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

Where are the center of things?

Via Huffington Post comes this quote:

One senior administration official offered the following explanation as to why they started with a “compromise” offer.

While this is not the president’s ideal deficit-reduction plan, and there are particular proposals in this plan — like the CPI change — that were key Republican requests and not the president’s preferred approach. This is a compromise proposal built on common ground, and the president felt it was important to make it clear that the offer still stands. The president has made clear that he is willing to compromise and do tough things to reduce the deficit, but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth. That means that the things like CPI that Republican leaders have pushed hard for will only be accepted if congressional Republicans are willing to do more on revenues. This isn’t about political horsetrading; it’s about reducing the deficit in a balanced way that economists say is best for the economy and job creation. That’s why the president’s offer –- which will be reflected in his budget — isn’t a menu of options for them to choose from; it’s a cohesive package that reflects the kind of compromise we should be able to reach.

Dean Baker on Social Security and Obama

Via Truthout Dean Baker points to continuing insistent of President Obama to keep Social Security ‘on the table’. Dean Baker has a take on some numbers surrounding the politics and stories politicans offer:

While most of the DC insiders probably don’t understand the chained CPI, everyone else should recognize that this technical fix amounts to a serious cut in benefits. It reduces benefits compared to the current schedule by 0.3 percent annually. This adds up through time. After someone has been getting benefits for 10 years, the cut in annual benefits is 3 percent. After 20 years, people would be seeing a benefit that is 6 percent lower, and after 30 years their benefit would be reduced by 9 percent. (AARP has a nice calculator which shows how much retirees can expect to lose from the chained CPI.)

We can debate whether the chained CPI benefit cut should be viewed as “large,” but there is no debate that chained CPI cut is a bigger hit to the typical retiree than the ending of the Bush tax cuts were to the typical high-end earner. Social Security provides more than half of the income for almost 70 percent of retirees. This means that the 3 percent cut in Social Security benefits amounts to a reduction in their income of more than 1.5 percent.

By contrast, if a wealthy couple has an income of $500,000 a year, as a result of President Obama’s tax hikes, they would be paying an addition three percentage points in taxes, or $3,000, on the income above $400,000. That comes to just 0.6 percent of their income.

If the proponents of using the chained CPI to cut Social Security want to claim that this cut is not a big deal, then they must also believe that the tax increases on the wealthy were not a big deal. That’s what the arithmetic says, and there is no way around it.

(h/t Nancy Ortiz)

DEAR PAUL KRUGMAN Please Read This about Social Security

by Dale Coberly

Please Read This
about Social Security

Dear Paul Krugman,

There was an indication the other day that you read Angry Bear, at least sometimes. I hope you read this, because it is important, and you have a better forum than I have.

I think the following facts would be game changers in the so-called “debate” about Social Security, if they become widely known and understood.

Social Security has nothing to do with the deficit…
In spite of tortured logic like that of Chuck Blahous who admitted grudgingly that “technically” Social Security does not affect the budget, but “in reality” if Congress has to pay back the money it has borrowed from Social Security, that will have an effect on the budget. This amounts to blaming granny for lending me her life savings. After all, if she hadn’t lent it to me I wouldn’t have spent it. Therefore it’s her fault that I have to get a job or borrow money from someone else to pay her back.

… and therefore should not be part of the “deficit reduction” hysteria.
Again, in spite of logic so tortured it gives lies a bad name: The serious folks who are so very worried about the deficit sometimes admit that Social Security has nothing to do with the deficit, “but we need to cut Social Security to give confidence to the markets.” Because even though Social Security has nothing to do with the deficit, cutting it will show “the market” that we are serious about controlling our deficit.

Social Security is not going broke.
It can’t go broke. It is paid for by the workers who will get the benefits. As long as they understand the value of protecting part of their savings from inflation and market losses… insuring at least a minimally decent retirement… they will want to be allowed to continue to pay for their Social Security.

The Trust Fund is NOT Social Security. It does not matter at all when it “runs out.”
The Trust Fund is normally a reserve of one year’s benefits designed to smooth the ebbs and flows of taxes versus benefits. It was allowed to grow following the 1983 increase in the payroll tax to about three times the normal size in order to allow the Boomers to help pay in advance for their own Social Security benefits beyond what would normally be paid by “pay as you go” financing. This corrected a potential “generational inequity.” This enlarged Trust Fund was always supposed to run out of money about the time the Boomer cohort no longer put unusual stress on the pay as you go system. So far it is on schedule to do exactly that. The precise date that the Trust Fund returns to the normal level is completely unimportant to Social Security.

The “Eight Trillion Dollar Actuarial Deficit” can be paid for by raising the payroll tax eighty cents per week each year.
This is a fact that can be established with certainty with real arithmetic (real arithmetic is not the “it’s just arithmetic” you hear about from journalists and congressmen who have no idea what they are talking about). Raising the payroll tax one half of one tenth of one percent per year… about forty cents per week in today’s terms … would entirely close the projected actuarial deficit over the 75 year actuarial window. Wages are projected by the same Trustees Report to rise about eight dollars per week each year over the same time period. So at the end of the day the workers will have twice as much money in their pockets AFTER paying for their Social Security, plus they will have guaranteed their own retirement at the normal retirement age with the present replacement rate… an amount that will also be twice in real value what today’s retirees get. Because of the recent recession, it would be better to raise the tax eighty cents per week each year over the next twenty years instead of at the slower rate. Eighty cents per week would still not be felt by the workers.
Social Security was designed…insisted upon by Roosevelt…to be worker paid: “So that no damn politician can take it away from them.”

Roosevelt did not count on the persistence of damn politicians, or the bad memories of workers, or the failure of the “defenders of Social Security” to honestly inform the workers. The workers will be glad to pay that eighty cents once they know about it, and understand it. The “defenders” of Social Security play into the hands of its enemies by calling for schemes to “make the rich pay for it.” Roosevelt knew that would be the death of Social Security. The rich will not pay for it. Or if they did, they would own it, and it would not be long before they would insist upon cutting it, turning it into welfare, and means testing it. And the workers would no longer be able to say… as they do now… “we paid for it ourselves.”

The “bi-partisan groups worried about the deficit”… which means folks paid by Peter Peterson to destroy Social Security by pretending Social Security is causing the deficit… tell very carefully crafted lies about Social Security. The people who style themselves defenders of Social Security waste their time deconstructing the little lies, while the Big Lie goes unanswered. One of those people apparently believes that “doing nothing” is the answer. He seems to believe that something will turn up that will extend the life of the Trust Fund and silence the calls for “fixing” Social Security. He could be right… the best “fix” for Social Security would be to raise the wages of workers. But this is not something we can realistically expect to accomplish in any reasonable time. And the Big Liars are not going to wait. Unless we can offer a realistic plan, that people can understand, to pay for the projected Social Security actuarial deficit, the Big Liars will push forward their “fixes” that are designed to destroy Social Security.

The Big Lie is that “Social Security is going broke, causing huge deficits that will burden our children.”

Social Security is not going broke. It has nothing to do with the deficit. The workers pay for it themselves. They can always pay for it themselves. If the costs of retirement rise as they are expected to, the cost of Social Security will rise…. about eighty cents per week per year. This is not a burden on the young. It is money they will get back with interest when they need it most. It is in fact the best deal that workers have ever had.

Tell the people.

Why Social Security Can’t go Bankrupt: Rerun

Reader mmcosker sends this e-mail pointing to Why Social Security Can’t go Bankrupt: Rerun at Forbe’s Magazine:

John T. Harvey’s Pragmatic Economics column at Forbes is one of the best. He is a Professor of Economics at Texas Christian University, and has a knack for breaking down politically charged “third rail” economic topics into terms that most anyone can understand. Below is just such a topic that deals with the myth that Social Security is broke – or even broken. Not entirely sure how widely read John is, as this article has 910 views.

“Why Social Security Can’t go Bankrupt: Rerun”

It is a logical impossibility for Social Security to go bankrupt. We can voluntarily choose to suspend or eliminate the program, but it could never fail because it “ran out of money.” This belief is the result of a common error: conceptualizing Social Security from the micro (individual) rather than the macro (economy-wide) perspective. It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be–there is no other possible way for it to work.

Read the full story here.


Workers will have MORE money in their pockets AND will have paid for a longer retirement at a higher standard of living

There are a number of well thought out plans to handle the problems proposed by opponents of Social Security and also those concerned about its sustainability. To have our political and media debate confined to one item like chained-cpi should make any reasonable voter pause and wonder “Is that all? How dumb can we be?” Take a breath and a half hour to review trhe fact that there a a lot of alternatives…don’t let your politician quote you a bumper sticker slogan. There are plenty of alternatives that won’t cut benefits for a well functioning program that could deliver a decent result.

“Workers will have MORE money in their pockets AND will have paid for a longer retirement at a higher standard of living.”   Social Security cuts offered…why?

According to the 2010 CBO report Options for Social Security the chained CPI will “solve” about one third of the projected shortfall.
Since a tax raise of forty cents per week per year over the same time would solve the entire projected shortfall, it looks as though the chained CPI is going to save workers about 13 cents per week per year while their wages are going up eight dollars per week per year.
Of course the chained CPI is going to cost them a thousand dollars a year when they are too old to do anything about it.
Makes you wonder who the President’s financial advisor is.

The CBO report was from 2010. raising the cap to cover 90% of earnings would put the cap at about 150k, and their benefits would be increased.
This might be salable to them… if they figured the extra tax was a reasonable price to pay for the extra insurance… I am guessing their SS benefit would go from about 26k to about 35k. I don’t think they would be happy with that ratio.
In any case I would prefer to pay the extra 13 cents per week and keep Social Security “worker paid.”
You don’t want welfare. it’s ugly.

Dale Coberly

Everyone interested in actual SS numbers should read that CBO 2010 report ‘Social Security Policy Options’ or just refer to special figure 1. CBO scored 30 different policy options taken in isolation and although some would interact if enacted together for the most part you can treat the fixes as a cafeteria plan and mix and match to reach your 0.6 target. For example there is one fix that closes 0.9 of that 0.6 which makes room for proposals that shift benefits to the bottom in a way that still mets out at 0.6. Now in the event I agree with Dale that this particular combination adds up to ‘welfare’ and moreover that that would be a bad thing. But your views may vary.
The point being that most obvious changes to SS have already been scored, all you need to do is Google the cited document.

Bruce Webb

Social security cuts offered…why? Irresistible to Obama.

There is no crisis with Social Security. Social Security is not going broke. Social Security adds NOTHING to the deficit. Social Security is not welfare.

Update: Pelosi says she can live with it

There are many options to address issues for the program, which are not offered as part of Pres. Obama’s  insistence on keeping  Social Security on the table and front and center.  Perhaps the ‘chained cpi’ is abstract enough to look harmless, and trying to ‘fix’ a possible problem decades in advance doesn’t appear to be simply weird??   From comments comes this note from Dale Coberly.  There are several other plans  carefully thought out that fix things if needed…

A reader suggested I check the results of the “one tenth of one percent tax increase” against the recent bad news from the Trustees.

I looked at the result of increasing the tax one tenth of one percent for each the employee and the employer whenever the Trustees project short term actuarial insolvency. The results were the same as before the recession: an average increase of one half of one tenth of one percent increase on the combined employer-employee tax over the seventy five year actuarial window results in no insolvency whatsoever.

The effect of the Recession has been to move forward about six years the date of the first one tenth of one percent increase to about 2018.

By 2033 the tax would have been increased about one and a half percent for each, while wages will have gone up about 25%. Workers will have MORE money in their pockets AND will have paid for a longer retirement at a higher standard of living.

There is no crisis. Social Security is not going broke. Social Security adds NOTHING to the deficit. Social Security is not welfare.

Over the whole century and into the next, the SS tax would need to be raised another one percent, while wages will have gone up over one hundred percent.

What the bad guys have done is looked at the possible need for the tax raise, assumed that we will not be smart enough to raise the tax and called the difference “a huge debt.”

There will be no debt. But if people are not smart enough to realize that if they are going to live longer they are going to have to put aside a little more to pay for groceries after they can’t work any more, then they are going to have to learn to live on a little less .

They could even do that. It wouldn’t be wise, but at least it wouldn’t be as stupid as letting them “fix” Social Security in a way that destroys its value as insurance. And that’s all it is: a way to insure your own savings against inflation, market losses, and personal bad luck. Even against recessions.

But unless the people tell the president and the congress… that’s exactly what they will do” “Fix” it.. the way a two year old fixes his daddy’s watch.

David Duyan offers some ideas on the current issues:

Biden…"I flat guarantee you"

Mark Thoma takes a poke at Joe Biden’s guarantees on SS  in  No Changes in Social Security:

I wish I could believe this.

Biden guarantees: ‘There will be no changes in Social Security’, by Michael O’Brien, NBC News: …”Hey, by the way, let’s talk about Social Security,” Biden said…”Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security,” … “I flat guarantee you.” 

But the first time Republicans offer a trade (“tell you what, if you cut Social Security, we’ll stop cutting taxes”), will the administration take it? I’m afraid they will.

Here are several of Dale Coberly’s and Bruce Webb’s earlier posts on some of the matters and myths, somewhat at random from the dozens of informative posts on SS:

Social Security: Trust Funds, Actuarial Balance, Sustainable Solvency Posted by Bruce Webb 7/22/2012

Social Security: Simple story vs. myth busting Posted by Bruce Webb 2/18/2009

Reframing the Trust Fund  Posted by Bruce Webb  6/15/2008

Social Security For The Young  Posted by Dale Coberly  10/04/2011

DAMNED LIARS AND SOCIAL SECURITY Posted by Dale Coberly 4/11/2012

Social Security as you know it, it’s over, forget about it.

I caught a bit of Jennifer Granholm’s The War Room for 2/23/12.  She was talking gasoline prices and had Ron Klain on for his ideas. He is a past chief of staff for Gore and Biden as VP’s. Mr. Klain also published his thought at Bloomberg2/20/12.
This post is not about solving the rising gasoline costs. This post is about the further screwing of the 99% by further reducing their security from the risk of life and living.
Let’s cut to the chase: 
One idea might be a “pocketbook protection” plan, which would work as follows: If the average price of gas exceeds $4 a gallon, an additional, automatic payroll tax cut of 1 percent would kick in, as much as $50 per month, per person. The cut would stay in place for at least 90 days; it would disappear when the price fell below $4.00 per gallon.
There are three advantages to this approach. First, because the plan is of limited duration and is capped at $50 a month, its cost is relatively modest — about $5 billion a month, or $20 billion total, assuming the usual four-month gas-price surge. Second, because it isn’t a reduction in gas taxes, it doesn’t weaken any incentives for fuel conservation or efficiency: All workers get $50 to soften the blow of higher gas prices, but the less fuel they use, the more money they save. And third, the relief provides the greatest relative help to lower-income workers who need gas to commute and feel the price pinch the hardest.
I have to assume our Colberly’s head has just popped. What Mr. Klain has proposed is the exact danger many have warned about regarding the use of SS as a means to make up for what is a major functional problem of our current economy: lack of share of income to the masses.

I have pointed out many times that we can not make up for the $1.1 to $1.4 trillion per year of income no longer in the hands of the 99% that is in the hands of the 1% with tax reductions. It can not be done. With that fact, considering taxation reduction in any form as a method to address this specific issue is nothing more than the continuation of the false economy that financialization created as observed from the position of those in the labor part of the economy. It quite literally is the government now using the mathematical gymnastics pioneered by Wall Street to trick the masses into believing that home equity was the same as earned income. Getting a tax cut anywhere is not the same as receiving a greater share of the nation’s income.  It is money, by the way, that you are more than justified to receive because you helped to create it. The rich used to have an opportunity to relearn this lesson every time there was a major strike, say the NY City trash collectors going on strike.
People, I hope we have learned that one’s home, your house has a more important roll to play in your life other than that of asset appreciation. The home is one of the foundations used to reduce the risk of living, of having a life: shelter. Social Security is another one of those life’s risk reducing foundations: longevity. I have asked often here: How many times to do we have to relearn a lesson?
Using SS as a means to offset the results created over the long term from bad policy is the polluting of a very good policy. We can look at the housing crisis as another already experienced pollution. The good policy was promoting home ownership. The bad policy was setting up an economy that changed the perception of home ownership from a life risk reduction activity to an asset building activity. Now that SS has been used once as a solution to an unrelated problem and extended once in a manor that moves it further from the original purpose (reduction of risk of living), with Mr. Klain’s proposal, the use of SS as a back stop for non-related policy results has become an unquestioned and considered reasonable use.
Mr. Klain’s proposal so exemplifies what our politico’s now consider acceptable for SS’s use that he even proposes to pay for it via a general funding solution: 
The plan could be almost entirely paid for with a modest, no-loopholes surcharge on corporate taxes on profit derived from the higher gas prices. The administration would be able to avoid pejorative terms such as “windfall” or “excess” profit tax, because the tax is neither confiscatory nor punitive. With higher gas prices, oil companies will make record profit — and a partial surcharge will still leave that profit at record high levels. In other words, the plan isn’t vulnerable to suggestions of creeping, soak-the-rich redistribution. It would leave in place all incentives for oil companies to increase production, do more research and development, and explore alternative fuels. But a modest surcharge would help fund at least a partial pocketbook protection program to make sure the cost of the oil companies’ gain isn’t excessive pain for the rest of us.
Just to be clear, that Mr. Klain proposes using SS for anything other than SS is the problem. The only difference in such action compared to the housing crisis which was tied to the removal of specific banking regulation is that it took us 10 year or so to experience the warning of Senator Byron Dorgan.

For those warning about the proverbial slippery slope phenomenon of using SS as a back stop for bad policy results leading to furthering the destruction of SS, it’s only been about 3 years since this application of SS first became a reality. This use is now acceptable. Social Security has now officially been changed from a purpose specific funded program to an general revenue program.  The establishment is so comfortable within this frame of use for SS we get a proposal such as Mr. Klain’s.   We also have on the record a warning in the vein of Senator Dorgan’s  from Senator Harkin:
“This Congress will be making a grave mistake — a grave mistake — and reinforcing a dangerous precedent,” Harkin said in a dramatic Senate floor speech late Thursday.
Mr. Klain freely proposing another application of a SS tax cut is proof of the truth to Senator Harkin’s warning.  The precedent stands.  It is “codified”.   And, with this precedent the conservative/monied movement has neutralized another barrier protecting SS and it’s status as the end-all be-all of the New Deal: the Democratic Party.
The Movement has also successfully completed the instillation of it’s virus known as Financialization into the nervous system of our government. Social Security no longer thinks as the mind of one living in a labor economy; as the 99%.  It thinks as the mind of one living in a money from money economy; as the 1%.

by Dale Coberly 

Social Security…Hearts and Minds

Tom Margenau wrote an essay about the payroll tax holiday in The National Memo Is Your Tax Holiday Gift A Lump of Coal? His essay seemed to me to illustrate one of the problems with the Social Security “debate” as it has been constructed.

Margenau  describes himself as “not very good with numbers,” but someone who has been accused of being “a bleeding heart liberal.” “But,” he says, “this is one liberal who gives the Republicans credit… at least they are willing to talk about it.” The trouble with all this is that Margenau does not understand the numbers, so he is giving the Republicans credit for being willing to talk about a problem that does not exist.

This is exactly what “liberals” have been doing: searching, searching for a way to ease their bleeding hearts by solving the huge, terrible problem that only looks huge when you don’t understand the numbers.

Margenau cites the famous “in less than 20 years there will be only two workers supporting each retiree.” And he proposes “relatively modest changes… bumping up the retirement age..”

You may read his full essay at the place cited. Easiest for me to simply reprint here the reply I sent to him.

“Tom, Your heart is in the right place, but you miss the critical point. Social Security is not welfare. It is critically important that it is not welfare. FDR understood this so he made it “worker paid” insurance, “so no damn pollitician can take it away from them.” Social Security was never in trouble. 

All that 3 to 1 and 2 to 1 worker to retiree ratio is lying nonsense meant to impose on people whose math skills are not very good. What it amounts to is that if people are going to live longer… say 20 years after working 40 years, instead of 13 years after working 40 years, they will need to save about one third more each month for their own retirement.

This means raising the payroll tax from 6% to about 8%. And since the change in life expectancy is not going to happen all at once, it means we can raise the payroll tax one half of one tenth of one percent each year. 

This is an increase of 40 cents per week for the average worker today. And while the increase gets bigger over time, so do wages. So the increase will never be felt as more of a burden than that 40 cents per week. AND the workers will get the money back, with interest, so they can look forward to a longer retirement with better benefits than today’s retirees. 

The Republicans were not being more responsible… they were telling a Big Lie. They could get away with it because the average person is innumerate, and the average liberal no longer understands the important difference between Social Security and welfare. It is probably too late, but it would help if the people who think SS is important at least understood the facts and the basic principle.

Margenau replied to me that “the worker to beneficiary ratio is not lying nonsense. It is critically important.” And indeed it is. It is fundamental. But it doesn’t mean what he thinks it means. All it means is that if we are going to live longer we are going to have to save more for our retirement. The “more” is not burdensome.

But working an extra year could be hell for many people. Meanwhile, Our President, and his Friends Across the Aisle have killed Social Security. They did it by the breathtakingly bold and easy step of just taking away its funding by calling for a “payroll tax holiday.”

The Democrats …Democrats!… are now running on the issue of making the payroll tax holiday permanent “to avoid a huge tax increase on the middle class.” The lying is sickening. But the people will go for it. And the Republicans will cry, “Oh no, not the briar patch! Don’t throw me in dat briar patch Br’er Obama.”

And laugh up their sleeves while the “progressives” think they have scored a huge win for the poor. And the poor will never understand what happened until they go to retire and learn they’ve had another year added on to their sentence, or have to go to the welfare office to prove they need “benefits,” and they better bring a note from their doctor saying they only have one more year to live.

The only way out of this would be a sudden demand by a hundred million working people to “raise our taxes! give us back our Social Security!”

The social safety net encourages…?

Mark Thoma responds to the meme that the social safety net encourages bad behavior overall:

The idea that the unemployment problem is due to lack of effort on behalf of the unemployed rather than a lack of demand is convenient for the moralists, but inconsistent with the facts. The problem is lack of demand, not the means through which we smooth the negative consequences of recessions.

But what really irks me is the implicit moralizing, the idea that people deserve to be thrown into poverty. Someone who gets up every day and goes to a job day after day, often a job they don’t like very much, to support their families can suddenly become unemployed in a recession through no fault of their own. They did nothing wrong — it’s not their fault the economy went into a recession and they certainly couldn’t be expected to foresee a recession that experts such as Casey Mulligan missed entirely. They had no reason to believe they had chosen the wrong place to go to work, but unemployment hit them anyway. And since one of the biggest causes of foreclosure is an event like unemployment, it’s entirely possible that this household would lose its home, be forced to declare bankruptcy, etc., and end up in severe poverty if there were no social services to rely upon.

What moral lesson is being taught here?