"The young will pay more and get less." More Nonsense from Robert Samuelson
by Barkley Rosser from Econospeak
“The young will pay more and get less.” More Nonsense from Robert Samuelson
Our old friend, Dean Baker at Beat the Press, does a good job of taking apart yet another screed by the execrable Robert J. Samuelson, faux economist for WaPo, whining about why nobody is jumping on board with cuts to “entitlements,” and particularly his old bugaboo, Social Security. Google “Dean Baker Robert Samuelson is upset” and the first hit gives you the link (Sorry, the link title is too long for me to read it and my trying to put what I saw in just sent one to the general CEPR site, bah! (Anybody out there able to tell me how to overcome this bit when urls are too damned long too read, please?). However, I want to pound the nails in a bit more.
So, RJS provides this line that if there is not an adjustment to SS (and Medicare), then “The young will pay more and get less.” Dean quotes this, but does not go far enough in showing how totally ridiculous this is, even though he has pointed out recently that one reason there should be no adjustments for SS now is that the young are massively misinformed about what the not so bad fiscal situation of SS is. Large proportions of them are fully convinced that they will receive no Social Security when they retire because it will be “bankrupt,” when in fact that condition will amount to them only getting something like 120% of current retirees’ benefits in real terms rather than more like 170% (a bit lower, actually). They are totally out of it, and the main threat to them losing their future benefits is if they support the sort of dreck that RJS is pushing, to cut their future benefits now because otherwise they might have their future benefits cut in the future (eeeeek!).
Let me be more pointed. RJS’s statement is simply a lie. The proposals to cut Social Security have generally taken two forms recently: imposing a chain price index and adding another round of retirement age increases in the future beyond those that were imposed by the Greenspan Commission nearly 30 years ago and which are still coming in. The former is estimated to reduce cost of living increases by about 0.3% per year, and this would over the next few years indeed gradually reduce what elders receive in benefits, although it is not at all clear that this will lead to any reduction in what the young will be paying, unless this is accompanied by another round of fica tax cutting, or fica is restructured to have the same revenues come in but have it paid over all income levels, thereby reducing the burden for anybody under the upper cutoff for paying it. However, the effects of this change in the CPI used means that the cuts will get bigger and bigger as time passes, meaning that those who will be most negatively impacted will not the evil baby boomers, but the current young when they finally retire, although since they think they will get nothing, presumably they will be grateful to get even a crust of dry bread.
More egregious for RJS’s arguments, and where he really is just outright lying rather than merely stretching the truth is this matter of increasing the retirement age. Nobody is talking about any further rounds of that happening anytime soon. RJS poses as this defender of youth against his awful generation (he trumpets his baby boomerdom to supposedly give credibility to his regularly repeated nonsense), but in fact the baby boomers, or certainly at least the front end ones like me and him, will not be affected at all by these future increases in eligibility ages. It will be the Gen Xers and the Millennials. RJS is just lying through his teeth. We old farts will not pay at all as a result of this change, but today’s youth will.
reposted from Econospeak
damn…i really hate having the same initials…
Is it possible that by starting a “write in” campaign addressed to the WaPo editorial management and addressing by complaint the persistence with which Samuelson offers such crap would have any good effect? Other Op-Ed fixtures have been relieved of their duties to lie, cheat and steal in the past. Why not now if the complaints are voluminous enough? Write to their management in addition to sites like AB. If the flood is sufficient maybe their management will become concerned for their own bottom line. Of course, on the other hand, they may all think that RJS is the expert. I wonder if the rest of the WaPo editorial staff snicker with each other at the foolishness that appears on those pages.
Allow me to lazily patch in my overall look at Social Security for youth to understand:
The 1983 Social Security retirement tax deal accomplished an all-critical benefit for one group of people: politicians. By setting the payroll tax much higher than needed to meet current outgo they avoided cyclically facing the unpopular need to raise payroll taxes to keep up income with growing outgo — indeed they postponed the (their) need for many decades.
The screwy unfortunate effect has been to pay for regular budget items (army, navy and USDA) with the (flat) payroll tax (with a cap to boot) in the beginning and, then, to pay retirees income in the out decades partially with (progressive) income tax — then paying about 25% of the retirees needs.
The treasury sells the bonds and then uses the money to pay for regular budget items — so you can take your choice about whether the trust fund is make-believe; the money is not put aside for later.
This was doubly dumb if we consider that growth in productivity means that the non-progressive flat tax as levied in a less productive era when payers could least afford it and the progressive tax will phase in when payers can most afford to cough up.
When the fund finally runs out the tax collection method would logically revert back to 100% payroll tax support of retirees (not 75/25). Maybe they will start another (make-believe?) trust fund to avoid that (and avoid cyclical tax raises too :-]).
BTW, average income doubles about twice as fast as population size so there should be no fundamental problem paying for retirees — even when workers to retirees ratio drops to 2 to 1 — and never go lower — after 2050.
TIP: Shorten that very long URL at tinyurl.com
Denis, love you like a brother but—
1) I haven’t talked to one of my own brother for years. And my Mom doesn’t mention my name when she talks to him. So that is a mixed bag there.
2) “Lazily” is not a bad descriptor of parts of your comment.
The 1983 deal did not in fact set “the payroll tax much higher than needed”. Instead it set it at almost exactly the right rate for the ten year period the Congress was legally mandated to set it, the subsequent surpluses were not especially seen as inevitable or of the scale they ended up to be, in the meantime the extra revenue just wasn’t there.
First as to rates. The 1983 Reform instituted a small bump followed by a series of increases that didn’t totally phase in until 1990. See this history of FICA/SECA rates:
http://www.ssa.gov/oact/progdata/taxRates.html
Second as to Trust Fund ratio. By law Congress is supposed to target a minimum reserve of one year where that equals a TF ratio of 100. Moreover that reserve is required by law and since 1939 to be invested in Treasuries (or certain equivalents). And here is the key point. Until or unless the TF ratio exceeds 100 there can be by definition no borrowing, no looting, no excess collections, instead all you have is the prudent and legally mandated buildup of the legal minimum reserve in the legally mandated form. Which leads to this table from the SS Report:
http://www.ssa.gov/oact/tr/2012/VI_A_cyoper_hist.html#215892
The last column is TF ratio and we can see on observation that at the end of 1988 it was sitting at 41 or less than half of target. By the end of 1992 and so a month before Clinton’s inaugeration it was sitting THIS close to target at 96 and probably hit 100 just in time for Clinton to “save Social Security first”.
Examined in that light Tip-N-Ronnie actually raised rates THE MINIMUM necessary to hit LEGAL 10 YEAR MANDATES. Furthermore a close examination of the numbers actually shows a DETERIORATION in Social Security outlook between 1993 and 1996 before the numbers took off.
The Reagan raid to loot Social Security to pay for defense buildups and tax cuts never happened. And indeed since a component of the 1983 legislation was to tax Medicare benefits of the then rich the net effect was to shift resources THE OTHER WAY.
Not the most convenient narrative for us defenders of Social Security, especially people like me that hate Reagan to the core. But the numbers don’t lie (in this case anyway). Sorry. And I mean that. I hated giving up this myth back when the facts smacked ME in the face.
Oops. Should have said “to tax Social Security benefits and add a SECA surcharge onto the then rich”. It was a double hit on what was truth be told Ronnie’s base of old, white, wealthier retirees.
Dear Bruce
I think you are right on the facts, but maybe not so right on how to tell the story. This is easier to understand with your point in your next post…above.
The Trust Fund was indeed created in 1940 or so… blah, blah. And maybe there are times you need to correct someone’s misstatements about that. But if you are telling a story to people in the hope they will get a useful understanding of the current situation, it may be better to keep it simple.
The Trust Fund in its current incarnation is being used “essentially” to pay for the Boomer retirement.
Even that way of saying it is subject to a dozen qualifications best left to the graduate seminar… where in fact everybody already knows the true facts.
Similarly, you are right about the Reagan etc 1983 fix bringing the TF back up to the target of 100% of one years reserve… again, a simple statement which needs a whole lot of refinement to be “the whole truth”… most of which just makes anything you (I) say about it too long and hard to read.
Meanwhile, simple peasants like me will from time to time feel a need to point out to those who know even less than I do, that the Trust Fund money was used to pay for the Reagan Arms buildup. This is not the whole truth. But it is an important part of the truth for those who think the money was “wasted” or that somehow SSTF does not contribute to one of their favorite causes.
I don’t want to go into a long argument with you about it, because you are right as to “all of the facts,” and my point is only, basically, that i don’t like being called a liar or a fool, because from time to time i simplify the facts in the vain hope of explaining at least something to those who don’t know anything.
vain hope.
“Trust Fund going Bankrupt” is just as much a useful simplification as “Trust Fund Prefunded Boomer Retirement”. Not exactly wrong, just needing a ‘lot of refinement’ to explain to the ‘simple peasants’. But I don’t like the way the boot pinches when worn on the other foot.
And frankly I would rather be known as a ‘know-it-all bastard’ than a ‘condescending SOB’.
And just between you and me I think our fundamental undertakings are a little different, kind of an aristoi vs hoi polloi differentiation in audience. Of course just putting it like that makes me sound like (and maybe actually be) a ‘know-it-all condescending bastard SOB’. But since my audience is in the final analysis 2 Dans, 1 Dean, 2 Nancys and 2 Erics plus a Barkley or two and AB has a readership with a better than average numeracy quotient I see no reason to simplify things much. To some degree that part of the job is done, heck I am well into my ninth year of SS blogging and blog commenting. And message discipline is boring.
Bruce
no. trust fund going bankrupt is a lie. there are simplifications and there are lies. there is a difference.
Bruce,
Thanks, It will take me a day to assimilate this — and probably a month to dig through all the material to figure it all out. (Why couldn’t you leave me in my ignorance? :-[)
Keep up the good work, Bruce, but last time I checked, Charles Barkley is not following your AB posts on Social Security. I think I am the only “Barkley” doing so, :-).
Bruce:
Good post on SS as usual.
Attacking the lies is never as effective as attacking the liar. This same argument between the facts and the propaganda has been going on for too long a time. This is not the first time that Samuelson has reiterated his bullshit in spite of having been called out as the liar and propagandist that he is. So what makes the false side of the argument dissipate?
Write your complaints to the WaPo editorial management. Granted that any one or several of us can be ignored by a management team that seems equally responsible for the repeated publication of an invalid argument. A campaign of letter writers may still have an effect. The greater the numbers, the more likely to be heard by those who decide what is worth publication in that newspaper. Write to the editor. Not a letter to the editor, but a letter that actually goes to the managing editor. Complain that you are tired of the same repetition of misinformation from Samuelson.
Bruce
i think i was a little unfair to you above.
There is no reason you can’t present the facts your way and leave me to present them my way. I was reacting to past frustration of having to stand there patiently with egg on my face while you explained in great detail why i was wrong when i was trying to give someone a simple fact he could take home with him.
Here you give us a few facts I at least did not know before, and I am grateful. Though it is not clear to me from what you said that the growing Trust Fund after 1983 was indeed “spent”, and spent for among other things part of the defense buildup. You don’t have to reach a tfr of 100 before the money is “spent.” Also, I suspect, because I have a suspicious mind, that raising the cap on Medicare was part of a plan to welfareize it to make it easier to kill later.
I am trying to cut back my participation, so we may not get a chance to cut each other some slack, but I would hope you would not be one of those shooting your own troops because of they make grammatical errors. at least not in front of the children.
Just to emphasize my point made two comments above, here is a post dating back to April, 2012 from Beat the Press. Note that not only does it take Samuelson to task for lying about Social Security, it also contains links to similar articles by both Krugman and Bernstein.
“Robert Samuelson Really Hates Social Security Print
Written by CEPR
Wednesday, 11 April 2012 11:30
Seriously. Robert Samuelson really hates Social Security. Dean Baker already covered this on Beat the Press, but the amount of dishonesty in Samuelson’s piece is mind-boggling. Paul Krugman and Jared Bernstein also picked up on it here and here. Samuelson pulls out every trick in the book to make Social Security look terrible, even the old “What would FDR think?” fallacy. Perhaps we should all send The Washington Post’s Fact Checker, Glenn Kessler, links to Samuelson’s column and the Beat the Press response with the note “Please read.”
Too much argumentation, not enough action. The only way to change the behavior of a corporation, or any of its individual employees, is to boycott their product. Write to the editorial management of WaPo and complain about the obvious misinformation campaign being waged by Samuelson and, by extension, WaPo. Cancel any subscription you have to that newspaper. Just replying to their lies with the truth is apparently not an effective mechanism for noise abatement. And it is only noise that comes out of Samuelson’s brain via his columns.
The problem is that the WaPo editorial page editor, Fred Hiatt, is probably even further gone on believing these lies than RJ Samuelson. It is a whole gaggle of Very Serious People who just know for sure that anybody complaining about their view is just some whiney Special Interest Group.
Let me simplify things.
Current law, and dating to the Social Security Amendments of 1939, mandates that all funds credited to the Social Security and not debited via benefit checks, transfers, or quarterly shifts to administrative accounts be held in the form of securities fully guaranteed as to principal and interest by the Federal Government. There is a small range of such securities but for most of the past and all of the present this has meant fixed-rate non-marketable Secial Issues of mostly 10 Year Bonds.
Current law directs the Trustees to measure financial adequacy of the Trust Fund over certain periods of time as a percentage of projected next year cost for each year of the projection period. Any such year that this percentage, aka Trust Fund ratio, falls below 100, or any such period in which there is such a failure means the Trustees , in their Report to Comgress, should point out this failure or impending failure and advise Congress on a range of wys to increase those balances. If this is to be done without cutting benefits it requires net acquisitions of new Special Issues.
Now under current practice funds used to acquire Treasuries, Special or Regular simply flow to Treasury to be used for other purposes in turn determined by Congress. These uses are by that fact severed from Social Security legally and politically, to that degree a bond is a bond is a bond.
The Trustees of Social Security are all by law Presidential appointees: some ex officio and two by separate nomination. As such any President has an obligation to leave Social Security year by year and term by term closer to passing the test of financial adequacy as measured by Trust Fund ratios. By the numbers Reagan met that test in every year after 1983.
Now once the Trust Funds meet the legal tests then the question of what to do with continuing surpluses becomes active. But this country didn’t reach that point until the 1997 Report Year. Meaning by definition there couldn’t be any “looting” prior, just a systematic buildup of TF balances to match current law mandates.
Subject of my newer front page post.
Bruce
people hate me for saying this, but there is hardly a collection of words, or numbers, that is not subject to more than one interpretation.
sometimes that makes for interesting conversation.
sometimes it makes for hate and discontent.
i have no idea if i am understanding what you are saying “correctly,” but as far as i know there is no “by definition looting” in the SS code.
and as far as I understand the whole shebang.. when the TF buys bonds, the money is available for immediate use by Treasury, no matter what the TFR is. In some people’s minds (not mine) “spending” that money is “looting,” at least as far as I can tell by what they say.
Your explanation, as far as I can tell, seems to imply that since there is no “surplus” over the TFR 100, there is no surplus to loot. No doubt you are right. But you are not reaching the understanding of the hoi polloi. I would have said the ones on the right … or at least those who have been made to hate and fear SS… but a lost weekend among the hoi polloi on the left has taught me that even those who are “for” SS are similarly muddled in their thinking.
I used to think I could explain it to them.
Denis Drew
just to throw some more fat on the fire.
Your “analysis” of the rise and fall of the 1983 Trust Fund (that’s my way of saying the “larger than normal trust fund that resulted from the ’83 SS “fix”) is indeed at odds with what I believe. I am in essential agreement with Bruce, though I do disagree about a few non important details.
I think it would be interesting, and I would urge anyone with an interest in history, to go back and read the newspapers and more learned publications to see what they thought the 83 commission had accomplished. Everything I ever read said “paid for the boomer retirement.” Bruce disagrees, based on a comment by one of the more important participants on the commission.
I would only offer that “i think” the actuaries that the commission consulted were aiming for 75 year “solvency.” That would have meant solvency to 2058, by which time the youngest boomer would have been 94. The actuaries were well aware of the coming boomer retirement, so it is at least reasonable to guess that the “purpose” of the fix was to raise the tax enough so the boomers could contribute to their own retirement over and above their payroll tax an amount that would establish “generational equity.”
That is, the normal pay as you go funding of SS would have left the boomers paying less than their own eventual cost of retirement, because “as you go” financing would have them paying for the smaller generation that preceded them. And, worse, it would have left the smaller generation following the boomers paying more than their own future costs by having to pay as-you-go for the larger boomer generation.
whatever the commission “intended” this is essentially what has happened, is happening.
I like this version of the story because it is simple and makes sense… makes even moral sense.
Denis Drew
Since that time there have been ups and downs in the economy that have moved the “solvency” date back and forth, but since about 1990 (if my failing memory serves) the “death of the trust fund” projection has stayed in a close range around 2035.
I could be wrong about this. I could be wrong about all of it.l But most of the details are simply not important.
The Trust Fund has not been looted… before or after it reached TFR 100… and not by Reagan or anyone else. Though the money HAS been used… borrowed by Congress… to pay for what they thought was good for the country. Since Congress was borrowing other money, it is fair to guess that they would have borrowed from someone else if they had not been able to borrow from the TF.
The point is that they made the determination that whatever they were doing with the money was worth borrowing, and paying back with interest for.
If hey were wrong, well those are the chances you take with any government, or even with the parents you happen to choose, and god help you, with your own decisions about borrowing for a house, a car, or a business.
The ultimate death of the Trust Fund (the enhanced version) is an event with almost no significance at all. The boomers will have been paid for. Then SS returns to pay as you go… with the normal trust fund… as designed. The boomers will have paid for their own retirement, as did the pre boomers, and as will the post boomers…
except…
Denis Drew
exept. except while all this Trust Funding has been going on, there have been changes in “demographics” and in the economy that will require the post boomers to pay a slightly higher tax.
They will be living longer. living longer takes more money. they won’t want to delay retirement. trust me about that. There will be a reduced birth rate.. meaning the following generations of taxpayers will not be increasing is size, enabling them to “always” be paying for a smaller number of retirees “relative” to what we have come to expect. And if wages do not grow as fast as they have in the past, that and the smaller number of workers combined will mean that the “effective interest” that pay as you go generates automatically from a growing economy, will not be sufficient to pay the level of benefits that we have come to expect. This is not a serious problem as it turns out that an increase in the payroll tax of an amount too tiny to notice… 80 cents per week per year (that’s present value btw) while wages are rising 8 dollars per week per year, leaving future generations twice as rich as we are while being able to retire at the same age for a much longer retirement. The bad news you have been hearing is a lie. The news is actually good.
But you have to actually be able to think through the numbers to understand this.
Meanwhile, thanks to the Big Liars and the pathetic progressives we have been offered no chance at all to understand the numbers… except by a low status easily silenced chump like me.
The LIars are saying “we’re all going to die. it’s going to cost us huge tax increases.” the progressives say, you can’t take away the benefits they paid for themselves, so make huge tax increases on the rich to pay for it. i keep hoping someone will see the illogic of that.
but i’d settle for them just understanding there is no crisis. there is just a need to recognize the cost of living is going to go up a little bit, and we need to pay for it. better to pay for it ourselves than to sell ourselves to the rich… for eighty cents per week.