Back to Social Security

Our good friends over at the laughable Social Security Choice have excerpted the latest Wall Street Journal editorial, purporting once more that it protects the idea of private accounts as unassailably right.

The editorial claims that Democratic Florida Representative Robert Wexler is the first Democrat to propose an alternative to the President's ideas for Social Security. Did you catch that? The President's ideas for Social Security. They've abandoned the whole "plan" nomenclature, since there hasn't been a plan put forth yet.

The most common complaint that I hear from Republicans about Democrats is that they don't put out any ideas themselves. They argue that the Democratic Party is only held together by hatred for Republicans and opposition to their policies. I say that's nonsense.

Since when is principled opposition a bad thing? The Democrats like the idea of Social Security. The Republicans don't. At this point, given a choice between the current system and the vague "ideas" proposed by the President, the Democrats have made clear that they'd rather have the current system. There certainly are fixes needed, as there have been throughout the years, but at this point the important fight is to preserve the system in a way which will eventually allow it to be fixed.

To claim that the liberal ideology is simply reactive to the conservative ideology, with no principles and ideals of its own, is not only insulting but blatantly untrue. There's a lot more subtle battle going on here than the political battles on the Hill. The battle of rhetoric, of framing the debate, is fought on a near-constant basis, and the Democrats are losing ground to the Republicans quickly on that front.

Democratic leaders need to get out there and talk not only about their opposition to the President's ideas, but about their own views independent of the Republicans' positions. If they honestly believe that Social Security should be saved, then they should be more aggressive about not allowing Republicans to define them. They should be more ardent in saying that they support Social Security, rather than emphasizing their opposition to the President's "plan."

Only by explicitly defining their views will the Democrats be able to prove wrong the Republicans' claims that the Democrats exist only to oppose them.

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Back to Social Security!

Ah, I haven't made a post on Social Security in a while, but this tidbit was too good to pass up.

Evidently the President recently made a visit to Parkersburg, West Virginia. What's there, you ask? Well, I'll tell you. There's a filing cabinet filled with the Treasury bonds that back the Social Security Trust Fund. President Bush seized on this opportunity to say that the retirement security of Americans sits in this humble file cabinet filled with IOUs, and that we need to let people take control of their own money and have it in assets that they can touch.

Now I've said this before, and a lot of people have said it before, and a lot of people have said it again, and I will follow suit: Those Treasury bonds are considered the most secure investment in the world. To call them "simply IOUs" raises serious questions about the state of the massive $7.8 trillion federal debt, which is held in mostly these same Treasury bonds. If, as Bush seems to be implying, the government shouldn't have any obligation to pay back the bonds which back the Social Security Trust Fund, then what of the bonds that back China's investment in the United States' debt?

I'm no economist, and I've admitted such all over the place. But let's imagine that you decide to put your money into the bank. Imagine, then, that one day you're in there, putting in more money, and you see an old woman trying to withdraw her money. In response, the bank manager gets the CEO to fly down and tell the old lady that the bank's not going to make good on her investment.

It'd make you think twice about putting your money into that bank, wouldn't it?

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Social Security again

I just wanted to point out that I haven't yet gotten any comments on my post further down the page about Social Security, and whether investment of the Trust Fund at large in a higher-yield portfolio would be possible. Distributed risk, higher return, doesn't seem bad to me.

Anyone?

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Social Security Question

Here's an open question to anybody out there that might have thoughts on it. When it comes to Social Security, why isn't the possibility of reinvestment at large in higher-yielding interests being discussed?

The issue for most of the Democrats is distributed risk, but that issue is taken care of simply by the system's collective nature. If you have investments where you get a higher average yield with a higher risk, but that risk is dissipated among a hundred million people, you're still not operating a system with any individual risk.

The issue (they claim) for a lot of the Republicans is the low rate of return on the Social Security taxes. But this kind of idea could boost the rate of return, since the payroll taxes would be invested in higher-yielding portfolios.

Now the way I see it, this kind of system would have more advantages than just distributing the risk and raising the rate of return. It would also help with the solvency debate in two key ways. First, the Trust Fund would be allowed to grow faster. If coupled with a raise of the payroll tax cap, this idea could potentially move the 2018 date (the date that we need to start dipping into the Trust Fund) back by more than the 6 or 7 years of just the cap raise alone*.

Second, if the Trust Fund stoppped investing in Treasury Bills and instead invested in assets that were easier to liquidate, like stock and bond portfolios, the argument that the Trust Fund is simply full of IOUs would lose all of its clout. The federal government would have to tighten its pursestrings in the short term if it were no longer able to pilfer the Social Security surplus, but by the time 2018 (or whatever it may change to) came, we wouldn't be in the same spot of having to raise taxes, borrow, or cut spending in order to pay off the T-bills that the Trust Fund currently possesses.

As I think about it, one possible detriment to this plan is that when the Trust Fund started being drawn upon, perhaps it, being so massive, could cause some kind of fluctuation, some kind of destabilization in the market. But maybe not. I don't really know enough about it.

So anyway, I welcome any comments on this, even if they're just to tell me I'm crazy and I don't know what I'm talking about**.

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*Note: By moving the 2018 date back 6 or 7 years, the 2042/2052 date doesn't just get moved back 6 or 7 years; it's significantly more than that, since those 6 or 7 years are ones in which the Trust Fund is growing, and therefore will have considerably more assets to pay out when it needs to start paying out. Therefore, moving 2018 back to 2024 or 2025 actually moves 2042/2052 out past 2079.

**Please don't leave comments of this type.

Social Security: Musings

So I figured I'd just riff a little bit on my thoughts on the Social Security debate of late.

I very much dislike the dishonesty of the debate from the Bush side. From what I've heard running in the background of the debate, many from the right dislike the very idea of Social Security. They view it as socialist. They view it as entitlements. They view it as welfare for the elderly. They don't want the system operating in any country that they're a part of, because they ideologically oppose what they see as its underpinnings.

Here's the problem: It's overwhelmingly popular among the general population of the country. People don't want to see Social Security phased out. They don't want to see people left to fend for themselves in retirement. They like the idea of the retirement floor being something that can help them more easily keep their head above water. So what's the solution?

Well, the solution is to propose a plan which will end up crippling Social Security past the point where it can be fixed, so that it can only be phased out, all under the guise of "strengthening and saving Social Security." These private accounts play into peoples' thinking that the government is a bunch of bureaucratic ninnies, and that any average Joe can do things far better than the government ever could. That's it. That's the whole reasoning behind those 30-some percent of people who support the plan. They're hoping to make themselves millionaires in retirement off of all this fabulous investment opportunity (which everybody can do, obviously, hope you enjoy the sarcasm).

But Bush's plan does nothing to address the problem that he is claiming needs to be fixed, and is therefore the reason that the whole system needs an overhaul. He says: X needs to be changed because of problem Y. I propose we replace X with Z, which still has problem Y, only bigger.

How do people accept that logic?

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Social Security, back again!

OK, so I'll write a little bit about Social Security again. It's been a while, and I've been feeling like people might think I forgot about it. Truth is that I've been reading a lot, but haven't really had that much to say on the subject.

But then I found this article on CNN talking about the GOP's strategy with dealing with the Social Security problem. They're ramping up the rhetoric, claiming a partial victory, a foothold if you will, in the reclassification of the Social Security battle. They say that their elections prove that Social Security is no longer the "third rail" of American politics. Since GOP congressmen have been elected despite advocating "personal accounts," they want to claim that this is a victory for them, and proof positive that the American people are starting to "get it," as they say.

But then down at the bottom they tear a sheet out of their strategy guide and read it verbatim, clear as anything, for everyone who's listening and paying attention to hear (though most won't, probably).

Coleman said he was attacked during his 2002 campaign for favoring privatization. "I countered it by being very clear that I supported personal accounts and opposed privatization," he said.

It is a distinction Sununu sought to make in 2002, and one Republicans have been told they will have to make successfully in 2006 if they are to be successful.

"We win if the issue is defined as personal accounts. We lose if it is defined as privatization," pollster David Winston wrote recently in a presentation for Senate Republicans.

So just what is "privatization"? Is it the word that they so vehemently oppose? Is it anything that anybody's actually proposed? How can they say that they're against it if they don't even say what it is?

And how can they say that they're against it if it's the word they themselves were using not too long ago?

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Social Security Primer

I wrote this e-mail today to a friend of mine who asked me about Social Security. She complimented me on the writing of it, and looking back, I thought it was pretty cogent for coming off the top of my head. So here it is (and tomorrow or something, I'll put up some stuff about the numbers I found on the SSA website about average wages and average benefits).

The way that the Social Security system works now is something like this: We pay 6.2% of our income into the Social Security system (and our employer kicks in the same amount, so 12.4% of our income goes into Social Security). That money goes to pay the current retirees who are collecting, and the leftovers go into the Social Security Trust Fund. Currently, that Trust Fund is valued at over $1.5 trillion, and it makes over $80 billion in interest every year.

But the Trust Fund is not filled with money. It's filled with United States Treasury Bills, or T-Bills, as they're affectionately known. They're considered the soundest investment in the world, and they've basically been the government's way of borrowing the money out of the Trust Fund to use on other programs. Opponents of the Social Security program will claim that because of this the Trust Fund is filled with worthless IOUs. If that's the case, then no T-Bills will retain their value, which would be disastrous to the economy (most of our national debt is held by Japan and China in the form of T-Bills).

In 1983, the Social Security system faced a real impending crisis. Not only had they been drawing off of the trust fund for some time, because payroll taxes were insufficient to cover benefits, it was two months from going completely bankrupt. This had happened for a number of reasons, the most prominent being what was called "stagflation" (high inflation, stagnant wages). As a result, Reagan brought a proposal before Congress that hiked the payroll tax up to a level that would be enough to build up the Trust Fund enough to provide a cushion for when the huge Baby Boomer generation retires (which is coming up before too long).

Also as a direct result of the crisis in 1983, the SSA (Social Security Administration) began making much more conservative and pessimistic projections. See, the SSA is required by law to put out a report every year (end of March, I think) that projects the state of Social Security for the next 75 years. They put out three projections: a pessimistic, middle-of-the-road, and optimistic projection. The middle-of-the-road projection is the one that everyone's been talking about, but the middle-of-the-road projections have been, for the last 10 or 15 years, too pessimistic in retrospect. They project a rate of growth of the economy that's typically been pretty far below the actual rate of growth.

Now you're exactly on the same wavelength as me about the civil/social responsibility aspect of Social Security. I read somewhere that they say about 48% of seniors who don't live in poverty would be living in poverty without Social Security. There are a hell of a lot of jobs that don't provide retirement investment options, or 401ks, and there are a hell of a lot of jobs that don't pay enough to allow people to save any substantial amount for their retirement anyway. It seems to me, anyway, that giving these people back their money that they pay in payroll taxes to Social Security wouldn't necessarily result in better retirements for them (particularly because of the employer kick-in).

But part of what opponents of the system don't like is its progressivity. What I mean by that is that if you were able to put less into the system, you get a bigger percentage back of what you gave. The theory behind such a thing is that the people who were able to put less into the system are the people who need a little more protection from poverty. Security from poverty, if you will. Mind you, people who put more in still get more out, but the percentages are skewed toward those who need it more.Social Security was never intended to be a main source of retirement income. It was planned to be a sort of social insurance against poverty in old age. You could look at it as welfare, I guess, but that would forget that the people receiving it are people who paid into the system to begin with. Welfare recipients are people just benefiting straight off of the government. But the other thing is that people who don't need it still do take it. I'm not saying that there's anything wrong with that, but that's how it is (making it even less of a "welfare" system).

As it stands right now, like I said, the payroll tax contribution is 12.4%, the retirement age is 65 and 8 (I believe) months, and the payroll tax cap is $90,000 or so. That means that any money you make above $90K is not subject to Social Securiity payroll taxes.

The thing about the supposed "crisis" being talked about right now is that it's just not true. Like I said, in 1983, the Trust Fund was 2 months from bankruptcy. Complete and total bankruptcy. Right now, in 2005, by the middle-of-the-road projections (which are historically unable to predict immigration growth, inflation rates specifically, etc. at any great length into the future), we're 37 years from the Trust Fund going bankrupt. Doesn't seem like a crisis to me.

The other thing is that these projections presume stagnation of the system as it stands. Like, they presume that the payroll tax level stays the same, the payroll tax cap only goes up with mean wage growth (which it always does), and that the retirement age slowly creeps up to 67 in a few years, as it's been scheduled to do. But in the 70 years that Social Security has existed, it's been a very very dynamic system. The amount of payroll tax has increased, the retirement age has increased, the benefits have been cut, etc. There have been many little maintenances along the way, and it seems silly to me to assume that it would stay exactly the same for the next 75 years.

Some proposed fixes include raising the retirement age, cutting benefits in some not-too-substantial way, raising the payroll tax cap, raising the payroll tax by a couple of tenths of a percent, etc.

Democrats and Social Security

I just ran across this article on MSNBC, and I thought it was interesting. In it, they ask what the Democrats are prepared to offer as an alternative to Bush's plan. I know what it should be: Social Security.

Bush's plan is certainly not Social Security, much as he claims to want to "reform" the existing system. I know this even though Bush hasn't put out a plan. He wants to privatize, and that will end up destroying the system and driving the country into debt in short order.

So what are the Democrats dragging their feet on? Like Josh Marshall always says, we know the gist of Bush's plan, and that we don't support it. Why wait for him to put out the knuckleheaded specifics before outright opposing it? Better yet, why not beat him to the punch with a rock-solid proposal that shores up Social Security, in just that way that it's been periodically shored up since its inception?

Talk about personal accounts on top of Social Security, talk about investment and responsibility, etc. But for God's sake, talk. The Democrats who care about this issue can't afford to let Bush drag his feet and make the first move. By then, the public consciousness will be saturated with this talk of "crisis," and any Democratic plan will be too little too late.

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Social Security again

One thing that's important is to realize that Social Security is an insurance program. Though the bulk of its payments go to retirees, there also a good chunk that go to the disabled, the widowed, etc. It's your money, invested in US bonds, ostensibly the most secure investments in the world.

I'm not the first person to say this, but.....if, like some Conservatives claim, the US just plans to default on the bonds in which the Trust Fund has invested, then what does that mean for the rest of the countries that own portions of the US debt?

Excuse the crudity, but imagine China holding our collective nuts in a trillion dollar vise grip.

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Thought you should see this

I didn't find it, but this article is a very good one. So's this one.

This is all about Social Security, by the way.

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Social Security--What Else?

I've been obsessed with this Social Security issue lately, because it's a damned important issue. Bob Novak would like to claim that there's no transition costs, and that the long-term costs of doing nothing are much greater (based, of course, on an infinite horizon projection). Doing nothing, yes. But Social Security has ever been a dynamic system, with retirement ages increasing and percentages taken from income increasing, and with the caps on payroll taxes increasing. It's insane to think that now, for some reason, the system would be allowed to completely stagnate.

Novak also claims that the transition costs in the short term could be limited to $600 billion. I don't know where he gets this figure, and he conveniently neglects to really tell any of us (check, I dare you).

This morning before work, I was watching CNN, and there was a dude on there who was talking about costs of Social Security and Medicare (that's right, lumped together for some insane reason) as a percentage of income tax. His claim was that right now, at this moment, Social Security and Medicare account for a full seventh of all income taxes collected by the government, and that in the next twenty years, that number would go to somewhere between a fourth and a half.

Insanity by any measure, no? Well, unfortunately, not for those of us who don't bother to go out and find out what's really going on. Scare tactics work, plain and simple. Make stuff up, and people will believe you, because their laziness overrides their fear. This guy was allowed, on what conservatives call the "Communist News Network" for its blatant liberalism, to get off scot free saying that Social Security is currently running a deficit.

Here's a website I found that would undoubtedly be decried as the vilest of lies by the champions of privatization/reform (catch phrases for abolition), but which actually has some very interesting information that's not even being touched by the "liberal" media.

Be back later.

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Social Security again

So Bush is starting to come under fire for his handling of the Social Security issue, and more and more it seems like this is a Republican/Democrat dividing line, rather than a good/bad line. Republican rhetoric is exaggerating the state of Social Security right now.

The retirement system faces a projected $3.7 trillion, 75-year shortfall. Bush wants to overhaul the program to let younger workers divert some of their Social Security payroll taxes to personal accounts. But that alone won't fix the problem and could require upfront costs of $1 trillion to $2 trillion over 10
years.

Bush regularly claims Social Security faces a shortfall of nearly $11 trillion, which, Orszag said, is a misleading figure because it makes the system appear to be in worse shape than it is.

So, like I was saying last time, it seems like Bush has got an axe to grind with the fact that there's been a socialist system operating in his country for 69 years, and that it's been working. There's another 14 years before we start giving out more in benefits than we're taking in in taxes, and another 30 or so years beyond that before benefits would have to decrease (during those 30 years, the difference would be paid out of the Social Security trust, which is where the surpluses have been going all this time, and which currently stands at something like $1.5 trillion!). There are a couple of things that could fix this, not least of which would be a change to make more than just the first $87,900 of income taxable for Social Security. If that number was upped to $200,000, the system's viability would be extended like crazy.

But again, the war of rhetoric has been amping up, like I said, and Social Security is "broken." Convincing society that there's major problems to fix in the system has been a major victory for Republicans. The debate isn't about whether or not Social Security is viable, but about how to fix it. The "broken" question is already off the table.

A phrase I'm starting to see more and more with respect to Social Security, at least out of the mouths of conservatives, is "Ponzi scheme," which is a pyramid type of scheme wherein investors are duped by high returns that are actually coming from later investors. The scheme comes about when you realize that under the weight of the benefits paid out, future investors cannot possibly get their expected returns. It works for a while, and people who get the returns off of it usually reinvest and lose. But Social Security is not a Ponzi scheme. A Ponzi scheme relies on deceiving the investors, making them think that their money is coming from somewhere other than other investors. False confidence is also built in a Ponzi scheme by granting high returns in the short run. Social Security doesn't do these things.

But don't be surprised to hear that phrase start creeping into the mainstream "liberal" media.

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Social Security

So I happened on an interesting article from MSNBC on Social Security. It's seeming more and more to me like the move to abolish Social Security is more a political move away from the left and toward the right than it is about any real benefit to the citizenry, or about responsible accounting.

I've read a couple places now that the Social Security system has taken in more than it's paid out ($155 billion, by the measure of the article), but that surplus gets lumped in with the rest of the budget, which is operating under a deficit, and all of a sudden, when all's said and done, the figures come out and all we hear is "deficit, deficit, deficit." We don't hear from what parts of the budget the deficit is coming, it's just all lumped together.

Something to think about, anyway.

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