In liberal Democratic circles, the debate over Social Security has taken a dangerous "don't worry, be happy" turn. The argument has two equally dishonest components. The first is to deny that Social Security faces a daunting financing problem - one that will be much easier to fix (and less onerous for the low-income retirees that the head-in-the-sanders purport to care about) sooner rather than later. The second is to mischaracterize the arguments of those who advocate responsible action, accusing them of hyping the system's woes. One prominent practitioner of this misguided approach is New York Times columnist Paul Krugman. "Inside the Beltway, doomsaying about Social Security -- declaring that the program as we know it can't survive the onslaught of retiring baby boomers -- is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are," Krugman wrote last week. "In fact, the whole Beltway obsession with the fiscal burden of an aging population is misguided." Somebody should introduce Paul Krugman to . . . Paul Krugman.
So much to say. So little time.
I could say the Social Security does not face a daunting problem and the very long-run shortfall can be readily fixed, but Brad DeLong has already said that:
Is America's Social Security system now in a long-run funding crisis? The answer to this question is "no." It's more likely than not that Social Security revenues will have to be raised a bit or benefits cut a bit relative to current law or both in the next fifty years, and almost certain that one or the other or both will have to be done in the next century. But it is a long-run problem, not a crisis. And it is - relative to the scale of other things that have gone wrong--not a large long-run problem.
Brad discussion of the real fiscal crisis continues, but I want to get to this oft heard nation that Krugman is being dishonest so let me turn the microphone over to Mark Thoma who has links to some very good discussions from various smart folks including Paul:
Ruth Marcus uses quotes from Paul Krugman dated 2001 or earlier to try to show he has been inconsistent on the Social Security financing issue. The subtext is, or course, that he is being dishonest. But had Ruth Marcus included this quote from Paul Krugman's 2005 piece in her editorial (or quotes from other pieces of the vast amount Krugman has written about Social Security after 2001), it would have changed the interpretation of the quotes she includes in her article.
Mark is suggesting that Ruth Marcus is the dishonest one here. Brad seems to think she does not understand this issue at all. Brad often asks whether some really awful op-ed was example of Stupidity or Mendacity? It would seem that with the Washington Post, it’s both. But we have seen this movie before. Paul Krugman offers up some compelling discussion on an issue that offends the rightwing agenda of this Administration – and certain rag publications (e.g., National Review, Weekly Standard) twist both his words and the facts to slam Dr. Krugman as being both dumb and dishonest. It is sad to see that the Washington Post has lowered itself to be just another rightwing rag.
29 comments:
Well on this topic it is hard to tell the duped from the dupers. My take on Ruth is that on this one she simply dropped the ball by assuming that someone else had done the basic reporting here.
Because she crossed some serious lines here. It is one thing to accuse people of ignoring 'Crisis', it is something quite different to accuse them of being willfully deceptive. It is the difference between research coming to the wrong conclusion and research that is faked. Effectively Ruth has called a tenured Professor a professional faker, perhaps the worst accusation you can make against an academic, even one who sidelines as an opinion columnist.
This will be interesting, even if they reduce it to their usual 'he said, she said' level. On this topic supporters of Social Security simply have had no traction in the press at all. And a long weekend is a nice opportunity to air this one out.
Sorry, but I really disagree.
Marcus has provided quotes from Krugman that directly contradict what he says now. No amount of spinning will change that.
To claim that he was only arguing against the Bush tax cuts is ridiculous. He claimed that by passing the tax cuts, we would by failing to prepare for the "deluge".
Well, the tax cuts did pass. So either he was wrong that they would leave us unprepared, or, if he was right, then we are unprepared for the deluge.
Krugman's heart is in the right place, but he is going down the wrong road here. His primary concern seems to be to run away from the issue completely, lest the privatizers come back. But they were defeated at the very moment of their greatest political power. They are now, and will continue to be much much weaker. Privatization is not gonna happen.
What will happen? If Obama's plan is implemented, then the Trust Fund will grow sufficiently that the 2041 problem disappears. At that point, the attacks on the system will evaporate.
Those who argue that 2041 is so far off that it is not a real problem are missing a crucial factor. Anyone 32 years old or younger today, looks ahead and sees that SS is not fully funded in the years of thier retirement. As a result, they do not have any faith that the system will deliver its promises.
The result is that young people TODAY are far less likely to support and defend SS in political battles TODAY. The real financial problem may not kick in for 34 years, but the existence of the problem weakens SS politically TODAY.
Raise the salary cap - or do something today. It will make SS solvent indefinitly. At that point, everyone, young people included, will trust that the system will be there for them, and will defend it. The privatizers will be totally disarmed.
Bruce - you might get a kick of something Rich Berger provided over at Angrybear. Rich links to the Donald Luskin take on this as if Luskin knew what he was talking about. Seems the DONALD is ignoring all Mark Thoma and Brad DeLong have said today.
Tano? WTF? Yes, we did pass those ill advised 2001 and 2003 tax cuts and now we see the WaPo (and Donald Luskin) saying all is doomed. But they blame the Soc. Sec. system and not the General Fund deficit. If one lines up the comments from Krugman's critics (such as yours), digest them, and then tries to make some sense of all these conflicting claims - one starts to see that Krugman is getting this right. And yet - his critics think otherwise. Are his critics just confused? Or are they being flat out dishonest? Of course in Luskin's case, the answer is both.
Tano,
You need to read more. The projections being made today, with deficits appearing in 2017 and "insolvency" appearing in 2041, are based on almost the identical set of assumptions about underlying future trends that were made in those projections back in 1996 that had Krugman worried. Those projections proved to be totally bogus, which is why Krugman has changed his mind.
That the dates of "crisis" have slid forward by about the same number of years that have passed since 1996 (2029 is now 2041) is a sign that these moronic liars have not altered their assumptions at all, or worth talking about, even as those assumptions have been proven to be totally worthless.
So, your worries about the lack of future funding are groundless, part of a mass hypnosis that has been pushed by a herd-like set of media commentators and politicians of both parties. There is no need to lose sleep. Most probably, 2017 will not even arrive, and the fund will run a surplus forever, lending money to the rest of the budget forever, even in the tightest years around 2030.
Finally, you are probably not aware, as seem to be just about zero people your age or younger, that even if the dread "insolvency" were to arrive, payments coming from the still incoming fica revenues would fund payments to recipients on the order of at least 120% of current payments to recipients in real per capita terms. This is a crisis to lose sleep over or start distorting Krugman's positions over?
I have reported it a million times, but we get new audience all the time. So, Tano, and anyone else who has not seen this, go to my website at http://cob.jmu.edu/rosserjb, and read the entry entitled, "Student Ignorance about Social Security." Not a single one out of about 250 undergrad economics majors at James Madison University in 2005 knew the fact that I have just stated about what would happen after an "insolvency" (Bruce Webb has on occasion referred to this as "Rosser's Law").
Barkley Rosser
Tano
you make a fundamental error. the same one everyone else is making. you confuse the Trust Fund with Social Security.
Social Security got along just fine with a Trust Fund "financed" out to about a year, for years.
Social Security can work just fine pay-as-you-go forever.
The problem is not the Trust Fund, it is the degree of misinformation that the public has swallowed, and quite a few economists who ought to know better.
I think Krugman was wrong a few years ago. Dean Baker mentions it in his book. What Krugman needs to do is what Bruce suggests: take the BS by the horns and beat this subject to death for a few weeks until all the crap is beaten out of it.
there are real facts, and real numbers, and even the public will get it if they are repeated often enough. Krugman has the platform. i'd feel better if he cleared his facts with Dean.
Marcus's tone is too derisive to be attributed to mere ignorance. Her piece reads like an ax grinding against the wheel, only there are no sparks to light up her true intention. She's making a lot of the same noise that has been so soundly criticized, but you haven't read much of those critiques in the major media outlets. It seems almost conspiratorial in character that so many people with access to broad outlets keep repeating the same crap while those outlets tend to ignore the facts as described in the criticisms of the crap.
Maybe the only way to force attention to the facts of the issue, and the apparent effort to create a mistaken impression amongst the public, is for someone like Krugman to keep at the point repeatedly and with greater energy so that his argument becomes news. A few derisive words aimed at opinions as expressed by Marcus might be appropriate. Unfortunately its the nasty that gets the attention in our mass media.
Jack - an ax to grind is well put. Dean Baker has accused WaPo of waging jihad against the Soc. Sec. system. Either way - I wouldn't trust anything on this issue from their op-ed pages. They have the same agenda as the hacks at the National Review. Speaking of which - Ramesh P. is making the same dishonest argument that Luskin made about Paul's blog post on this. These fellows really are beneath contempt.
Could PGL or Rosser, or Webb or anyone just please explain to everyone what will happen in 2017. That taxes will not need to be raised, that the debt position doesn't change. All that happens are news bonds will replace the old ones held by SSA as long as Republicans don't get away with calling the Trust Fund a myth.
robert
i am no economist, but i wonder if it would be so easy to borrow money from the public to replace the money borrowed from social security.
and why bother when the cost of repaying the trust fund is so low: about a dollar per week raise in the tax each year from 2016 to 2036.
but after that, there would still be a need to raise the payroll tax about 2%... or decide that future grannies will be happy to live at only 30% of their average lifetime wage instead of the 40% built in to the present tax-benefit structure.
rosser says they wont mind. i say they'd be stupid to take the deal. but i'm willing to wait until 2030 and let them decide.
Get real, please. We don't have a clue at this time what the elderly will have or will need 50 years from now. The ratio of workers to retirees will have changed in a substantial way unless the rest of you who are baby boomers think you're going to live past 95, or so.
I get real peeved when it is suggested that the Trust Fund debt, which developed as a means of covering general budget expenses, should be repaid by increasing taxes on those of us who have paid in the extra FICA in order to create the Fund to begin with. Those excess funds in the Fund made it possible for Georgie Boy and his cohorts in Congress, on both sides of the aisle, to reduce taxes enormously for the wealthiest people. What pittance the rest of us saved was paid back in those extra payroll taxes or in local taxes. What would be wrong with the top marginal rate being 50%? Or, why not tax inheritance as though it were regular earned income? Why is an inheritance looked at differently than any other windfall income? If I hit the Mega Lottery why shouldn't I have the same rights that the members of the lucky sperm club have when they hit the Daddy's Dead
jackpot? What the devil is so sacrosanct about money earned from the dead?
There are plenty of ways to repay the Trust Fund that don't include soaking the same suckers a second time around.
PS
Is there no one who contributes to this blog that has sufficient credentials and credibility to get an op-ed published in one of those MSM rags? Krugman's words alone are not sufficient to illuminate the issue in the eyes of the general public. Several "experts" have to come on strong and rip Marcus and her ilk a second rectum over their repeated obfuscation of this issue.
The public does not warm to genteel debate. That's the real lesson to be learned from Karl Rove. You have to tear out the throat of your opponent, figuratively of course, in order to keep him down. That's what gets the average citizen's attention and admiration. Do it with the truth, but don't be nice about it. A spade is a spade even when it's used to pitch bull shit, and it has to be described as such.
The average citizen can't tell bull from fertilizer until its jammed under his nose. They both smell, but one stinks and the other can be explosive.
Jack
can't tell who you are asking to get real.
i do not propose raising the payroll tax to pay the Trust Fund debt. that would be a contradiction in terms. i do point out that paying the Trust Fund debt is financially (but not morally) the equivalent of raising the payroll tax a dollar a week,,,etc.
i also point out, the the point is obscure, that raising the payroll tax that dollar a week in 2016, if somehow the Trust Fund debt was dishonored, would NOT be "prepaying" Social Security. it would in fact be simply pay-as-you-go as it would have been if no one had tried to prepay with the 1983 creation of the surplus.
the same is true of the point in 2030, where i suggsted starting to raise the payroll tax even if the Trust Fund is being repaid honestly, just to soften the eventual 2% raise that is projected to become necessary. this would not be prepaying either... it would be simply returning to pay as you go on top of the Trust Fund cushion...
but that gets to be an argument about semantics.
on the other hand a dollar a week is such a pittance that it saddens me that you would rather have blood in the streets than be forced to pay it.
even though in the course of things you would get your money back in the form of SS benefits during your projected longer life expectancy.
what frustrates me here is both that people who should understand the numbers don't. and that people work themselves up into a kind of feeding frenzy to get what is "fair" (in their minds) and will end up destroying what they need....over a few pennies.
Wow, you guys really have made a second Maxspeak here. I stopped reading this site several months ago -- too busy I guess, and find you all still here, Bruce, Rosser, Coberly, Jack, etc.
Wonder how old Max is doing. God, I miss his commentary.
coberly,
What I'm trying to focus attention on is the need to require that those who have benefited from the Trust Fund funds, represented by the debt to the Fund, should be required to pay the debt to the Fund first and foremost. The average worker has been suckered repeatedly by both political parties in each party's zeal to show fealty to the power of the purse.
"if somehow the Trust Fund debt was dishonored," That's the kind of thinking that gets the working class into the crisis thinking mode that they are too easily drawn into. If the Trust Fund debt can in any way be "dishonored," we have no reasonable expectation that Social Security payment requirements will be any more likely to be honored. Planning what to do if we're screwed over by a dishonest government shouldn't include rolling over yet again.
And where does this issue stand on the list of priorities facing America? Krugman is saying it is not at or close to the top of the list. But Marcus and her Post have bet heavily on this issue, sort of bunkered like Rumsfeld et al on Iraq.
Robert,
Do you want an answer that is most likely or one that is put out by the official Trustees reports, which have proven so ridiculously inaccurate in the past and have not been adjusted accordingly?
According to the official intermediate projection, US government held securities held by the Trust fund would begin to be cashed in, initially at a low rate, which would rise to about 2030, and then decline, although as of 2041 there would be no more such designated government bonds available for cashing in.
Of course, this cashing in amounts to having revenues from the rest of the budget paying for part of the pensions retirees would receive, the source of that being mostly income taxes. This is what is currently going on with Medicare, which is running a deficit right now, a deficit that is rising, even as the nearly $200 billion surplus that the Social Security fund is running continues to rise.
That surplus will almost certainly top out in the next year or two, and begin to decline. Some consider this to be a big whoop, that the amount that the Social Security trust fund lends to the rest of the government will be declining rather than rising. Indeed, from a certain perspective that can be seen as putting some extra pressure on the rest of the budget.
However, the more likely scenario is that the reality will do better than the intermediate cost projection, and it only takes things doing a bit better to go over that crucial cutoff where not only will the fund be still running a surplus in 2017, if one smaller than today's, but that the fund will run a surplus forever, even in the most likely worst year of 2030 or thereabouts, when the surplus will reach its lowest point at the end of the wave of baby boomer retirements, after which that surplus will just rise forever, with the system lending rising amounts to the rest of the government again.
shag,
Clearly the WaPo editorial staff is just wacko, way off their rockers. Somebody counted and found that Fred Hiatt, the main ed page editor, has written seven "idea" editorials on social security, more than any other issue. Needless to say, a lot of us here think that is not even a problem at all, and hence not even remotely worth being an issue at all, much less the top issue.
Barkley
Barkley
not an issue at all. except that as long as they can convince the public there is a crisis, there is a crisis.
they don't need actual facts or even good reasons to "fix" social security in a way that sets it up for the kill next time.
on the other hand... what would be the effect of a Trust Fund that continued to increase forever?
Jack
not planning what to do after we get screwed.
trying to explain to folks what the actual facts are.
and that getting screwed is not the worst thing that could happen to them.
once they know the facts. and the numbers.
It's cynical I know, but I can't help wondering how much of the Beltway obsession with Social Security is generated by the constant lobbying from the brokerage industry, which sees the SS trust fund as the last big domestic honey pot of assets to grab. I work for a Democratic firm (well, as Democratic as any brokerage firm gets) and we were in there pushing with the rest for Shrub's privatization scheme back in '05.
It sometimes seems like everything the Washington Post editorial board thinks it knows about finance and economics comes from talking to some guy on the executive committee at Citigroup or Goldman. And Tim Russert and NBC -- also big "crisis" mongers -- are wholly owned subsidiaries of GE, which is basically the wagging dog attached to the GE Capital tail. So maybe this is just another example of the power of "brokerage economics."
Or maybe I'm wrong -- maybe these are just really stupid but overprivileged people who have made the Social Security "crisis" into a totem of class respectibility.
Either way, what a truly rotten system it is.
"on the other hand... what would be the effect of a Trust Fund that continued to increase forever?"
Dale taken to extremes it would lead to another intergenerational crisis. You would never want to Trust Fund to grow to the point that accrued interest represented an amount more than 50% of Cost. The effect is to transform it into just another General Fund funded program, and in this case drawing on an obligation largely build by people who are no longer collecting.
Examine the Low Cost numbers as they show up in Tables VI.F7 and VI.F8
http://www.ssa.gov/OACT/TR/TR07/trLOT.html
Income Excluding Interest continues to exceed Cost until 2023, after that only a portion of the interest is needed. This proportion stays fairly even until about 2060 when all of a sudden interest starts to compound on itself in a way that causes the Trust Fund ratio to trend up. You can see this graphically by comparing Figure II.D7 in the 2006 and 2007 Reports.
http://www.ssa.gov/OACT/TR/TR07/trLOF.html
I am convinced this is why Low Cost has been configured in the way it has, the shortfall never goes above 25% and the Trust Fund maintains a steady ratio. Whether that Ratio is too high or too low can be fudged somewhat, but a Ratio that is increasingly rising eventually creates a tension between wage workers who are not only contributing payroll tax but are paying interest on an ever increasing stash. At some point justice suggests that you have to cut FICA and start using more of that Interest to pay benefits and at least keep the Trust Fund Ratio steady. But you would want to do that before the Trust Fund grows to the point where accrued interest exceeds 50% of Cost.
Low Cost numbers have effectively been capped to prevent this result from ever hitting the table, but this is getting harder to do every year that we wait. The real irony is that the biggest 'Crisis' facing Social Security over the medium run is more likely to be 'When do we cut FICA and by how much?' A string of Real GDP numbers like we had from 2004 to 2006 and this model cracks up, a string of numbers like we had from 1996 to 2000 results in catastrophic destruction (well the picture is not quite so clear cut when you look at Real Wage Differential, on the other hand the Unemployment and Immigration numbers suggest that Income excluding Interest will still be strong going forwards).
The outlook for 2008 is pretty hazy right now. If things come inline with Fed projections (i.e. fairly weak) we might now have to have that debate before 2010, but this all will settle out prior to the 2012 election. Mainly because the projected numbers for 2013 and later are just ridiculous.
So saith Bruce
And in an end note. Per the Treasury the combined balance in the OAS and DI Trust Funds at the end of September 2007 was $2.209 Trillion. The projected balance for year end was supposed to be $2.236 trillion under Intermediate Cost and $2.241 trillion under Low Cost. Which is to say that in three quarters we have already piled up $98.7 percent of IC income and 98.5% of Low Cost all with three months of collections to go.
I can't explain this but it continues a pattern seen in 2006 and 2007, the reported growth numbers seem relatively weak and yet the revenue continued to come in above projections. The relevant table is IV.A3 in the SS Reports, while the monthly reports can be found here: http://www.treasurydirect.gov/govt/reports/tfmp/tfmp.htm
It's a little confusing to a non-accountant. They report both total assets and net assets and I though t I might have been trapped in an apples and oranges thing. But a cross check between the 2006 SS Report and the Dec 2006 Treasury Trust fund does show that both are using the total asset figure.
It is a question that has been bugging me for the last three years. Growth numbers whether measured by productivity or Real GDP have been kind of disappointing, yet SS Revenues keep holding up. As I say often enough I am a better number pointer than number cruncher, maybe someone out out there can explain these odd results. Because BLS is telling me productivity is in a multiyear slump down from 4.1% in 2002 to 1.0% in 2006.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=PRS85006092
So where are all the pink slips? Instead the money is pouring through the door at Social Security. Why?
Bruce
I don't know why. Maybe another cup of coffee and I'll start to work on it... but there are these other things, and...
I think your point about the ruanway Trust Fund is one that needs to be made more often, but then
I think it raises the question: what's the big deal about "depletion" from another direction.
And just it case it has never been obvious, I agree entirely that lowering the payroll tax might be a perfectly reasonable thing to do. After we do nothing for the next twenty or thirty years.
But look at Anonymous above, who says very clearly what we all only suspect... except me, who has been saying for years that the Democrats are in on the scam, and why you can't get a hearing on any honest argument or real numbers..
unless you can make your own hearing.
teach-ins anyone?
coberly,
Well, Bruce is right that if the surplus just keeps rising, there does become the other kind of "problem," that we may need a fica tax cut. I would agree with him that this is more likely than needing to go the other way, if we can hold off Obama and Thompson and the rest for awhile.
Anonymous,
I completely agree. From time to time I mention this, although one begins to look whiney and conspiratorial if one says it every time one opens one's mouth about the issue. But I think it is clear if one goes back to the mid-1990s when these lousy projections were first put in and trumpeted. It was when Robert Rubin was Treasury Secretary and appointing the Social Security Trustees. Of course the Republicans are totally in thrall to the Wall Street crowd, but so is the Rubin wing of the Democratic Party, which is a very powerful force with all its money, when the rubber hits the road, and they have been funding this drivel, "bipartisanly," for a long time, which is why so many of the pundits and so much of the population believes this drivel.
Thank you for confirming this from on the inside.
Barkley, Jack and Coberley I don't think we have answered Robert's excellent question in context. I'll try tomorrow. Until then let me rephrase it in the sense I think he made it.
Forget the hypotheticals, if you gave the privatizers every assumption they claim, what does 2017 mean in context? The answer is $15 billion constant and $30 billion current borrowing. Sure it ramps up but never gets unsupportable and all of the bias is to the upside. More $ figures tomorrow.
Bruce,
A thought has occurred to me regarding the oddity of the productivity numbers going blooey while the revenues keep pouring in. These may not be accidental or incongruous. The possible explanation may be large numbers of illegal aliens working, whose productivity is low, but who are paying social security taxes while not likely to ever see getting any benefits in the future.
This is certainly exploitation. I also suspect that it has not been accounted for by the SSA Trustees, who, if I remember correctly, have very pessimistic forecasts about future immigration in general, although if the anti-immigrant frenzy gets hot enough, maybe it will slow down enough to give some credence to this part of the dumb projections.
Needless to say there has been little discussion of this demographic aspect of the whole thing in this current round of debates.
Bad math alert. Well at least I caught my own error, it helps if your numerator and dominator point to the same thing.
Under IC projections the Trust Fund Balance was projected to increase from $2.048 trillion to $2.236 trillion for a total increase of $188.5 billion. Under Low Cost you have $2.241 trillion for an increase of $193.2 billion. After nine months we have an actual balance of $2.209 trillion for an increase of $161 billion which is 85% of IC and $83% of LC. So instead of running 23 points ahead of projections we are running somewhere between 8 & 10 points.
Still ahead is ahead.
Barkley the general assumption for the immigration effect has the dollar figure being $12 billion a year. I don't think this is enough to move the dial, then again I screwed up the math to start with.
The effect of the construction slowdown is kind of curious. Practically nothing in this economy is captured with more precision that housing permits, starts and completions. Yet the labor hours of illegals may not be captured at all. When a slowdown occurs the product gets taken out of the equation right away, while potentially leaving the labor hours untouched.
The rather unsettling part of this is that it suggests that productivity during a housing boom is artificially boosted to the degree that those hours were not captured. To the degree that there is more labor participation by illegals in housing in recent years than in prior decades this suggests that the recent productivity slump may have actually started earlier. I am still trying to wrap my head around this hence my focus on actual revenue which at least is captured to the penny by Treasury.
Barkley thanks for the citation at DeLong's I was going to pose this question there but didn't want to muddy the waters.
Social Security collects from the first dollar and doesn't extrapolate, that is if you make $10,000 a month, the employee contribution will be $620 a month from January to September, fractionally under that in October, and then zero in November and December. So you would expect revenues to drop off some in Q4. On the other hand that is right when seasonal hiring for the holidays kick in and while those part time workers may not make enough to incur an income tax liability are paying into Social Security from the first dollar. I have no idea how this offsets.
October numbers are due out this week, it will be interesting to rerun the percentages.
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