Relevant and even prescient commentary on news, politics and the economy.

Greenspan promoting “Entitlement” cuts as the necessary solution to the economy. 25% worth!

From an interview on NPR’s Here and Now comes:

“The official actuaries of the Social Security system say in order to get our Social Security and retirement funds in balance, they’d have to cut benefits by 25 percent indefinitely into the future,” he says. “Do I think it’s going to happen? Well I don’t know, but this is one of the reasons why inflation is the major problem out there. So long as you don’t do it, you’re going to cause the debt overall — the total government debt — to rise indefinitely, and that is an unstable situation.”

He adds: “In the book … discussing what the long-term outlook is all about, we say that the issue of the aging of the population and its consequences on entitlements is having a significant negative deterioration over the long run. The reason for that is what the data unequivocally show is that entitlements — which are mandated by law — are gradually and inexorably driving our gross domestic savings, and the economy, dollar for dollar. And so long as that happens, we have to borrow from abroad, which is our current account deficit.”

He also said:

“When you deal with fear, it is very difficult to classify,” he tells Here & Now‘s Jeremy Hobson. “But you can look at the consequences of it, and the consequence is basically a suppressed level of innovation and therefore of capital investment and a disinclination to take risks.”

I agree with this, but not just as it relates to “ a suppressed level of innovation…” but instead as it relates to the 2005 World Bank report on what produces wealth in a developed economy like ours. It comes down to trust.  Trust in your judicial system and trust in your education system.   I discuss this in the following 3 posts: 2007, 2009, 2011

Human capital is where it’s at!

This election at it’s core is about trust.  Destroy that, and we have no democracy, we have no economy.  It’s that simple.   That McConnell et al has decided he will not abide by the rules agreed to in conducting the business of the Senate means we have no currently functioning democracy.  That is how fragile democracy in the US is.  Our democracy comes down to two people, the leaders of each party in the Senate agreeing to the rules.  When one decides not to, there is nothing that can be done other than vote.

You can hear the full interview here:


When it comes to finding money: People vs Corporations, $535 billion over 10 years

As we continue this fight regarding the national budget, funding for the people, (food, unemployment, medical), entitlements and the overall moral position this nation has and will take with its money, let’s recall the truth about a program that was sold and is still sold as a benefit for the people.   It’s cost is intentionally excluded from the overall budget discussions and thus remains hidden as to the extent of the benefit and beneficiaries.

The Medicare Prescription Drug law. Billy Tauzin (former congressman and former president/CEO of PHRMA, Dem from ’72 to ’95, republican there after):

it’s been good for the patients whom the drug industry represents

Dan Burton and Walter Jones, republicans were against it, for to them it was a “sellout” to the drug companies.

No offsets were needed.  The 15 minute vote was held open for 3 hours and was in the middle of the night because it was going to be defeated.  The longest roll call in the history of the house.  Threats to those who did not want to vote for such a huge wet kiss to the industry were of the Tea Party type.  They would run a person against you.  The Medicare boss, Tom Scully Bush’s “lead” negotiator went to lobbying for the drug industry “10 days after the president signed the legislation”.  He was negotiating for his lobby job during the bill negotiations.


The Hill reports on "supercommittee"

by Linda Beale

The Hill reports on “supercommittee

Alexander Bolton reports that “With Supercommittee Deadlocked, leaders Reid and Boehner meet“, The Hill (Nov. 15, 2011).  Reid (Dem) and Boehner (GOP) met Tuesday, but aides told The Hill that “They’re not about to dive in” to the negotiations.  But as the committee seems to be at an impasse close to the 11/23 deadline, the leaders must be discussing what is likely to be the next step.  The arrangements for the group (in case no bipartisan deal could be reached) called for across-the-board cuts that impose reasonable cuts on Defense but limited cuts for social safety net/earned benefit programs (medicare limited to 2% cuts to insurance companies and health care providers/Social Security and Medicaid exempt).

The GOP members, of course, are casting it as a Dem problem. For example, Hensarling (a very far right member of the group, from Texas) blamed the Dems for not accepting the Toomey proposal for a piddling $300 billion in new tax revenue.  With Supercommittee Deadlocked, leaders Reid and Boehner meet.

The across-the-board cuts would cut Defense by $500 billion.  Various GOP members of Congress have said they want to change the deal to avoid the cuts to the military.  Tea Party favorite and radical right-winger Jim DeMint has essentially admitted that he never intended to stick with the sequester deal, saying that the GOP has “until next election to fix this thing.”  GOP stalwarts want the US to maintain its exorbitant spending as “the world’s only military superpower” even while being willing to cut health care and pensions to the vulnerable and even while the country’s infrastructure–essential for business–crumbles in ruins.  McCain and Graham urged the Senate to reject the sequester of military funds, fearful it would “set off a swift decline of the United States as the world’s leading military power.” Dems gain upper hand in deficit talks, The Hill (Nov. 16, 2011).  This attitude seems to believe that defense spending, no matter what the cost to the country, is okay, while spending on poor people is a waste and raising taxes on the rich is an impossibility.  Apparently GOP McKeon considered that possibility, but then later backtracked.  Certainly, Grover Norquist has been making sure the pressure is on from the corporate masters of our pseudo-democracy–the Hill notes Norquist’s statement Monday that both Senate and House GOP leaders had “assured him they would not raise taxes to reduce the deficit.”  Id.

So we have elected representatives in Congress who willfully ignore the will of the majority of people in favor of higher taxes and higher taxes on the rich and corporations in particular; ignore the facts that show that higher taxes on the rich and a more equal economy are better for everybody; and ignore the fact that their own policies (preemptive war and tax cuts during deficits from 2001-2008 under Bush) represent the substantial reason for long-term deficits–all in order to continue to support extraordinarily disproportionate spending on the military rather than on public infrastructure, education and health and in order to be able to continue to use the self-created “debt crisis” to push for further impoverization of America’s middle class.  What a backwards value system that represents can’t be expressed in a public blog.

But at least Reid has said that method of reneging on the agreement won’t be allowed to happen: “Democrats aren’t going to take an unfair, unrealistic load directed toward domestic discretionary spending and take it away from the military.”    See Id.; see also Reid: Dems will oppose efforts to spare Defense from automatic cuts, The Hil (Nov. 14, 2011).

As one of the commenters on The Hill notes (quoting an NPR program), the supercommittee is set up to force one of two bad choices–reducing the social safety net or cutbacks during economic recession.  What we should be doing is increasing taxes now on the rich and on corporations, and then allowing the Bush tax cuts to expire at the end of next year–in their entirety.  We should make judicious spending cuts in wasteful programs–and the military certainly should be a target of some of those cuts.  And we should make judicious spending increases in infrastructure, research and educational support programs to add stimulus to keep the economy going.

Case in point–the New York Times story today about a small town in Kentucky that decided to increase taxes to pay for infrastructure improvements that are putting the two back on the map.

originally published at  ataxingmatter

Further fleshing out the truth regarding Obama and SS and…

by Daniel J. Becker

Back in June of ’08 I asked regarding Jason Furman’s appointment by Obama:

Is this the concession the Clinton/Blue Dog group was looking for? The DLC still keeps control of the money issues?

I asked because of his connection to the Hamilton Project at the Brookings Institute: Hamilton Project, a small think tank created by Robert E. Rubin, Bill Clinton’s Treasury secretary and key economic adviser, and former Treasury deputy secretary Roger C. Altman…

Bruce posted a response by Furman regarding Obama’s SS plans:

As president, he would work with Congress on a bipartisan basis to design the details of such a change, including the tax rate, how it is phased in over time, the linkage between these tax payments and benefits and other critical design elements of this plan.

We have known what Obama’s position is since his campaigning.  Unfortunately, many have ignored it even blaming the victim (the voter) for his lack of left leaning action.   But, just to bolster the smacking up side the head Bruce is offering via NewDealDemocrat, I went digging further on Mr. Furman and found this from 2005 via Center on Budget and Policy Priorities:

By contrast, under traditional reform plans like that proposed by economists Peter Diamond and Peter Orszag, the debt would be reduced immediately, and by 2050, the amount of debt reduction would be substantial.

Mr. NewDeal stated:

In short, only a month into his Administration, Candidate Obama’s insistence on tax hikes as the method of long term Social Security budget balancing was replaced by President Obama’s embrace of the Diamond-Orszag plan

I was certain with Hillary we were getting the DLC and all the Chicago School Econ we could handle. I was resisting the temptation of conspiracy thought when I asked if Furman was a concession to the Clinton power block, but I feel confident now that this is exactly what happened.  Hillary conceded on June 7th, Furman was appointed on June 9th.

Remember the 60’s and the warnings about how the “Man” was messing with our heads? The message wasn’t to be paranoid, the message was to be aware.

Obama and Social Security: NewDealDemocrat Tees Off

by Bruce Webb (UPDATE: Digby readers, I want to make it clear that I am not NewDealDemocrat, I just got permission to cross-post this important compilation from NDD.)

Blog friend NewDealDemocrat has a recommended diary up on dKos called Mr. President, No Real Democrat is agnostic about Social Security. NewDeal gave me an advance look and authorized me to cross post it which I am doing below the fold. I don’t entirely endorse the conclusions but think this is an important reference work, NewDeal having tracked down just about every public statement ever made by Obama on Social Security. So this is more an archival post to be added to the Social Security series. Comment here if you like but I would urge everyone registered at dKos to put in a word over there.

And yes as New Deal warns this is very long.

by NewDealDemocrat

Last week President Obama said that he will be “agnostic” as to any changes, including Social Security benefit cuts, that his debt reduction commission recommends. This is a far cry from his constant campaign rhetoric in which he promised to listen to all recommendations, but his plan was to raise the payroll cap on contributions.

This is a sad but necessary piece in which I lay out the evidence, which I believe is compelling, that Barack Obama’s own words and deeds reveal that his real agenda all along has been to use a commission or summit to cut Social Security benefits, and that the campaign rhetoric was just a sop to anesthetize opposition. This for a program that, at worst, faces a shortfall 30 years from now, and that Obama himself called the cornerstone of the American social compact.

(Apologies, this is really long. But to reveal the truth, a truth that has been hiding in plain sight right before our eyes all along, the full record must be laid out.)

Of his Social Security system, FDR bluntly called it:

politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

So you would think that a Democratic President would be an ardent supporter of ensuring that workers received the benefits under the system that they had worked for and contributed to their entire lives. Not so. Last week President Obama said that

a presidential commission on the budget needs to consider all options for reducing the deficit, including tax increases and cuts in spending on entitlement programs such as Social Security and Medicare.

“The whole point of it is to make sure that all ideas are on the table,” the president said in the interview with Bloomberg BusinessWeek, which will appear on newsstands Friday. “So what I want to do is to be completely agnostic, in terms of solutions.”

When Barack Obama does not actually support a plan, he offers vague platitudes but nothing more. Such was his “support” for crucial, progressive, popular ideas about Health Care Reform, supposedly his Administration’s signature piece of legislation. In contrast, when Barack Obama has wanted to, he has been relentless and decisive, as he was in September 2008 when he quickly and crucially supported the Wall Street bailout. And just last month, the White House was quick to whip a wavering Senate into line about reconfirming Fed Chair Ben Bernanke with a 50, not 60, vote threshold. More on the significance of that at then end of this article.

So we need to look past Obama’s always-perfect rhetoric to see they are just flaccid platitudes or if his actions show firm resolution. When it comes to Social Security, a comparison of what Obama the candidate said and what Obama the President has done show that his pledges to simply increase payroll taxes fall into the category of platitudes, while changing the program, apparently in part by cutting benefits, is clearly a matter of firm resolve. In essence, Obama’s reasurance that while he would “convene a meeting” to listen to all sides, what he actually would propose would be a small increase in taxes on those earning over $250,000 who could easily afford it, was all along just a sop or a stalking horse to induce voters to overlook what was hiding in plain sight, namely his desire for a “nonpartisan” or “bipartisan” comission that would recommend cuts in Social Security benefits.
The evidence comes right out of Obama’s mouth, and when put together, in my opinion is compelling.

I. Obama the Candidate

Candidate Barack Obama created a small firestorm in November 2007 after he adopted a RW meme and said:

Senator Clinton says that she’s concerned about Social Security but is not willing to say how she would solve the Social Security crisis

and followed that up with a campaign ad in Iowa (no longer online)

“that focused on Social Security[, i]n [which] he [told] a group of Iowans, “I don’t want to just put my finger out to the wind and see what the polls say. I want to bring the country together to solve a problem.”

This RW claim that Social Security was in “crisis” created quite a stir, with Prof. Paul Krugman saying that

Lately, Barack Obama has been saying that major action is needed to avert what he keeps calling a “crisis” in Social Security — most recently in an interview with The National Journal. Progressives who fought hard and successfully against the Bush administration’s attempt to panic America into privatizing the New Deal’s crown jewel are outraged, and rightly so.

That controversy erupted here as well, prompting me to write a diary explaining The Truth about Social Security, in which I pointed out that Social Security is not in “crisis”, and is not a “real problem,” manageable or not, needs no “fix,” nor any intermeddling “Commission.” As stated by the official projections by the Social Security trustees, the program will be solvent without so much as lifting a little finger by anyone old enough to read or write on this blog under the revenue projections which over the last 15 years have almost always proven the most accurate.

Obama soon backtracked, and adopted a much more mainstream democratic position, that he maintained right up until he was elected President. Here is his actual speech in Iowa in which he first set forth his position on Social Security:

In this video (beginning at about 5:40), Obama point-blank states that:
– “Social Security is the cornerstone of the social compact in this country.”
– “We also know that the system has problems.” (later in the video, he says that the items listed below will make Social Security “solvent” indicating that it isn’t now)
– “The underlying system is sound. The actual problem is a projected cash shortfall that can be readily solved. But the longer we wait to solve the problem, the bigger it grows,” “The question is, how to solve this problem” (of the trust fund being depleted in 2040, after which SS turns into a pay as you go system..)
– “On issues as fundamental as how to protect Social Security, a candidate for president owes it to the American people to tell us where they stand,” because you’re not ready to lead if you can’t tell us where you’re going.”
– “I do not believe that we need to cut benefits or raise the retirement age.”
– “The best option, in my view, is to ask the highest income Americans to contribute a little bit more by raising the ceiling on what is currently paid on the amount of earnings subject to the social security tax.”
– “We need to stop borrowing millions from the Social Security trust fund” in the federal budget.

A campaign site that is still up goes into great detail about candidate Obama’s position with regard to Social Security. He emphasized three things:
(1) the belief that in the long run, Social Security was not solvent.
(2) While he would “convene a meeting” to discuss any and all options, forming a commission is exactly the wrong way to deal with the issue, but opposed forming a “binding” commission.
(3) Rising the limit on payroll contributions into the trust fund, beginning with incomre in excess of $250,000 was the best way to rectify the problem.

Here are Candidate Barack Obama’s constant refrains on each of the above three items from that campaign site:

1. Social Security has a “problem”

Good health care and tax reform will save entitlements

Q: How should we fix Social Security and other entitlement programs?
OBAMA: If we get our tax policies right so that they’re good for the middle class, if we reverse the policies of the last eight years that got us into this fix in the first place and that Sen. McCain supported, then we are going to be in a position to deal with Social Security and deal with Medicare….

Source: 2008 second presidential debate against John McCain Oct 7, 2008

Q: We all know that Social Security is running out of money….

A: …. we’ve got to make sure that we preserve Social Security is to do the same thing that Ronald Reagan and Tip O’Neill were able to do back in 1983, which is come up with a bipartisan solution that puts Social Security on a firm footing for a long time.

Source: 2007 YouTube Democratic Primary debate, Charleston SC Jul 23, 2007

2. Obama supported a bipartisan solution to this “problem” including holding a meeting to explore all optionsL

Q: Would you raise the cap for Social Security tax above the current level of the first $97,500 worth of income?
A: I think that lifting the cap is probably going to be the best option. Now we’ve got to have a process [like the one] back in 1983. We need another one. And I think I’ve said before everything should be on the table. My personal view is that lifting the cap is much preferable to the other options that are available. But …we should reject things that will weaken the system, including privatization, which essentially is going to put people’s retirement at the whim of the stock market.

Source: 2007 Democratic primary debate at Dartmouth College Sep 6, 2007

Cutting benefits & raising retirement age are wrong answers

Q: You said earlier this year that everything should be on the table for Social Security, including looking at raising retirement age, indexing benefits, and then suddenly you said, “I’m taking them off the table.”

A: That’s not what I said. I said I will convene a meeting as president where we discuss all of the options that are available. I believe that cutting benefits is not the right answer; and that raising the retirement age is not the best option, particularly when we’ve got people who are still in manufacturing.

Q: But in May you said they would be on the table.

A: Well, I am going to be listening to any ideas that are presented, but I think that the best way to approach this is to adjust the cap on the payroll tax so that people like myself are paying a little bit more and the people who are in need are protected. That is the option that I will be pushing forward.

Q: But the other options would be on the table?

A: Well, I will listen to all arguments and the best options.

Source: Meet the Press: 2007 “Meet the Candidates” series Nov 11, 2007

Commitment…Protect Social Security: Obama will preserve Social Security by stopping any efforts to privatize it and working in a bipartisan way to preserve it for future generations.

Source: Campaign booklet, “Blueprint for Change”, p. 16-19 Feb 2, 2008

(emphasis within paragraphs mine)
But he was against delegating the issue to any appointed commission:

Must capture new revenue; no new Social Security Comission

OBAMA: We’re going to have to capture some revenue in order to stabilize the Social Security system. You can’t get something for nothing. And if we care about Social Security, which I do, and if we are firm in our commitment to make sure that it’s going to be there for the next generation, and not just for our generation, then we have an obligation to figure out how to stabilize the system. I think we should be honest in presenting our ideas in terms of how we’re going to do that and not just say that we’re going to form a commission and try to solve the problem some other way.

Source: 2008 Philadelphia primary debate, on eve of PA primary Apr 16, 2008

(emphasis mine)

3. Obama supported making up the shortfall by raising the cap on payroll taxes.

Raise cap on payroll tax for 3% of earners over $102,000

Q: The Republicans … say for all your promises not to raise taxes on the middle class, that, in fact, you want to raise the cap on the Social Security payroll tax, and you also want to increase capital gains.

A: In terms of raising the cap on the payroll tax, right now everybody who’s making $102,000 or less pays 100% of payroll tax on 100% of their income. There are about 3% to 4% of Americans who are above $102,000 in income every year….

Source: 2008 Fox News interview: presidential series Apr 27, 2008

Raise $97K cap on payroll tax exempting earnings under $250K

OBAMA: What I have proposed is that we raise the cap on the payroll tax, because right now millionaires and billionaires don’t have to pay beyond $97,000 a year….

Q: But that’s a tax on people under $250,000.

OBAMA: That’s why I would look at potentially exempting those who are in between. This is an option that I would strongly consider, because the alternatives, like raising the retirement age, or cutting benefits, or raising the payroll tax on everybody, including people making less than $97,000 a year–those are not good policy options

Source: 2008 Philadelphia primary debate, on eve of PA primary Apr 16, 2008

The wealthy should pay a bit more on the payroll tax

Social Security is not in crisis; it is a fundamentally sound system, but it does have a problem, long-term. We’ve got 78 million baby boomers, who are going to be retiring over the next couple of decades. That means more retirees, fewer workers to support those retirees. We are going to have to do something about it. The best idea is to lift the cap on the payroll tax, potentially exempting middle-class folks, but making sure that the wealthy are paying more of their fair share, a little bit more.

Source: 2007 Democratic debate at Drexel University Oct 30, 2007

What we need to do is to raise the cap on the payroll tax so that wealthy individuals are paying a little bit more into the system, if we are going to deal with this problem specifically.

Source: 2008 Facebook/WMUR-NH Democratic primary debate Jan 6, 2006

In short, Candidate Obama articulated a problem, a process, a preferred result — raising the cap on payroll contributions — and a rejected one — benefit cuts. His campaign reiterated all of those in a closing campaign video in October 2008 that is still posted online:

Then Candidate Obama was elected President. As we will see, while his commitment to “pushing forward” an increase in payroll taxes disappeared, as did his vow not to cut benefits and his denunciation of any “binding commisssion,” his determination that Social Security had a “problem” that was defined exclusively as “rising costs” and the commitment to convene a meeting to push forward “all” (really just GOP and Blue Dog) options to change Social Security was resolute.

II. Obama the President

If his campaign positions were soothing, his words and actions as President, beginning with his very Inauguration speech, were not:

That we are in the midst of crisis is now well understood…. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions – that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

(emphasis mine).
Those were jarring words in an otherwise uplifting speech. If Obama was opposed to raising taxes on the middle/working classes, then what could “hard choices” and “unpleasant decisions” for average Americans possibly mean besides cutting back further on their safety net? News accounts of Obama’s felicitations to conservatives who wanted to destroy Social Security that very same week strongly suggest that is exactly what he meant.

In a speech on January 8, 2009,

President-elect Barack Obama said overhauling entitlement programs such as Medicare and Social Security will be “a central part” of his administration’s efforts to curb federal spending, the New York Times reports. Obama said, “We are beginning consultations with members of Congress around how we expect to approach the deficit,” adding, “We expect that discussion around entitlements will be a part, a central part, of those plans.” Obama said, “If we do nothing, then we will continue to see red ink as far as the eye can see.”

Four days before his Inauguration, he reiterated this theme in a private meeting with the editorial board of the Washington Post during which he

pledged … to shape a new Social Security and Medicare “bargain” with the American people, saying that the nation’s long-term economic recovery cannot be attained unless the government finally gets control over its most costly entitlement programs.

That discussion will begin next month, Obama said, when he convenes a “fiscal responsibility summit” before delivering his first budget to Congress. He said his administration will begin confronting the issues of entitlement reform and long-term budget deficits soon after it jump-starts job growth and the stock market.

And shortly after his Inauguration,

Mr. Obama unexpectedly approached [South Carolina Republican Senator Lindsey] Graham when he was at the White House to meet with Rahm Emanuel, Mr. Obama’s chief of staff. Mr. Graham … said in an interview: “I know he’s sincere about wanting to do something about entitlements generally, health care and Social Security. And I want to help him.”

Despite Mr. Obama’s interest, his political and policy advisers are divided … Within the administration, John D. Podesta … is among those arguing for action sooner rather than later. “What this crisis has proven,” he said, “is that we need to have a basic benefit that keeps people out of poverty, and that we need to work at both ends — toward fiscal sustainability and toward ensuring that people, particularly at the bottom, have an adequate benefit.”

The February 2009 “Fiscal Responsibility Summit”

The above January 15 Washington Post article crowed that

President-elect Barack Obama will convene a “fiscal responsibility summit” in February designed to bring together a variety of voices on solving the long term problems with the economy and with a special focus on entitlements….

Those invited to attend will include Senate Budget Chairman Kent Conrad (N.D.), ranking minority member Judd Gregg (N.H.), the conservative Democratic Blue Dog coalition and a host of outside groups with ideas on the matter, said the president-elect.

Chief among those Blue Dogs was representative Jim Coooper of Tennessee, the only democrat who voted in favor of Bush’s plan to privatize Social Security.

Progressives? Not on the list. At least, not until the last minute. As of February 19:

Yesterday numerous sources in the health care policy world confirmed that the administration told them (again off the record) that Pete Peterson and Laura Tyson would be keynote speakers….

On a conference call today arranged by Campaign for America’s Future that included Roger Hickey, Jamie Galbraith, Nancy Altman and Dean Baker, Roger said that several of them had been told they might be invited to the summit, but no formal invitation had been issued yet (though Pete Peterson has his invitation).

If you didn’t already know, Pete Peterson is the billionaire whose crusade to destroy Social Security and Medicare knows no bounds, and has been well-documented.

While progressives were shut out until the last moment, prior to the “summit,”

Obama met with 44 fiscally conservative “Blue Dog” Democrats this week and gave a nod to legislation that would set up commissions to deal with long-term deficit strains. The commissions would then present plans to Congress for an up-or-down vote.

“We feel like we’ve found a partner in the White House,” said Rep. Charlie Melancon (D., La.), a Blue Dog co-chairman.

So much for “listening to all voices.”

In short, only a month into his Administration, Candidate Obama’s insistence on tax hikes as the method of long term Social Security budget balancing was replaced by President Obama’s embrace of the Diamond-Orszag plan, and a willingness to enforce it by way of a binding commission. That name should be familiar too, because David Orszag is Obama’s budget director, whose

long-running project … has been replacing talk of an “entitlement crisis” with his argument that Social Security requires only modest tax hikes and benefit cuts.

(emphasis mine) Here is a quick partial summary of the “Diamond-Orszag plan”:

Our plan makes the painful choices that are necessary—selecting a combination of benefit and revenue changes to restore long-term balance. In doing so, it focuses on three areas which contribute to the actuarial imbalance: improvements in life expectancy, increases in earnings inequality, and the burden of the legacy debt from Social Security’s early history.

…. For younger workers with average earnings, our proposal involves a gradual reduction in benefits from those scheduled under current law. For example, the reduction in benefits for a 45-year old average earner is less than 1 percent; for a 35-year-old, less than 5 percent; and for a 25-year-old, less than 9 percent. Reductions are smaller for lower earners, and larger for higher ones.

(emphasis mine)

Because of the alarm that reports of the nature of the summit created, it was shrunk to a three hour forum, but the Administrtion let it be known that it was not wavering in its goals:

[T]he administration has tried to tamp down expectations, saying only that the gathering is an opening gambit in a long process toward financial solvency.

Expectations were “tamped down” only because, as the New York Times reported:

Mr. Obama considered announcing the formation of a Social Security task force at a White House “fiscal responsibility summit”…. But several Democrats said that idea had been shelved, partly because of objections from House and Senate leaders….

Liberal Democrats are already serving notice that they will be equally vehement in opposing any reductions in scheduled benefits for future retirees.

The Obama Administration’s continuing targeting of Social Security

If, because of the opposition of Liberal Democrats, particularly in the House, the “summit” went nowhere, the fervor for cutting Social Security benefits never died. Four days later, in a speech before a Joint Session of Congress Obama stated:

“To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security,”

Even more ominously, conservative NY Time columnist David Brooks reported that in early March, “four senior Administration officials” paid him a visit and assured him that

the long-range debt is what matters, and on this subject President Obama is hawkish.

He is extremely committed to entitlement reform and is plotting politically feasible ways to reduce Social Security as well as health spending.

(emphasis mine)

But it turns out that it wasn’t just “senior officials.” We found out later via a column in Newsweek that

after Krugman’s fellow Times op-ed columnist David Brooks wrote a critical column accusing Obama of overreaching, Brooks, a moderate Republican, was cajoled by three different aides and by the president himself, who just happened to drop by.

In other words, one of those four “officials” who assured him that the Administration was looking at ways to “reduce Social Security” was none other than President Barack Obama himself.

Given the relentless and extensive background briefings by Obama himself to the likes of Brooks and the WaPo’s editorial board, the latter’s constant bashing of Social Security denounced by economists Dean Baker and Berkeley Prof. Brad DeLong, among others, does not come out of nowhere. Simply put, the WaPo knows, because he has told them, that despite Candidate Obama’s reassurances, President Obama very much wants to cut Social Security.

For example, Obama had yet another meeting with the WaPo editiorial board in July 2009, as reported by Reuters :

President Barack Obama, under pressure over the ballooning U.S. budget deficit, said on Wednesday he is preparing to launch an effort to rein in the escalating costs of the Social Security retirement fund and other popular government programs.

In an interview with the Washington Post, Obama said a new commission may be needed to examine reforms for addressing the deficit and the huge programs that contribute to the flow of red ink.

“I think we’re in a position to be able to, either at the end of this year or early next year, start laying out a broader picture about how we are going to handle entitlements in a serious way,”
Obama said.

….”The debt and the deficit are deep concerns of mine,” With public opinion polls showing people are nervous about the size of the deficit, Obama added, “I am very worried about federal spending.”

….”Probably what you end up having to do in terms of structural reforms realistically is you probably have to set up some sort of commission or mechanism that reports back with the prospect of maybe locking in a pledge for action, post-election,” he told The Washington Post. “Everything is going to have to be on the table.”

….Obama said the reform effort “may start with Social Security because that’s, frankly, the easier one.” He also said tax reform should be considered.

Once again, note the about face on binding commissions. And instead of focusing on payroll tax increases for those earning over $100,000, Obama says that tax reform should “also” be considered, meaning that the primary “reform” is to be benefit cuts to “rein in costs.”

Obama was true to his word that the matter would be placed on the front burner again at the end of 2009 or beginning of 2010. In November, Politico reported:

President Barack Obama plans to announce in next year’s State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.
White House budget director Peter Orszag said in a statement to POLITICO: “The President strongly believes that as the recovery strengthens and job growth returns, we will have to take the tough steps necessary to return our nation to a fiscally disciplined and sustainable path.”

Remember I told you that we would return to the reappointment of Fed Chair Ben Bernanke? If Barack Obama couldn’t be bothered to expend any political capital to ensure that all Americans got reasonable health care, he certainly was able to whip a wavering Senate in line over something he considered important, like Bernanke’s reappointment. Bernanke’s Senate reconfirmation testimony was surely cleared or at least known in advance by the White House and included the following:

Ben Bernanke … arget[ed] nothing less than Social Security:

…. “I think you can’t tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care.”

Bernanke reminded Congress that it has the power to repeal Social Security and Medicare. “It’s only mandatory until Congress says it’s not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation,” said Bernanke […]

Sen. Jack Reed (D-R.I.) followed Bennett and pointed out that “there’s only really two ways you can deflect this deficit, and that’s either by cutting expenditures or raising income taxes or other forms of taxes.”

Reed asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.

“Willie Sutton robbed banks because that’s where the money is, as he put it,” Bernanke said. “The money in this case is in entitlements.”

(emphasis mine)

On January 24, 2010, Obama explicitly endorsed the Conrad-Gregg deficit commision, the recommendations of which would be binding. When that failed, he used his State of the Union address to announce that he would appoint a deficit commission of his own via Executive Order.

I ask you: if you are looking for a “neutral, nonpartisan” figure to cite as support for imposing benefit cuts (or perhaps to even spearhead the Commission), then who better than the Chairman of the Federal Reserve?

One final note: remember how Candidate Obama constantly proclaimed that an increase in the ceiling for payment of payroll taxes was the only change that Social Security needed? I searched and searched for any statement by President Barack Obama that that was still his position. After December 2008 there are no such statements to be found anywhere.

In Conclusion, I submit to you that after this long litany of Obama’s own words and actions, there can no longer any doubt that Candidate Obama’s soothing words were a ruse, but that President Obama is relentlessly pushing forward what he said all along he would do: create a commission to examine changes in Social Security, and then enact them. It is not on process but on substance that Candidate Obama lied. Oh, sure, payroll tax increases might “also” be considered — tax increases that surely he will ‘push forward’ with all of the vigor he ‘pushed forward’ critical elements of Health Care Reform.

No real Democrat is “agnostic” about Social Security. As Obama himself solemnly swore, “On issues as fundamental as how to protect Social Security, a candidate for president” does indeed “owe it to the American people to tell us where they stand,” and on the ultimate substance of his stand Candidate Obama lied. So nobody should be surprised if millions of democratic voters become “agnostic” about the re-election of faux “democrats” who do what no Republican has been able to do — to wantonly gut the program which Candidate Obama rightly called “the cornerstone of the social compact in this country.”
(New Deal sent me some updates which I attempted to get inserted correctly. But I’ll just put this in as his alternative conclusion)
That controversy erupted here as well, prompting me to write a diary explaining The Truth about Social Security, in which I pointed out that Social Security is not in “crisis”, and is not a “real problem,” manageable or not, needs no “fix,” nor any intermeddling “Commission.” As stated by the official projections by the Social Security trustees at that time, the program will be solvent without so much as lifting a little finger for decades to come. At worst, even after the “Great Recession”, the problem is several decades away and is hardly an urgent priority. Even then, the core retirement program is not the issue; rather the deficits come from other programs such as Social Security disability.
Two final notes:
(1) Remember how Candidate Obama constantly proclaimed that an increase in the ceiling for payment of payroll taxes was the only change that Social Security needed? I searched and searched for any statement by President Barack Obama that that was still his position. After December 2008 there are no such statements to be found anywhere.
(2) Even if Obama’s assumptions are correct and his plan restores “solvency” to Social Security, the GOP will not cease their campaign to destroy it. They will loot it again the next time they are in power. And Barack Obama will have set the precedent for the “solution” of further benefit cuts.

Debt vs Unfunded Liability: Entitlement Commission Bait and Switch

by Bruce Webb

A bipartisan group of Senators is making a push to tie an increase in the debt ceiling to establishment of a Commission whose focus in on reducing the growth of entitlements. Now clearly Medicare spending growth at its current rate is not sustainable, which fact makes the current full-throated defense of that spending by Republicans fairly ironic, but something should be done and in fact is being done via the current HCR proposals. But pointing to the Debt Clock is not a good reason to slash away at Medicare or Social Security, because those slashes actually make that Clock run the wrong way by increasing and not decreasing Public Debt.

Why cutting spending increases debt explained under the fold.

When the Peter G Peterson people claim that Social Security and Medicare are in crisis they tend to use Unfunded Liability over the Infinite Future Horizon as the measure and so produce figures like $105 trillion. Which they then divide by current population to produce a debt per person figure as in every man, woman and child owes $33,000 or whatever. But this is to confuse two very different things. Because at the bound Unfunded Liability and Public Debt move in opposite directions.

In FY 2000, the last full FY of the Clinton Administration, the United States ran a Unified Budget surplus of $235 billion. Hurrah! But the Public Debt Clock showed an increase in debt of $18 billion. Oh noes! Why the disconnect? Because Trust Fund surpluses score as debt for the purpose of total Public Debt. If we go to the Treasury’s Debt to the Penny web application and insert a starting point of Sept 30, 1999 and an end date of Sept 29, 2000 we see that on the first day of that Fiscal Year Debt held by the Public, which included the Chinese Central Bank was $3.636 trillion. By the final day that was down to $3.405 trillion. This was unequivocal good news, not only did the US open up that much more borrowing room for FY 2001, it also cut $10 billion a year off of projected debt service going forward. But if we shift our eyes two columns to the right we see that total Public Debt went up from $5.656 trillion to $5.674 trillion. And the reason is simple, investing Social Security surpluses in Special Treasuries adds to Intragovernmental Holdings which with Debt Held by the Public makes up Public Debt.

All of which leads to some paradoxical results. Currently Social Security is running a moderate but shrinking cash surplus from excess FICA collections plus tax on benefits. That cash surplus (which CBO calls ‘Primary surplus’) plus the amount of accrued interest makes up the total Social Security Surplus which is then combined with a General Fund surplus/deficit to create a Unified Budget surplus/deficit, making large SS cash surpluses a good thing. On the other hand each of those dollars gets converted to an interest earning Treasury so adding a dollar to total Public Debt plus some 3-5% compounded interest so ticking the Debt Clock up. Under current revenue and spending models the Primary Surplus is set to dwindle and then disappear in 2017 at which point the Trust Fund would have to start taking a portion of its accrued interest in cash rather than Special Treasuries and so causing the rate of increase in Public Debt due to Social Security to slow down. Some six years later those same projections show that paying full scheduled benefits will require all accrued interest which so caps the Trust Fund balance and so the maximum amount of Public Debt due to Social Security. In succeeding years this draw down extends to TF principal and so starts reducing Public Debt until sometime after 2039 the Trust Fund is exhausted and no longer contributing to Public Debt at all.

But what happens if we convene an Entitlements Commission and simply adjusted the scheduled benefit so that current year tax revenues met current year outlays? Well two things. One unfunded liability goes to zero. Two Public Debt skyrockets at whatever rate the compounded interest mounts up. So when Senators point to the Debt Clock and proclaim that $12 trillion in Public Debt is a reason to cut Social Security they are wittingly or not confusing Unfunded Liability and Public Debt which for Social Security move in opposite directions.

There are reasons to fix Social Security by putting it on a glide path to Long Term Actuarial Balance, which is to say a system whose overall financing pays 100% of whatever scheduled benefits may be while maintaining a minimum of 1 year in projected reserves in each of the next 75 years, and in principle this could be done with minor tweaks on either the revenue or benefit side. Coberly has long proposed fixing it on the revenue side and so ran the numbers for what we call the Northwest Plan, I following Professor Rosser have been willing to entertain the risk of small benefit cuts because we believe that the current economic model of Intermediate Cost is too pessimistic, but either way the argument doesn’t turn on specific figures on the Debt Clock which for the purposes of this discussion are irrelevant.

Under the Northwest Plan the Social Security Trust Funds will have a combined balance of $33 trillion in 2085 which will score as such on the Debt Clock. And servicing the Trust Funds will require some transfers from the General Fund to keep that balance from compounding out of control, a transfer that will grow every year, but on balance by a more or less steady share of national income growth. Leaving Social Security with an Unfunded Liability of $0.

I don’t know if every Senator pushing for an Entitlements Commission understands that at the bound Public Debt and Unfunded Liability move in opposite directions, that solutions aimed at the latter actually potentially exacerbate the former but certainly you would expect that a former Comptroller General of the United States would understand the budgeting mechanism. For him to point at the Debt Clock as a reason to move on Social Security is just special pleading and playing games with with incommensurate numbers. What we have is two big numbers that in different ways represent some sort of forwarded shifted liability. Which doesn’t mean we can wander from one to the other at will.
BTW the same argument holds to a limited degree for Medicare Part A (though not B & D). Any act which extends the life of the HI Trust Fund equally serves to increase Public Debt relative to the baseline over that period. Kind of a “No good deed goes unpunished” deal.

Is David Leonhardt pretending Henry Paulson did his job?

Or does he know better?

This year’s election coincided with an important moment in the financial crisis. The credit markets have stabilized in the last few weeks and even improved a bit. But the rest of the economy is deteriorating fairly rapidly. It’s now in danger of falling into a vicious spiral, in which spending cuts by consumers and businesses lead to further layoffs and then more spending cuts.

To prevent that from happening, the Obama administration will need to move quickly — before it takes office — to put together some emergency plans for the financial markets and the broader economy.[italics mine; emphasis his]

So Leonhardt’s first solution is “throw more money.” Or maybe—as with the common taters last night who pretended that the Republicans didn’t control the Presidency and both Houses of Congress for six years—he’s forgotten that this one was tried, with the same kleptocrat at the helm of the Treasury then as there is now, and will be until 20 January 2009.

Leonhardt then admits that Barack Obama knows more about economics than he does:

Throughout the campaign, whenever Mr. Obama was asked about the financial crisis, he liked to turn the conversation back to his long-term plans, by saying that they were meant to solve the very problems that had caused the crisis in the first place. Back in January, he predicted to me that the financial troubles would probably get significantly worse in 2008. They had their roots in middle-class income stagnation, which helped cause an explosion in debt, and the mortgage meltdown was likely to be just the beginning, he said then.[italics mine]

We then get the mealy-mouthed conditional that makes the NYT so Authoritative:

His prognosis was right — and the pundits now demanding that he give up major parts of his economic agenda in response to the financial crisis are, for the most part, wrong.[ibid.]

And, just so we’re clear, Leonhardt isn’t talking about much money:

There is at least one obvious area of potential compromise: Mr. Obama’s call for a $1,000 payroll-tax rebate for almost every family. That would cost the government about $65 billion. But a stimulus package should probably be a lot bigger than that — maybe $200 billion or so. And at this point, drafting it well matters more than passing it immediately.

So consumers might get to borrow $2 to pay themselves for every $7 they give to Hank Paulson’s buddies. But of course these monies will be poorly spent. Not the parenthetic:

That means starting work on new construction projects that government agencies have already deemed worthy but that lack financing. It also means sending money to state governments to close their budget shortfalls, in addition to softening the blow of the downturn by extending jobless benefits (as flawed as the unemployment insurance system is).

Meanwhile, giving AIG that money has been a great investment.

Leonhardt finally gets to a positive:

The two leading candidates for Mr. Obama’s Treasury secretary — Timothy Geithner and Lawrence Summers — seem likely to be more aggressive than Henry Paulson, the current secretary. Mr. Geithner, the president of the Federal Reserve Bank of New York, has at times lobbied for a more proactive approach to the current crisis. He favored direct equity injections into banks, for instance, before Mr. Paulson did.

As early as last December (2007), meanwhile, Mr. Summers criticized policy makers for being “behind the curve.”

“More aggressive” translates to “actually know what they are doing.”

What will this mean? Leonhardt glosses the ending:

Whatever he decides, it probably has to involve more money — which will make the government’s budget problems even worse. Some economists think next year’s deficit could potentially exceed $900 billion. Relative to the size of the economy, that would be the largest deficit since the years just after World War II.

A deficit like that will indeed force Mr. Obama to change his approach to the economy’s long-term problems, mainly by coming up with new ways to pay for his solutions. But that is tomorrow’s problem. Today’s are big enough as it is.

What this means is that apparatchiks like EconomistMom* will be whining about “the deficit” and the evil of “having to pay the increasing costs of social programs.” (If you wonder why we question your motives, look at your list of Senators and Conngresssmen who are determined to “do something about the spectre of future deficits”—a large portion of whom are the same people who pushed through the 2001 and 2003 raping and pillaging of the same people whose benefits you want to cut now. We question your motives because, by your own Revealed Preferences, you’re crooked.)

Leonhardt wants to placate them. Dean Baker, for one, knows that’s not possible, and pushes for a more optimal solution.

*If I were being fair to Diane Rogers (who advertises her Clinton Administration credentials whenever she can, so that we can believe she’s one of The Good Ones even as she shills for Pete Peterson and the entitlements-for-me-but-not-for-thee crowd), I would say she was hired to argue that neo-Hooverism is A Good Thing—but she made that bed and chooses to lie in it, so sympathy is not something I’m inclined to. Others here disagree. You can look it up.

Responses to Comments – Round One

It is my pleasure to respond to the many interesting responses I have received to my posting on Angry Bear. I’m starting with responses to the 18 comments on the initial announcement of my visit. Tomorrow I will respond to the dozens of comments on my first post. Thanks for your patience — you are an active group and I’m trying to keep up.

Coberly is correct. We should not cut Social Security to pay for a war. My concern about the growing outlays from Social Security, Medicare and Medicaid is that if they continue on their current trajectories they will swamp all other programs in the budget — and lead to higher interest rates and higher taxes, and since the tax that pays for Social Security is the Payroll tax — which is very regressive –- it will hurt low and middle income wage earners. I favor cutting a lot of non-essential domestic programs before cutting Social Security and Medicare benefits, but I am afraid that at some point we will need to find a way of increasing inflows into such programs — preferably from high income earners, and curbing the growth benefits to upper income people to make these programs sustainable for those who really need them.

This would have to be done even if the Defense Budget were zero. But because it is not zero, and we still will have international and Homeland Security expenses well after the Iraq War, this is yet another reason to put these programs on a more sustainable basis. And I also agree with Coberly that Social Security is less than 5% percent of GDP now; in fact it has a surplus now. The issue comes toward the end of the next decade; my book The Price of Liberty describes this concern in its last chapter. I want to be sure there is money for our elderly and medically needy; that is essential. But I also think we need to make sure there is also money for our national security. That will require some better long-term planning than we are seeing today.

To Dale: Thanks for making the point about waste in military spending. This needs to be corrected, as does the earmarking of defense and homeland security projects. Correcting these things are both good economics and good for national security in that it will strengthen the credibility of the funds that the Defense Department and the Homeland Security Department do ask for. And as for an attack on entitlements, as I mentioned to Coberly, I do not attack entitlements. I want to put them on a sustainable basis for those who need them. And to do so we need to look ahead. I am sorry I was not clearer on this. It should not be a zero sum game. All programs, military spending and entitlements need to be looked at to be sure that the funds are well spent; entitlements need to go to those who need them. And those who do not should do with a little less.

To Sammy: Good point. I think that asking Americans to make sacrifices for any war does two things; one, it gives citizens a vested interest in the war, as was the case in World War II and it avoids hiding of the war, as was the case in Iraq and Vietnam. All I am asking for is an honest dialogue with the American people on what a war costs — so they understand that it cannot be financed by sleight of hand. That would enable Americans to make an informed decision as to whether they want to make sacrifices to support their troops — which most Americans will — and our leaders to have a more direct dialogue with Americans. Skirting the budget issue neither promotes an open dialogue nor enables Americans to determine what the war will actually cost them. Since no war is free, understanding the cost at the outset is good politics and good for a democracy.

To Patrick R. Sullivan: We do have bonds today, since much of this war is paid for by borrowing, but we do not have a candid presentation about how much of our current borrowing is war related, tax cut related, or for other things. In fact, it is for all of them. But because borrowing can be done relatively easily at relatively low rates it looks easier than borrowing for past wars.

To PGL: Very well put. Better than I could have done myself. If we do not pay for our war, the cost is passed to the next generation. And you are also right on Social Security; the Social Security Surplus is disguising the actual size of the deficit and making the war easier to finance because it disguises its cost and indeed the cost of running the entire government. I describe this in greater detail in the last chapter of my book; the Concorde Coalition also highlights it. I am concerned about deficit financing not only for financial reasons — although that will be a huge problem in the next decade when the costs of entitlement and discretionary spending and interest payments are added up and compared against the inflow of revenues — but because it is a horrible legacy for coming generations. In my book, I cite a wonderful quote from George Washington’s farewell address in which he warned against “ungenerously throwing upon future generations the debts we ourselves ought to bear.” That goes for us too.

To Ken Melvin: I am not sure whether we are spending too much for these programs or not, but we should certainly take a hard look at them through the use of Congressional oversight — as in the case of the Truman Commission during World War II. My concern is that we are not spending some of the money smartly. And a lot of stuff is added by Congress for local constituency benefits which is not needed — or put into Homeland Security not on the basis if risk but for more political reasons.

To Sammy: I do care that some Social Security and other benefits go to people who don’t need them. Correcting that should be one part of the reform process.
Coberly asks some additional questions about the cost of future entitlement programs. All these are valid. The best way to get the answers is from the reports of the Trustees of Social Security and Medicare and from groups such as the Concord Coalition. These numbers are very similar — and these are the figures I cite in my book. One key point is that borrowing from the Social Security Trust Fund now finances a substantial portion of our budget deficit. This misleads Americans into thinking that the deficit is lower than it really is. But when the surplus turns to a deficit in the next decade that will change.

To Josh G.: I am not arguing to slash social programs to pay for the military. They should be put on a more sustainable basis for their own internal reasons of keeping faith with the people who will need them in coming decades. These numbers didn’t come from me; I got them from the people who run these programs. And, on another point, I think that terrorists do represent a threat — not only the ones in caves but the ones who are planning attacks here and on our allies.

To Lysistrada: I am not suggesting using the payroll tax to finance the military budget. Soon it will not even cover the costs of the Social Security System. Also, I do not believe and did not believe at the time that we needed a tax cut for people in the upper income bracket — and if one were to be passed I did not think it should last for ten years. And I have been all in favor of raising the minimum wage. But regarding FDR, he did cut programs for a lot of middle income people; many New Deal programs were cut during World War II. But I am not suggesting that now. I am not suggesting that any programs for low or middle income people should be cut; my discussion of Social Security and other reforms goes to the point of ensuring that they are around for coming generations for those who need them. And there are risks if they are not reformed; even with a zero defense budget that would be needed. Please read the reports of the people who run these programs and look at the numbers and look at the reports of the bipartisan Concord Coalition. And then let’s discuss this further.

Thank you all very much for your contributions. More responses will be posted tomorrow.