Saturday, February 22, 2014

WaPo's Fred Hiatt Loses His Cookies Over Obama Abandoning Chained CPI For Social Security Indexation

Several commentators have already applauded President Obama for not including a proposal to use the C-CPI-U (aka "chained CPI") price index for COLA adjustments of US Social Security payments, including Bruce Webb, Paul Krugman, and Dean Baker.  Longtime Social Security defender Webb declares "we won," referring to those opposing cuts in future SS benefits.  Krugman calls it "the end of BowlesSimpsonism." Dean focuses on a Washington Post (aka "WaPo") news story on the matter, finding it just falling all over its own face with silly claims and analysis.  I am in complete accord with all of them on this matter, but want to note further the discombobulation and outright visceral anger in an unsigned editorial column today in WaPo that is certainly by Fred Hiatt, WaPo editorial page editor, and one of the most relentless and influential of Washington VSPs pushing for cutting future Social Security benefits in any way possible.  It is because of him that the WaPo editorial page has housed several otherwise nominally liberal columnists who have pounded away over and over on this matter spouting his views, including Robert J. Samuelson and Ruth Marcus, none of these people exhibiting a shred of understanding how distorted and silly their position has been over time.

So, Hiatt's editorial is really seething.  The subtitle, referring to Obama, is "His surrender on entitlements will make a bad situation worse."  After noting his backing off from including the chained CPI proposal (which he still officially supports in principle), Hiatt intones that "This is a huge disappointment,"  this followed shortly by the claim that this will cost "$162.5 billion over the next decade."  Somehow he fails to note that this amounts to about $16 billion per year, on the order of 3-4% of the US current budget deficit, in short, a drop in the bucket.  But who cares, this is a matter of Hiatt not getting his way here, goshdarnit! 

He continues that "Mr. Obama's rationale for taking the idea out of his budget was openly political," which is true, except that the actual economic case that the C-CPI-U is appropriate for being applied to old people has never been made and in fact does not exist, there being an experimental CPI for the elderly, a chained version of which would clearly be superior, but would raise payments rather than cut them, so must be rejected by the "screw the old people" crowd that Hiatt has been leading for so long.  After noting that leftier Dems are pushing for benefit increases and also accepting that Republicans simply are not going to accept the tax increases on the wealthy that Obama had asked for in exchange for his past support of the C-CPI-U, Hiatt complains that facing possible loss of Dem control of the Senate in November, "Mr. Obama has apparently concluded that the expedient course is to bash Republicans rather than to resist bad policy ideas emanating from his own camp," failing to note that Obama is not supporting this benefit increase proposal by lefty Dems and completely ignoring that while Republicans claim never to support tax increases, they did so over a year ago in voting to undo the fica tax cuts that had been part of the stimulus package.

Prior to 2008 there was a case to made for BowlesSimpsonism in broad terms, some sorts of spending cuts to be traded off for some sorts of tax increases in order to reduce the large budget deficits that had emerged during the W. Bush presidency following the surpluses he inherited, thanks to his tax cuts for the wealthy plus wars in Afghanistan and Iraq, etc.  Nothing ever came out of those commissions officially because at least some Republicans simply refused to sign onto any tax increases no matter what, even though later they were eager to make the regressive hike in fica taxes without batting an eyelash over their hypocrisy or being taken to task for this by practically anybody in the media, and certainly not Mr. Hiatt or his WaPo Social Security bashers.

However, even prior to the crash when all this whomping up and down about deficit reduction became ridiculous, these commentators, including Bowles and Simpson themselves, continued to tell horror stories about future growth in entitlements, which were ovewhelmingly due to projected increases in Medicare and Medicaid costs, but then say nothing about doing anything about them and focus in public commentary on Social Security, in effect making a political judgment that Republicans would be more willing to raise the regressive fica tax in exchange for cutting future benefits, despite this not being remotely a serious problem in and of itself, rather than doing anything about reining in future medical care cost increases.

The situation has totally changed on several fronts, but Hiatt and his gang of outraged remain stuck in that now ancient and irrelevant time.  Amazingly enough, despite its flaws, Obama's ACA appears to have bent the curve of medical care cost increases, or at least that curve has bent, even if it is not entirely due to Obamacare, that horror of horrors.  No mention of this in Hiatt's editorial, but this has completely undone the hysterical future stories about deficits, with this being the real reason BowlesSimpsonism is now dead as a doornail, on top of the reality that austerity in Europe has led to renewed recession so that Hiatt's pushes for more austerity are simply silly, despite all his self-righteous huffing and puffing.  

Let me close by simply supporting that the most appropriate index be used for Social Security COLA adjustments, an argument that has simply disappeared in this flurry of political flying back and forth.  Without doubt this would be the chained version of the experimental CPI for the elderly.  Yes, it is true that chained indexes are more accurate than the unchained ones, but the one that should be used is the one that really measures cost-of-living changes for Social Security recipients.  That would be this experimental one for the elderly.  But consideration of it has never even been on the table.

As it is, maybe Hiatt and his pals will stop and look more carefully at their general push for cutting future benefits for Social Security recipients, now that the C-CPI-U verson of the chained index seems to have been removed from the table for now.  If they are really worried about improving future SS budgets, let them call for raising the income cap on fica taxes, which would help alleviate the general income inequality situation we face, although at the moment we do not need any further moves to austerity.  As it is, I have not seen any of them mentioning that idea, although Republicans have been keen on cutting benefits for better-off seniors, understanding that this would undermine political support for the program in the future.  Even if we cannot seriously hope for greater sanity or even reasonableness on the part of these VSPs, at least for now it looks like their threat to damage future Social Security benefits has receded, and for that at least we can be thankful.

Barkley Rosser


coberly said...


just wanted to note that Social Security has nothing to do with the budget, so the "drop in the bucket" of the budget deficit is misleading. The chained CPI, theirs or yours, would not affect the budget at all. It WOULD possibly reduce an otherwise needed increase in the payroll tax, at the cost of leaving the people getting that huge bargain... saving abut 25 cents per week per year on their payroll tax... losing a couple of thousand dollars a year in benefits.

But by now I hardly expect anyone to think that carefully about anything. Those who call Social Security a "regressive tax" simply do not understand what Social Security is... a worker paid savings and insurance program... highly progressive in its payout schedule. But there is no chance I can ever cure a person who has been educated to say "regressive tax" every time the poor are "taxed" even if it's to pay directly for their highly progressive benefits.

Politics being what it is, I can't say that those of you calling for an increase in the "cap" are helping to destroy Social Security.... but turning it into welfare has always been the secret plan of those who want to destroy SS. Once you have taken their candy and they are paying for your benefits, they will be able to turn SS into means tested welfare at their leisure. said...


I agree that the system overall is progressive, but the tax part of it by itself is indubitably regressive. I view it as a mere technicality whether one puts it in with the rest of the budget or not, but clearly people like Hiatt do, so I was responding to his empty rhetoric on the matter, the intensity of which looks so utterly silly now.

coberly said...


I agree that Hiatt is silly... if evil is silly.

But it is not a mere technicality that SS is not "part of the budget." If it is part of the budget then it is part of the deficit. Part of the "burden on the young."

But in fact it is not part of the budget. It is a dedicated "tax" paid by the workers who will get the benefits.

Once people understand that they will understand why SS does not affect the budget, the deficit, or the debt... except perhaps in the twisted sense that paying back the money it has borrowed FROM Social Security will "affect the budget."

Paying for their Social Security is no different than paying for their groceries. Except of course that SS provides them a way to finesse inflation without taking market risks they cannot afford.

This is NOT "the government" paying for SS. This is the people paying for their own future groceries in a program run by the government but not paid for by it.

As I said, once people understand this, and understand that the "looming Social Security crisis" amounts to a need to set aside an extra eighty cents per week each year for their own groceries when they are too old to work... the Social Security problem will be laughed off the podium.

And liberals can go back to working to solve the real problems of workers and the poor.

coberly said...


"the tax part of it by itself"

is as meaningless as "the barber who shaves all of the people who do not shave themselves." said...


The "tax part of it by itself" is not a logical paradox like the barber one. Indeed, it is important how the tax is changed. I know you have been pushing this small tax increase idea for some time, and I am not necessarily opposed to it. However, there are lots of ways to do it, with them varying in terms of their income distribution impact, more progressive or less so. Thus, if there is to be a fica tax increase, I would prefer to see it take the form of a raising of the income cap rather than simply an increase in the rate with the same cap. Heck, if the cap were raised now, the rate could be lowered.

In any case, the income distribution impacts of "the tax part of it by itself" is important and not just some silly paradox.

Bruce Webb said...

Coberly gets frustrated because he has a numerically solid 'Something' plan for Social Security that in most respects is better than the 'Nothing Plan' I was pushing in 2005-2006. Which is why I joined him in producing a modified 'Something' which we call 'The Northwest Plan'. And I would agree that NW is a far, far better plan than just about every other 'Something' plan out there, including those which would rely 100% on changing the cap formula.

Where Dale and I part grounds is on whether there are theoretical 'Something' blends out there that are superior to Northwest. And despite the fact that I contributed to NW my answer is 'Yes'. On the other hand they mostly don't have any traction at all (to the extent they exist) because of some fundamental misunderstandings of the actual finances of Social Security.

Which is why I hubristically declared personal victory this week at the apparent temporary triumph of 'Nothing'. Because it is better than most all the 'Somethings' out there. Though perhaps not better than the 'Something' that is NW.

I feel for Coberly. On the other hand it is nice to have dodged the particular bullets aimed at Social Security since Obama was first running for President. (Something about which Prof. Rosser and I raised the alarm separately and then collaboratively back in 2008)

coberly said...


my mandatory car insurance would be a lot more "progressive" if i could get some rich guy to pay for it.

so would my grocery bill. no doubt there are workers you could persuade that life would be better if the grocery store cut their prices and recovered the cost by increasing prices to the rich.

but setting all of that "logic" aside... if you simply stopped helping Peterson out by talking about SS as if it were a tax and welfare program that you can save by raising taxes on the rich, and got the workers to understand that SS is more like a "grocery" program, in which they pay for their own future groceries by having the "time value" of their money protected from inflation without incurring market risks...

you could stop the whole attack on Social Security in its tracks.

but i don't think it would matter even if you agreed with me. Bruce almost agrees with me... at least he understands the "program"... but even he can't free himself of the idea that SS is really a welfare program and

that is THE problem.

one last time: Social Security exists as a package. You can't talk about PART of the package as though it was "regressive" when the package itself is massively progressive. the point of Russell's paradox was that it is entirely possible to create well formed english sentences that don't mean anything. and "SS is a regressive tax" is a meaningless, but dangerous, statement.

btw, my ego is not involved in this. if you want to call it by the name of the other people who have come up the observation that the workers "can" pay for their own SS with small increases in the tax from time to time as the costs of retirement go up, or the "subsidy" from rising wages fails to keep up.... i'd be happy about that.

what i hate to see is SS destroyed because it's "defenders" don't understand it.

Don Levit said...

3 other people and I are going to visit the Texas Department of Insurance the second week in March.
Our new company National Prosperity Life and Health will be applying for our charter as a Texas health insurer at that time.
We are looking forward to providing our product to selected employers of 200 employees or more.
We have been fortunate in obtaining several "clients-in-waiting."
The reserves we will need will equate to about $2.40 for every dollar in premium.
This is needed to help ensure we can pay the claims we are responsible for.
It is interesting to note that the premiums for Social Security are the only cash available to pay claims. The reserves have been borrowed as has been previously stated.
If we were to do the same with our reserves, our debt to equity ratio would be 100%.
We would be shut down by the Department of Insurance with an immediate cease and desist order.
Apparently, the federal government works on a different platform than a private insurer.
Don Levit

coberly said...


Yes, be assured that the Federal government works on a different platform than a private insurer.

Bruce Webb said...

Levit the Treasury considers and treats the Special Issue Treasuries in the Trust Fund as fully liquid cash equivalents. That the money collected that caused their creation was spent means nothing in this context, anymore than that Federal Reserve notes are (to some) simply 'fiat money'.

Just as Federal Reserve Notes (dollar bills to you and me) are legal tender for 'All Debts Public and Private' so too are Special Issue Treasuries held by the Trust Funds considered 'legal tender' for the narrow purpose of paying Social Security benefits under the current law schedule.

Perhaps the whole concept of "fiat money" leaves you with a profound sense of the horrors and you would like to eliminate the Federal Reserve Bank and the financing structure that was established by the Social Security Amendments of 1939. Well fine, the LaRouchites and the Paulites are meeting separately over there. The rest of us will continue to operate under current law that holds that Special Issues are literally as good as cash, including whatever cash and cash equivalents you are using for your reserves said...


I agree that morally it is useful to have people pay in so that they feel that they deserve the benefits, assuming they live long enough. But the bottom line is that it is not "their money." That is what all these people claim who run around comparing rates of return on SS to the stock market, and so on. It is social insurance, and it does not have to operate the same way your auto insurance does. Heck, if someone lives to be 120 and collect SS benefits far exceeding what they paid in, are they receiving "their" money? I do not think so.

BTW, your plan is OK, but there are others equally good, if there really is a need to do something. But I agree with Bruce that it is not obvious something needs to be done, certainly not in the near future. let it rest and let us see. Your plan can always be revived, or some variation on it, if need be.

coberly said...


i do not think there is any hope here. your synapses are tied together in a certain way, and mine are tied in another. anyone who thought communication was possible between "intelligent" human beings was fooled by appearances.

but, if i buy an annuity and outlive the actuarial expectations it's still my money. the key here being "what i paid for" as opposed to what someone else paid for. I assume you are too intelligent to think that pay as you go means you are paying for someone else's granny and the poor younger generation will be forced to pay for yours.

nothing is a real good plan. ask any general who sat around waiting for the enemy to gather his resources and put them in place.