted by: K Harris on March 6, 2003 07:52 AM

Totally off the subject -- Did anybody catch the BBC piece this morning on taxes making us happier? The LSE is having a series of seminars this week on the issue of happiness. One presenter (didn't catch his name clearly, maybe Richard Layard?) was interviewed, saying taxes can make us happier. He argues that since no level of material wealth will satisfy us and lead to persistent happiness as long as we feel in competition with others to win the wealth contest, taxes, to the extent that they inhibit that competition, can lead us to focus on other things. That shift might then allow us to be happier. I'm probably not doing the argument justice. I want to get more on this guy, but the BBC site is not helpful. Anybody else catch the report?

Posted by: K Harris on March 6, 2003 08:09 AM

Since I have been accused of ignoring the CEO's remarks, let me quote them:

"Staying on our present track, spending for Social Security, Medicare and Medicaid skyrockets, while revenues fail to keep pace."

I simply disputed the notion that it is ordained by a supreme being that Social Security, Medicare, and Medicaid have to stay on their present tracks. In particular, I disputed the notion that there is some sort of "entitlement" (how I hate the very word) to stop working at age 67, and receive subsidies from citizens who have their own lives to live, when the retirees still has the means to provide for themselves. In reality, of course, that the current state of affairs must continue, with the required higher taxes, is only ordained by the fact that those receiving subsidies, or soon about to start, can outlobby the people who, all things considered, would rather not give their property to people who can provide for themselves.

Well, people who prefer lower taxes can outlobby those who prefer higher ones, and there is no moral reason to conclude that lobbying for access to other people's property, when one has the ability to provide for oneself, is superior to lobbying to have less of one's property taken and given to others, particularly when many of the others can provide for themselves. Since the former activity is not morally preferable to the latter, and there is good reason to conclude that the former activity is in fact morally inferior, why is it not incumbent for those who wish to keep receiving subsidies, regardless of need, to reduce their take, prior to asking others, who simply wish to keep more of what they have gained by voluntary means, to fork over more?

The answer of course, simply lies in which factions are perceived to be more powerful. Yes, some people complain about it being unfair to change benefits for people who have been paying higher taxes since 1982, but, of course, fairness is in the eye of the beholder, and the fact that someone got screwed (and I am part of that cohort) does not give that someone license to screw somebody else. The fact remains that people receiving, or soon to start receiving retiree benefits, are percieved to be among the most powerful, if not the most, powerful factions in this society, so through the waving the might-makes-right magic wand, Shazaam!, it becomes pre-ordained that taxes cannot be lowered, or must be raised, in order to keep "entitlements" in their present form.

Well, as noted above, I don't think that faction is as monolithically covetous (which, by the way, is a far more damaging desire than common greed) as many think, and smaller, younger, factions have not yet become completely powerless, and I would fully encourage them to engage in hard-core peaceful civil disobediance if the older factions did prove so monolithic in it's desire to keep receiving subsidies, regardless of need.

Posted by: Will Allen on March 6, 2003 09:21 AM

This is a joke. Can anyone actually defend this??

FOR IMMEDIATE RELEASE
Wednesday, March 5, 2003


EVANS LAUNCHES BUSH ADMNISTRATION'S MANUFACTURING AGENDA

http://www.commerce.gov/opa/press/2003_Releases/March/05_Evans_Manufacturing_release.htm

Pro-growth tax policies.
Free and Fair Trade.
Education Reform.
Health Care Reform.

Posted by: Bruce Ferguson on March 6, 2003 09:45 AM

So Will, is your argument that we should cut Medicare and SS in the future so that the wealthy can enjoy big tax cuts today? If SS benefits are to be cut, then why not cut the payroll taxes that are supposed to be paying for the promised benefits? You are arguing that money should be transferred from the poorest workers and the businesses that employ them (who pay the majority of SS security taxes) to the very wealthy.

If you read the report, (go ahead it will only take an hour) you will find that the CEO concludes that no one single measure (raise taxes, cut SS and Medicare benefits) can produce a solution that is not painful to the econmy. The report concludes that even if repeals were made in the Bush tax cuts, there would still be a need to amend SS and Medicare. The trick is how to even get all these issues on the table when there are large vested interests that take very extreme positions. The report argues that it will take a crisis to get action, but by then it will be too late. Clearly the Bush fiscal policy will force a crisis and sooner rather than later.

According to the report, the biggest drain on the system is not SS but Medicare. We need to address medical costs, that by the way are skyrocketing. The report suggests moving Medicare to a program similar to the health care benefits for Federal Employees. Do you agree? How can we make health care delivery more efficient? Can we spend more money on preventative care and save dollars with less spent on critical health care?

These are complicated issues and will require creative solutions and compromises. Simple adversarial bargaining with al sides jealously protecting their turf often turns into a shouting match and divides the pie, without considering new possibilities.

Posted by: bakho on March 6, 2003 10:13 AM

Social Security isn't a Ponzi scheme any more than auto insurance is.

Posted by: adam on March 6, 2003 10:16 AM

http://www.nytimes.com/2003/03/06/business/06SCEN.html

March 6, 2003

Big Federal Deficits, Bigger Risks
By ALAN B. KRUEGER - NYTimes

[Princeton University - Economics]

THE budget President Bush submitted last month should have come with the warning, "They're baaack!" Deficits are re-emerging as a major problem. Goldman, Sachs recently raised its estimate of the federal budget deficit this year to $375 billion, and warned that it could go even higher. That works out to more than $1,400 for every man, woman and child. With the impending retirement of the first baby boomers, the red ink is expected to last as far as the eye can see....

Posted by: jd on March 6, 2003 10:23 AM

bakho, my point is that people who can provide for themselves should enjoy those things that obtain by voluntary transaction, and that before it is contemplated that tax rates be raised, or reductions repealed, it is incumbent on those who can provide for themselves to do so. Frankly, I favor a complete repeal of FICA taxes, means testing for Social Security and Medicare, and if income taxes are still considered the best way in which to fund government actions, a simple two tier, or maybe three tier system, with the initial rate being zero, no deductions, no corporate tax (at least for publicly held corporations), and no other differentiation among types of income. Politically, of course, getting from here to there is problematic (understatement intended). What I object to is the notion that, in a society in which tax revenues are widely used as a means of purely personal enrichment, even among those who can provide for themselves, that raising rates, or repealing reductions, is one of the first steps needed to balance the budget.

You are correct that Medicare poses the thorniest problem of all, politically and fiscally speaking. It is a topic of suffcient complexity (it really entails health care delivery for the entire population), that it is very difficult to do justice to in a forum such as this. The sooner this issue is met head on, however, the better.

Posted by: Will Allen on March 6, 2003 10:42 AM

ss isn't a ponzi scheme...

well actually, yeah it is

1: SS was designed when life expectancies were much shorter

2: 65 was set as retirement age by Bizmark (SP).. when the life expectancy was much less

3: the ratio of workers to retirees is increasing rapidly... it used to be 3:1 and is now trending towards 1:1, yet benefits have increased...

4: autoinsurance companies actually invest their capital... they don't simply run on current revenues

5: SS and Medicare are stealing from the poor to give to the rich... not cool.. this should stop now

Posted by: libertarian uber alles on March 6, 2003 12:30 PM

I have a strong impression that everyone posting here is well-paid or comes from families that are.

Here's some news - most of the people in the country don't make very much and are falling further and further behind, and their health insurance is cutting back and cutting back - if they are lucky enough to have an employer that provides it at all, while the whole time the rich become vastly richer. For the majority of our elderly any cut in Social Security or Medicare would mean hunger. Real hunger. Many are already skiping meals to pay for essential drugs.

This is not a talking point, this is not a campaign line, this is not an academic discussion. This is what is happening out there in the real world of regular people who make the median and below while people like us are talking and talking.

Imagine yourself trying to survive even on the median and then imagine yourself trying to survive on Social Security AND paying for drugs that keep you alive! But here you're all talking about cutting back on Social Security and Medicare. What has happened to people?

Posted by: IssuesGuy on March 6, 2003 12:37 PM

"Imagine yourself trying to survive even on the median and then imagine yourself trying to survive on Social Security AND paying for drugs that keep you alive! But here you're all talking about cutting back on Social Security and Medicare. What has happened to people?"

Get it people!!!

Posted by: jd on March 6, 2003 01:00 PM

http://www.nytimes.com/2003/03/06/opinion/06COHN.html

Jonathan Cohn -

47 million people receive Medicaid today, up from 40 million in 1998. Despite the waste and abuse common to public and private health programs, Medicaid has done a remarkably good job of serving a low-income, poorly educated and multicultural population. And without it, the high number of Americans without health coverage today some 42 million would likely be a few million higher.

Unfortunately, that progress is now in jeopardy. With more people out of work and private health insurance increasingly unaffordable, there is a new wave of struggling Americans looking to the government for help. But the states, suddenly beset by budget deficits, are in no position to provide it this time around....

Posted by: jd on March 6, 2003 01:03 PM

"But here you're all talking about cutting back on Social Security and Medicare"

I think people are talking about means testing SS & Medicare. Meaning, wealthy people would not receive the benefits. The people you are referring to would still receive benefits. Though some, such as myself, advocate raising the age requirement. This just seems to make sense in a society where people live longer and more healthy lives. If workers become legitimately worn out and must retire sooner, there are disability benefits available to them until they reach the age requirement.

Posted by: Dan on March 6, 2003 01:09 PM

"I happen to believe that productivity will alleviate this problem in the long term, but in the short term how is playing hard ball going to help?"

Depends on what's "fair", I think. If every generation earns, say, x% more than the less, than should that generation expect roughly x% more retirement income than the last one?

"ss isn't a ponzi scheme...
well actually, yeah it is
1: SS was designed when life expectancies were much shorter
2: 65 was set as retirement age by Bizmark (SP).. when the life expectancy was much less
3: the ratio of workers to retirees is increasing rapidly... it used to be 3:1 and is now trending towards 1:1, yet benefits have increased...
4: autoinsurance companies actually invest their capital... they don't simply run on current revenues
5: SS and Medicare are stealing from the poor to give to the rich... not cool.. this should stop now"

1) Can be fixed by raising the retirement age.
2) Uh, so?
3) Only a problem if no adjustments are made for the declining ratio; there's no technical reason a constant population couldn't have social security.
4) Semantics about the definition of "investing".
5) No evidence given.

Posted by: Jason McCullough on March 6, 2003 01:20 PM

Umm... doesn't anybody here *know* how influential this council is?

I mean, help me out here. Is this report a big deal? Do these guys have the backroom power to make their objections count? Or is it more like Krugman voicing his criticisms of the administration in the NYT?

Posted by: Canadian Reader on March 6, 2003 02:00 PM

It would be interesting to know, and I'm too lazy to dig it up, what SS and medicare outlays would be if SS benefits started being phased out for those with other sources of income in excess 30k per year, or net worths in excess of $600,000, or a combination of the two, and if medicare had a 10k per year deductible for those with large net worths. The exact formulas would have to tinkered with quite a bit, with perhaps some regional adjustments, as happens with medicare reimbursements to health care preofessionals now. I've never seen any estimates from reliable sources, however, as to how SS or Medicare outlays would be affected by various types of means testing.

Posted by: Will Allen on March 6, 2003 02:08 PM

To clear the air here a bit:
1) 65 was not adopted because Bismark did it. That was something stated by someone else on this web site. In both cases the age of retirement at _full_ benefits was based on actuurial estimates of human life. Currently the retirement age has been raised to 67.5 for SS. Until the seventies or eighties the _mandatory_ retirement age for the private sector was also 65.

2) The "ponzi scheme" rhetoric is just that, rhetoric. In a ponzi scheme their is no acturial basis for anyone to get back an equivelent amount of money to what they put in. It requires exponentially growing numbers of participants. SS and many other private, state and local pension plans are pay as you go plans. Doing this does not require exponential growth in numbers of participants but adjustments to the plan such as putting additional money into the plan before baby boomers retire. This was the plan, and while it would have solved some of the problem it would not have solved all of the problems. But they would have been far more manageable. When the surplus was given away that destroyed this plan. (Indeed a small permanent increase in productivity would have solved many of the rest.)

3) Auto and health insurance companies invest in reserves but they pay claims out of current premiums and adjust those premiums based on projections for claims. Indeed the plan to develop a SS reserve was actually more prudent than many private insurance companies. Consider what has happened following Hurricanes in many states- Insurance companies were often unable to pay the claims and pulled out.

Whether the topic is about supply side tax cuts, social security, size of government the ideologically challenged always have an answer either as to why their proposals have failed in the past, or why something currently needs to be changed. The framework is one of belief and cannot be challenged, or even rteasonably discussed, since the aim is either to convert you, or "win" an argument. The tragedy is that when these sorts of arguments are "won" often human suffering occurs-only to be denied by the winners. Ideological belief is easy, thought is hard, thus the supply of one is so much greater than the other.

Posted by: Lawrence on March 6, 2003 02:25 PM

"The Coach" writes (about Social Security), "1) It is not a Ponzi scheme. There is only a temporary pyrimid, unless you think that population in the US will dwindle cointinually."

As I said, not only is Social Security a Ponzi scheme, but it's far, far worse: it's a government MANDATED Ponzi scheme.

In a private Ponzi scheme (which is illegal throughout the U.S.), the scheme collapses whenever the new generation of "marks" sees that they are going to lose money, and so doesn't participate in the scheme. With Social Security, the post-Baby-Boom generation (or some generation shortly thereafter) is *guaranteed* to get a bad deal from Social Security (i.e., they are *guaranteed* to get out less money than they could get from other investments).

But, whereas the Ponzi schemes run by private individuals collapse when that occurs, the federal government will FORCE post-Baby-Boomers to get a lousy deal.

Any generation that follows a generation that was larger, or even the same size, will get a lousy deal from Social Security.

So Social Security most certainly IS a Ponzi scheme. It is the very DEFINITION of a Ponzi scheme...which is that the early "investors" get such a good deal that they encourage the later generations of "investors" ("marks", "dupes") to come into the program.

Brian writes, "Social Security isn't a Ponzi scheme any more than auto insurance is."

No, Brian. Social Security is NOT like auto insurance. In auto insurance, if one pays $300 annual premiums for 5 years, and then has an accident for which the insurance company pays $40,000, one has clearly benefited from having the insurance. But whenever generation X is smaller than the generation W that they supported, but equal to or larger than the generation Y that follows X, generation X is GUARANTEED to get a bad deal. It's completely unavoidable. That's why Social Security is not insurance. That generation X is screwed. They can't "win."

Lawrence writes, "To clear the air here a bit: 2) The "ponzi scheme" rhetoric is just that, rhetoric."
No, Lawrence, it's a fact. (That's probably why Dr. DeLong hasn't attempted to argue otherwise. ;-))
Lawrence continues, "In a ponzi scheme their is no acturial basis for anyone to get back an equivelent amount of money to what they put in."
In a Ponzi scheme, as long as the following generation of "investors" ("marks," "dupes") is larger than the preceding generation, the preceding generation can get a good deal. In other words, a Ponzi scheme requires that the number of "investors" ("marks," "dupes") always be increasing (in order for everyone in the scheme to get a good deal). That is EXACTLY how Social Security is presently operating. That is an indisputable fact.
"SS and many other private, state and local pension plans are pay as you go plans. Doing this does not require exponential growth in numbers of participants but adjustments to the plan such as putting additional money into the plan before baby boomers retire."
Yes, and the generations FOLLOWING the Baby Boomers will get screwed (get less money out than they paid in). That is an inescapable, indisputable fact. Whatever generation follows the generation having the peak population is guaranteed to get screwed. That's why Social Security IS a Ponzi scheme.
"When the surplus was given away that destroyed this plan."
The "surplus" has ALWAYS been "given away." That's why Social Security is a Ponzi scheme...because there is NO "Trust Fund."
"The framework is one of belief and cannot be challenged, or even rteasonably discussed, since the aim is either to convert you, or "win" an argument."
I have no beliefs. None at all. I "think" everything. In this case, my "argument" is airtight. Social Security is a Ponzi scheme. There is no "Trust Fund." I simply want anyone who talks about Social Security to realize or acknowledge this, before the discussion starts. Otherwise, the discussion isn't very truthful/honest.
If you think Social Security is *not* a Ponzi scheme, why do you think the first person to retire on Social Security, Ida May Fuller, paid in $24.75, and got back $22,889? Do you think that's just a coincidence? (Hint: A declining return on "investment" for subsequent generations is a key part of any Ponzi scheme.)
http://people.howstuffworks.com/social-security-number5.htm
"The first person to receive monthly benefits was Ida May Fuller from Vermont, who retired in November 1939 and started collecting benefits in January 1940 at age 65. In the three years that Fuller worked under the program, she contributed a total of $24.75. Her first benefit check was for $22.54 and she went on collecting benefits for 35 years, until 1975, when she died at age 100. In this time she collected a total of $22,888.92."

Posted by: Mark Bahner on March 10, 2003 09:14 AM

Oops, here's the last part of that post, with double-spaces between paragraphs:

Lawrence writes, "To clear the air here a bit: 2) The "ponzi scheme" rhetoric is just that, rhetoric."

No, Lawrence, it's a fact. (That's probably why Dr. DeLong hasn't attempted to argue otherwise. ;-))

Lawrence continues, "In a ponzi scheme their is no acturial basis for anyone to get back an equivelent amount of money to what they put in."

In a Ponzi scheme, as long as the following generation of "investors" ("marks," "dupes") is larger than the preceding generation, the preceding generation can get a good deal. In other words, a Ponzi scheme requires that the number of "investors" ("marks," "dupes") always be increasing (in order for everyone in the scheme to get a good deal). That is EXACTLY how Social Security is presently operating. That is an indisputable fact.

"SS and many other private, state and local pension plans are pay as you go plans. Doing this does not require exponential growth in numbers of participants but adjustments to the plan such as putting additional money into the plan before baby boomers retire."

Yes, and the generations FOLLOWING the Baby Boomers will get screwed (get less money out than they paid in). That is an inescapable, indisputable fact. Whatever generation follows the generation having the peak population is guaranteed to get screwed. That's why Social Security IS a Ponzi scheme.

"When the surplus was given away that destroyed this plan."

The "surplus" has ALWAYS been "given away." That's why Social Security is a Ponzi scheme...because there is NO "Trust Fund."

"The framework is one of belief and cannot be challenged, or even rteasonably discussed, since the aim is either to convert you, or "win" an argument."

I have no beliefs. None at all. I "think" everything. In this case, my "argument" is airtight. Social Security is a Ponzi scheme. There is no "Trust Fund." I simply want anyone who talks about Social Security to realize or acknowledge this, before the discussion starts. Otherwise, the discussion isn't very truthful/honest.

If you think Social Security is *not* a Ponzi scheme, why do you think the first person to retire on Social Security, Ida May Fuller, paid in $24.75, and got back $22,889? Do you think that's just a coincidence? (Hint: A declining return on "investment" for subsequent generations is a key part of any Ponzi scheme.)

http://people.howstuffworks.com/social-security-number5.htm

"The first person to receive monthly benefits was Ida May Fuller from Vermont, who retired in November 1939 and started collecting benefits in January 1940 at age 65. In the three years that Fuller worked under the program, she contributed a total of $24.75. Her first benefit check was for $22.54 and she went on collecting benefits for 35 years, until 1975, when she died at age 100. In this time she collected a total of $22,888.92."

Posted by: Mark Bahner on March 10, 2003 09:26 AM

Sheer rhetoric, Mark. Taking a single, anomalous example and extrapolating from it is rhetorical fraud. Cpme back with a graph or two, would you?

Posted by: nick sweeney on March 11, 2003 04:36 AM

"Cpme back with a graph or two, would you?"

And then you'll agree that Social Security is a Ponzi scheme, right? ;-)

Yeah, right! :-/

Why not be honest, Nick, and admit that *no* amount of data or explanation would ever convince you of self-evident truths: 1) Social Security is a Ponzi scheme, because 2) there is no "Trust Fund," and never has been?

This, to me, is the absolutely appalling mendacity of leftists who discuss Social Security. There is simply no point in discussing Social Security, unless those 2 (self-evident, I think) truths are agreed upon, beforehand. Yet, to my knowledge, no mendacious leftist (e.g. Mark Weisbrot, Paul Krugman) has ever admitted those two truths.

Lou Dobbs on Moneyline, questioning Paul Krugman:

"DOBBS: Well, the basic issue here is that the Social Security trust fund, most people think of it as a trust fund. It isn't, is it?

KRUGMAN: It's -- it's a little complicated."

http://www.pkarchive.org/economy/ML072501.html

No, Dr. Krugman, I don't think it's complicated at all! It is NOT a "Trust Fund." There never has been a "Social Security Trust Fund." Social Security is a federal-government-mandated Ponzi scheme.

Some more BS from the good Doctor:

"DOBBS: They don't -- they don't trust it. It's a not a fund. It's an entry, and they have an IOU against it they have to pay at some point."

"KRUGMAN: Right, but there are two ways you can cut this. You can either say the government is all one big happy family and it's all one big budget, and these intergovernmental IOUs, which is what the trust fund is, don't matter. Or you can say Social Security, we're going to wall it off."

Yes, Dr. Krugman, and you can "say" you're Jesus Christ. But that don't really make it so, does it?

What the government "says" means nothing. (As what Paul Krugman says above means nothing. :-/) What matters are the facts. And the FACT is that there is no "wall"...and there NEVER has been. But Paul Krugman wasn't honest enough to admit it.


Once again, I absolutely challenge any leftist to argue against the truths that: 1) Social Security is a Ponzi scheme, and 2) there is no Social Security "Trust Fund."

....end of rant. For now. ;-)

Here are the numbers, which, like I said, I KNOW you won't accept as proof that Social Security is a Ponzi scheme. (Though you won't be able to show me any numbers for why it ISN'T a Ponzi scheme.)

Return on "Investment":

People were forced to contribute to Social Security, starting in 1937. Disbursements *from* Social Security began in 1942. People who retired in 1942 (i.e., those who were born in 1877) got an average annual real return on investment of 36.5%.

http://www.ncpa.org/ba/ba209.html

The average real rate of return for an average-income single female (roughly the "average person") born in 1932 dropped to 3.5%. The same female born in 1950, it will drop to 2.4%. For the same female born in 1975, it will drop to 1.8%. See Graph #2 on this webpage:

http://www.heritage.org/Research/SocialSecurity/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=20740

So we have these returns, for these birthdates and retirement dates:

Born 1877, retired 1942: 36.5%
Born 1932, retired 1997: 3.5%
Born 1950, retire in 2017: 2.4%
Born 1975, retire in 2042: 1.8%

This is an absolutely classic Ponzi scheme, with one exception: the government MANDATES participation; if this had been a private Ponzi scheme, it would already have collapsed. (Since the government mandates it, it probably will never collapse; it will simply pay very poor returns on "investment." Which it's not...since it's a Ponzi scheme.)

P.S. The return on "investment", unsurprisingly, parallels the number of workers supporting each retiree (just like other pyramid schemes).

The number of workers supporting each retiree:

1945: 42
2000: 3.4
2045: 2.0

http://www.mackinac.org/article.asp?ID=3792

An absolutely classic Ponzi scheme. The initial people get such good returns on investment, that they strongly advocate for others to follow. (But there's one exception to this Ponzi scheme...the government FORCES the "marks" to stay in.)

And some advice Nick: you have no moral standing to accuse someone of "rhetorical fraud" until you admit (or disprove) that: 1) Social Security is a Ponzi scheme, because 2) there is no Trust Fund. Until then, you're just another dishonest leftist.

Posted by: Mark Bahner on March 11, 2003 09:41 AM
Post a comment