Wednesday, April 14, 2010

Yelling at the Kids on the Social Security Lawn

Mark O'Brien is gearing up to start kicking kids off the grass which he expects to be growing soon in his own yard. On his newspaper blog, which seems to get even less editorial attention than his column, O'Brien is now endorsing the right-wing extremist, Marco Rubio (R-Teabagger) for governor U.S. Senator because "he favors raising the retirement age for people now 55 or younger. He also would change the way benefits are calculated."

O'Brien is a nice enough fellow on a personal level, but he's 61. He's as good as got his. He wants you to vote so you don't get yours. He'll make a terrific crabby old man.

The really sad thing about this endorsement by Mark is that he is manifestly clueless about the macro economics of the Social Security system. Which makes him an easy mark for the "decades of scare-mongering about Social Security’s future from conservative ideologues" as Pulitzer Prize winning economist Paul Krugman put it at the beginning of the last election cycle.

The Social Security system is not in crisis. Not even close. Another economist, Prof. Jason Furman, summarizes the facts:
  • The Social Security actuaries project that in 2018, Social Security’s trust fund will hold $5.3 trillion in assets, in the form of U.S. Treasury bonds. Starting in that year, Social Security payroll tax collections will not be sufficient to cover the cost of all Social Security benefits, so the Social Security system will start to use a portion of the interest the trust fund earns on its bonds to cover the remaining benefit costs. The rest of the interest the trust fund earns will be reinvested in the trust fund. The actuaries project that as a result of these interest earnings, the trust fund’s assets will increase by another $1 trillion in the decade after 2018 and reach $6.6 trillion by 2028.
  • Treasury bonds are the world’s most secure investment. They are the instruments that investors large and small, at home and abroad, turn to for safety, secure in the knowledge that the United States has never in its history defaulted on its bonds.
  • The notion that the Treasury bonds which the trust fund holds are nothing but paper IOUs that may not be honored does not withstand scrutiny. Failure to honor Treasury bonds would result in a U.S. government default, and that likely would trigger an international financial crisis. As the New York Times editorialized on January 10, “If the trust fund’s Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities.”
  • The Social Security Trustees, a group that includes Treasury Secretary Snow and other Cabinet officials, project that the Social Security trust fund will be able to pay full benefits until 2042. At that point, the trust fund will be exhausted — that is, all of its bonds will have been redeemed. The Congressional Budget Office projects the trust fund will be able to pay full benefits until 2052.
  • When the trust fund is exhausted, the Social Security system will not be “bankrupt.” It will continue to collect both payroll taxes and the income taxes levied on a portion of Social Security benefits. With these revenues, it will be able to pay about 70 percent of benefits according to the Social Security Trustees, and about 80 percent of benefits according to CBO.
  • Finally, if one believes that Social Security faces a crisis in 2018, then converting part of Social Security to individual accounts would accelerate that crisis. According to the Social Security actuaries, the major individual account plan proposed by the President’s Social Security Commission (which is reported to be the principal plan the President is considering) would advance the date at which Social Security’s benefit costs exceed its non-interest income from 2018 to 2006. In other words, under that plan, Social Security would have to rely on interest from the trust fund to pay benefits starting next year.

    Furthermore, according to the actuaries, that plan would increase the federal debt by $10 trillion by 2030, an amount equal to 28 percent of GDP, substantially increasing the volume of Treasury bonds that the government has to finance.
As another economist explained recently, crisis-mongering about the Social Security system is "manufactured cynicism" which politicians too often use as a bogeyman to scare voters. Politicians exactly like Marco Rubio.
Social Security's surpluses have in fact helped to create an economy rich enough to support the retirements of the Baby Boomers, as well as the eventual retirements of their children and grandchildren. While we might choose in the future to adjust benefits and taxes, there is no reason to believe right now that the system is in trouble, either in the short term or the long term. And the headlines to the contrary are inaccurate and irresponsible.

The truth is that the compact between generations is being honored. To see that, we need only ignore all the scare-mongering, look at the facts, and realize that Social Security is working as it should.

As economist Richard DuBoff puts it--
Social Security is simply another claim on society's resources and production. Its future viability depends on how large the labor force will be, what fraction is employed, and how high the productivity of its workers will be--in other words, on how fast the output of goods and services grows in future decades.
The nation surely does face a long-term total budget deficit challenge -- arising mainly from chronic unrestrained military spending, corporate welfare, the infamous Bush tax cuts for the rich, and Wall Street bank rescues. But that is a very different problem and it requires very different solutions. Furthermore, it would be stupid to cut spending now in the midst of a deep recession.

Even if Social Security were truly facing a crisis -- and, as most economists say, it's isn't -- the simplest and most effective fix long has been obvious: eliminate the income cap on the Social Security tax and investment income.

Now, however, we're talking about walking on Mark O'Brien's lawn, again.
corrected 4-17


ross said...

Since when is Rubio running for governor?

When you pay out more than you take in, in the end, that spells bankrupt.

O'Brien is right about Soc Sec facing "a serious negative plunge as increasing numbers of Baby Boomers retire."

No amount of macro schmackro can dispute that.

Sivicus said...

Republicons have been claiming that Social Security would go broke since FDR first proposed it. It scares people like that columnist. Medicare is the big problem. Obama's health care bill might fix some of that. I think the better way to go is PUBLIC OPTION.

Anonymous said...

I am not worried. Obrien and his baby boom brothers will eventually die off. The next generation can depend on it. Mexican workers will make up the difference meanwhile.

Anonymous said...

Ross, I find it only slightly amusing that you manage to jump into the fray whenever these topics are addressed here.

What I would like to know is, where the hell were you when the fund for social security was being raided? Where were you when the Bush tax cuts were enacted? Those same tax cuts greatly undercut the financial well being of this country, btw.

You are a tired tune, but I wish you well in your attempt to derail anything positive coming out of this administration. Day by day, you and those who think as you are being proven wrong.

Rubio is another one trick pony who will, if elected, prove to be a huge disappointment, as well as another huge failure for Florida, and those he should represent, but will fail to do so.

Mr. O'Brien deserves being taken to the woodshed for this one.

Thank you!

ross said...

"Ross, I find it only slightly amusing that you manage to jump into the fray whenever these topics are addressed here."

What do you mean by that? Isn't this blog open to anyone to read and comment on? What I find amusing is that no one cares to recognize what a bankrupt situations is when it hits them in the face. It's either denial, or stupidity. I don't know which.

"What I would like to know is, where the hell were you when the fund for social security was being raided?"

That would be during the 60's under Lyndon Johnson. His administration was the one that decided that the Social Security 'Trust Fund' was a welfare piggy bank for 'The Great Society.' I was busy protesting the Vietnam War along with Bill Clinton. I felt then that this isn't going to work, long term, but in the 60's, me and Bill Clinton, and probably Mark, were too involved with sex, drugs, and rock and roll to be tell Lyndon Johnson that he had his head up his ass to raid Social Security like he did.

Where were you?

Bush's tax cuts is what turned the economy around. Recall the tech bubble that burst during Slick Willies term and the recession that followed. Bush's tax cuts raised revenue, and help recover from that, then from the 9/11 disaster, then from Katrina. There were a lot of spending priorities, like recovering from 9/11, and Katrina, and Indonesia Tsunami, and Africa's Aids aide, and the war. But it was the tax cuts that INCREASED federal revenue while creating jobs. They didn't undercut the economy. They stimulated it.

I'm still waiting for something positive to come out of this administration. If you like the road to socialism and economic fascism that it is on, then you might call that positive. But I don't.

Just yesterday, that wiz bang Nuclear Summit in Washington. Look how positive that was. Russia took the position that it can bail out of it if we put in a missile defense system in Eastern Europe. While we agree to not modernize our nuclear arsenal, but Russia does not. Then there's the sanctions on Iran, that Obama said China and Russia are on board with. But China, today, says, not so fast as they begin shipping gasoline to Iran in advance of and to offset any sanctions that the rest of the world may impose. Yeah, there's real progress. The only thing that happened there was we gave up stuff, and no one else did.

Getting back to the topic at hand. What is it exactly about Social Security that either I or Mark O'Brian said that you dispute?

Facts are facts. 1) Social Security, this year or next year, will be paying out more than it is taking in and 2) the baby boomers have only just begun to come of retirement age.

What about those two facts would you like to dispute? And how, given those facts, do you expect Social Security to be around for my kids or yours, if you have any?

After you fix that. Tell us how you'll fix Medicare, which is $42.9 Trillion right now in unfunded (that means there's no money there to pay for it) mandates with only 40 or 50 million people in it. And after Obamacare kicks in, how will it be paid for when there are over 300 million people in it?

I'm not seeing any progress with the direction Obama is going. I'm seeing disaster. I'm seeing the United States going the Welfare State route of Europe which, if you've been keeping up on them, is going broke in countries as large as one of our smaller states.

This isn't hyperbole or hate speech. It's reality.

Check this:

Anonymous said...

Ross, you used up a lot of space and words in your attempt to rewrite the economy of this country when that monster, Bush, took office but it doesn't pass the smell test.

Those tax cuts did not save this economy, but you enjoy your bubble, Ross. It must be nice to live in that alternate reality of yours, where all the boogeymen (Democrats)take the blame and those who should be prosecuted for war crimes (Bush et al) live in gated mansions, with secret service protection.

The country was not in a recession when Bush took office, and social security is not broken so badly that it can't be fixed.

I in no way intended to imply that you shouldn't be posting here, or anywhere. Every time I see your name I know we are in for a doozy.

You didn't disappoint.