Holy Ministry of Truth Batman!
Lifted from comments on Financing Social Security, Bruce Webb comments on Social Security prpaganda:
Jim, the problem is that those people with “government, financial, business
experience” who are promoting the message “No check for you!” to millennials
know full well the numbers behind the following equation:
No Check for You = After Trust Fund Depletion a Remaining Check only 15% BETTER
in Real Basket of Goods Terms than Similarly Situated Retirees Today
Yes you read that right. Under current projections if nothing is done future
retirees will experience a cut from a check about 30% larger in real goods terms
than retirees get today down to a check maybe only 12-15% larger. And this
taking into account a continuation of current income inequality trends and
continuing improvements in mortality.
But that is quite the mouthful to swallow. When Dale and I express this in
simple terms, people come back with “well what about income inequality?” “what
about the fact that people are living longer?” etc, etc. At which time we have
to slow down and explain that all of those ARE ALREADY IN THE NUMBERS. Something
the Bad Guys know full well but are equally aware that others don’t know. Which
allows them to make people like me look like ignorant rubes.
A few years back the siteowner of Angry Bear asked me to post a Social Security
series. Before I had even covered the bases it had grown to 47 posts. In part
because I had to slow down and fight with commenters along the way. You know the
people who KNEW stuff about Social Security. Stuff they heard everywhere from
everyone. For example a supposedly definitive argument I heard was “No young
person I talk to thinks Social Security will be there for them”. As if the
success of a propaganda campaign was self validating. Holy Ministry of Truth
Batman!
Dean Baker has a good post on Social Security this morning:
http://www.cepr.net/index.php/blogs/beat-the-press/how-should-social-security-benefits-respond-to-an-economic-collapse
Taking off the gloves.
Baker saysa commenter laments:“It is shameful and disgusting to watch VSPs bash one of the most efficient and successful government programs ever established in America. It betrays their vile hatred for anything that stands in the way of the march of their economic predator handlers to monetize and privatize everything in sight while protecting themselves with illegitimate socialized losses as they kick and scream about SS rescuing millions from the very carnage they wrought on America.
Enough. The VSPs need to crawl back under the rock where they were when W raided the SS “lock box” to pay for a useless war kept off the books to hide it, that ended up costing over $3T. They kept their mouth shut then and they need to keep it shut now. ”
Well, Dan, the quote is from a comment in response to the Baker column. It is not Baker himself who wrote it.
Yes the real takeaway from Baker is his last paragraph:
“Workers care about their after-tax wages which are primarily determined by what they earn before taxes. Due to economic mismanagement and trade and regulatory policies that were designed to redistribute income upward, most workers have seen very little growth in before-tax wages over the last three decades. If they get an even share of the projected growth in compensation over the next three decades, then before tax compensation will be almost 60 percent higher in 2044 than it is today. It is understandable that progressives would be more focused on ensuring that workers get their fair share of economic growth than the risk 3-4 percent of these gains might be taken back in tax increases to support their retirement.”
Social Security initial benefits depend on real wage. If workers get their share of labor productivity increases (and why not) to the tune of 60% increase in pre-tax compensation (using Dean’s number) then Social Security benefits (which are tied to ‘replacement rates’) go up commensurately. Thus even if nothing is done on the payroll tax side and so a cut from the baseline is necessary you are talking about 25% from that 60%. Or the original form of ‘Rosser’s Equation’ 75% of 160% = 120%”. Now if workers don’t get a fair share then pre tax comenpensation might only go up 40% by 2040 (more or less current projections) and maybe 30% by Trust Fund exhaustion. Which still gives a SocSec benefit around 12% better in real terms than retirees get today.
And of course you can address both the problems of actuarial gap and declining labor share of productivity by the same five word program:
More Jobs. At Better Wages.
Bruce:
Seems like someone else said something similar to this also.
“most workers have seen very little growth in before-tax wages over the last three decades. If they get an even share of the projected growth in compensation over the next three decades, then before tax compensation will be almost 60 percent higher in 2044 than it is today. It is understandable that progressives would be more focused on ensuring that workers get their fair share of economic growth than the risk 3-4 percent of these gains might be taken back in tax increases to support their retirement.”
More income growth as we all originally though leads to greater revenues.
But this line of thinking is dangerous. If it’s okay for workers to accept only a 15% increase in real benefits when otherwise real wages have increased 30%, you are saying that cutting benefits… as by fiddling with the consumer price index… is fine.
Workers will not like trying to live on 15% less than benefits would otherwise be. The “real” standard of living in 30 years will REQUIRE that you actually have the money to pay for it.
The last generation did not have cars or computers. Those were real standard of living increases in the cost of living, not “inflation.” But neither workers nor retirees can live without them in today’s world.
If your purpose is to get people to understand there is no crisis in Social Security… that if nothing is done, they will still get a check, that is true. But it seems a dangerous thing to do to encourage them to “do nothing” when they could pay an extra dollar a week for their Social Security and continue to live like human beings when they reach retirement age.
And while it is quite true that more jobs at better wages would solve the problem… and be the right and satisfying fairy tale ending to the war against Social Security…
the fact we have to deal with is that current projections “predict” a shortfall in SS finances. one that can be covered by cutting benefits to below “enough” to live on… or can be fixed by raising the payroll tax eighty cents per week per year until the time comes when “nothing” needs to be done.
As far as I can see the tax increase is the cheapest, safest thing to do NOW. When you get those more jobs at better wages, then you won’t need the tax increases. But when you are expecting possibly higher expenses in the near future it might be prudent to increase your savings, not count on the lone ranger to arrive with a check for the mortgage at the last minute.
Well yes Dale.
But I feel it worthwhile to address the SPECIFIC attack “No Check for You” with a specific answer using specific numbers that starts “Even if–”
Now you find this particular answer to this narrow question dangerous at worst and at best taking our eyes off the ball by ignoring the simplest conceptual solution. I get that. I just refuse to agree that this kind of intermediate analytical approach is inappropriate. After all AB readers are not children that can only be exposed to the abridged version of reality.
You don’t have to like the implications (as seen by you) of Rosser’s Equation. But that does not make the numerical relation of cuts at Trust Fund Depeletion against Scheduled Benefits as against now Current Benefits meaningless or useless in comprehension of system finances.
Bumper sticker/Tee-shirt message:
Yes, Millennials, your Social Security will be there for you — unless you let the lying bastards take it from you.
We need messages, not just explanations.
Bruce
don’t get excited. if it is good to make the case that even if nothing is done it won’t be the end of the world. it is also good to make the case that nothing may not be the best thing to be doing right now.
i am not attacking you.
No Dale you are not “attacking” me.
You just claim that “this line of thinking is dangerous” in direct response to a post derived from a past comment of mine plus my comment on that post.
That is any reasonable reading would HAVE to be; “Bruce your line of thinking is dangerous”. Because who else are you talking to? The mouse in your pocket?
Bruce
once again, i was not attacking you. i was “attacking” an idea. Actually, there was nothing wrong with the idea except that it leads to a dangerous line of thinking..
namely that “do nothing” is a safe response to the Peterson attack on Social Security. and it’s corollary: that you will be happy in a retirement with a 15% cut in benefits from those otherwise projected because that will still be 15% (or some other number) “greater than” the “real value” of today’s benefits.
for what it’s worth… i can’t remember exactly, but I think Professor Rosser made his good and valuable observation i about 2000 when the Trust Fund “death date” was 2043. That would have led to the “160%” of then-today’s benefits. Now it is 2014 and the death date is 2033, leaving time only for about a 20% increase in the benefit level… if the average wage growth is about 1.1%.
And if things go as predicted a time will come in 2032 when people will be faced with a 25% cut in benefits that would otherwise be about 1% greater in the next year. They won’t like it, and they won’t care that those benefits are greater in real value than those fo 2000, or 1936 or 1776 or 1620 or 5000 BC.
I am sorry you see this as an attack on you. [Note… sometimes “you” means “Bruce Webb” and sometimes it means “generic you.”]
What I wish people would do is sit down and figure out what all of this means to “Them.” What are they going to need … or want… when they get to be sixty-four. And what is the best way to make sure they will have “enough.” And even if they are smart and going to be lucky, what is going to be best for the country…. it’s hard for even the smart to make money in a country where everyone is dirt poor.
At the risk of offending those who are tired of hearing it, but just in case there are others who haven’t heard it yet;;
the “do something” i think is necessary is to get the people to understand they can prevent any cut in benefits by simply raising their own payroll “tax” about one tenth of one percent per year… that’s eighty cents per week per year while wages are expected to increase about eighty dollars per week per year.
this preserves the “i paid for it myself” feature that Roosevelt thought was so important to Social Security. It removes Social Security from any sane charge that it will “increase deficits and lead to staggering burdens on the young.” In fact it is the only way to save those young from facing desperate poverty and true misery when they become “the old.”
but you have to explain it to them, or the Big Liars with their Billion Dollar Propaganda Machine will tell them another story with cute pictures and lead them down the primrose lane to destruction. which will amuse them no end.
Bruce Webb is the best man we have had on our side for years and years. I am sorry he thinks I am attacking him when I yell “look out for the trap!”
I have said this before, but have tried not to be too clear for fear of alienating my friends and tipping off the enemy, but here it is:
those who like to say “we can do nothing and benefits will still be higher in real value than they are today” are saying that they agree with the enemy that we can cut benefits.
there was big horror when Obama proposed cutting the consumer price index in a way that would have cut benefits by ten percent… and there should have been. but now we have people from the same camp suggesting we can cut benefits 25% and still have “more real value” than today.
among other things, this gives the game to the Boskins who can then decide what “real value” is and what “inflation” is and decide that working people don’t need no steenking real increases in benefits as the economy grows.
if the Rosser equation had been applied in 1936 most retirees would be living today without cars, televisions, computers, or indoor toilets.
but they would have “more in real value” than retirees in 1936.
it is this kind of thinking that made Social Security necessary in the first place… people just are not very good at understanding what they will need twenty or forty years in the future.
or to put it another way
a parable for our times
i am driving along one night when i see i am getting low on gas. i have a hundred dollars in my wallet and i know ten dollars worth of gas will get me home… where i have another hundred dollars waiting for me.
but while i am looking for a gas station cursing the price of gas and my lousy job i drive by a big house and think…. that guy’s rich. why should i have to pay for my gas when he has so much more money than i have?
so i stop in his driveway and bang on the door. i tell the butler i want the rich man to give me some money for gas. the butler shuts the door in my face.
so i go to a nearby bar and buy a drink and complain about the greedy rich to the other guys in the bar. pretty soon i have about a hundred guys who agree with me and we all go back to the rich man’s house and start shouting outside his window and demanding he give us money for gas.
now the rich man could just ignore us until we get tired and go home. or he could call the cops. and there might be a riot and people get hurt. or he could try to explain to us that if he gives us all ten bucks for gas, that’s a thousand dollars out of his pocket, and what does he get for his thousand bucks?
but our rich man is a philosopher and a humorist. so what he does is he comes down to the door and starts handing out money. ten dollars to one guy, twenty to the next, five to the next, then ten to the next and one to the next after that, then twenty to the next guys and so on.
then he goes back inside and watches out his window as we start arguing with each other: “why do you get twenty dollars and i only get ten? hey, but i only got five, how come you get ten? and so on. pretty soon we are fighting with each other.
i don’t know how the fight ends. but the next day gas prices have gone up a penny. and the next week they have gone up a nickel. and maybe six months and they have gone up a dollar. meanwhile no one gets a raise that year.
or the year after that. but no one blames the rich man. because he is so kind, you see. he comes by every christmas and gives us a goose so we will at least have christmas dinner.
i forgot the moral:
wouldn’t it have been a whole lot simpler to just pay the ten bucks for the gas?
oops, the wrong parable
that one was for the scrap the cap crowd.
the do nothing crowd would be thinking to itself, “well, maybe i can get home without buying gas. it’s mostly downhill, i think, and anyway a tail wind is bound to come up. and gas will be cheaper on the other side of the desert.
speaking of which, i better stop here and buy a drink.”
But the tank is almost full. It probably won’t get us all the way home, but there are plenty of gas stations along the way. Sure, it would be safest to stop at each one to top off the tank, but most people wouldn’t do that. I think they are being reasonable.
It is true that Bruce’s argument could be used by those who want to make cuts, because it reveals that projected benefits increase faster than inflation. But I think you have made the same point, which is hardly a secret.
MikeB
thanks for putting up with me.
yes, hardly a secret. but it’s different when the “defenders” of Social Security sound like they are calling for those cuts. Except that they don’t appear to realize that’s what they sound like.
as for the tank… it might be almost full, but the Trustees are saying it’s almost empty. and that’s where the crisis start: the bad guys shouting we need to cut benefits. the good guys shouting we need to raise taxes on the rich. and that poor idiot coberly saying why don’t we fill up the tank whenever it’s at 1/4 full or the sign says “last gas for 200 miles”.
that’s not “topping it up at every station.”
but i despair. there appears to be no way people… any people… ever give up on their first idea. especially if it was a nice shiny one that promises they don’t have to do anything, or they can “make” someone else do it for them.
you can’t go crazy about the change in CPI on the one hand and then turn around and say that a future cut of 25% will still leave retirees better off than they are today so “do nothing.” that is, the logic is terrible. the politics is worse. the policy is disastrous.
for example…
i asked people to think about what they were going to need when they got too old to work and what was the best way to insure they would have at least enough.
then i pointed out that the Rosser equation was out of date. The proposed benefit cut of 25% will no longer come out of a benefit that is 60% higher in real value than “today’s.” It would come out of a benefit that is about 20% higher than todays. I could be wrong. But no one even challenges the argument, much less checks the facts. instead they give me a reply that is just a projection of their own idea that they had before… with no attempt to meet my argument whatsoever.
that is, i say “P because X,Y, and Z”. they say “not-P because I say so.”
that is
something like mathematics meets something like music-video. MTV wins every time.
“Doing Nothing”
is a very good plan when all the other plans are
“Cut Benefits”
it is not a good plan when you know that
“increase the tax 80 cents per week”
will avoid all benefit cuts forever. especially if you can remember it is NOT a tax, but an insured savings for your own increased costs of retirement.
and especially especially if you are smart enough to realize that while the 80 cents per week per year adds up, your wage increases will add up ten times as fast
or even if they don’t, you are still going to need the money to retire
and you can live on 2 or even 4 percent less than you make today with no change in your “life style.” but you can’t live on 25% than “promised” Social Security benefits even if that is “more than benefits were worth” 15 years ago.
I did the calculation using AWI and CPI data comparing 2014 to 2033 (the latter interpolated from 2030 and 2035 data; Table VI.G6.), with a cut to 77%; Figure II.D2.) and got that benefits would be about 2.5% higher in 2033 with the cut than in 2014 (or rather, for people turning 60 in those two years). Someone can check me if you want.
“Doing nothing” forever is not going to happen, and almost no one is for it. The point is that we don’t have to do anything now (and that Social Security is not going to “go away” if the Trust Fund is exhausted). Since any deal now will involve cuts, doing nothing is a good policy for now.
MikeB
your math looks about right to me. please note that 2.5% better than today in real value in an economy that “expects” 25% better than today is going to be seen as a hardship. and it’s a stupid harship if you can pay for the full benefits for one tenth of one percent per year.
as for doing nothing now… there is still a need to get people to understand that they can pay for their own benefits… at the higher rate… by raising their “tax” one tenth of one percent per year. that needs to start happening now. or when the time comes to “do something” what will be done will be in panic mode guided by the lies that Peterson has been telling for thirty years.
if the one tenth of one percent is going to avoid “shortfall” it has to start happening by about 2017. that is NOT far away. you can delay the start if you are willing to go for something higher than one tenth of one percent per year. two tenths wouldn’t hurt anybody. hell, a full one percent in the first year wouldn’t hurt anybody….BUT YOU HAVE TO GET PEOPLE TO UNDERSTAND THIS.
it’s not going to happen by itself. and it sure is hell not going to happen in a week when the time comes that the Trustees are reporting “short term actuarial insolvency.” or worse, when the Trust fund actually runs out.
I actually think that the longer we wait, the less likely there will be benefit cuts. This is because benefit cuts take a long time to have an effect (unless you’re willing to cut current beneficiaries, which few people are, with the exception of the chained CPI scheme). So the closer we are to a crisis, the less cuts make sense. It doesn’t mean they won’t happen, but I think it makes it less likely.
I don’t think there’s any way that nothing will be done until the Trust Fund runs out, but if that happened, I think the fix would be a tax increase. (If current rates will pay 77% of benefits, as projected, it seems taxes then would only have to be raised 2% each for employer and employee. I get that using 1/0.77 times 6.2%, which is 8.05%, which is an increase of 1.85%.) At the time, there will be 75 million Social Security beneficiaries, and I don’t think politicians will be willing to cut benefits for that many people.
Mike B
your math looks about right. there is no problem with the finances. that 4% (or 2% which is what most workers would see) is not a killing number. but you still have to get people to understand that.
i hope you are right about what will happen. to me it doesn’t seem worth the risk to wait. it certainly is not sensible to wait before trying to teach the people that the size of the problem is far, far less than they are being told.
Coberly,
Of course I agree that it’s important to get the facts out.
I don’t think any Social Security fix can be passed now, so waiting is not an option. If something like the Simpson-Bowles co-chairs proposal had a chance of passing, I would support taking the “risk to wait,” hoping to get something better in the future. If a good deal (e.g., the Northwest Plan) had a chance of passing, I would support it. I’m not sure we have any disagreement here.