« Math: There Will Be a Test | Main | Interest Rates Up to 2.25% »

December 14, 2004

Why Oh Why Are We Ruled by These Liars? (Today's Social Security Edition)

Edmund Andrews does not quite surround Bush's words with big red exclamations of "LIAR! LIAR!", but he comes close. He does do a good job of pointing out that the private-accounts emperor has no clothes:

The New York Times > Washington > News Analysis: Most G.O.P. Plans to Remake Social Security Involve Deep Cuts to Tomorrow's Retirees: Bush... has focused almost all his rhetorical energy on the need to let people divert some of their taxes to private retirement accounts. But nearly every leading Republican... on Capitol Hill acknowledges that private accounts by themselves do little to solve the system's projected shortfall of at least $3.5 trillion. Instead, those proposals rely on deep cuts in benefits to future retirees... as Thomas Saving, a Republican-appointed trustee to the Social Security trust fund put it last week: "Fundamentally, if you don't reduce the benefits, you don't reduce the debt."

Some of the Republican proposals would raise the age when people can start to receive benefits. Others would reduce payments to beneficiaries to account for longer life expectancies. Still others would reduce payments to married couples and scale back the annual increases that are made to keep pace with inflation. But the biggest single idea is included in the plan the White House most often points to, abandoning the practice of setting benefits as a share of people's pre-retirement earnings... that one change could save more than $10 trillion over the next 75 years, more than enough to wipe out Social Security's projected shortfall....

Mr. Bush, who is likely to step up his call for private accounts when he acts as host of a two-day conference on the economy this week, has steadfastly avoided any reference to cutting future benefits.... But White House officials have begun to acknowledge what many conservatives take as a given; that is, with or without personal accounts, future Social Security benefits must be scaled back....

The simplest cut is the one developed by Mr. Bush's advisory commission on Social Security in 2001. That proposal, which White House officials often cite as a model for how the system could be changed, would change the way future benefits are calculated. Instead of setting benefits as a share of a person's pre-retirement wages... the government would link future benefits to inflation.... "If you just switched from wage-indexing to price-indexing, you would save so much money over that period you would actually wipe out the entire imbalance," said Kent Smetters, an associate professor at the Wharton School of Business who worked on entitlement issues in the Bush Treasury Department....

Under today's law, a middle-income worker who retires in 2065 would be entitled to an annual Social Security benefit of $26,400, or about 40 percent of the worker's wages. Under the proposed change, that same worker's benefit in 2065 would decrease by 40 percent to $14,600, about 22 percent....

"What people are forgetting is why the system is there in the first place," said John Goodman, director of the National Center for Policy Analysis, a conservative research group that strongly supports private accounts. "The reason is that people don't want to reach retirement age and have their standard of living cut in half...."

"They are using smoke and mirrors in the sense that they are cutting taxes in the here and now and making cuts way off in the future," said Laurence J. Kotlikoff, a professor of economics at Boston University who has written extensively on the long-term financial problems of Social Security and Medicare. "What I see them doing is very gradually wiping out the old system, and putting something very minor in its place."... Mr. Bush's own advisory commission in 2001 made it clear that personal accounts would make little dent in the underlying shortfall. If the government kept Social Security benefits as they are now, and let people set up private accounts as well, the government would still face a shortfall of more than $4 trillion over the next 75 years....

Posted by DeLong at December 14, 2004 11:31 AM

Trackback Pings

TrackBack URL for this entry:
http://www.j-bradford-delong.net/cgi-bin/mt_2005/mt-tb.cgi/8

Listed below are links to weblogs that reference Why Oh Why Are We Ruled by These Liars? (Today's Social Security Edition):

» And More on the Social Security Discussion from Brad DeLong from MLs blog
Link: Why Oh Why Are We Ruled by These Liars? (Today's Social Security Edition). [Read More]

Tracked on December 14, 2004 01:50 PM

Comments

Dear Brad,

The type is simply too small and gray to read without considerable difficulty and even strain. But, the comments are finally posting well.

Lise

Posted by: lise at December 14, 2004 11:38 AM


Yesterday some were calling David Walker a grown Republican, but I found an ominous tone to the address. A tone that is uniform among Republicans, grown and other, and almost always echoed in the media.

We are being repeatedly told there is a Social Security crisis. That the progam and benefits can not be sustained as is. That there will have to be reforms including cuts in benefits and the introduction of private accounts. There can, of course, be no increase in payroll taxes or lifting of the cap on payroll taxes to sustain the program.

Though the truth is there is no Social Security crisis, I have trouble convincing close friends who are quite well educated and aware of current affairs. We are in serious danger of turning the New Deal legacy to a sad memory, and this is most disturbing.

Posted by: anne at December 14, 2004 12:01 PM


anne, i'm curious: why, exactly, do your well-educated friends insist that there is a crisis? It would be helpful to know what the cognitive dissonance is....

Posted by: howard at December 14, 2004 12:11 PM


I think Bush will give up the idea of the private accounts. I'm glad. I'm in the opponent group. Four of our six mutual funds have had some sort of fraud going on in the last two year. So if you can't even trust the mutual fund people then who can you trust? You can't trust that when you get another boom, half the boom goes to cheaters.

I think Bush should promote government assisted old age communes as a way to cut back on Social Security and Medicare. Perhaps a certain amount of illness is because of loneliness and isolation, and that would be one way of dealing with the problem.

Posted by: Anonymous at December 14, 2004 12:42 PM


"Under today's law, a middle-income worker who retires in 2065 would be entitled to an annual Social Security benefit of $26,400, or about 40 percent of the worker's wages. Under the proposed [price-indexing] change, that same worker's benefit in 2065 would decrease by 40 percent to $14,600, about 22 percent of the wages. That prospect troubles many experts, including some conservatives."

Is this correct? As I understood it, price-indexing would not change your benefit level at the time you retire, but index future benefit increases to inflation rather than wages.

"...'people don't want to reach retirement age and have their standard of living cut in half. If you use price-indexing, you won't be keeping up with your neighbors.'"

No, but you'd be maintaining the standard of living you had at the time you retired.

Posted by: fling93 at December 14, 2004 12:55 PM


Howard

Why, exactly, do your well-educated friends insist that there is a crisis? It would be helpful to know what the cognitive dissonance is....

There are 2 reasons given for pessimism about Social Security's sustainability: payroll taxes revenue has long been used to fund general government spending and all that is left to pay back to Social Security are promises; there are too many retirees and too few workers.

The media tell of Social Security and crisis, as though it was a given that the program is not sound. Not long ago Microsoft was running a radio ad for Encarta, in which a young boy uses the encyclopedia to tell a snooty Congressman that there will soon be no Social Security. Oh dear.

Posted by: anne at December 14, 2004 12:56 PM


-----------------------------------------
"This is more than a problem to be solved," Mr. Bush declared during the election campaign. "It's an opportunity to help millions of our fellow citizens find the security and independence of ownership."

To drive that point home this week, White House officials scheduled a single mother from Iowa, Sandy Jaques, to speak on the advantages that private accounts could offer to divorced spouses and widows.
-----------------------------------------
Seems that NYT needs to source-check more often. Sandra Jaques is no mere "single mother," but a fairly high-up astroturfer for Citizens for a Sound Economy (or, as they call themselves today, "FreedomWorks"). She's spent her policy career fighting to privatize Social Security -- hardly a disinterested party.

Posted by: WatchfulBabbler at December 14, 2004 01:46 PM


"If you just switched from wage-indexing to price-indexing, you would save so much money over that period you would actually wipe out the entire imbalance," said Kent Smetters, an associate professor at the Wharton School of Business who worked on entitlement issues in the Bush Treasury Department....

Is it a Law that real wages go up?

Posted by: anon at December 14, 2004 02:27 PM


I tried to post this in another earlier post about the scarcity of sensible Republicans, but it would not go so I am putting it here, considering the anti-Bushian statements.

Off topic, but there was no mention here about the new Energy Secretary, who seems like an eminently sensible man. Did you and your friends with your worthless anti-Bushian hides give him one ounce of credit? Most assuredly you did not.

Here is the post:


An endangered species, but they are out there. You can see them if you wait totally silently in your blind in the rain for more than a week:

Well, Mr. DeLong I had no idea you were a duck hunter!! What kind of hunting dog do you have? Word has it that he is worthless, a totally worthless yellow hound, who has the reputation of taking after his master.

I just reviewed your paper on Machiavelli that you have on your other website, and have decided that it is time that you REREAD IT AS WELL because there are some very important lessons in there that you have been NEGLECTING LATELY.

You have been spending too much time in your precious library all dolled up in those LEARNING STYLE HOTSY TOTSY ROBES you like to put on and feel all important-like.

I am sure that Machiavelli would agree that it is your time to SINK INTO VULGARITY, in order to keep your brain from going mouldy. So, Mr. DeLong I propose that, in the words of Machiavelli, have A THOUSAND DISPUTES AND COUNTLESS INSULTS. haha. Mr. DeLong I can hardly wait.

Posted by: Anonymous at December 14, 2004 02:45 PM


anne, very interesting. i suppose i've been lucky with friends, in that those i know who don't already recognize this as a bogus issue are willing to listen to a discussion of the facts.

sadly, though, i don't immediately have a way to break through the cognitive dissonance for the others - you are certainly right that the willingness of the media to repeat the claim that there is a "social security" crisis is an impediment to popular understanding.

Posted by: howard at December 14, 2004 03:33 PM


Mr. DeLong I am surprised at you. I was expecting an eminently worthy mud-slinging retort from you almost immediately, O worshipper of Machiavellian superior thought development!!

Just to give you some ideas. You and your worthless Democratic-hating hides. Snide comments about my sixth grade language. Anything!! Totally unsubstantiated. The more unsubstantiated and colorful the better.

My cats are totally worthless. Why not point that out? The economic stupiditiy of pets. How about kids? Aren't most of the decisions we make totally uneconomically rational? We desperately need you to POINT THAT OUT TO US.

Posted by: Anonymous at December 14, 2004 03:50 PM


At some point in the 1970s, I remember reading, benefits used to be indexed to prices instead of wages, which is what they are now indexed to. Why did this happen? Under any even remotely realistic proposal for privatization, benefits would once again be indexed to prices. I don't like the idea of a big benefit cut, but the openminded part of me wonders, if people weren't suffering under the old indexed benefit payout, would things be so bad if that were to happen now? Just setting the benefits to prices would take care of almost all of the problem.

Posted by: Brian at December 14, 2004 04:05 PM


Howard :)

http://www.nytimes.com/2004/12/14/opinion/14tue4.html

What's New in the Legal World? A Growing Campaign to Undo the New Deal
By ADAM COHEN

The New Deal made an unexpected appearance at the Supreme Court recently - in the form of a 1942 case about wheat. Some prominent states' rights conservatives were asking the court to overturn Wickard v. Filburn, a landmark ruling that laid out an expansive view of Congress's power to legislate in the public interest.

Supporters of states' rights have always blamed Wickard, and a few other cases of the same era, for paving the way for strong federal action on workplace safety, civil rights and the environment. Although they are unlikely to reverse Wickard soon, states' rights conservatives are making progress in their drive to restore the narrow view of federal power that predated the New Deal - and render Congress too weak to protect Americans on many fronts.

We take for granted today the idea that Congress can adopt a national minimum wage or require safety standards in factories. That's because the Supreme Court, in modern times, has always held that it can.

But the court once had a far more limited view of Congress's power. In the early 1900's, justices routinely struck down laws protecting workers and discouraging child labor. The court reversed itself starting in 1937, in cases that led to Wickard, and began upholding these same laws.

States' rights conservatives have always been nostalgic for the pre-1937 doctrines, which they have lately taken to calling the Constitution-in-Exile. They argue - at conferences like "Rolling Back the New Deal" and in papers like "Was the New Deal Constitutional?" - that Congress lacks the power to do things like forcing employers to participate in Social Security. Given how entrenched New Deal programs have become in more than half a century, these plans for reversing history have always seemed more than a bit quixotic.

But that may be about to change. The attacks on the post-1937 view of the Constitution are becoming more mainstream among Republicans. One of President Bush's nominees to the United States Court of Appeals for the Ninth Circuit, Janice Rogers Brown, has called the "revolution of 1937" a disaster. And last month in the Supreme Court - in a case about medical marijuana - the justices found themselves having to decide whether to stand by Wickard.

In that case, two Californians who use marijuana for medical reasons argued that Congress, which passed the Controlled Substances Act, did not have the constitutional power to stop them. To pass a law, Congress needs a constitutional hook, and the Controlled Substances Act relied on one of the most important ones, the Commerce Clause, which authorizes Congress to "regulate Commerce ... among the several States." The Californians argued that their marijuana did not involve interstate commerce because it never left their state.

That is where Wickard v. Filburn comes in. Roscoe Filburn was a farmer who argued that his wheat crop should not fall under federal production quotas because much of it was consumed on his own farm. The Supreme Court held that even if that wheat did not enter interstate commerce, wheat grown for use on a farm altered supply and demand in the national market. The decision gave Congress broad power to regulate things that are located in one state, like factories and employer-employee relationships.

Some leading conservatives want the court to overturn Wickard and replace it with a pair of decisions from the 1800's that one brief filed in the case said would return "Commerce Clause jurisprudence to its settled limits prior to the New Deal." That would be a bold move, but the court has already been heading down this path. In recent years, it has struck down the Gun-Free School Zones Act and a crucial part of the Violence Against Women Act for exceeding Congress's power.

If the Supreme Court drifts rightward in the next four years, as seems likely, it could not only roll back Congress's Commerce Clause powers, but also revive other dangerous doctrines. Before 1937, the court invoked "liberty of contract" to strike down a Nebraska law regulating the weight of bread loaves, which kept buyers from being cheated, and a New York law setting a maximum 10-hour workday. Randy Barnett, the law professor who represented the medical marijuana users, argues in a new book that minimum wage laws infringe on "the fundamental natural right of freedom of contract."

In pre-1937 America, workers were exploited, factories were free to pollute, and old people were generally poor when they retired. This is not an agenda the public would be likely to sign onto today if it were debated in an election. But conservatives, who like to complain about activist liberal judges, could achieve their anti-New Deal agenda through judicial activism on the right. Judges could use the so-called Constitution-in-Exile to declare laws on workplace safety, environmental protection and civil rights unconstitutional.

Getting rid of Wickard would be an important first step. At last month's argument, that did not appear likely. Justice Antonin Scalia, a leading states' rights champions, said he "always used to laugh at Wickard," but he seemed prepared to stick with it. It may be, however, that the justices are quicker to limit Congress's power when it does things they don't like (like gun regulation) than when it does things they do (like drug regulation). They may be waiting for a more congenial case.

The court will not return to the pre-1937 Constitution in a single case, but it seems likely to keep whittling away Congressional power and federally protected rights. If it does, what President Franklin Roosevelt declared in 1936 - after two key New Deal programs were struck down - will again be true: "It was not the wage earners who cheered when these laws were declared invalid."

Posted by: anne at December 14, 2004 04:18 PM


My understanding is that initial benefits are based on wage indexing, and once retired, benefits are then increased based on CPI.

Bush's plan would gradually erode the living standards of future retirees. Based on the assumed levels of productivity and GDP growth, I believe it would cut benefits for someone retiring around 2075 by about 55%.

The current analogy would be setting initial benefits for someone who retires today based on a 1930's living standard.

Posted by: Charlie at December 14, 2004 05:31 PM


There can, of course, be no increase in payroll taxes or lifting of the cap on payroll taxes to sustain the program.

And why can't the cap be raised? Seriously.

Posted by: Thumb at December 14, 2004 05:43 PM


> And why can't the cap be raised?

You have to assume that would be one of the bargaining chips Bush is willing to cough up. "Oh, some Democrats say we need some shared sacrifice, and some Republicans say we need fiscal discipline. (Rolling eyes).

This isn't MY idea, but it's time to move forward, because that's what the people voted for Republicans to do. It's hard work getting anything done with tax and spend Democrats in town. We'll increase the wage cap for ten years, to pay transition caps, and then set the wage cap to $1 over the poverty level.

Posted by: Charlie at December 14, 2004 08:51 PM


If the President is a Liar, Liar, there should be plenty of lies in his recent radio address:

http://www.whitehouse.gov/news/releases/2004/12/20041211.html

It seemed pretty innocuous to me, however.

Posted by: Tom Maguire at December 14, 2004 09:07 PM


> Seemed pretty innocuous to me.

Bush promised not to cut benefits for today's retirees and near-retirees, but at the same time, he's defunding the trust, and also loading up the public debt. Instead of possibly going bankrupt around 2050, under Bush's proposal, the trust is likely to go bust around 2020.

Bush has promised noone over 55 will see benefits cut. Those folks will just be starting to get benefits when the trust goes broke.

That's innocuous?

Posted by: Charlie at December 14, 2004 11:38 PM


"anne, i'm curious: why, exactly, do your well-educated friends insist that there is a crisis? It would be helpful to know what the cognitive dissonance is...."

If I am not mistaken our host used the words "real crisis" just in the last few days. And I have looked at his CV, and "well-educated" hardly touches it. Try "hyper-educated". And yet he has yet to break on through to the other side, as Brother Jim Morrison put it.

The cognitive dissonance is barely dissonant. Until Krugman broke through the noise last week the very notion that the Social Security Trust Fund was in very good health (and shush, don't tell the children, probably overfunded) was just not to be heard anywhere at all (except from Dean Baker). Reports of the Trust Fund "running short" in 2019 and becoming "exhausted" in 2042 were simply common currency, not something to be justified. And that is still true today. There is a great deal of talk about tactics, about alternative methods for "saving" Social Security from its "crisis". But what we are not hearing is an serious grappling with the numbers that prop up these shortfall dates.

Do you believe that US productivity will settle in at 1.6% in the out years after 2011? Well then you can agree that the Social Security Trust Fund will become exhausted in 2042. Do you believe that US productivity in the out years will settle in at 1.9% or better? Then the Trust Fund will never become exhausted.

But these numbers are not being engaged. With the honorable exceptions of Anne and Liberal the discussion proceeds as if the 2042 date was carven in stone, even though once upon a time it was equally confidently stated to be 2023. The number is moving, yet the arguments are static. Until we restore the dynamics to the discussion we are not going to get anywhere.

My solution? Relentlessly link to the numbers.
2004 Trustees Report: Economic Assumptions under the Three Alternatives & Trust Fund Ratios under the Three Alternatives

Posted by: Bruce Webb at December 15, 2004 05:51 AM


Let's try again. Since this site magically renders HTML but doesn't seem to convert it to a live link.
Trust Fund Ratios: http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp106217
Economic Assumptions: http://www.ssa.gov/OACT/TR/TR04/V_economic.html#wp159107

And please folks, notice the .gov . This is not from some Lefty think tank, in the final analysis these are Bush Administration numbers. And it just isn't broke.

Posted by: Anonymous at December 15, 2004 06:56 AM


Bruce Webb

"Do you believe that US productivity will settle in at 1.6% in the out years after 2011? Well then you can agree that the Social Security Trust Fund will become exhausted in 2042. Do you believe that US productivity in the out years will settle in at 1.9% or better? Then the Trust Fund will never become exhausted."

Nicely argued!

Posted by: anne at December 15, 2004 07:58 AM