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January 05, 2005


The New York Times's Richard Stevenson writes:

The New York Times > Washington > G.O.P. Divided as Bush Views Social Security: Mr. Bush intends to step up his involvement in [Social Security] in coming days. He is meeting with Republican leaders at the White House on Thursday and giving a speech next week. In addition, he is dispatching his Treasury secretary, John W. Snow, to New York to reassure Wall Street that... trillions of dollars in new government borrowing is consistent with efforts to reduce the budget deficit and improve the nation's financial condition.

Is Stevenson being intentionally funny, or unintentionally funny? I cannot tell.

UPDATE: The Minuteman thinks that Stevenson is totally inept:

Just One Minute: Somebody is not up to their job.  Bob Somerby of the Daily Howler thinks that Richard Stevenson of the NY Times is not capable of guiding a discussion of Social Security... my firmly held opinion is that Somerby is right, the Times blew it, and Matt [Yglesias] is overly reliant on their poor reporting.... The 2001 Bush Commission on Social Security... Plan II... they tell us how they might adjust the level of benefits to reflect contributions to personal accounts... tracks a "notional balance" based on that contribution... the notional balance is built in to the calculation of total contributions to arrive at the retirement annuity. So, there is a mechanism to reduce my future benefit as workers contribute to personal accounts.  It is just a bit complicated, and more than Mr. Stevenson thought his readers could digest...

The Minute Man is understating Stevenson's problem. It's not that Stevenson skates over the mechanism for adjusting benefits for those who divert their payroll taxes to private accounts, it's that when Stevenson writes "Republicans have also come out forcefully against... reducing the part of future retirement benefits that would come from the government... allow investment of 6 percent of the wages subject to the payroll tax and... not mandate across-the-board reductions in scheduled benefits," almost every single reader of the Times is going to conclude that there is no mechanism for adjusting benefits--because if there was one surely Stevenson would have mentioned it.


Posted by DeLong at January 5, 2005 08:29 PM

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» Craziness from The Dead Parrot Society
Brad DeLong argues that New York Times reporter Robert Stevenson got it wrong when he failed to mention any benefit cuts in John Sununu and Paul Ryan's Social Security plan. Dr. DeLong states: The Minute Man is understating Stevenson's problem ... when... [Read More]

Tracked on January 7, 2005 03:56 PM


A couple of decades back, FICA began taking in extra tax for Social Security’s future needs – then diverted all the extra monies to non-Social Security current expenses. Since that didn’t work we are now to ask individuals to save for Social Security (really only to save future FICA caps from being raised above today’s 84 percentile income level).

Of course are to go on diverting trillions of dollars of FICA surpluses to non-Social Security programs – even as we borrow trillions to cover current Social Security obligations caught short by building private accounts.

As Casey Stengel once put it: “Does anybody here know how to play this game?”

Denis Drew

Posted by: Denis Drew at January 5, 2005 09:29 PM

The other shoe is the memo (see Josh et al)

Posted by: ken melvin at January 5, 2005 09:29 PM

Bush and company have no choice.
1. The US can't import stuff like tv sets, oil, chocolate, palm oil, etc., forever without paying for it.
2. Making stuff instead of importing it, or exporting stuff to pay for imports, will require proportionately less skilled workers than our present labor demand skill set.
3. More demand for less skilled workers will raise wages for less skilled workers.
4. Less skilled workers pay a larger proportion of their income taxes in the form of social security than higher skilled workers.
5. If they don't solve the social security problem before all that new social security tax money arrives, they won't be able to solve it at all.
6. This assumes that the social security problem for Bush is that it exists.

Posted by: wkwillis at January 5, 2005 09:32 PM

In the sense than $1-2 trillion is better than $3.7 trillion, Snow's right. However, these are estimates, and since the numbers aren't that far apart right now, they can surely be a lot more similar once we get a better idea of where we are headed.

Of course, if the Bush administration were really interested in reducing the deficit in the future, it could tackle Medicare reform. But as I've said before, I expect monkeys to fly out of my ass before this group has to make a large number of trade offs.

Posted by: Brian at January 5, 2005 10:35 PM

Good. Perhaps soon I can persuade my parents that playing computer games and posting on blogs all day is consistent with spending a lot of time studying my college courses.

Now, if only I could persuade my professors to this view as well...

Posted by: Julian Elson at January 5, 2005 11:01 PM

Brian, that $1-2 Trillion estimate is using hokus-potus ten year accounting.

The transition would take MUCH longer than 10 years, so it would require MUCH more than $1-2 Trillion, unless the plan is to let the trust go bust around 2020. A better guess for the true transition cost is $5 Trillion, over 30 years.

Best case is that the system might come back into balance some time after mid-century.

Here's how you'll know when to short treasury bonds: when the White House floats the idea of starting to reissue 30 year, or perhaps even 50 or 100 year bonds.

This financing really needs to be done with long duration bonds, since the only way the govt knows it can pay the bonds off is by inflating away the value of the bonds.

But it's quite likely nobody with the amount of money required would want longer duration bonds, since much of the current flow into treasuries is as a form of reserve currency, rather than as a long term investment.

Probably this White House would punt on the idea of long term bonds, and punt on what to do ten years from now, when the transiton costs turn out to be recurring. That's just too many balls to keep in the air.

Posted by: Charlie at January 6, 2005 12:42 AM

By borrowing a few trillion, Bush can jump start our economy. The rich will get richer, and then the power of the market will take care of everything.

Posted by: Chad at January 6, 2005 02:31 AM

It must be intentional sarcasm. I mean, anytime someone mentions John Snow there's a joke in it...

Posted by: Missy at January 6, 2005 03:31 AM

He said that with a straight face?

I read that part of Bush's deficit reduction plan is to cut money to new weapons systems at the Pentagon. As Zell would say, "are they supposed to arm themselves with spitballs?"

Posted by: Unstable Isotope at January 6, 2005 03:32 AM

The sad part of this article is that such nonsense is written in the portion of the paper that is read by professionals or at least by people conversant with basic economics and the writer can put this in there expecting it to be accepted at face value.

The paper would be doing a great service to its readers if it would include articles explaining how borrowing could encourage a way out of the current mess.

To the many people who have had to max out credit cards and take home equity loans to make ends meet or to put their kids through college, justifying such borrowing and showing how "logical" such actions are would at least make the sacrifices they make to pay off those debts more palatable.

Posted by: Matt at January 6, 2005 05:41 AM

Birn at the Post gets it wrong again!


Posted by: Kosh at January 6, 2005 06:32 AM

But surely he is being consistent, your problem is that you think he wants to reduce the deficit, but he doesn't.

Posted by: Big Al at January 6, 2005 07:06 AM

"to reassure Wall Street that... trillions of dollars in new government borrowing is consistent with efforts to reduce the budget deficit and improve the nation's financial condition."

"Is Stevenson being intentionally funny, or unintentionally funny? I cannot tell."

This is the understated journalistic equivalent of the slap in the face. Or perhaps the belly-straining laughter directed at that which is patently absurd and stupid.

Bush would dispute Stevenson's characterization of Snow's mission, and would certainly avoid at all costs any mention of his SS plans in the context of deficit reduction. Stevenson knows this - and intended to say, as clear as "objectivity" allows, "The President sent his hack Treasury Secretary to lie to Wall Street."

Whether that's funny or sad is open to question.

Posted by: Silent E at January 6, 2005 07:16 AM

Maybe he's trying to let the truth slip out while technically staying within journalistic standards of objectivity that say we must give equal weight to "black is black" and "black is white."

--Rick Taylor

Posted by: Rick Taylor at January 6, 2005 07:19 AM

I would bet on unintentional. It reads like the usual White House steno pool work to me.

Posted by: linnen at January 6, 2005 11:43 AM

Folks seem willing to credit Stevenson for
trying to dumb down the issue, however, dummies
are not his audience. Anyone trying to cipher
his writing would have given up long ago and
moved to the sports page.

Posted by: SEC Overreach at January 7, 2005 07:26 AM

Uh, Stevenson is 100% correct. Bush wants to attach benefits to the CPI. Ryan and Sununu aren't going to cut benefits at all.

almost every single reader of the Times is going to conclude that there is no mechanism for adjusting benefits--because if there was one surely Stevenson would have mentioned it.


In technical terms, Ryan and Sununu eliminate the actuarial deficit by effectively increase the internal rate of return in the system. This only comes about b/c the SSA assumes a large equity premium. Further, any shortfall in revenues is financed by General Fund transfers. In theory, these are supposed to come from reduced spending. Whatever.

What will happen under Ryan's plan is that borrowing will skyrocket in the short-term. If we get lucky and the stock market does well, then indeed things will turn out nicely. But for those years when aggregate returns have been lousy, the government has to step in because stock returns are freaking GUARANTEED to result in payable benefits in excess of scheduled increases in benefits.

Also, it should be noted that individuals have three different investment options initially (and potentially more) ... one has up to 80% or 85% of their individual account invested into stocks. The actuaries assume that most will stay in the default, with 65% in equities. Now, if your returns are GUARANTEED to give you at least as high as the currently scheduled benefits, which investment option are *you* going to choose? Hmm?

People should have realized that Ryan's extreme when there's a provision in the law that requires that OASDI payroll tax rate to stay above 3.5%. Yes, that's right. In his plan, if the stock market booms then the tax rate will drop because the actuaries won't need the reserves anymore.

I just can't believe that people on the left like Yglesias are buying into this stuff as being "not that far out there" or whatever the heck he said. Stevenson has it right, and this post by DeLong obfuscates the issue by incorrectly casting aspersions on his work.

Posted by: Victor at January 7, 2005 01:27 PM

Here's the latest bit of revisionism being performed by the Bush crowd. This is from the www.whitehouse.gov website under history&tours (right next to the link for Mrs. Cheney, a revisionist in her own right).

Here's what Bushites have done to the legacy of FDR:

He was elected President in November 1932, to the first of four terms. By March there were 13,000,000 unemployed, and almost every bank was closed. In his first "hundred days," he proposed, and Congress enacted, a sweeping program to bring recovery to business and agriculture, relief to the unemployed and to those in danger of losing farms and homes, and reform, especially through the establishment of the Tennessee Valley Authority.

By 1935 the Nation had achieved some measure of recovery, but businessmen and bankers were turning more and more against Roosevelt's New Deal program. They feared his experiments, were appalled because he had taken the Nation off the gold standard and allowed deficits in the budget, and disliked the concessions to labor. Roosevelt responded with a new program of reform: Social Security, heavier taxes on the wealthy, new controls over banks and public utilities, and an enormous work relief program for the unemployed.

In 1936 he was re-elected by a top-heavy margin. Feeling he was armed with a popular mandate, he sought legislation to enlarge the Supreme Court, which had been invalidating key New Deal measures. Roosevelt lost the Supreme Court battle, but a revolution in constitutional law took place. Thereafter the Government could legally regulate the economy.

Roosevelt had pledged the United States to the "good neighbor" policy, transforming the Monroe Doctrine from a unilateral American manifesto into arrangements for mutual action against aggressors. He also sought through neutrality legislation to keep the United States out of the war in Europe, yet at the same time to strengthen nations threatened or attacked. When France fell and England came under siege in 1940, he began to send Great Britain all possible aid short of actual military involvement.

When the Japanese attacked Pearl Harbor on December 7, 1941, Roosevelt directed organization of the Nation's manpower and resources for global war.

Feeling that the future peace of the world would depend upon relations between the United States and Russia, he devoted much thought to the planning of a United Nations, in which, he hoped, international difficulties could be settled.

As the war drew to a close, Roosevelt's health deteriorated, and on April 12, 1945, while at Warm Springs, Georgia, he died of a cerebral hemorrhage.

Top heavy margin? Feeling he had a mandate? Three months into his term there was massive unemployment and the business community was turning against him?

There's nothing here about the fact that Roosevelt beat Hoover by 7 million votes, that at a time when the population of the US was considerably less than it is today and when voter suppression wasn't a "conspiracy theory" but was the real deal throughout the south and border states.

All we heard yesterday during the "debates" was how this president has a mandate from the people to proceed with his agenda and the democrats are trying to subvert the government.

Yes, Goerge W. Bush received a considerable amount of votes. Through chicanery and technological sleight of hand, we will never really know how many votes each candidate legitimately received. But, as Ron Reagan said, John Kerry received more votges that Ronald Reagan did when he won reelection in 1984 and Kerry lost. For Bush to claim that he has a mandate because there were substantially more people voting than in recent years (and, let's admit, some of these voters were "virtual" voters), is both disingenuous and outright dishonest.

Expect to hear Hannity and the rest of the chorus on the right now comparing Bush to FDR when they speak of his mandate. That will be the final irony for this crew: As they dismantle the New Deal, they will besmirch the memory of its architect by making comparisons between him and the worst president this country, perhaps any country, has ever seen.

Posted by: matt at January 7, 2005 06:14 PM

The NYT with an agenda? Say it isn't so.

Posted by: MarkN at January 8, 2005 06:41 AM

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