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CRS: Social Security: What Would Happen If the Trust Funds Ran Out?

Very interesting paper that I missed in real time.

Social Security: What Would Happen If the Trust Funds Ran Out?

Almost everyone who addresses this question assumes that the answer is pretty simple: if either of the Social Security Trust Funds goes to zero than benefits will automatically drop from ‘Scheduled’ to ‘Payable’ which translates to a 22-25% overnight cut depending on which Trust Fund we are talking about. But I had an interesting conversation with Andrew Biggs some years back. Andrew is a very prominent advocate of Social Security ‘reform’ which he sells on the basis that the system is ‘unsustainable’. As such he and I and Coberly and he have had some vigorous debates over the years, and mostly he is firmly in the ‘bad guy’ category on policy. For all that he is a nice guy and really, really knows the numbers and laws in play. Not least because he spent some time as the Principal Deputy Commissioner of Social Security (the no. 2) during the Bush Administration.

With that as background Biggs told me that the situation at Trust Fund Depletion was not as clear-cut as almost everyone assumed and had been the topic of some high end discussion at SSA. And their conclusion as related by Biggs to me mirrored that of the Congressional Research Service in this Report from last year.

The Social Security Trustees project that, under their intermediate assumptions and under current law, the Disability Insurance (DI) trust fund will become exhausted in 2016 and the Old-Age and Survivors Insurance (OASI) trust fund will become exhausted in 2034. Although the two funds are legally separate, they are often considered in combination. The trustees project that the combined Social Security trust funds will become exhausted in 2033. At that point, revenue would be sufficient to pay only about 77% of scheduled benefits.

If a trust fund became exhausted, there would be a conflict between two federal laws. Under the Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits. But the Antideficiency Act prohibits government spending in excess of available funds, so the
Social Security Administration (SSA) would not have legal authority to pay full Social Security benefits on time.

It is unclear what specific actions SSA would take if a trust fund were exhausted. After insolvency, Social Security would continue to receive tax income, from which a majority of scheduled benefits could be paid. One option would be to pay full benefit checks on a delayed schedule;  another would be to make timely but reduced payments. Social Security beneficiaries would remain legally entitled to full, timely benefits and could take legal action to claim the balance of their benefits.

The Report proceeds to outline the possible responses and is interesting for that alone. More important for my purposes though is the suggestion that the “conflict between two federal laws” precludes the option of Congress just sitting back and letting “automatic” cuts happen. Because as Biggs some years back and CRS last year point out, there is nothing automatic about this at all.

Anyway something to talk about for those of us jonesing over the release of the 2015 Social Security Report. Which my fellow junkies is scheduled for tomorrow (Wednesday) probably at 1PM Eastern. If past file name practices are observed the web version should be available via URL:

while a PDF version should be viewable or downloadable at:

I should have another post up with these same links prior to Report Release. But anyone who wants to bookmark the URLs and try to get a jump on just about everyone else in the country should feel free.

NYT: Obama Picks Michigan Professor for Fed Board

Obama Picks Michigan Professor for Fed Board

WASHINGTON — President Obama said on Monday that he would nominate Kathryn M. Dominguez, a professor of economics at the University of Michigan, to a seat on the Federal Reserve’s Board of Governors.

Well I got nothing. Except to note that Ann Arbor is not on ANY large body of water whether Freshwater OR Saltwater. So who is Prof. Dominguez? And what does this appointment indicate for Obama policy preferences going forward?

It’s Trumpertainment! ; E!-Bear ; Fun Times at Circus Got-GOP!

Well Huffington Post has decided to relegate direct coverage of Trump’s daily activities to its Entertainment page even as they will still cover polling etc on their Politics page. So I thought I would kind of hitch a ride on that. But as amusing as all this is to a certain type of smug DFH know-it all type (like me!!!) it is increasingly not really funny at all.

(edit) I was going to take this a different direction but given the Trump/McCain brouhaha I think I will just open the fun for everyone to jump in.

Trump or GOOP 2016 Open Thread

“The Rivals: Paul Samuelson and Milton Friedman arrive at the University of Chicago – in 1932”

The Rivals: Paul Samuelson and Milton Friedman arrive at the University of Chicago – in 1932
A really important intellectual history of American Economics since 1932 from Economic Principals which self-describes as “A WEEKLY COLUMN ABOUT ECONOMICS AND POLITICS, FORMERLY OF THE BOSTON GLOBE, INDEPENDENT SINCE 2002, David Warsh, proprietor”

For those like me who are not professional economists it very helpfully puts all the major players into both institutional and intellectual context. Everybody who is anybody.

The Sixty Hour Weeks of the Leisure Class

A typical excuse for widening income inequality is that the ‘job creators’ actually work oh so much harder than the ‘job takers’. That while the latter simply leave work at 4 or 5 PM, the former are just getting started and in fact routinely put in 50-70 hour workweeks. Now I hasten to add that there are certainly people who work month in and month out 60-100 hours a week. I have a very talented and successful young relative that has earned six figure salaries since his 20s doing exactly that. But he works in the heavy transportation sector (trains and trucking) and everyone from top executives to over the road truckers do tend to put in long hours.

My question is more for New York, London and Frankfurt based financial professionals, the traders that boast that they could just take our measly jobs and do them better, faster, with two hands tied behind their backs, who don’t even have time for bathroom breaks because they are focused like lasers on their terminals. You know the guys who kill what they eat and eat what they kill. To them I have to ask: who exactly is keeping those restaurants, craft cocktail bars, and racket ball courts busy? Exactly how do you fit in time to keep your golf game up? To spend that week at Vail? Or to accept your bosses invitation to spend a weekend at his place in the Hamptons? How does your BOSS find the time to actually enjoy that yacht? His ski trips to St. Moritz? Who exactly is is that is keeping business humming at Ruth’s Christ Steak House? Who is the customer base at all those golf resorts The Donald is building and marketing? Okay that is not just one question.

When Thorstein Veblen wrote The Theory of the Leisure Class (1899) there was certainly a lot of controversy about his thesis, but little I think about the existence of a Leisure Class in the Gilded Age. American Millionaires and British Aristocrats alike entertained on a lavish scale, frequented higher end resorts like Monte Carlo, perhaps maintained stables of polo ponies, played golf, sailed on yachts and all without even a hint of a pretense that they were working the same 70 hour weeks typical of miners and farmers who were producing their wealth. Indeed the whole point of being wealthy for most of this class was precisely to be able to pursue Leisure Class activities and lifestyles.

And I would argue that this is still true in the New Gilded Age. The wealthy and particularly the ultra-wealthy of our day are still enjoying that same range of leisure activities and that same level of excess consumption but in some respect seem oddly ashamed of it all. Which is why they ‘explain’ that “I worked hard for my money, I worked hours that you moochers never dreamed of, etc, etc”. Which doesn’t explain how they found time to maintain a Plus 2 handicap.

I bring this up of course in the context of JEB explaining that the key to 4% GDP growth is just people working more hours. With the unstated addition “like me and the rest of the job creators”. Well I want to call bullshit. The idea that the 1% on average just work harder than everyone else is belied by the fact that they even have yachts and weekend homes in the Hamptons and bottle clubs and third homes at Aspen and Vail.

Trump Trapped: RNC Snagged

I’ll make this short and then turn it over to you all.

As long as Trump is polling in the top 2 or 3 in early States he can’t drop out and the RNC can’t force or even encourage him to drop out. After all he is “Winning” by the only measure that matters this cycle. In past cycles maybe there were only three or four tickets out of Iowa, two or three out of New Hampshire, and only one or two out of South Carolina. And most of that was driven by money, if you didn’t have one of those early tickets it dried up. But this cycle not only is money not necessarily the screen that it used to be (you being one Fries, an Adelson or a fifth of two Kochs from having cash for the distance), it wouldn’t operate anyway if you actually have one of those top two tickets.

As of now Trump is Trapped. By success. Or more precisely by successful excess. And I don’t see any mechanism by which the Republican Party can chase him away. After all I saw polls today that had him leading both nationally and in North Carolina. How much of a loser do you have to be to quit while you are on top?

OXI ~ 60%: What now? Greece Open Thread

Greece Interior Ministry Results
all regions voting ‘OXI’ = ‘No’

Huffington Post: Live Updates: Greece Votes In Referendum On Bailout Proposal

More links as afternoon progresses.

This article by Steve Randy Waldman at Interfluidity has been getting a lot of play around the Intertoobz since yesterday (I also linked to it in Comments on the previous Grexit post). It’s title is simple but it has a lot of depth and insight, I thoroughly recommend it. Greece

Mellon-ization, Austerianism, and Grexit

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate…

It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon

This quote of the advice that Secretary of Treasury Andrew Mellon allegedly gave to President Herbert Hoover is famous, though mostly in the form that omits the second part. But it is exactly there that the ethos of Austerianism shines through. Which I would summarize as “high living is not for the undeserving” where “undeserving” is defined basically as anyone not in Andrew Mellon’s economic class. A class in which Mellon was an elite among the elites, take this from his Wiki entry Andrew Mellon.

Areas where Mellon’s backing created giant enterprises included aluminum, industrial abrasives (“carborundum”), and coke. Mellon financed Charles Martin Hall, whose refinery grew into the Aluminum Company of America (Alcoa). He became the partner of Edward Goodrich Acheson in manufacturing silicon carbide, a revolutionary abrasive, in the Carborundum Company. He created an entire industry through his help to Heinrich Koppers, inventor of coke ovens which transformed industrial waste into usable products such as coal-gas, coal-tar, and sulfur. He also became an early investor in the New York Shipbuilding Corporation.[2]

Mellon was one of the wealthiest people in the United States, the third-highest income-tax payer in the mid-1920s, behind John D. Rockefeller and Henry Ford.[1] While he served as Secretary of the U.S. Treasury Department his wealth peaked at around $300–$400 million in 1929–1930.

Mellon was a member of the South Fork Fishing and Hunting Club (whose earthen dam failed in May, 1889, causing the Johnstown Flood), and he belonged to the Duquesne Club in Pittsburgh. Along with his closest friends Henry Clay Frick and Philander Knox (also South Fork Fishing and Hunting Club members), Mellon served as a director of the Pittsburgh National Bank of Commerce.[3]

Which gets to my point. Clearly Mellon’s (apocryphal) advice was not to suggest that HE be liquidated, that HIS way of life would have the ‘rottenness’ purged, that HE would have to work a harder more moral life. No instead the liquidation was destined for those who never should have been in the market in the first place, the “less competent people”, thus allowing all the real assets underlying the investment bubbles to be picked up cheaply by “the enterprising people”. For example the members of the South Fork Fishing and Hunting Club and the Duquesne (town) Club.

My assertion is that this same underlying ethos of the “undeserving” (mostly but not just the poor) against the hard-working “deserving” (including but not exclusive to industrial and financial magnates) operated long before Mellon and long after him and fuels Austerianism today. Creditors are hardworking and deserving of their returns, debtors are not. And this includes not just individuals but whole countries. Like Greece. So in a pinch the right answer is to “liquidate farmers, liquidate stocks” while leaving those with deep capital to pick up the pieces.

A final note before turning this over. Under this ethos the phrase ‘shared sacrifice’ has a specialized meaning. Because the proposed sacrifices are very often in the form of pension ‘reform’ (i.e. cuts) and an increase in tax on consumption, which is to say a direct attack on the ‘high living’ of the ‘undeserving’. What you don’t see in general, and certainly not in the case of Greece, is any acceptance by creditors that ‘sacrifice’ require any significant tax on capital or haircut on financial investment. Business investment maybe, that is the ‘liquidate stocks … liquidate real estate’ piece of Mellon’s prescription, and driving small business to ruin is just an unavoidable part of ‘sacrifice’. But at no point was Mellon, or today the IMF or the ECB suggesting that any real burden should fall on hard working deserving bankers.

Obama Overtime Rule = Truth In Advertising

The Obama Administration is proposing to raise the income threshold under which employers are required to pay overtime from $23600 to $50400 and predictably the economic right has started to squeal. And in so doing have tried to advance two cases: one this change will cost jobs, and two nobody will actually get a raise. The first case is fallacious, the second is at best deceptive. And to show that you don’t have to use fancy economic theory (a good thing because I don’t have the chops), instead you just have to just simple logic. But rather than try to lay out every possible branch on that logic tree I propose to let Angry Bear readers give either the affirmative or negative argument their best shot even as I through in some logic snippets of my own.

(For those unaware of the basic issue, under current law employers have to pay overtime to most hourly workers after 40 hours on the job. And also to salaried workers who don’t meet one or more of many exceptions. But the biggest and broadest exception is based on total salary, if you make more than $23,600 and are not protected via some specific contract (for example if, cough, cough, you are in a union) your hours are not limited to 40 hours per week, instead you may be routinely expected to work 50 even 60 hours a week for the same base pay. The Obama Administration proposes to raise that to $50400.)

Let the Games Begin!