Wednesday, November 14, 2007

Social Security: Obama and Russert

Mark Weisbrot watches Meet the Press so we don’t have to:

Obama told Russert: "Now, we've got 78 million baby boomers that are going to be retiring, and every expert that looks at this problem says 'There's going to be a gap, and we're going to have more money going out than we have coming in unless we make some adjustments now.'"




Had Russert said this, I would have thought that this was his usual stupidity on this issue. But to hear Senator Obama says this was sad. Mark offers this explanation of why these GOP talking points miss the boat:

In fact, the first cohort of baby boomers (those born in 1946) will begin retiring in just a couple of months, since many people take their Social Security at age 62 (with a correspondingly reduced benefit). Our Y2K moment is upon us, and nothing will happen - because the baby boomers' retirement has already been financed. Back in 1983, when Social Security really was running out of money, with just a few months of payments on hand, Congress raised the payroll tax substantially. This was done deliberately in order to pile up a surplus to finance the baby boomers' retirement. And so it did: that accumulated surplus stands at more than two trillion dollars today, and is increasing at a rate of $190 billion annually. As a result of this surplus, all the baby boomers' will have retired before Social Security runs into a projected shortfall in 2041. That is according to the Social Security's (mostly Republican-appointed) Trustees. According to the non-partisan Congressional Budget Office, Social Security can pay all promised benefits even longer, until 2046. By either date, most baby boomers will be dead, and almost all of the rest retired, before there is a problem.


Senator Obama is beginning to sound like Fred Thompson, which has me wondering: is he running for the Democratic or the Republican nomination?


23 comments:

Bruce Webb said...

Lets be clear. All Trustees are Presidential appointees including the two so called ' Public Trustees' who in fact were recently reappointed via a recess appointment. Certainly each party is traditionally represented but there is nothing to keep Bush from appointing a pro-privatization Dem which is exactly what he did.

Bruce Webb said...

"Every expert who has looked at this"

Well that is going to come as a surprise to Mark and Dean who very literally wrote the book on this in 1999 (Phony Crisis) as well as such unknown economists' as Prof Paul Krugman of Princeton. Serious question (sort of) is it possible that no one on Obama's staff reads the NYT op/ed page? This stuff isn't hard, even I get it. You download a Report, read some data tables, compare them to the business pages and Bob's Your Uncle.

I am not dumb, on the other hand by training I was a Celtic Mythologist and Medieval Welsh Historian. The notion that I even need to weigh in on this is kind of ridiculous.

Jack said...

So tell me, amongst the group of academic economists that contribute to this blog, almost all of which seem to agree that the so-called crisis is BS, why can't they as a group write Obama a brief letter noting that he is a schmuck, and that he obviously needs better advisers. If he can't get this issue straight, what can he do right? Frankly, I'm sick and tired of presidential aspirants whose primary claim to the office is that they can "bring us together." I don't want a minister to preside over the government. I want a competent leader who doesn't get his or her ideas from the tabloids
and Alan Greenspan.

So please, guys get out some letter head stationary from whatever prestigious university you may be toiling at and send Obama a note indicating that he needs a few better ideas about the economy. You can use my name for leverage.
If he takes such bad advice from his handlers, that might actually work. When the devil are we going to be offered a reasonable candidate by one or another of the party organizations?

ProGrowthLiberal said...

jack - I regularly get emails from the Obama campaign asking for a donation. OK, I am a Democrat but I have not responded to any of their calls. Maybe I should hit the reply button and tell this crew that I do not support the Obama-Russert campaign to mislead on this issue. At least, I'll get fewer emails in the future.

Bruce Webb said...

What Jack said.

I am not entirely sure of Jack's background on this topic and have an uneven understanding of Dale's. That being said I know where I come from and nothing of that equates with "Tenured Professor of Economics". I totally sympathize with the frustrations expressed in Chris Haye's "Hip Heterodoxy" but then again some of you guys need to start punching back harder.

Peter Dorman said...

Here is a speculation about Obama, Goolsbee et al.

It is plain as dirt that social security is OK (leaving aside the Medicare/medical cost spiral problem, which is a separate issue). And centrists (market-oriented liberals) don't have anything against SS in principle. So why the crusade?

My suggested answer: SS financing is seen as a threat to national savings. When the trust fund peaks and begins to pay out more than it pays in, the SS tax will no longer hold back increasing fiscal deficits.

Now why is that such a big deal for them that they would reignite the anti-SS hysteria that we thought we had survived? Answer #2: they think that dodging the bullet of the US current account deficit requires increased savings. They read the macro identities from [national savings minus investment] to the capital account. I have written elsewhere just how mistaken I think that view is, but it is predominant among economists, including those who advise the Dems.

If I am right, our protestations that they are distorting the condition of SS will fall on deaf ears. It's not really about SS at all, but the savings rate.

(And, to brutally summarize a longer argument, in my view dealing directly with the current account chasm is the way to restore savings.)

Anonymous said...

Bruce Webb said: "Let's be clear. All Trustees are Presidential appointees including the two so called ' Public Trustees' who in fact were recently reappointed via a recess appointment. Certainly each party is traditionally represented but there is nothing to keep Bush from appointing a pro-privatization Dem which is exactly what he did."

This is pretty silly. a) the current public trustees were originally appointed by Clinton and Bush simply reappointed them, so any claim of cherry-picking a "pro-privatization" Dem is pretty lame; b) the projected social security deficit is almost exactly the same under Bush's Trustees as it was under Clinton's; maybe this is an incredibly broad conspiracy, or maybe informed people tend to come to the same conclusions regardless of their political party (hard to believe as that may be...).

ProGrowthLiberal said...

Peter - I have to think about this anti-SS argument that the period where Trust Fund reserves are used to pay out benefits that exceed current inflows. I seem to recall Robert Barro writing a reflections on Ricardian Equivalence paper where he argued that none of this Soc. Sec. financing stuff impacts national savings. OK, Barro does not agree with the "empirical research" that Feldstein once offerred, but that research seems to have had a flaw in it.

rosserjb@jmu.edu said...

anonymous,

Clinton's appointees were Robert Rubin's appointees. He was from Goldman Sachs, which has a strong interest in privatizing social security. Both Clinton and Bush trustees have pushed nonsensically pessimistic projections, even as history has not fulfilled them.

Peter,

I think that those who want lower budget deficits see so many people convinced of this "crisis" that they see social security as the one place a tax increase can be pushed through, especially with benefit cuts and privatization that can be sold to Republicans.

Barkley

Peter Dorman said...

Barkley, you and I seem to be on the same wavelength.

I have been thinking a lot, off and on, about the fixation with savings. This was initially prompted by the fascinating treatment of Keynes' view of saving vs spending in Skidelsky's biography. He argued that it is not just a question of economic theorizing, but of cultural orientation. There is a view, found certainly throughout economics, but not only there, that virtue will be rewarded, and saving is perhaps the central economic virtue.

Already predisposed to encourage savings, economists encounter the dilemma posed by the unsustainable US international position, which also shows up (through the magic of national income accounting) as an enormous absence of savings. Putting two plus two (an elementary misreading of the macro accounts and a moralistic cultural predisposition) together, they arrive at a sense of deep urgency over lagging US savings.

From this perspective one could regard SS financing as a threat to savings. That's because, as you say, there's an obvious lever. If there were a similar lever that could (in their view) pump out private savings they'd pull that one too.

Anonymous said...

I agree that the 'national savings' bit is fundamental to bad economics, common to both the right wing and much of the Dems. But it might be noted that since some of those folks think everything stems from prices, the flip side of the savings worry is the need to keep marginal income tax rates low. Hence the verboten cast given to the notion of using income tax revenue to fill in any prospective SS financing shortfalls.

MBS

Bruce Webb said...

What Barkley said. Clinton appointees or not both Public Trustees are firm supporters of privatization. Bush could have renominated them in the normal fashion but that might have made for some tricky public hearings, some people might start asking some pointed questions.

Motivations aside the Social Security Reports start showing clear signs of political interference as early as the 1997 Report and perhaps earlier. Dean and Mark's book 'Phony Crisis' was published in 1999, well before Bush's election, and Jeffrey Leibman, Obama's apparent point man on Social Security served in the Clinton Administration. Privatization is not necessarily a partisan issue, the real difference is that Democrats look at an insolvent Social Security system as a source of regret, while Republicans look at it as a source of vindication of their anti-Big Government worldview.

I doubt that many Democrats will greet the news that Social Security is actually solvent with disappointment. My experience in blogging on this that they take the news with a mixture of disbelief and relief. Whereas most coming from the Right tend to react with denial, they simply don't want to belief it.

And this is simply wrong. "the projected social security deficit is almost exactly the same under Bush's Trustees as it was under Clinton's"
In 1999 the projected date for shortfall was 2014, the date for depletion 2034, and the payroll gap 2.07%. Two years earlier the figures were 2012, 2029, and 2.23% EPI: Changes in Trustees Projections over Time. It might possibly be that the PV dollar figure over the Infinite Future was not much different, but that number is essentially meaningless, the key is the actual payroll gap and date of depletion, currently 1.95% and 2041. There is a big difference between a depletion date set when Boomers are still retiring (1997's 2029 where the youngest Boomers (1964) would just be eligible for early retirement) and 2041 where all Boomers would already be four years past full retirement and the oldest being 96. Moreover you have to get down to the data table level to see where the dirty work is being done under the current administration. The Clinton people may have had their thumb on the scale to a degree, the Bush people are pushing down on the scale with both hands.

Anonymous said...

rosserjb@jmu.edu said: "anonymous,Clinton's appointees were Robert Rubin's appointees. He was from Goldman Sachs, which has a strong interest in privatizing social security. Both Clinton and Bush trustees have pushed nonsensically pessimistic projections, even as history has not fulfilled them."

Ah yes, Robert Reich and Donna Shalala -- tools of Wall Street!

As for the non-sensically pessimistic assumptions, it's a bit hard to nail them down. Do they think productivity will be lower in the future than it was in the past? Not really. Do they think wage growth will be lower in the future than it was in the past? Again, not really.

What they do think is that birth rates will be low, based on the low birth rates since the baby boom ended, and that life expectancies will rise, based on rising life expectancies over the past several decades. And strangely, the CBO -- also in on the conspiracy, I guess -- seems to agree with them. I guess Peter Orszag's part of the privatization cabal now too...

Bruce Webb says: "And this is simply wrong. 'the projected social security deficit is almost exactly the same under Bush's Trustees as it was under Clinton's'".

If you check out this page: http://www.ssa.gov/OACT/TR/TR07/VI_LRact_bal.html#wp102608 you'll see that from 1993-2001 (the Trustees Reports controlled by Clinton's Trustees) the 75-year deficit averaged a little over 2 percent of payroll, while under Bush's trustees (2002-07) it averaged a little over 1.9% of payroll. So if anything, the Clinton folks were even deeper in the conspiracy!

Bruce Webb said...

Peter: "So why the crusade?

"My suggested answer: SS financing is seen as a threat to national savings. When the trust fund peaks and begins to pay out more than it pays in, the SS tax will no longer hold back increasing fiscal deficits."

Well I have to disagree. If this was really the case the debate would revolve around the actual dollar figures and economic projections at question, we all would be discussing why productivity and GDP are projected to plunge in the way they are, and exactly what the dollar figures would be for any given future year. That discussion is simply not happening at all. I am a veteran of conservatively a bazillion Social Security threads and I can tell you that typically no dollar signs are harmed during the discussions, instead they are carefully left on the shelf.

People constantly exaggerate the impact of the SS
surplus and equally the impact of the financing if and when, the numbers in context are not particularly scary. Which is why you never get a discussion of the numbers in context. Even today the actual cash surplus extracted from what could be characterized as savings equivalents (Income excluding Interest Less Cost) was only $86.9 billion (2006), a significant number but not one that is moving the economy around.

I understand that economists tend to look first for economic explanations, but as I said in the second intro to my SS blog "oddly enough this debate is not about numbers and in most respects it never has been." The whole thing is ideological to the core. The reason they are trying to move now is that the tide of numbers is about to roll them over. We won't be having this discussion in 2010, not unless the economy tanks in a way that makes talking in terms of private accounts outright ridiculous. In contrast a couple of years of Real GDP above 3.0% makes the models self-destruct. If we were talking numbers that is.

Peter Dorman said...

Bruce, you are certainly right about many of the combatants. My speculations are directed at more sophisticated types, like Goolsbee. I have had conversations over the years with several mainstream economists who worry about the SS projections (note: not AG), and it quickly becomes clear that their worry is not that SS is in trouble, but that we are not saving enough now, and the depletion of the trust fund will just add to it. I don't know whether people who follow this line are aware of their bad faith: they are pushing one argument (SS in jeopardy!) to make gains on another (savings).

And that has led to my wondering what it is about the savings business that exerts such a pull. My earlier posts were an attempt to explain this. What, say, reducing carbon emissions is to an enviro, pumping up savings is to a mainstream economist. It is partly about an argument and partly an ethical posture in the world. (I should be careful here: I'm one of those enviros....)

Bruce Webb said...

"Do they think productivity will be lower in the future than it was in the past?"

Proof of my point. No significant numbers at all. If we did look at the productivity numbers of Table V.B1 we would see the Trustees projecting a rapid and permanent decline in productivity to 1.7% in 2013. Why they think that typical growth rates will look like the 70's or 80's instead of the 50's, 60's, 90's or 00's is left unexplained. The disparity is even greater when expressed in terms of Real GDP. They project a slowdown of 33% by 2013 from 2006 rates to ultimate 2.0% by 2020. Why is the future half as bright as the past? To say that these numbers are not "lower than it was in the past" is if not nonsense at least in need of some explication.

And this does not have the significance Anonymous thinks it does.
"the 75-year deficit averaged a little over 2 percent of payroll, while under Bush's trustees (2002-07) it averaged a little over 1.9% of payroll. So if anything, the Clinton folks were even deeper in the conspiracy!"
If you examine the numbers in sequence (see the EPI link) you can see that the payroll gap steadily shrank over that period on average (some one time assumption changes in 2005 and 2006 muddying but not totally obscuring the trend). Left unaddressed the date of Trust Fund depletion was pushed back from 2029 in 1997 to 2041 today. A twelve year improvement over a ten year period. Moreover the payroll gap shrank from 2.23% to 1.95% and absent some open book cooking would be below that today. For example the change in assumed interest in 2006 remains under explained yet caused a .06% change in the payroll gap.

There is a word for a problem that left unaddressed recedes in time and reduces in magnitude, that problem is not 'crisis'

Bruce Webb said...

Peter this won't come as a surprise to you but somehow a lot of those mainstream economists seem to have a blind spot when it comes to actual worker interests. As an example we can take the fairly prominant Liebman-MacGuineas-Samwick Social Security Reform Plan
Would it accomplish its stated goals? Probably. Does it promise a better outcome for workers? No. In fact most workers would get a better result simply by taking the tax increase and forgoing the changes in retirement age and benefit cuts. The advantages of those flow entirely to other areas. I get to work longer and get smaller benefits so as to impose some fiscal discipline on Congress. Well thanks for nothing.

Certainly any strain on the General Fund can be minimized by transferring it to wage workers in the form of extra payroll tax, years of work, and benefit cuts. Why wage workers should pick up the entire cost is never explained. Equity is just a word in the dictionary for most of these guys it seems.

kevin quinn said...

Peter: can you send a link to the *Challenge* piece you mentioned? Are you making an Aggregate Demand argument, as with Keynes' interpretation of mercantilism: reducing net imports increases demand and income, thus raising saving less investment?

rosserjb@jmu.edu said...

anonymous,

Shalala was on there in the late 1990s, but Reich was not. Shalala would buy what Rubin would tell her on this matter.

Peter Dorman said...

Kevin, here 'tis:

http://www.metapress.com/content/190203125m360113/
?p=c5e98d0af016484791e6ed50a8b209fc&pi=4

Jack said...

Bruce said,
"Equity is just a word in the dictionary for most of these guys it seems."

No, equity is the net value of their assets, which is a very important concept to the rich and their vassals. Any significant increase in the top marginal tax rates would be an undue burden on these poor souls. They might have to give something up. Like the house in Vail, or the apartment in SoHo(take your choice: London or NYC or both).

It's always good for one's equity if someone else pays the bill. It may not be equitable, but why quibble over small semantic details?

Bruce Webb said...

Jack my MA is in Comp Lit. With a sideline in reading Wittgenstein. Quibbling over semantics is not just what I do it practically defines who I am.

coberly said...

Jack

I agree with you as always. But you can see what happens when you ask a group of PhD's to sign a letter. They get to quibbling over where the commas should go.

Anonymous worries me. He should be on the right side. But he keeps shying away from the actual numbers here... very small... into side issues of philosophy, politics, and personality.

I am not an economist, so I can't really comment on "savings," but i am more than a little sure that
peter dorman is right. whatever "savings" may have meant in the last century (the real last century), it doesn't mean that now.