Social Security and the Infinite Future: From 1997 to Heat Death
by Bruce Webb
Eric Laursen in his post Cato Premieres its Latest Horror Show points us to a new book forthcoming called ‘Social Security; A Fresh Look at Policy Alternatives’ by senior Cato fellow Jagadeesh Gokhale. Gokhale along with his oft-time collaborator Kent Smetters seems to be the father of ‘intergenerational equity’ and lead advocate for measuring that over the ‘Infinite Future Horizon’.
Eric, backed up by people as varied as the American Academy of Actuaries and conservative economist Bruce Bartlett, does a nice job showing why Infinite Future is not a useful tool in this instance, a topic I have taken up from time to time and I urge people to read it. But what interested me is what it revealed about the curious timeline during which Infinite Future even became part of the Social Security Policy discussion. Details below the fold.
The key paragraphs come right up front in Eric’s piece:
In August 2003, Joe Lieberman, then in the early stages of launching a presidential bid, wrote a letter to Treasury Secretary John Snow in which he accused the administration of “stripping out” from its 2004 budget the findings of an internal Treasury paper that Snow’s predecessor Paul O’Neill had ordered up. Attempting to stake out a position as the toughest of the deficit hawks, Lieberman suggested that “this administration is trying to hide the true nature of our financial obligations from the American people in order to advance its agenda of cutting taxes indiscriminately.”
The paper was written by Gokhale, then at the Cleveland Fed, and Kent Smetters, then deputy assistant Treasury secretary for economic policy. Contrary of Lieberman’s claim, Smetters claimed it had been “for internal discussion only,” to try to help O’Neill “think about [the deficit] from an economic perspective.” There was no conspiracy to suppress it, he said; the administration considered including it in the budget but then decided against it. Gokhale and Smetters revised their paper and presented it four times in Washington in May 2003, including to the American Enterprise Institute. They then published it as an AEI monograph.
This suggests without saying so that this ‘internal Treasury paper’ was the work product of Sping 2003 and was suppressed during the preparation of the Budget that Fall. But this can’t be so, as Smetters and Gokhale pointed out in a July Op-Ed similar language had been included in the 2003 Social Security Report, itself signed off by newly installed Secretary Snow.
The 2003 Social Security Report was released on Mar 17, 2003, two weeks earlier than normal and coincidentally or not the week the invasion of Iraq was announced, to say that ‘nobody noticed’ was a gross understatement. In any event it contained this curious (to me) language.
“Even a 75-year period is not long enough to provide a complete picture of Social Security’s financial condition. Figures II.D6 and II.D7 show that the program’s financial condition continues to worsen at the end of the period. Some experts have noted that overemphasis on summary measures for a 75-year period can lead to incorrect perceptions and to policy prescriptions that do not move towards a sustainable system. In order to provide a more complete description of Social Security’s very long-run financial condition this year the Trustees present actuarial estimates over a time period that extends to the infinite horizon. These calculations show that extending the horizon indeed increases the unfunded obligation, indicating that much larger changes would be required to achieve solvency over the infinite future as compared to changes needed according to 75-year period measures.”
Who were ‘some experts’ and why was their advice privileged over say the statutory group of outside advisors Social Security Advisory Board (a group of which Gokhale is the newest advisor).
So whether or not Smetters and Gokhale are the ‘some experts’, clearly this idea was floating around early enough to be incorporated in a March Report, and if that ‘internal report’ had been prepared for Secty O’Neill, it would have had to come into being sometime before O’Neill left office in Dec 31, 2002. Meaning likely over the course of 2002.
Which leaves the lingering question of ‘who had the authority to have this included in the Reports to be signed by the Trustees on March 17?’ More importantly ‘why was this thought to be important or useful?’
Well a trip back to the timeline may be important. Although Bush didn’t run for office in 2000 heavily on the issue of Social Security clearly it was a high domestic priority, he had his CSSS Commission to Strengthen Social Security in place by June 2001, complete with charter and membership with a tight seven month deadline for reporting, by all indications he was ready to take this to the country in spring 2002. Well 9/11 changed his priorities, by the time the Report was released on Dec 21st we were engaged in Afghanistan, and the entirety of 2002 was eaten up building support for a War on Iraq, the time clearly wasn’t ripe to take on Social Security at the same time.
But this left the Report and its recommendations exposed, particularly CSSS Model 2 which was known to be the Administrations preferred plan (Model 1 & 3 mostly being variations on a fundamental theme. And during 2002 the CSSS Model 2 and related plans were subject to attack by places like EPI and CEPR . Because of a different timeline altogether.
From 1997 to 2004 Social Security was under tremendous outside pressure, not because its financial condition was degrading in the face of inactivity, instead it was improving year over year. In 1997 the projected 75 year payroll gap was 2.23% of payroll, by 2001 it was down to 1.86%. In 1997 the date of Trust Fund depletion was set at 2030, by 2001 it was 2039 and on way to being pushed back to 2042 by Report Year 2003. At this point what Baker and Weisbrot had identified in their 1999 book as Social Security: the Phony Crisis was looking pretty phony indeed. And the closer you looked at the internals the more phony it got.
The outlook for Social Security improved so dramatically from 1997 to 2002 for the very same reason that huge and growing Bush I deficits turned to small but growing Clinton General Fund surpluses and large and growing massive Clinton Social Security surpluses were turning into huge projected surpluses, we had just experienced an extended period of low inflation, high employment and significant Real Wage increases, all of which boosted revenues and cut projected cost. Moreover most of our economic elite, including most decidedly Fed Chair Alan Greenspan were insisting that this so-called Great Moderation was permanent, so much so that it justified huge tax cuts for the wealthy.
The problem is that the Great Moderation and Social Security Crisis were fundamentally at odds. Social Security Crisis in the yar 2000 relied on a relatively rapid and permanent slowdown in productivity and Real Wage over the next ten years. For example the 2002 Report (http://www.ssa.gov/OACT/TR/TR02/trLOT.html), the closest in time to the Dec 2001 release of the CSSS Report projected that Real Wage would drop from 2.8% in 2001, itself well down from the highs of the late 90’s to 1.1% in 2007 and stay there permanently (Table IV.B1). Likewise the IC model projected that unemployment already up sharply in 2001 to 4.8% would never get better and instead settle out permanently at 5.5% and that real GDP which maybe took a short term hit with the 2001 recession (which could be blamed on the last Administration) would never get back to the 4% plus rates of Clinton’s second term but instead was destined within ten-years to shrink to sub 2% a year FOREVER. (Table IV.B2). To which numbers a reasonable observer might ask: “What the hell is going to happen to this much vaunted Great Moderation?” and “This is the fricking miracle of tax cuts? Permanent 5.5% unemployment, 1.8% Real GDP, and 1.6% productivity?”
Given the outsized promises being made about the effects of tax cuts during the 2001-2002 time frame (i.e. all positive for everyone, capital and labor alike), and the promises that even bigger tax cuts would not materially reduce surpluses going forward, how could the Bush men still maintain Social Security ‘crisis’ with a straight face. Easy, you just redefine it as not being a crisis for this century, i.e. caused by Boomer retirement, but instead as a crisis for the NEXT century and the ones after that.
Thus the introduction of Infinite Future in time for the 2003 Report allowed the substitution of a 3.5% payroll gap for a 1.86% one and so gave cover for reform packages whose combination of benefit cuts and tax increases far exceeded the 75 year gap. For example the Liebman-MacGuineas-Samwick ‘Non-Partisan’ Plan proposes a combined 5.2% fix to a problem then scored at 1.92% (75 year) or 3.5% (infinite future). With a little slight of hand the LMS authors were able to hide 1.5% of the fix in the fine print and convince people that the difference between 3.7% and 3.5% would easily be made up by having an inheritable asset, the so-called ‘Ownership Society’. On close examination that breaks down, most workers wouldn’t end up with any estate out of their PRAs (unless they were lucky enough to drop dead right after retirement), but either way that was a lot easier to sell than the starker 5.2% vs 1.92%.
Now I can’t prove motivation for the switch to Infinite Future, but it is pretty clear that the original plan for the Bush Administration was to push the CSSS ‘Bi-Partisan’ Model 2 plan through Congress in 2002 in much the same way they tried to push the Social Security Crisis Tour through in 2005, or regrettably how Obama is allowing the Rubinistas to jam through cuts via the ‘Bi-Partisan’ Deficits Commission in 2011: assemble a theoretically ‘non-partisan’ group of ‘experts’, use some baked-up and bogus economic models and projections and then create a sense of inevitability around the whole thing. The key is to keep your eye on the numbers and not let them work out of two sets of books, one to predict crisis, and another implicitly to present solutions.
(For some earlier takes on this you might want to consult the first series of: http://bruceweb.blogspot.com/2008/05/social-security-posts-on-angry-bear.html, particularly VI, VII, and XII and then maybe follow up with selected posts from the third series: http://bruceweb.blogspot.com/2009/01/even-more-posts-from-angry-bear-late.html)
The criticism came in mixed and matched form. First when compared to the productivity rates that were firmly being projected by Greenspan and used to argue for tax cuts, numbers in the out years seemed oddly muted. Where was this permanent productivity and GDP growth we were being promised? Second if the Trustees numbers were actually plausible how do you get the return on equities needed to fund PRAs (hence NELB and BDK)? All of which contributed to the biggest challenge of all: how do you put together a set of numbers that funds PRAs and Legacy costs all at a lower rate than a straight out tax fix would? Particularly when year over year the cost of that fix kept dropping?
Considering the atmosphere of today, seems that a campaign of exposure should be mounted to inform the public, which shouldn’t be too difficult for the knowledgeable. This is another attempt to strip the population of its safty net. I’m retired, served my Country in the Military, worked, raised 8 children, paid my full share of taxs, grumbled about the Government, but today, scares the hell out of me when I read how this Governments leaders have sold the rest of us out. Just who are the terrorists trying to destroy America?
Bruce
I am very glad you keep us informed about this. You might need to check for a typo “1983”, unless I misread what you are saying.
But I also need to take the opportunity to point out that “generational equity” is nonsense.
What other aspect of ife guarantees “generational equity.” Do we monitor the price of bread, or the price of bonds, to be sure each generation is treated equitably with the last, or the next?
Meanwhile, since Social Security was created as INSURANCE there is a very large, deliberate, “within generatioin” inequity. The poor get a better “rate of return” than the better off… as a result of the insurance function. Since the next generation is likely to be better off than, say, our grandparents, it seems reasonable that “on average” they should expect a lower “rate of return.”
“Intergenerational equity” is just another damned lie, created by damned liars, to fool the unwary.
The next generation and the one after that… for the infinite future… will get the same good deal from Social Security as all previous generations: for a fair price they will get their retirement insured in case their other plans and great expectations let them down just when they can’t get up.
Extending the period of analysis is trivial. While one has a good bit of economic information now that can be extrapolated into the medium term, and demographic information that provides insights into Trust Fund inflows and outflows over a number of decades, once you get out to 75 years, the assumptions get really thin. So, once you get out to 75 years, any deficit in the trust fund will more or less automatically be extended into the period beyond 75 years. There is no new information. There is only a set of assumptions working over a longer period. Extending the analysis to 200 years would have meant a projected funding gap smaller than over the infinite horizon, but bigger than the 75-year horizon.
It’s just a simple-minded math trick.
Well as it turns out there is a somewhat predictable demographic bump in fifteen years after 2085, one that makes the 100 year actuarial gap a bit larger than the Infinite Future one ($17 trillion vs $15 trillion), but as you note any attempt to rely on this ‘Boomer echo echo’ is fruitless given the huge uncertainty on the economic side, those numbers start creating huge swings even with the first 25 year sub-period from right now.
The only reason to adopt Infinite Future is to allow reformers to present plans based on a baseline actuarial gap of 3.5% rather than 2.0% (though whether either the OACT or CBO will let them get away with that when it comes time for scoring is an open question), or as now as pure propaganda letting the Peterson folk use big scary dollar figures.
After all in these days of $4.5 trillion budgets and $1.4 trillion one year deficits the knowledge that Social Security might (but not necessarily will) be on the hook for $3.5 trillion over 75 years should not be threatening to anyone. But conflate it with Medicare and project it over the Infinite Future and you have a number to reckon with. Which of course is exactly what they are doing here.
Bruce,
Nice article, except for the hyper-partisanship, but do you have any updates on the current Democrat – Obama led plan to gut SS?
You do know its the Dems and Obama that are planning on doing this don’t you?
Bush Jr’s half-hearted attempt didn’t even clear the starting chocks…
Islam will change
by Bruce
thanks Dale, four instances of ‘1983’ have been edited to the correct ‘2003’.
Thanks Norman.
There is such a campaign of exposure being organized by such people as Roger Hickey, Nancy Altman, Eric Kingson, Dean Baker and others, some of whose names you might recognize but others who are maybe not household words but heavy hitters in the worlds of Social Security policy.
The problem is that the prime funder of the opposition has openly committed $1 billion (yes with a b) through his self named Peter G Peterson Foundation to the cause. Our group is actively tracking down and bringing these funding links to the surface and already it is abundantly clear what the key words, phrases and institutions are that are linked to one or other PGP operation:
Institutions: Peter G Peterson Foundation, Concord Coalition, the Brookings-Heritage Fiscal Seminar, the Peterson-Pew Commission, the new news service Fiscal Times, the Committee for a Responsible Federal Budget. Tightly aligned if not necessarily funded by PGP is anything associated with AGE, Americans for Generational Equity, led up by former Deputy Commissioner Paul Hewitt.
Names: Robert Bixby (Concord), David Walker (PGPF, formerly of GAO), Maya MacGuineas (CRFB & Peterson Pew). Names not directly associated with PGP: Michael Tanner, Andrew Biggs, Kevin Hasset (of mixed Cato and AEI backgrounds)
‘
Buzzwards to watch for: “Fiscal” anything (“Times”, ‘Face up to our F. Future’), ‘Non-Partisan’, ‘Bi-Partisan’, “Intergenerational” and the granddaddy of them all, ‘Entitlements’ when you encounter a group, a study, a conference, a seminar with any of those words attached you are sure to find an organization or individual from the above list attached.
We are working it but unfortunately it more and more appears that almost the entire Obama economic team has bought in with the most egregious offender being Larry Summers, but with active assistance from folk like Orzsag and Liebman at OMB and Rahm on the political side. With the result that four to five of Obama’s appointees to his new Fiscal Commission are firmly on board with benefit cuts along with the six Republicans and as many as four of six Congressional Democrats (two normal allies of SS are firm Illinois supporters of Obama-Rep Schakovsky of Chicago and his mentor Senator Durbin of Illinois and can’t be counted to hold the line against anything that gains Admin backing). Leaving two supporters only, and them squishy. Max Baucus seems mostly opposed because the whole procedure is designed to bypass the Committee system, where his Committee would normally have he lead role, and Andy Stern, who just quit his job as head of SEIU and so by implication Change to Win, and so maybe looking for a top level job.
So the work is cut out for us, but we are more organized than it might appear on the surface, particularly in the area of Oppo Research.
Actually a trick for the simple minded.
What a 15 Trillion Dollar (PResent Value) Deficit over the infinite horizon means is that
If you had 15 Trillion Dollars today and could put it in the bank at 5% interest, guaranteed forever, you could pay for forseeable Social Security costs without ever raising taxes.
Only you don’t have 15 Trillion Dollars, and you don’t have a bank to put it in, and no one can guarantee ANY return “forever.” So, alas, we have to go back to buying our daily bread the way we always did: one day at a time. Pay as you Go.
The exact same numbers can be expressed a different way: raising the payroll tax an average of 20 cents per week (in todays money) every year will allow Social Security to pay for itself forever… one day at a time. pay as you go. Incomes are expected to go up by ten dollars per week every year at the same time. Of course, they may not. Then we would have to do something different. But most likely not very different.
They give you this generational equity and infinite horizon stuff to distract you while they steal your birthright.
Buff
I didn’t notice Bruce’s partisanship. But I did notice yours.
Let me concede for all of us, the Democratic President appears to be one of the bad guys. What is worse, is that I have learned that there doesn’t seem to be a thing the good guys can do about it.
Especially since some of the good guys don’t seem too clear on the concept.
Buff the plan is not “Democratic led”. Peter G Peterson is not a Democrat, nor would I willingly extend that label to the Rubinistas and Blue Dogs who are assisting in this effort.
Republicans freely reserve the right to judge just about anyone who budges an inch from their platform as a Rino. in my mind anyone who by adopting DLC/Corporatist/Third Way/New Democratic lingo and operating principles, particularly their out right joy in declaring every day “Punch a Hippy Day” (i.e every Dem who dares uphold the vision underlying the New Deal and the Great Society) is strongly flirting with DINO status.
It isn’t Nancy Pelosi that is heading this effort up, and it is not clear to me that Obama himself is totally lost to us, but speaking for myself only I have been raising red flags about the Obama economic team since day one.
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=01&year=2008&base_name=the_obama_close#comment-6141783
This is from Jan 2, 2008 ““and the team of advisors he has around him.’
And who would that be? His economic team is center right and his foreign policy team seems headed up by Tony Lake. Who are the progressives?
I would be happy to know of some advisors on Team Obama with solid progressive records and principles, please somebody anybody help me out here. Because everywhere I look all I find is cautious Clintonian triangulators.”
And this from MyDD from Dec 2007 is along the same lines;
“
Obama’s economic team
Might as well be handpicked by the DLC. Nothing about Obama’s Social Security or Health Care plans are remotely progressive.
Obama had a chance to try to get around Hillary from the Left, instead he is trying to squeeze his way past around the Center. Well that is not going to work. Personally I believe Hillary is a closet progressive, but whether I am right or wrong on that point I can see clearly that tactically she is not going to let anyone get between her and the Center.
Obama seems to be trying cautious triangulating tactics to get around Clinton. Instead he needs to pull out into the left lane and floor it. Because Hillary is not going to just pull over and let him by.
by Bruce Webb 2007-12-08 08:42AM | 0 recs”
Your odd notion that I have been in the tank for the entire Obama project from the beginning is really just projection. I was neutral in Obama/Hillary and clearly McCain would have been a fucking disaster. But I was slagging Obama’s economic team right from the time he announced it, and warning progressives that precisely this outcome was possible.
Meanwhile
the thing to focus on is there is a Presidential Commission that looks like it is set to recommend some “fix” to Social Security in order to “solve” the “deficit crisis.”
And the people need to be told that Social Security has NOTHING to do with the deficit. And Social Security does not need to be fixed.
If the next generation lives longer than the last, they will need tor aise their payroll tax about twenty cents per week per year, while incomes are going up about ten dollars per week per year. This means that by 2085, they would be paying, in todays terms about an extra 20 dollars per week on an income that is about a thousand dollars per week larger than today’s. And the money will pay for a longer retirement at a higher standard of living than today’s benefits will pay for… a standard of living commensurate with what they will “have come to expect.” AND WILL HAVE PAID FOR THEMSELVES.
Get that clear. Tell the people. Save the ‘oo killed ‘oo for the faculty room. We have a fire going on. Or at least an arsonist in the building.
From the report: “These calculations show that extending the horizon indeed increases the unfunded obligation, indicating that much larger changes would be required to achieve solvency over the infinite future as compared to changes needed according to 75-year period measures.”
SS? FICA? When I see statements like this, I have to wonder what assumptions they are making and what they are smoking?
SS? FICA? BS! GIGO, GIGO, GIGO!
The Trust Fund is what does not matter. What matters is cash flow. For thirty years we had enormous positive cash flows from SS, and those are turning negative now, much earlier than expected. The trust fund is not a pile of dollar bills that the government has set aside, it is a pile of debt, of liabilities that the government and the taxpayers are liable for.
Min
I do not understand your comment.
The thing about the 75 year fix is that is 75 years. The infinite horizon fix is “forever.” The difference is that if you put enough money in the bank to pay for a “deficit” that begins in about 30 years, you get to accumulate interest for 30 years. Then if you stop paying the difference between the tax rate and the benefit rate 45 years later, it doesn’t cost as much, as if you keep on paying that difference forever. The reason there is a finite answer to a forever deficit is that you can, if you are making stuff up, choose a percent return on your bank account that provides enough “interest” on the principle you have deposited to make up that difference between tax income and benefits to be paid.
I hope this is clear enough… and not too obvious. There should never have been any doubt that forever would cost more than “75 years.”
Another way to look at this is that the “1%” increase in the tax now (as opposed to just depositing that 5 Trillion in the bank today) would pay for the projected deficit over the next 75 years by first running up a surplus that will pay enough interest, so that interest plus principle just runs out at the end of the 75 year period. This allows the Trustees to say with suitable gloom, that “much bigger changes” will be needed after the 75 year period. “Much bigger” means “another one percent.” The total 2% increase in the tax rate (for each the worker and the employer) looks like it will be enough to match expected benefits essentially forever. That is because the increase in life expectancy is not expeted to increase forever, but to taper off somewhere around 20 years after age 67. That doesn’t mean you will die at 87, but that about half the people who reach 67 will also reach 87. You have a pretty good chance of reaching 107. But I am not sure you will want to keep your job at Walmart even if they will hire you.
May be worth noting, we get to the 2% increase gradually. Most people paying taxes today will not live to see the 2% tax increase. What they will see is a tax increase of about .02% per year… that’s about twenty cents per week per year. No sane person will even notice it.
Josh M:
“The Trust Fund is what does not matter. What matters is cash flow”
The Trust Fund does not matter. But cash flow is a symptom of what matters. What matters is real growth and productivity.
Josh the cash flows are not turning negative much sooner than expected. The point that OAS cash flow surpluses exceed those of DI cash flow deficits has moved some but only because DI cash flow deficiits which began two years ago are now larger than expected, but certainly predictable in light of the relation between higher unemployment and initial DI claims. But if you examine OAS in isolation very little has changed, the whole “vanishing surplus” narrative being currently pushed, which itself had it’s origins in some Mar 2009 reporting ultimately emanating from AEI is total propagandistic bullshit. Too bad you bit on the con. Or signed on to sell it.
And we did not have “enormous cash flow” for thirty years, cash surpluses for the ten years after 1983 were in context tiny, by 1993 Trust Fund Reserves had barely met their statutory target, and Trust Fund outlook actually deteriorated from 1993-1996 when things started turning around. Prior to around 1998 cash surpluses just were not that big, it mostly wasn’t until Bush IIs election in 2000 that they were big enough to worth using to disguise the impact of cuts on top rates.
Consult the actual data tables and start using real numbers and not lazy generalizations and maybe we can talk.
Josh M
I am the one who says the Trust Fund does not matter. But I mean something different than you do. The Trust Fund is not an important part of Social Secuity. it exists simply to smooth out variations in income and outgo. Smalll ones most of the time. Larger ones for depressions like we have now. And a very large one to cover the baby boom retirement. All of this is working out in good order. Saying that it is a pile of debt is exactly correct. what else did you expect it to be. the government borrows money like any business. borrowed money is debt. it has to be paid back. you hope the use you got out of the money is worth the interest you paid for it. in the case of the money the government borrowed from social security the main use was arguably the tax cuts of Reagan and Bush Jr. Presumably you invested your tax cut and can now pay back the money you borrowed out of your profits.
the cash flow in the Trust Fund “turning negative” was always supposed to happen. that’s what a trust fund does.
oh. the reason the trust fund does not matter is that if it was stolen by martians today, social security could back to straight pay as you go without missing a beat. the boomers would get the retirement they paid for. the post boomers would pay a little more than they expected, but they would get all their money back when they retire.
try to stop thinking of social security as a magic investment club where you are guaranteed to do better than, or at lest as well as, the next guy, or your remote ancesotrs. all that you need from it is that it provides retirement insurance (and death and disability) at a reasonable price. it does. it’s the best deal workers have ever gotten.
coberly: “I do not understand your comment.”
I was not clear. I was ranting. What you said is right on: Social Security does not need to be fixed. Assumptions that project into the infinite future are suspect, but, as kharris points out, of little import. The key questions are whether we continue to prosper or fall into collective penury, and whether we have the desire and will to take care of our elders and disabled. If we continue to prosper, we have no need to reduce our obligations to people now in their 20s and 30s. The only reason to scare them is political. If scare talk is couched in economic terms, then look at the hidden assumptions. In the field of economics you do not have to look too far to find unreasonable assumptions. GIGO.
Min
thanks. it’s even better than that.
suppose we do hit unexpected hard times for a long time. wages go down. as long as benefits are figured as a percent of wages, benefits go down. everybody is worse off than they would like to be, but there is no reason people have to stop saving for their retirement. and that is what Social Security does for them, by the magic of pay as you go with wage indexing.
of course if it gets really really bad we will be faced with a choice between eating the babies or sending the old folks out for a walk in the blizzard. except there won’t be any blizzards.
Social Security does for an industrial society exactly what “honor your father and your mother” did for a tribal society. the problem with an industrial society, however, is that there are always people trying to tell you that you are “really” paying for someone else’s grandmother. you know. one of “them.”
oh, as for those assumptions about an infinite future.
there is really nothing very startling about them. they just say that things will go on about as they were going on for the last fifty years of the seventy-five year accounting window. what makes all the difference is that “if we don’t fix the rax rate, (or cut benefits, horrible to say) the difference between income and outgo will add up to more dollars over an infinite future than it will over seventy five years.
and it’s worth repeating… the only reason the infinite horizon deficit has a finite answer is that if you assume an interest rate on a large amount of money, the interest will make up the difference between those taxes and those benefits… theoretically forever, but only Pete Peterson knows what forever is going to look like. And Andrew Biggs, of course, who is sure he can find you an investment that he will personally guarantee will pay you more than Social Security… forever.
even if you get down on your luck and don’t actually make enough money to invest in his magic fund.
social security, on the other hand, does “insure” you against even that misfortune. so that, for example, while the “average” return on social security is a bit less than the return that MR Biggs is prepared to guarantee, the return to the people in the bottom half of the income distribution… the people Social Security was designed for… (careful, it could be you. that’s what insurance means) will get a “return on investment” considerably higher than most people get on the stock market.
Bruce,
While I still believe your narrative about how people have manipulated the story is correct, I think we also know a few more things about the numbers since 1998 (and since I started paying attention in 2004).
SS grew at greater than expected rates. It did so because of unsustainable bubbles. There was a lot of real growth in the dot.com period. It brought more people into the workforce – the ratio of workers to beneficiaries actually went up when it was projected to go down. That is what caused the depletion date to move out. The dot.com boom also had a lot of illusory growth. It had to pull back. The housing bubble delayed that (relative) pullback, but did not prevent it.
Looking at the reports we find that the trustees are as unable to recognize a bubble as anyone else. Near the end of a boom, their short term projections became too high. After a recession, their short term projections become too low.
The infinite horizon projection does have some small value, but it just confirms what comes from other easy analysis. As people’s lifespans increase retirement becomes more expensive (Doh!) Unfortunately, the takeaway that most people get is just wrong. 1 – the idea that more expensive means unaffordable is just wrong – coberly has covered that. 2 – the idea that we need to fix it all now because the cost of the “fix” is increasing is also wrong.
Take the last two points together – the cost is increasing and we are bad at projecting the cost. The takeaway should be that we do NOT want to over fix it. We want to make small adjustments and continue to readjust as required. Since the costs are increasing (as long as lifespans are increasing) it would be best if the adjustements were all small increases. But if we follow the advice to fix the entire 3.5 percent now, we actually have made it just about certain that some future adjustments will need to decrease taxes.
“Social Security does for an industrial society exactly what “honor your father and your mother” did for a tribal society. “
So right!
Let me add that part of the unreasonableness has to do with time. From time to time people post graphs of economic projections that go several years into the future. The prose — from somebody, anyway — makes definite predictions in a manner that would do Jeanne Dixon proud: Thus and such will happen. None, repeat, none of these graphs that I have see has error bands. Why not? I am skeptical enough to think that it is because either the people who made the projections do not know what the errors might be, or they know that error bands would make the projections look ridiculous, and the graphs would not support the (usually) dire prose that goes with them. GIGO.
I am not opposed to economic predictions. Far from it. Especially those that go out 5-10 years. I am opposed to statements like, “Unless we reduce Social Security promised payouts, {something bad will happen}.” That focuses on one assumption, and leaves out all the others that go into the dire prediction. List all of the assumptions, and people might laugh, right? GIGO.
coberly: “Social Security does for an industrial society exactly what “honor your father and your mother” did for a tribal society. the problem with an industrial society, however, is that there are always people trying to tell you that you are “really” paying for someone else’s grandmother. you know. one of “them.”
Well put, sir! Well put. 🙂
Arne
and another thing…
by “fixing” the 3.5 percent now we end up with a growing Trust Fund that remains a “debt” that Congress will have to pay in the future, or find another way to steal. Of course Congress is willing to wait before they have to deal with THAT problem.
I think you don’t know very much about the bond market. You will see what it means to our currency and yield curve when the markets realize that the non-tradeable bonds in the SS portfolio must be “redeemed” i.e. re-issued in public form, on top of the massive deficits that the nation is running anyway. It it you who thinks of SS as a magic investment club. I know it is nothing of the sort, it has simply been a borrowing that has taken place in one generation, with very few people recognizing it as such, that has to be repaid by the next generation who do not know what is coming.
So, 2.5 trillion dollars is not enormous positive cash flow to you. Excellent. That brings up the fact that Social Security benefits need to be means-tested to help bring the future cash flows into some proportion that does not result in transfer payments to the wealthiest people in the society crowding out all other private and public expenditure.
by Bruce Webb
Josh don’t put words in my mouth, particularly when you don’t know what the hell you are talking about. Just about half of the current TF balance is the result of accrued interest on positive cash flow that is mostly in the past. The date that cash flow from taxation would fall behind cost for the combined Trust Funds and so require taking a portion of current accrued interest has really not budged much over the last ten years, always being in the 2017 range. The current economic slowdown took a DI Trust Fund that was already cash flow negative and made that negative cash flow so large that it actually projects to take overall combined OASDI negative for 2010 and 2011, but cash surpluses are projected to return after that and persist to within months of the original shortfall date. For example examine the long term projections from the 2006 and 2009 Reports:
http://www.ssa.gov/OACT/TR/TR06/VI_OASDHI_dollars.html#wp150920
http://www.ssa.gov/OACT/TR/2009/VI_OASDHI_dollars.html#168452
There just isn’t that much difference at the meat (2017) and the tip of the positive income/cost tail (where 2017 is the date that interest starts needing to be paid more and more in cash and 2023 is where it all has to be paid so and principal starts being redeemed).
Things look much different when you examine DI in isolation, there the deterioration is easily visible, but DI was always projected to run out much earlier than OAS and the program is only 10% that of the larger one.
And you idiot, the existence of the payroll cap and the non-applicability of FICA to returns on capital means that the amount of benefits paid to “the wealthiest people in the society” is in context tiny, in order for mean testing to save significantly it has to cut in way down into the middle class. These proposals are not about sticking it to Bill Gates, they are all about sapping support for Social Security among the professional and upper administrative classes. Try thinking ‘numbers’ rather than ‘slogans’. ‘Wealthiest people’ come on.
Tell you what, I’ll stop the ad homs when you stop the sneering condescension that I haven’t heard this argument a thousand times over the last decade.
by Bruce Webb
Josh your problem is that you have never clearly never actually taken future needs for redemption of the Trust Fund and measured them against other projected borrowing needs in those years. The amounts of money needed are not so large as to do the kind of crowding out that the bond vigilantes fear. This is particularly so because presumedly the bond market has already been pricing this in for the last thirty years. What would argue for a sacrifice of hundred sixty million workers self-interest for the interests of bond holders would be some data that shows the rate of change of redemption after 2023 had changed so much as to materially effect the price of the long bond. Well that rate of change is just not there, not if you examine the actual projections in the actual data tables.
I suspect I know more about the bond market than you suspect. I know for a fact that i know a hell of a lot more about the data tables in the Reports past and present than you do, because all you ae doing is repeating impressionistic talking points themselves totally ungrounded in the data we have.
And since the Social Security crisis mongers have been bleating about ‘looming Boomer retirement’ in the most apocalyptic terms for a couple of decades now your assertion that the “next generation” does not “know what is coming” is pretty arrogant. Because most of them know things about Social Security going “bankrupt” and “flat broke” that simply aren’t true. Nor do I see that the sources for what the ‘much more informed than them’ Josh ‘knows’ about Social Security finance are much better, you are just picking your talking points from investment newsletters rather than the Nightly News, not understanding that each is drawing on the same set of expert liars.
by Bruce Webb
Correct on all points. In retrospect boosters of Low Cost outcomes, which included me and Prof. Rosser, should have been paying more attention to Dean Baker c.2004. I never bought into Greenspans 3% productivity/4% GDP forever schtick, but did think that we could easily split the difference between those numbers and Intermediate Cost numbers and come out pretty close to Low Cost. Now it seems that we are more likely to over the medium to long term split the difference between Low Cost and IC Cost.
In any event the short term buffeting of the numbers we have seen since 2005 and likely extending for the next 3-5 years just shows the foolishness of planning for even the 75 year window, the uncertainties are simply too great. On the other hand a 25 year horizon is just about right and in line with that most retirement planners would probably suggest, and the methodology of the Trustees Reports is such that you can implement a hedged plan based on triggers and phasing. Which of course is what you, Coberly and I did in compiling the NW Plan.
Josh M
you appear to be seriously ignorant. why don’t you find out a few facts and get back to us.
here is a hint: the 2.5 Trillion was “deposited” by the baby boomers to prepay their own retirement (in part) to avoid a generational inequity that would otherwise have resulted from pay as you go applied to the very different size of their cohort as compared to the preceding and following cohorts.
social security does not transfer payments to the wealthiest in our society. everyone gets back the money they put in, more or less according to an insurance adjustment that actually assures that the less well off get a better return than the more well off.
social security does not crowd out ANY other expenditure. it has nothing to do with “government expenditures” at all. and in terms of your own expenditures it merely “transfers” a small part of your current income (and expenditurees) from when you are young and and have money to yourself when you are old and can’t work.
but congratulations, you are part of the ignorant horde that will help the Liars bring down Social Securiyt and guarantee misery for millions in the not-infinite future.
Josh M
i doubt you know much about the bond market yourself. you sure as hell don’t know anything about Social Security. The borrowing has been in the other direction. Social Security does not borrow from the government. The government borrows from Social Security. One day soon it will need to start paying back the money it has borrowed. If your sophisticated bond market traders couldn’t see that coming, they are not as smart as they keep telling themselves. But here is another clue for you, the government doesn’t have to borrow themoney to pay back the money it borrowed from social security. it could cut spending on say, submarines, or it could raise taxes on all the people who made money with their tax cuts, or it could simply find the money in increase tax revenues coming from the “growth in the economy” that those tax cuts brought us.
Bruce,
Sorry, Its Democratic led. Who else could it be lead by? These are people picked by Obama. You can’t get around that fact. We have a Dem Congress, the largest Dem Senate in memory, and a Dem president.
Progressives are just a small group on the left side of the Dem party, not quite as far out as the loony left but well within sight distance.
This is your team gutting FDR’s signature legislation.
Coberly,
You already converted me – remember? Heck I’ve converted quite a number of Rs with your and Bruce’s numbers. Its rather easy. But that wasn’t my point. This is the Democrat President Obama leading the charge to gut SS. Without his backing this commission would not exist. Bruce’s clumsy attempt to blame Bush is silly. This is ALL Dems.
Islam will change
Josh,
You are new here. Welcome. Now go read the the Webb’s Social Security tab at the top of this page. Then come back and make your case. Right now your stepping into the batter’s box thinking you’re playing triple A ball and suddenly you realize your in Yankee stadium.
Get the numbers, read the article at the top, and wade back in. These guys are open to criticism (I haven’t been banned yet – case in point) and would welcome you finding some hole in their argument or flaw in their logic. I haven’t on this topic in over 3+ years.
I’ll give you a hint – your problem is with the general fund not SS. (And of course the Dems who plan to gut FDR’s legacy).
Islam will change
coberly and Bruce,
This line may be your winner for a no-brainer marketing slogan:
Social Security does for an industrial society exactly what “honor your father and your mother” did for a tribal society.
Except for pure length its a winner!
Islam will change
By “wealthiest people” I hoped it would be clear I was referring to retired people – namely those for whom Social Security is an odd-lot in their retirement funding. Means testing is a necessity, because the system is maintained on the basis that it is an anti-poverty program, but millions of wealthy beneficiaries give the lie to that notion. Wow, for someone who thinks he knows a lot you sure have a thin skin.
It is you, sadly for all your expertise, who lacks an understanding of the functioning of capital markets in our economy. Social Security revenue was placed in a Trust Fund consisting of non-tradeable government bonds, which while it is an asset of the future retirees, is a liability of the nation – and most pointedly its taxpayers.
There is no pot of dollar bills, sir, there are bonds, which have to be either paid off – laughably remote chance of that – or refinanced. Over the past 30 years we have enjoyed enormous positive flows, which have covered up the extent of our otherwise negative spending performance by removing the necessity of having to issue public, tradeable bonds to fund it.
Starting now, however, because the cash flow is turning negative, we not only have to fund our operating deficits in the bond markets, we also have to fund the benefits of retirees. At some point, and no one knows when that is (because of the fickle and emotional nature of the financial markets), it can become impossible to do so. Obviously we have advantages that southern european nations lack, but those advantages are not infinite.
I’ve rarely seen arrogance and ignorance combined with such fervor as in your post, but you would do well to leave off the actuarial studies and just learn the difference between an asset and a liability.
You would THINK that the financial markets had been pricing in those future negative cash flows for those 30 years, but sadly financial markets are far stupider than that.
Absolutely right. Almost no one understands that the social security trust fund is a liability of the government, not an asset. I’d love to see the spending cut on submarines, or taxes raised, and I’m sure I will, but I’d also like to see what is supposed to be an anti-poverty program stop paying out so many billions of dollars to millionaires every year.
Josh the percentage of Social Security beneficiaries whose check is just an ‘odd-lot’ is very small.
Plus the system was never billed as an ‘anti-poverty program’ at least not in the way you mean it, you are just sloganizing. Got any numbers to back any of that up?
Josh I have a thin skin because people like you can toss out the word ‘wealthiest’ and mean about half of the whole country. Once you actually establish where your means test cuts in.
Plus we already means-test Social Security, its called ‘tax on benefits’ and in order to squeeze any more money out you would have to make it practically confiscatory.
by Bruce
Josh maybe we have thin skins because you open practically every comment by say that we don’t understand something or other about the bond market.
Yes the asset of future retirees is a liability of future taxpayers, but in the end they are mostly the same population.
And we were on a clear path to paying off those bonds in 2000. Until the people who earn their income on capital decided they didn’t have to pay taxes at the same rate as people who earn their income from wages, and even as they borrowed money from the Trust Funds for their own short term benefit.
Once again the amount of bond redemptions needed to repay the Trust Funds is a small fraction of anticipated GDP in those years. Moreover Coberly and I have proposed a plan that taxes workers now in a way that actually smooths out and reduces the ultimate need for future transfers in the key years. You are still just repeating stale talking points quite detached from any specific future number in any year. If Social Security is left unchanged under current projections but in constant dollars we will be faced with a ten year period of TF redemptions that will be less than the ten year cost o the current wars in iraq and Afghanistan. Under your logic the bond markets should be shaking because all of that is just an ‘unfunded liability’.
The arrogance and ignorance is on your side. You clearly have no concept of how big these numbers are in the context of the total economy in any given year, nor how little it would take to bridge the gap without resorting to benefit cuts. The projected gap is small, the needed fix is tiny. And lazy arguments like “it can be impossible to do so” based on nothing concrete are just desperate attempts to justify your conclusion after the fact.
It baffles me that people like you that base their entire economic theory on an underlying concept of ‘fully informed economic actors’ such that markets are well-nigh perfect can turn on a dime and insist that that same market is ‘fickle and emotional’. This is particularly so when the crisis at hand is defined by projections over the Infinite Future Horizon.
Your position is logically inconsistent and implicitly claims that numbers don’t matter, only the emotional potential reaction of the bond market. Sorry I don’t see why 160 million workers should sacrifice because bond traders are WATBs constantly afraid the CCB will get mad and punish them for not kicking the poor hard enough.
Buff my apologies. For some reason the system flagged this comment and blocked it. I don’t see why any of the moderators would have done so, nor anything that would have tripped the handful of triggers.
Anyway its unblocked now and I would hope that if someone else on the very small list of people with moderation privileges has a problem with it they will follow up with me.
Once again, sorry, I don’t know what happened here.
Bruce
Bruce,
No problem, rdan always said he would leave me a note when I get banned!
I try not to say stuff so outrageous or snarkey that I get banned. Without PGL being here I rarely get my bloddpressure up. And these SS threads seem to attract not only the ignorant but people who have trouble understanding what’s going on. You might consider a note at the start of SS threads for people to read the tab. It might help,..or not.
The worst part of this, is if it actually does cut SS, all those 20 and 30 somethings who have said SS will never be there for them would have a point – and would be insufferably obnoxous about it. The fact that a ‘D’ is leading the charge makes it something out of science fiction (Especially after Bush got so roughed up about this just a few years ago).
Islam will change
Buff
I guess I have to agree with that. As I said I didn’t notice Bruce’s partisanship. And I guess you are only pointing out it is the Dems who are selling out SS because that’s the “news.” If it was the R’s selling it out, that would not be news.
I just heard that one of the peopleo on the commission works for SSA and he just published an article claiming that SS is a jobs killer.
If this is true, it makes me think we have much worse things to worry about in this country that Dems vs Republicans. we are seeing a coup d’etat every bit as real, say, as Hitler taking over Germany. Now i amsorry I used that example but it was the only one i could think of. Peterson is not Hitler, but we are seeing an organized, carefully planned, long time in the making plan to kill Social Security succeed.
Josh
there is no correlation one way or the other between knowing a lot and having a thin skin. but your pairing of the concepts tells me something about the quality of your thinking.
Social Security is not “maintained on the basis that it is an anti poverty program.” it is maintained on the basis that it is insurance for workers paid for by workers. the “wealthy” people who pay in to social security and remain wealthy long enough to retire get a benefit that is more than they paid in, but not as high a ‘rate of return on investment’ as someone who earns less in life and pays in less taxes and gets a lower benefit (but a higher rate of return). this is all too complicated for you to understand.
means testing would turn social security into welfare and all the ugliness that means. and it would probably turn out to be more expensive than Social Security.
but it is pointless talking to you.
Josh
you really are ignorant. you are proposing destroying the best protection the people have against poverty in old age… because they pay for it themselves… just so the fickle bond traders can rest easy.
as for assets and liabilities… when you borrow money you create a liability. that means you have to pay it back. if the government did not borrow money from Social Security it would have borrowed it from somewhere else. so what the hell are you talking about.
consider this: suppose there was no such thing as social security. but that all the workers prudently went out and bought government bonds every month with ten percent of their pay. and now a lot of workers are thinking about retiring and cashing in their bonds. now please, mr bond trader, tell me what the effect of this will be on the bond market.
and tell me why that is any different from social security… except that the great bulk of social security is paid pay as you go without borrowing or lending anything.
there is no point telling an ignorant person he is ignorant, because how would he ever get to know?
josh
the cash flow was always going to turn negative. that’s what the trust fund is for. you put money in when you have more than you need. you take money out when you need more than you have.
apparently the bond traders are too dumb to have figured this out. even though the Trustees have been telling them every year for at least the last twenty that the baby boom retirement would start drawing on its trust fund in around 2016 or so. Even though it was always understood that a recession would cause SS to draw on its trust fund at any time.
josh
if there were only a hundred thousand millionaires who collected the maximum social security payment of about 20,000 per year, SS would be paying them “billions” of dollars.
But the point is that they PAID for this. They bought the same insurance package as all other workers. and they paid roughly 12000 per year for it. If they paid that much for 40 years, they would have paid just enough to cover the benefits they will collect if they live 20 years in retirement… adjusted for inflation and the general rise in wages. it is a good enough deal for them, as insurance, if not a great deal as an investment. but it is their money that allows SS to pay a higher rate of return to the least wealthy who never made enough to pay in much in taxes, so they would not get enough in benefits to be able to afford to retire without that contribution from the rich.
but don’t feel too bad. you are no dumber about this than the highly educated experts who can’t make up their mind whether this is a “regressive tax” or a “jobs killing tax” or “really the workers money.
what we have in this country is a commission of highly paid “experts” who don’t know a damn thing about what they are talking about making decisions that are going to cause misery to millions of people. you have an excuse for not knowing anything. they don’t.
note… if they paid in the max every year for 40 years, their benefit, with no spouse, would be about 26000 per year.
coberly.
When Bush tried this a few years back he got kicked around and it dropped out of sight faster than the Titanic. McCaine would not have even tried it if he had won. From the R perspective, yes they would like to address it, but there is really no chance for an R to touch FDR’s legacy. Just not going to happen.
I think your refence abotu a coup d’etat a little over the top (but I understand your commitment to the topic so no foul). But you and Bruce need to come to grips with the fact that this is Obama and the Dems doing. Nothing the R’s tried here would have even been noticed without Obama support since they have zero chance of initiating legislation.
I see this as an intermural fight inside the Dem party. Normally I cheer for the ‘progressive’/looney left side to lose these tuffles. But not this time.
Islam will change
josh m
i need to apologize for my bad manners in replying to josh.
the thing is that i have spent some time understanding social security and listening to the liars, and to the people the liars have fooled. and listening to josh has about the same effect on me as you would feel if you had just watched your grandparents dragged off to siberia and your neighbor starts chattering about how wonderful Stalin is and what the people need is a little discipline.
only “your grandparents” in this scenario turn out to be “your children” in the future when they will grow old and you are no longer there to protect them.
and the bad guys who appear to have all but won this war are really really bad guys. i could tell you how evil they are, but if you don’t know yourself, you wouldn’t believe me.
Watching you guys stomp on someone who has not had time for new information to sink in and attitudes to change has a jarring effect on me – though not that strong.
“Nothing” is still good for another decade, but now is a good time to talk about what we should be ready to do 15 to 20 years from now. SS is about people’s lives, but we still have to boil it down to numbers.
How long will it take to recover from the Great Recession?
What will productivity growth look like after the recovery?
How long will people actually live?
How healthy will they actually be?
How long should we stretch the Trust Fund – meaning keep it higher than 100 percent?
Will the income distribution continue to skew more to the rich?
Can health care expenses really keep rising so fast – to the point where expenses not covered by medicare will eat into the safety net provided by SS?
When will Congress finally decide to raise the revenue to pay back the trust fund?
Nobody has the answers to all these questions, so we should be able to dsicuss these issues with more flexibility.
Arne for starters both Dale and I acknowledge we have tempers that sometimes get us a little or a lot snippy. But if you review the exchange as it unfolded between Josh and us you can see where Josh can out with a couple of statements that were not well supported in fact. I in a fairly moderate way contradicted him with some data at which point he came back with what I considered a fairly snotty and certainly sarcastic:
So, 2.5 trillion dollars is not enormous positive cash flow to you. Excellent.
Well I get a little testy when people put words in my mouth and then follow that up with an editorial comment. This is particularly true when the underlying claim is not factual in the first place, in that there never was $2.5 trillion in positive cash flow. Josh then proceeded to escalate the battle by accusing us of ignorance over the basics of the bond market and the concepts of ‘asset’ and ‘liability’. Well I have shown in multiple posts that I understand the interaction of the Trust Fund and the bond markets pretty well and equally have put up additional posts explaining how Trust Fund surpluses hit the books in different ways. For example for the purposes of Trust Fund Reporting the Special Treasuries are considered and labeled in the SS Report as assets. Yet when the Managing Trustee of Social Security puts on his other hat as Secretary of Treasury his Bureau of Public Debt labels those same Special Treasuries as Debt. I get that and if Josh would have had any sense he would have simply presented his objection in the form of a question rather than as a piece of snark.
As to the substance of your question I think there are a couple of answers. First the mechanism of the NW Plan makes them somewhat moot. The NW Plan simply stipulates Intermediate Cost and presents an adjustable fix in the form If A then B. When the Report comes out on June 30 and gives us a new A.1 we will respond with a new B.1 which in all likelihood will be very little changed from B. We just play the hand we are dealt each round. So the questions you pose are all valid but should be posed to the Trustees and not to us, if they accept the criticisms as valid presumedly that will result in a new A.2 to which we will in turn respond with a new B.2, the NW Plan simply being an adjustable mechanism.
Nothing should prevent us from discussing any or all of the topics you raise, but they are all peripheral to ‘crisis’ as operationally defined, which is the outcome of the Intermediate Cost projection as it actually exists in the last published Report.
The main problem I see in presenting the challenges in the form that you do is that there is almost always some implication that the questions have not been addressed at all, when in fact the answers are baked into the model. Certainly we can dispute those answers one by one but all too often commenters way in with something like “Don’t you know people are living longer?” with a subtext of “you ignorant slut!”. Well yes I do know the demographics. I also know that the actuaries in the Office of the Chief Actuary know them too and have made their best attempt at building their projected effects into their models. Maybe they overshot, maybe they undershot, but implying that they didn’t even try to take a shot is just wrong.
For example I have not seen any serious attempt to show that the current estimates of improved mortality as presented in the actual demographic tables are either too optimistic or too pessimistic, just assertions that if they are wrong the outcomes will be different. Well yes and once you make your case we can recompute. But when we are talking policy we have to start from some shared benchmark or we won’t get anywhere. For Social Security that is the […]
Buff
I came to grips with the Obama problem before he won the primary. The reason I call it a coup d’etat is exactly because the Democrats have sold out. And because there are “enemy agents” in every dark corner of the machine that runs this country.
By the way… a book “the Forty Years War” by Colodny and Schachtman, might interest you. It talks about the rise of the neo-cons. You will be surprised, I think, to learn that they were behind the fall of Nixon. seems he was too nice to the Russians for them. unlike me they appear to think the neo-cons have failed and that Obama will return us to a Nixon foreign policy.
having watched all this through the lens of the Social Security… who it’s enemies and traitors turn out to be, i can’t help thinking we are watching a permanent change in who runs the country and how. without a shot being fired.
as for the progressives and looney left. i agree with you about the looney left… they are no different from the looney right, but they had a different relationship with their fathers. the “progressives” on the other hand include a lot of social security experts, nominally “on the side of” social security, but who in fact don’t know a damn thing about it and get seriously offended if you tell them so. so it looks like i don’t have any friends at all. except a few surprising people on Angry Bear, the local NAACP who made the mistake of letting me talk to them, so now they understand, but can’t get a hearing from their head office either. And those R’s that you talk to. If we could get a couple of million dollars to fund a publicity campaign, we might stand a chance.
Arne
you are quite right. and i apologize for my bad manners. but there is a war on and i don’t have a lot of patience for enemy sympathizers. sorry. it is a personality fault in me.
your questions are good ones but here is the answer: whatever happens, social security can pay for your retirement if you leave it essentially alone. all it does is take a small percent of your income while you are young, and give it back to you when you are old. keep it simple. there are no moving parts to break or wear out.
we don’t have to know how long people WILL actually live. we can wait and see how long they actually DO live, and if they can keep working, and if they WANT to work or would rather save a little more so they can retire “early.” those are decisions people can make as they encounter the new reality.
if incomes go down, then pensions will go down. not a real problem. we’ll find other things to do with our time than spend money. i hear people used to be happy even before money was invented.
but as long as money is the way we run our economy, it makes sense that we should defer spending some of our money until we reach an age where we are no longer earning any. we could move back in with the kids. if we have kids, and they aren’t too poor themselves. or we could save our own money, and let the government protect it from inflation by “pay as you go with wage indexing” and take all the worry out of it.
i don’t think the trust fund needs to be even as high as 100 percent. if this recession lasts ten years, i may have to change my mind.
health care costs will keep rising as long as the medical profession is viewed as gods and we keep throwing money at them. hate to say this, as a believer in free markets and all, but the medical field seems to be one where the “free market” can only guarantee that you will eventually give all of your money to doctors because you don’t want to die, or live with an illness you think can be cured. the government, or some government-like entity can… which you can’t… monitor treatments for how well they actually work, and provide a market in which the buyer has a little more leverage in dealing with the provider. but let us keep that issue separate from OASI (Social Security proper… note i left off DI because that seems to be infected with the medical costs virus too… and because it is means tested as well as “need” tested, it really doesn’t fit the Social SEcurity model i am trying to defend here). But also keep this in mind… the huge horrible hairy predicitions of rising medical care costs still leave the future buyer of Medicare with more than twice as much money AFTER paying his taxes than he has today… plus paying for all of his high cost medical care so he can live longer without undue suffering. say that again: the hysteria, even about medical costs, is simply not warranted. it’s just people scaring themselves to death with percents: “i am going to be twice as rich tomorrow as i am today, and live a lot longer, but my doctor is going to want a third of that. we are all doomed.”
if anyone really wants to discuss this, i’ll try to watch my manners. but folks really ought to try to think clearly and not just throw around talking points they heard. and they really ought to pay attention to the answers i give them the first time, while i am still being polite. i do get a little short with people who don’t listen. disagree with me if you want. but show some evidence that you at least heard the argument.
Hi Bruce:
Is there a chart looking solely at DI? All I ever see is the OASDI Charts which you have links to in your post. As to the wealthiest US Citizens, the 2001/2003 tax breaks were worth ~$1.5 trillion to them or an average of $124,000 annually for those making > $1MM and ~$24,000 for those making between $500m and $1mm annually over the decade. Those 1 percenters are approximately 1 million taxpayers strong. It is certainly an avenue to look into for increased revenue generation whether it be capital gains, WS transactions, estate taxes, etc.
Bruce, you know the numbers way to well and I can appreciate your angst at having to repeat them over and over; however, I wouldn’t beat Josh up too badly as he has a point.
Arne:
This: “Since the costs are increasing (as long as lifespans are increasing) it” is because of this: “Can health care expenses really keep rising so fast” ;but, it is not because of people getting older as much as too much low benefit and high cost medical innovation, products, and procedures.
coberly:
How else are they supposed to learn? I didn’t learn until I started spouting Diamond – Orzag on Economist’s View and Bruce started explaining it. Whic pill was it? The blue or the red. You guys are walking bundles of numbers and you reel them off as no one else can in explaining the dilemmas.
I would love to see the chart on DI alone
js kit grabbed another one….fixed..
run
i am not sure what point josh has. i can send you my pdf which breaks out DI from OASI and shows the effect of the one tenth of one percent trigger in making them solvent forever.
if you want to tax the rich to pay for general government, and government debt, be my guest. but we don’t need their stinking money to pay for social security.
run
well, even if it is only me, someone has to agree with you. you are right. it ain’t the getting old that’s expensive. it’s the fact that “free markets” know how to exploit people’s fears. and the people are more than half convinced that “someone” else should pay for it.
i am fine with mutual insurance. but we need to recognize that “we” will have to pay for it. one way or another.
Run,
The cost of supplying SS benefits depends firstly on how long people receive benefits. In 1983, 14 years; today, 17 years; in the future, more years. If spending more on health care makes people live longer, then there is a second order effect, but lifespan is number one.
Note: People who think that raising the age to 70 right away would override that because it would make how long you receive benefits get shorter even though lifespans were getting longer, but that’s silliness.
Arne
lets see, 67 plus 17 equals 84 for a “mean” life expectancy at retirement, looking at the tails of the distribution, how many people are going to live to 104? how many people are not going to see 68?
how long do you think this process (increasing life expectancy) can go on? parts wear out.
how much of increasing life expectancy will be spent in a nursing home?
back when i was young (before you were) it was pretty much understood that people tried to save their money so they could retire young enough to still enjoy a bit of life. it was hard for them on accout of inflatioin and bank failures and depressions, and of course never managing to save enough in the first place.
now we have Social Security to protect their savings, and we have wages high enough so that everyone can AFFORD to retire at a reasonable age in at least minimum comfort.
but there are some people who have convinced themselves, in these latter days, that the purpose of life is to work and to make as much money as you possibly can. and these people want to make Social Security of no consequence. In order to retire, they say, you need to bring an excuse from you doctor that you have only one year to live. Otherwise your obligation as a citizen is to keep working. After all, economists, non partisan experts, have shown that for every year a worker is kept working past 65, “the economy” gains 90 thousand dollars.
now how could we deprive “the economy” of all that money, just so some old person can have a few years to herself, not making money for the boss, or cleaning his rest room?