Time to move beyond "Nothing" on Social Security?

by Bruce Webb

Commenter and blogger Arne (whose largely SS Blog is found here) asked in comments whether it was time to move beyond “Nothing” and propose to policy makers some alternative plans to address future discontinuities. Which is a very sensible question, because if and when the Social Security Trust Funds (DI and then later OAS) approach depletion, we have to do “Something”. Because as former Deputy Commissioner of SS Biggs helpfully explained it turns out that current law does not allow the Commissioner of SS to either unilaterally change benefit levels, nor does he have the legal authority to borrow. Which means that the combined 22% cut in benefits in 2041 (SSA) would show up as delayed checks for Disabled beneficiaries as DI goes deplete around 2019 (CBO) and for OAS beneficiaries around 2049 (CBO). In all likelihood “Something” will have to be done whether that be the plan advanced by Arne, the quite similar plan advanced by Coberly, or several varieties of my plan, or Diamond-Orszag, or Liebman-MacGuineas-Samwick or any other plan people might like to suggest.

But my answer to Arne’s question is “Not yet”. To understand why we have to consider what “bi-partisan compromise” on Social Security has meant in the recent past and today. Links and discussion below the fold.

I take as our starting place President Bush’s 2001 Commission to Strengthen Social Security. The Commission’s web-site lays out its task as follows (bolding mine):

On May 2, President Bush announced establishment of a bipartisan, 16-member Commission “to study and report … specific recommendations to preserve Social Security for seniors while building wealth for younger Americans.”
Guiding Principles
The Commission was asked to make recommendations to modernize and restore fiscal soundness to Social Security, using six guiding principles:

Modernization must not change Social Security benefits for retirees or near-retirees.
The entire Social Security surplus must be dedicated only to Social Security.
Social Security payroll taxes must not be increased.
The government must not invest Social Security funds in the stock market.
Modernization must preserve Social Security`s disability and survivors insurance programs.
Modernization must include individually controlled, voluntary personal retirement accounts, which will augment Social Security.

Meaning that ‘bi-partisan’ in context means ‘Democrats who agree in advance on a no-tax/PRA solution’. Which in turn means that none of Coberly’s, Arne’s, mine, or even D-O or LMS plans would meet the initial cut, all of whom include or are open to some increase in payroll tax and only LMS explicitly including PRA’s. When Bush in 2004 and 2005 claimed ‘all options are on the table’ he really meant ‘all options bracketed by the three models included in the CSSS Final Report Strengthening Social Security and Creating Personal Wealth for All Americans‘. Meaning that ‘dialogue’ was implicitly defined as ‘after first capitulating to my principles’.

Which is why “Nothing” remained my preferred plan right through to January 20th, 2009, there was no way the Bush Administration would agree to any “Something” I would accept. Indeed their starting position required rejecting a plan co-written by a top Bush administration economist whose portfolio included Social Security (Samwick of LMS). On my analysis LMS is a horribly worker-unfriendly plan that shifts most burdens for ‘fixing’ Social Security ‘crisis’ from capital entirely to wage workers and doesn’t ‘fix’ the ‘crisis’ as normally framed: benefit cuts at depletion in 2041 (SSA). LMS compromises on Bush’s six principles by proposing taxes on wage workers and wage workers only. To describe it as the authors do as a “bi-partisan compromise” is from a progressive standpoint ludicrous:

The three of us – former aides to President Clinton, Senator McCain, and President Bush – did an experiment to see if we could develop a reform plan that we could all support. The Liebman-MacGuineas-Samwick (LMS) plan demonstrates the types of compromises that can help policy makers from across the political spectrum agree on a Social Security reform plan.

But all of those ‘compromises’ end up being in the form of worker concessions, and almost all the benefits ultimately flow to capital. As I put this is post no. 5 in my AB SS series (May 12, 2008 LMS and the Infinite Future

Which is well and good except that in this case ‘spectrum’ seems to span everything from (barely) left-center to right. This is bipartisan in the Lieberman sense, lets agree to slightly moderate a conservative position and call it good. Second coming of FDR it decidedly isn’t. But back to the authors. Prof Jeffrey Liebman (of Harvard’s Kennedy School of Government) is particularly interesting in that as well as being a former Clintonista he is currently one of the top three economists on Obama’s economic team. When Social Security policy is being discussed in what I hope is an Obama Administration he is more than likely to be sitting at the table, something I view with a certain unease.

An unease I maintain today eleventh months later. Barkley Rosser advised me to discount Liebman on the basis that the real danger to Social Security is coming from Larry Summers. Which may be, on the other hand Liebman subsequent to that advice from Barkley landed as one of Orzsag’s top level deputies as the Executive Associate Director at OMB. Indeed while the OMB org chart show the Executive Associate Director at the same level as the four regular Associate Directors the language of the Press Release shows him to be maybe the First among Equals

Today, President-elect Barack Obama announced the following key posts at the Office of Management and Budget (OMB): Jeffrey Liebman, Executive Associate Director; Steve Kosiak, Associate Director for Defense and International Affairs; Robert Gordon, Associate Director for Education, Income Maintenance and Labor; Xavier de Souza Briggs, Associate Director for General Government Programs; Preeta Bansal, OMB General Counsel and Senior Policy Advisor; and Kenneth Baer, Associate Director for Communications and Strategic Planning.

Which is why I am not yet ready to abandon my current policy preference of “Nothing” at least for any purposes outside the confines of the Econoblogs at least not yet. As it is we have the co-author of a not-so-bad Social Security plan (Diamond-Orzsag) at the OMB and the co-author of an awful SS plan (Liebman of LMS) serving as his deputy, and no clear defender of traditional SS in the Administration except Jared Bernstein and maybe Jason Furman. Against that we have calls from Hassett and Biggs at AEI and their apparent stenographers Montgomery and Hiatt at the WaPo insisting that the answer to to agree to a ‘bi-partisan commission’.

HIatt made the case as follows: Fixing the Budget In the Worst (But Only) Way

But in the department of doggedness, nobody can outdo Wolf, a Republican who has represented parts of Northern Virginia for 28 years. For the past several years, what he has been most persistent about is the need for a bipartisan commission to stave off looming fiscal disaster. He introduces legislation, writes letters, makes calls. Above all he pleads his case: Nothing else is going to work.

For just as long, I’ve been reluctant to admit that Wolf might be right. There are two big problems with the type of commission he’s proposing, which would present Congress with one take-it-or-leave-it grand solution. It can produce lowest-common-denominator-type answers. And it makes sense only if you’re willing to admit that the regular political system cannot do what it is supposed to do. Which, lately, has been seeming like a safer and safer bet.

The model for the Wolf idea is the method Congress has used to close military bases since 1988. Recognizing that the Pentagon operated too many facilities but that no legislator would vote to close a base in his or her own district, Congress set up a Defense Base Closure and Realignment Commission (BRAC), which came up with a rational downsizing plan. Congress had to vote for the whole list or nothing at all; there could be no special pleading.

Why is the regular political system not functioning? Could it have anything to do with the fact that Republicans have united in opposition to any plan of Obama’s that spends any money on domestic programs in favor of a solution that freezes all domestic programs across the board, claims that a $34 billion in increased defence spending equates to ‘slashing’ that budget and proposes that the answer is just to agree on abolishing corporate taxes and continuing lower taxes on the wealthy? Well no, it is Obama’s refusal to adopt Bushonomic economic policy that worked so marvelously up to now. Which is how the Washington Post defines ‘bi-partisanship’. What is Hiatt’s preferred solution for breaking this deadlock? Simple. We just sign on to Wolf’s proposal.

Now comes the movement to bring the rationale behind BRAC to the budget. Wolf’s bill is co-sponsored by Rep. Jim Cooper (D-Tenn.); comparable legislation in the Senate is backed by the chairman and the ranking minority member of the Budget Committee, Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.). The idea got a boost 10 days ago from another panel of Wise Men (and a couple of Wise Women) in a report called Saving America’s Future.

“In light of the demonstrated inability of the existing political process” to address the country’s fiscal problems, the panel said, Congress should create a Fiscal Future Commission modeled on, yes, BRAC. The authors include a former NATO ambassador, David Abshire; a former Lockheed Martin CEO, Norman Augustine; a Democratic former governor, Roy Romer; former attorney general Edwin Meese; former senators Sam Nunn and Chuck Hagel; and many more.

The idea makes most sense for something like saving Social Security, where there’s a large consensus at the political center on what needs to be done (change the inflation index for benefits a bit, raise the age limit a bit, tax income at a slightly higher level) but no political will to do it. But the Fiscal Future Commission would fix not only all entitlement programs but also “reorient government spending programs and tax preferences.” And it would do so “free of the pressure and influence of interest groups and partisan elements.”

Taking the last point first, lets take a look at the names of those ‘Wise Men (and Women). Fred Hiatt’s Wise Men. Short version: four generals and admirals, a handful of retired Congressional defense hawks, a former Secty of the Army, six former Republican cabinet level officials, two college Presidents with strong ties to Wall Street, plus for the heck of it a civil liberties defending Obama supporter. But basically a group that ranges all the way from the Center to the right. Oh and yes a certain C. Fred Bergsten. Who’s he? “C. Fred Bergsten has been director of the Peterson Institute for International Economics since its creation in 1981.”

Yep nothing like loading up your lineup with a bunch of defense hawks and Bush cabinet members and a Pete G. Peterson guy to get you free from “the pressure and influence of interest groups and partisan element”. This is just another case of Peterson trying to make a move.

Then note that Hiatt presents us with a solution that could have been (and likely was) written by Pete G. himself and presents it as a “large consensus at the political center”.

So the answer to Budget ‘crisis’ is to propose a compromise on bi-partisan lines between Obama top level officials open to SS benefit cuts (e.g. Orszag and Liebman) and Congressional conservative Republicans (Gregg) and Blue Dog Democrats (Cooper and Conrad) who agree that Social Security is unsustainable with backing from a Pete G. Peterson front group masquerading as the Sensible Centrist Wise Men and so form a “Bi-Partisan Commission” to present an “Up or Down” solution on the BRAC model. Well no thanks, not only am I not willing to get fooled again, I wasn’t much fooled the first few times around.

Meaning I am not yet ready to move off a position of “Nothing”. Not at least until we get to the point of being able to lift the rock of Social Security ‘reform’ via a Fiscal Future Commission without finding Pete G. Peterson or his minions scurrying around trying to undermine Social Security.

We can and should debate the merits of various Social Security plans, whether that be D-O or LMS or Arne’s. But let us not fool ourselves that the current environment supports a true ‘Bi-Partisan Commission on Social Security’ that would allow Arne’s or Coberly’s or certainly my plans to be debated in good faith. Because the sellers of crisis led by Cato, AEI, Concord and the various PGP organizations have sold all Republicans and most if not all of the Blue Dog and DLC Democrats on the notion that “Something has to be done, and sooner better than later, about Social Security”. “Nothing” is not a perfect plan but currently is a hell of a lot better than all the “Somethings” actually out there in the policy arena.

It is often said that the “Best Defense is a Good Offense”. Well not always, not if you are leaving a secure position and running right up hill in the face of the guns, you can ask how that worked for General Pickett at Cemetary Ridge or for Lord Cardigan at Balaclava, and that even though the opposition was fighting according to the rules, something that really can’t be said to be happening in the continuing seventy plus guerilla war to kill Social Security using all necessary means.

I don’t know of a single Democratic policy maker on either the Congressional or Administration side that has openly come out and embraced a Social Security solution that relies on some combination of taxes and targeted growth policy that would deliver a Coberly or Arne outcome of fully funded benfits without abandonment of the current insurance model. At best we have plans that attempt to address the projected gap in a purportedly progressive way via a cap increase. Until we can get people to understand that “Nothing” is better than the existing proposed “Somethings” then I am a little hesitant to open a door to those who reject “Nothing” out of hand, and whose starting position is just as hard as Bush’s insistence that PRAs and no taxes have to be included in the governing guidelines. The other side of this has consistently asserted that we have to fight this fight on their conceptual ground under their rules of engagement which ALWAYS start from a presumption of benefit cuts as the ‘sensible centrist’ thing to do. I am not willing to accept that as a point of departure.

In the current environment ‘Bi-partisanship’ equates to ‘We are all Blue Dogs now!’. Well no, this Yellow Dog Democrat may vote for a Blue Dog in the interest of a Democratic majority if given no other choice. But I have no intent of changing coats and just turning my back on the New Deal in the ways the Blues demand.