Getting people’s attention by screaming
Lifted from Robert Walmann’s…
Paul Krugman wrote:
The answer all the deficit-panic types offer is basically that we must cut future benefits. But why, exactly, is that something that must be done immediately? If you state the supposed logic, it seems to be that to avoid future benefit cuts, we must cut future benefits. I’ve asked for further clarification many times, and never gotten it.
I am not a deficit-panic type demanding immediate cuts to future benefits, so I can’t answer the question. That won’t stop me from trying. I can think of three answers.
The first is not 1) “Greece Greece I tell you.” Krugman understands this argument. In fact I am quoting him putting words in the mouth of a straw man. He once believed something like the non parody version of this. This is one of the errors he pulls out when he is accused of not admitting errors. The short reply is “Japan Japan I tell you.” The long one is to ask people to explain how the USA could run out of dollars. Greece can go bankrupt because it borrowed in Euros. California can and Argentina did default because they borrowed in dollars. The US Federal government can’t run out of dollars. The true concern isn’t for the debtor (US Treasury) but the creditors who don’t want the value of their dollar denominated assets to be inflated away.
2) We must cut benefits now, because if we don’t we won’t cut benefits later (I favor this one). It is hard to cut future social security and Medicare benefits but it is essentially impossible to cut current benefits. If the USA reaches the point where the can can’t be kicked down the road, taxes will be increased. My guess is that programs with dedicated revenue streams and trust funds will just continue if the trust fund reaches zero, with the general fund paying part of the cost. The fear of the deficit hawks is the so called bankruptcy won’t amount to anything and things will just continue until investors loose confidence in Treasury securities. Even if something is then done, it will include tax increases and probably soak the rich type tax increases. In contrast they might hope to legislate cuts in future benefits for the currently non-elderly. This means the argument cut future benefits now to avoid cutting them in the future is indefensible, because it is insincere. If the aim is to cut benefits rather than raise taxes on the rich, honesty is not the best policy. The argument that an empty trust fund will be like say Lehman going bankrupt and not like Social Security before the Greenspan commission is needed to convince people to accept distant future benefit cuts which they prefer to sharp emergency benefit cuts, but which they like less than current or future planned or emergency tax increases on high incomes.
3) Unfortunately, it might just be me first listen to me first nowwwww. If one’s expertise is in long term budget forecasting, the frank statement that one knows about a problem which doesn’t need immediate attention is a sure way to be ignored. No one likes the prospect of waiting 20 years before anyone will listen. Everyone argues we should listen to them now. But I like explanation 1) better. I think it is about taxes on the rich, because it is generally about taxes on the rich.
” I think it is (always) about taxes on the rich, because it is (always) about taxes on the rich.”
Only the rich have voices in American politics.
The trouble with this argument… if it can be called that
is that it entirely ignores the FACT that
Social Security can be fixed ENTIRELY without taxing the rich.
Social Security was designed NOT to be a tax on the rich, but a way for ordinary workers to save their own money for their own retirement with the government protecting that money from inflation and market losses by “pay as you go financing.”
despite my shouting about this for over five years, no body understand it, because people in general don’t understand anything.
they just keep repeating the formulas they learned in school.
oh… for anyone who hasn’t heard… the cost to the workers of keeping their own social security in spite of living longer, having fewer kids, and facing a slower growth in wages.. would be about eighty cents per week in twenty of the next eighty years or more.
and that’s just the good guys.
the bad guys understand it perfectly. but they keep shouting about deficits, first, because it helps get them elected.. the poor understand about personal debt so they think national debt is a terrible problem.
the bad guys don’t care about deficits. they do care about taxes. but mostly they care about power.
and they like to hurt poor people. it gives meaning to their lives.
and if the poor can’t retire… they keep on making money for the boss. until of course they can’t.
Increasing the SS tax does not increase the tax on the rich. It increases the tax on the working man and woman, and possibly only the first few weeks of the rich man or woman’ salary if they even have one.
that’s what I said.
only it’s not really a “tax” on the workers. it is their own money being saved for them, with interest, completely safe, and with an insurance kicker in case they never earn enough to have saved enough for even a basic retirement.
and the rich pay for their fair share of that. more actually, since it is mostly the partially foregone “interest” on the part of their money that they save with SS that goes to make up the shortfall that would otherwise fall on those too poor to have saved enough. and of course since it is insurance, even the “rich” can’t know until they get there that they would not be one of those unfortunate poor.
trouble is, the rich “after the fact” think they didn’t need no steenking insurance. the poor mostly don’t understand the deal they are getting. and our progressive “thought leaders” want, oh want so much, to save the poor that eighty cents that they are willing to bet the whole thing on their chances of “making the rich pay.” after all, they say, (Nicole Woo on CEPR a few days ago) if we make the rich pay “only a few” people would have their taxes raised…
that is the rich man would pay an extra 49,000 dollars a year in order to save the poor worker an extra 80 cents a week. and yes the math checks.
but of course the rich guy won’t do anything about that. because as we know the progressives have the power and intelligence to force the rich to do the right thing.
oh, the math:
that extra 80 cents per week would ultimately be about 1000 dollars per year.. a long time from now in a galaxy far away. i hate to mention it because people who can’t think fixate on the thousand bucks and imagine it being taken out of their paycheck today. by the time the tax reaches the 1000 a year, the worker will be making an extra 10,000 a year… but that it too hard for most people to understand.
meanwhile the Nicole Woo approach would make up the whole “actuarial deficit” by taxing the rich…. and there is about one rich guy for every hundred poor guys… so they would be, other things being equal paying that 1000 dollars for 100 people instead of one person… or about a 100,000 dollar tax increase for them. the reason this is not the 48,000 i mentioned above is that other things are not equal… but that’s too hard to go into and the point doesn’t change.
meanwhile even though there is only one guy in that top 1% for every guy in the bottom 99%, in general that guy does NOT make 100 times as much as the 99 guys not in the top 100%. I know it’s hard to believe, but sometimes numbers just don’t do what you think they should.
One thing I think is never made clear is this: the projections saying benefits will be only 75-80% of what they would be under current law when the surplus funds in the Trust Fund are exhausted are inherently projections of what the economy will be like, and wages in particular, over the next 20 years and thereafter. They are essentially predictions of the amount of revenue that will be coming in on a pay-as-you go basis. That seems to me is about as dicey as it gets.
I would suggest we should go through one more up cycle and see what that does to the projections. During the boom in the late 90s and into the early 2000s, the Trust Fund exhaustion date kept moving further and further away — actually 12 years further into the future over a six-year period, which obviously meant that Social Security finances were improving during that period.
That will happen to some extent during this upswing depending on how strong it is and how long it lasts. When the expansion is over, we will have a clearer picture whether and to what extent the revenue stream will need to be enhanced. We have the luxury of doing that because as long as the expansion is happening, revenues will be increasing and the exhaustion date almost certainly will be no closer than it is today, and likely will be somewhat further away. In the meantime, because we will have been able to see the effects of a second expansion — and presumably the positive effects will be somewhat less than they were in the 90s-aughts expansion — we will have a better idea of how long the fund is likely to maintain a surplus. At that point we should be able to institute the Coberly-recommended, gradual increases if we decide it is prudent.
Democratic candidates for Congress face some difficulty in dealing with ignorant editorial boards of local (and national) newspapers and other media outlets. Because they probably to a person have drunk the Chicken Little Kool-Aid on the dire future of Social Security, they will be on the warpath for Democrats who really think we should not either cut benefits or cut anyone’s taxes yet. The idea that we should wait for one more economic expansion period, with an explanation like the above, with the base Coberly recommendation (with popular support according to polls) that any action should be on the tax and revenue side, that has enough sophistication possibly to shut up the would-be critics on those boards. They can then go out and say comfortably to the public that Social Security is the least of our worries
Agree, Coberly. Now all we need to do,is turn all,that into a 1
(Whoops! Hit the wrong button.)
As I as saying,
…into a 10 second sound bite. Or better yet, a 5 second sound bite.
“Don’t let them steal your Social Security. You can pay for your own retirement benefits for an extra 80 cents per week each year.”
Is that 10 seconds? or would no one understand or believe it?
I think you are on the right track. Maybe we need a sponsor and we could do commercials. My thought for a commercial today would be an old lady with obviously stiff joints cleaning a urinal in the executive suite… she says she’d like to retire but since they cut her Social Security she can’t live on what she’d get. So how long will she have to work? “Until I die, I guess.” she says. Then the camera backs up and we see a row of ten thousand urinals that she has left to clean.
You can think of your own pictures worth ten thousand words.
Why cut benefits immediately?
Because the whole debate over Social Security is not fundamentally one over solvency or how to achieve it. And never has been.
One of my very first posts at my Social Security blog The Bruce Web back in 2005 was called: “Social Security: Is it About Solvency or About Ayn Rand?” And the answer was Ayn Rand.
Opposition to Social Security from the Right has been unrelenting since Alf Landon was convinced to make attacking it a central pillar of his 1936 Presidential campaign. And while the surface attacks were (and are) focused on it ultimate inevitable failure the deep motivator was the fear that is would succeed. Which by the 60s it had and indeed having been dubbed “The Third Rail of American Politics”. Because any politician who touched it risked electrocution.
A key point implicit in Urban Legend’s observation about the amazing improvement in outlook for Social Security between 1997 and 2005 when (as noted) Trust Fund Depeletion got pushed back from 2029 to 2042 was that this was the EXACT time that the Right mounted its last sustained attack on SocSec, Bush IIs Social Security Tour of 2005. Why did they move THEN. Because the numbers showed that it was then or never,given the near universal acceptance of the ‘Washington Consensus’ on future economic growth (3% GDP forever) Social Security would overfund with no need for Coberly style increases. And rather than accepting this outcome with relief the Economic Right doubled down.
Remember Government is Never the Solution. Government is Always the Problem. And to a large degree the “impending” “bankruptcy” of Social Security was the proof of the failure of the New Deal. The last thing anyone on the Right wanted to hear was some dude named Bruce pointing out that simple continuation of 2004 numbers showed Social Security self-funding or some guy named Dale pointing out that even if we accepted the economic projections of Intermediate Cost that you could fund scheduled benefits at 80 cents per worker per year.
The problem has never been that the Right couldn’t hear or compute, that all it would take is a spreadsheet and a forum, it is not like the major players on the other side got their Econ PhDs by fraud and just need some larnin’ by Webb and Coberly. Mostly they know the numbers better than we do. They just won’t allow them to be heard. Because it destroys a major pillar of their politico-economic edifice.
The precise analog is Pikettty’s capital. It is not like it takes a lot of math to cross check data tables against R > G, they just don’t like the implications.
Social Security Insolvency is not the Crisis the Right fears. It isn’t having to pay back the Trust Fund that frightens them. Instead the Crisis would be Social Security Solvency. Especially if it comes from a fix inside the current structure. Like Coberly’s Plan. It isn’t that they can’t listen. It is because they can’t AFFORD to listen. Too much rests on the existence of “Social Security Crisis”
thank you, and what you say makes sense
but there is a problem. we can’t wait too long.
if the economy doesn’t recover fast enough we will reach a point where 80 cents per week won’t do it. It might take 90 cents or a dollar.
We could wait until the Trust Fund is used up in about 2033 or so and then it would take 15 dollars a week all at once. This would not be terrible, but people would notice. And the bad guys would start screaming and then the people would start screaming. Then someone would offer a compromise… cut benefits only by 10% and raise the retirement age only by one year… and hold the tax increase to only eight dollars per week.
And people would say, yeah, that sounds fair.
Until they get old and find out that seven dollars a week they saved themselves makes the difference between “poor but comfortable” and “degrading misery.” But then it would be too late.
Sadly, there are people who think they are on the side of Social Security who want to take that chance.
It is worth noting that adoption of the Coberly Plan would accomplish two things vastly favorable to the bottom line of the 1%.
One it would fully deliver Scheduled Benefits at no additional taxes on the 1%. Every penny would come out of existing Labor Share.
Two, and somewhat incidentally to the design, it would mean that not a single penny of the $2.8 trillion Trust Funds, currently held in Public Debt because of borrowings largely to finance policies of the 1%, would ever need to be paid back. Moreover debt service would in real terms be discounted by around 50% from the face yields of those Special Issue Treasuries.
Dale is making the 1% a deal they CAN’T refuse: assurance of new tax increase to fund future SocSec benefits. AND effective debt forgiveness on nearly $3 trillion in Public Debt or over a sixth of all such debt outstanding, and BTW double the share of that held by the Chinese Central Bank.
What do the billionaires have to give up in exchange for trillions in tax breaks? Simple. They just have to admit that the New Deal was not a failure and that FDR was not History’s Greatest Monster. And on all evidence they just can’t face that.
I am not proposing that we “wait too long.” There are intermediate steps between starting tomorrow and waiting until 2033.
My point in part is that in 2033, the exhaustion date probably will not be 2033. It will probably be more like 2043, and taking action 10 years before the projected shortfall even if we waited until then would be a lot more prudent than doing it in 1983 when benefit shortfalls were projected for the same year (as I recall).
But in any case, my main point is that we are likely to see the current 19 year span kicked forward into the future (and possibly grow larger) while this expansion continues. States are seeing tax revenues grow faster than expected, and Social Security presumably should see the same effect in the near future. In other words, we will be no worse off and your 80 cents per week (revised for inflation perhaps) can be started then without any detrimental effect from that period of waiting.
not according to my calculations:
the 2014 Trustees Report projections show that if nothing changes by 2017 the Report that year will show “short term actuarial insolvency.” that means they are saying that in ten years the Trust Fund will fall below a reserve of 100% of the costs (benefits) for the following year (the eleventh year). The trust fund would not be called upon to pay all of the next years benefits so it would not actually “run out” until 2033 as they are currently projecting.
but that “short term insolvency” will “require” action… and the action that will scream the loudest will be from the bad guys: we gotta find a sneaky way to cut benefits to save Social Security.” there will be no call to raise taxes that eighty cents per week unless it comes from us.
now a recovery of some kind would delay the “short term insolvency” projection if it is big enough soon enough. but currently 2017 is looking like the “do something” date.
and we need to do something before then so the “do something” includes “raise the tax one tenth of one percent per year” or “raise the tax one percent and plan to do it again in about ten years.”
these would save social security….that is keep your benefits high enough to actually do you some good when you need to retire.
i am not sure what the bad guys mean when they say “cut benefits to save social security” maybe as long as you have a balance sheet somewhere with “Social Security” written at the top, that is good enough for them, even if the benefits won’t support human life.
I am inclined to agree with you. The Right is not interested in a “solution” to the SS “crisis”. They want to end SS. They want SS to fail. They want to prove that indeed government is not solution.
If SS continues to work, they what other problems might the government be successful at solving also? Healthcare? Election financing? Poverty? Job creation?
Good god! Heaven help us! What’s next? Could Liberals be right?
i’d go a step further i think. it’s not just that the bad guys don’t want FDR to have been right.
it’s that they don’t like what he did. their “business model” requires that workers are either working…. making money for them…. or out of work and desperate… keeping down the cost of labor.
i think this is the way their fathers treated them, so they believe that if people are not working they are sinning. of course there is lots and lots of room for self deception in all of this. they think they, themselves, are working if it’s only a matter of calling their broker once a day and saying “buy”.
thing is, between the money they think they are making off the workers, the money they expect to make handling the workers “savings,” their “work ethic” which is both their religion and their psychology… what we used to call a neurosis…. and their hatred of taxes… well, there is plenty of room for self deception and you are not going to change their ways.
there is some hope we could get the workers and the “almost rich” on our side. but don’t expect Peter Peterson or Alan Simpson to have a come to Jesus moment. Not to mention all the little creeps who sell their souls for the Peterson dollar.
Yes, the concern is with the creditors not the debtor. It is normal and expected in my book that creditors are very interested in the financial habits of debtors they do business with. That the creditors might not be doing a very good job at evaluating the entire situation is probable and a sovereign debtor in its own currency should pursue its purposes without taking creditors’ arguments at face value frequently. Anyway, I do not think that the concern of creditors is that after the trust fund is fully redeemed that taxes will go up to maintain benefits so much as taxes will need to go up to handle the net redemption phase of SS much sooner. If you are a high income, high wealth individual you possibly see Russia, ISIS et al as meaning we won’t cut defense anytime soon, ACA as likely the foot-in-the-door for continuing expansion of tax-funded health care and then you see a boatload of debt that isn’t going to be rolled-over. Yeah, that was the plan for decades, but actually doing it is going to hurt.
“…taxes will need to go up to handle the net redemption phase of SS much sooner.”
Only if they want to pay down the debt. Otherwise, they will just trade new debt for old debt with no net increase of debt.
It is like paying off one credit card with another one.
the funny thing is that if we just pay for Social Security “as we go”… that is, as needed to pay for benefits…. there will never be a need for congress to find the cash to pay back the Trust Fund.
The Trust Fund will just keep growing on paper, from rolled over interest, enough to keep up with the increase in the size of the required one year’s prudent reserve. a small amount of the interest will be used to maintain the balance between taxes in and benefits out. but as Bruce Webb points out, the congress is still getting an essentially interest free loan that never has to be repaid.
i doubt the congress critters are smart enough to understand this. but you can bet Pete Peterson is. so there is some other reason for his trying to destroy social security.
An interest only loan with no principal repayment and around a 50% discount on the coupon rate of the note. So not in the strictest sense ‘interest free’ but the nearest thing possible.
And even more so when adjusted for ‘real interest’, i.e. after inflation.
Free Money for Billionaires!!!
All they need to do is to hold their bladders and not piss on FDRs grave. Man that Peter G Peterson is clinging on to his grudge for nearly no reason that I can figure. I mean his father was a Greek immigrant shopkeeper born Patropoulous. On the other hand a glance at PGPs biography shows that he was mentored by David Rockefeller and even inherited his patron’s role as head of the Council on Foreign Relations and is a Trustee of at least one Rockefeller Trust. (No shit, no snark, look it up). So maybe it is all about PGP seeing himself as an adopted son of American Aristocracy. But Christos! even the most retrograde Rockefellers weren’t so retrograd as Pete. Frankly I don’t get his deep seated antipathy to the New Deal. But there is no denying its existence.
Pete doesn’t intend to go out of this world without taking FDR down with him. I mean he has committed a cool billion dollars to this quest via the PGP Foundation. It is not like he is going to earn that back by charging fees on private SocSec accounts at his 80+ age. It isn’t about Wall Street Greed in the Gordon Gecko sense.