Wednesday, October 31, 2007


Eeeeek! Frankenstein's Monster is back on the loose, prowling the landscape chanting "Social Security Crisis! Social Security Crisis! Fix Social Security!" It is bad enough that Obama has joined the Ghoulsbee bunch chanting this nonsense that Goldman Sachs's Robert Rubin's appointees to the Social Security Trustees under Bill Clinton instituted as "Official Projections" back in the late 1990s, since proven drasically overly pessimistic, but continued by the Bushies. Now Kent Conrad (D-ND), Chair of the Senate Finance Committee, along with Judd Gregg (R-NH), in cahoots with Goldman Sachs's current Treasury Sec, Paulson, are creating an "Endowments Commission" supposed to frighten the next president into "doing something about endowments."

This is a bait and switch the enemies of social security have been playing to for some time. Scare everybody with genuine long run problems in funding endowments. However, instead of focusing on medicare and medicaid, the sources of these problems, these entities formed to deal with endowments suddenly start going after untroubled (so far, still running a rising and nearly $200 billion surplus) social security. I understand people like pgl who might go along with this, given that so many people have fallen for the lies about social security's fiscal status, it may well be politically that the only possible tax increase out there is one on social security, sold to Republicans along with a benefit cut as some kind of deal. But, it is based on a lie. Can we not try to educate people and deal with ther real problems, please, without letting Wall Street get its mitts on social security (and some kind of privatization would almost certainly be part of any such deal)?


ProGrowthLiberal said...

My view is this. The General Fund mess should be fixed by an increase in the income tax rate and/or perhaps a Ron Paul style massive cut in DoD spending). But hands off my Social Security benefits. Aka no backdoor employment tax increase. Yes - it is time to bring back Al Gore's lock box. This time with praise instead of the usual ridicule from the clowns like Tim Russert (hint me my Angrybear coverage of Kevin Drum's coverage of last night's debate). said...


Thanks for the clarification. I didn't really think you were keen on a social security deal, but I could have imagined you being tempted by one, or at least the Ball type proposals, which are not all that different from the stuff Obama is pushing, as Peter Dorman has noted.

Anonymous said...

In an aristocratic society, wherein some extremely small fraction of the working population hold most of the capital and garner most of the annual income, it is highly unlikely that the power structure of that society will not do things to maintain and increase that minority's economic position. It is, for them, essential that some extraordinary source of funds be identified that allows the continuation of the status quo regarding taxation and the general budget. Where else to look other than social security? It is a treasure trove of constantly replenishing assets. It is poorly understood by the general population. It is the end of the rainbow for those who already have too much and are having a difficult time identifying alternative sources of yet more. How to preserve the tax cuts for the wealthy? How to fund the general budget without raising those taxes? Social security payroll taxes to more than one rescue. It's the least progressive form of taxation we have, so why not use it to the max?

Ours is an aristocracy of wealth, if not nobility. The aristocrat knows no other means of self preservation, but to vanquish others. It's human nature and it's well documented through out history. Unless the middle and working class, that vast majority of the population, that "silent majority," awakens to the realities of economic and political life in these United States, we're headed for a bleak future. Past history tells us in its repeated message that it is only in that bleakest hour that change comes to the aristocracy, which will then hopefully be replaced by a democracy. There are yet bleaker alternatives.

Bruce Webb said...

Barkley, though personally I think 'entitlements' is a weasel word, I think it is the word you meant rather than 'endowments'.

BTW an increase in FICA actually backfires on privatizers, as would a cut in proposed benefits. Either could be reversed in years to come as the actual state of the Trust Fund balance develops and meanwhile all pretense of 'crisis' evaporates. There is something to be said for closing the paper gap and letting reality rewrite the balance sheets as the actual numbers come in. The politics of Social Security have always required that benefit cuts be phased in over time, yet their effect on the projections is immediate. To some degree it might be acceptable for them to throw us into the briar patch, the current payroll gap is simply not that large.

I don't want to pay an extra 1.95% of payroll even temporarily. On the other hand if it makes Samwick sit down and shut up it might be worth it.

Myrtle Blackwood said...

From an outsider's perspective this US Social Security thing looks like an Enron-type accounting scam.

It's interesting that Robert Rubin's name came up. I keep seeing his name as I follow the unfolding story of the global structured finance crisis.

Last night, for instance, a blogger wrote:
"Funny how Goldman Sachs alumni Robert Rubin has been involved in some fashion with every major financial corruption scandal in the past two decades.

1. Indonesian economy rape and pillage by Wall Street hedge funds with close political connections to the Clinton-Rubin Administration. Over 100 million impoverished.

2. Enron debacle with Citicorp's Rubin involved in federal tax evasion shelter scams. Robert Rubin personally pressured S&P and Moody's not to downgrade Enron bonds even when it was clear the Enron company was having financial problems.

3. Fannie Mae accounting scandal with CEO Franklin Raines closely connected to the the Clinton-Rubin administration. Citicorp earns billions of dollars from the sale of exotic financial derivatives to Fannie Mae and Freddie Mac. Fannie Mae falsified billions of dollars in earnings and revenue relating to financial derivatives.

4. Super SIV bailout scam promoted by Henry Paulson in order to prevent price discovery and marking to market of subprime bond securities held by Citicorp. More of the same Enron-style accounting at Rubin's Citicorp.

Anyone else involved in such widespread corruption would have faced federal criminal charges.

and earlier:
"..From phone records obtained under the freedom of information act, Helicopter Bernanke consulted with Citicorp's Robert Rubin before slashing the discount rate last month by 0.5 percent. I have no doubt that the Banksters on Wall Street profit from insider information from the Federal Reserve. In stark contrast, the Federal Reserve no longer publicly discloses broad M-3 money supply statistics...

And on Citigroup last evening:
Citigroup’s Government ties support top AAA ratings from Standard & Poor’s and Moody’s Investor Service. From Bloomberg: “..The Federal Home Loan Banks (FHLBs) are cooperatives created by President Herbert Hoover in 1932 to spur mortgage lending. The system's 8,100 owners and customers range from New York-based Citigroup Inc., the largest U.S. bank, to the single-branch Custer Federal Savings & Loan in Broken Bow, Nebraska. Their government ties support top AAA ratings from Standard & Poor's and Moody's Investors Service...

Really? US taxpayer funds are being used to support AAA ratings in private bank products?

Eleanor said...

I have been assuming that the SS crisis serves two purposes. Well, maybe three. If SS is privitized, there will be huge profits for Wall Street. If SS benefits are cut, then working people will be less secure and easier to frighten and exploit. (I think this is risky, since working people might get really, really angry. But a lot of pundits and rich people strike me as crazy; and it might work, if you eliminated democracy, since the rascals would not have to worry about being voted out.) Finally, it would be a lot easier to balance the Federal budget without raising taxes, if the government could forget its debt to Social Security. said...

Bruce Webb,

I stand corrected. You are right. "Entitlements," not "Endowments." Must be my current illness speaking... :-(


I completely agree.

Anonymous said...


Possibly too cynical but don't you think the old saying 'give an inch and they will take a mile' applies.


Shorthand: 'A ruling class no longer fit to rule' and a working class insufficiently aware of its power...


Get well. Perhaps odd to say but homemade chicken soup really can help, especially if you add a bit of lime juice and, depending on taste, a small jalapeño.

Bruce Webb said...

"From an outsider's perspective this US Social Security thing looks like an Enron-type accounting scam."

This by Brenda is actually a fascinating comment. It illustrates the brilliant success of the privatizing argument. Because to an outside observer, even one as talented as Brenda the net effect of reading supposedly informed comment in the newspapers of record and most standard political and economic commentary would lead most informed persons to that same conclusion.

Which is why Brenda's maybe distant cousin Barkley and I are tearing our hair out. Social Security is not an accounting scam, it is a perfectly sound Social Insurance plan, but it is proving near impossible to boost the actual signal over the loud drone of the noise.

This is not intended as a slam on Brenda, quite the opposite. But it is a tribute to the propagandists at Cato. From my perspective they may be evil bastards, but you have to take your hat off to them, they do know how to run a noise machine.

Bruce Webb said...

For what it is worth I don't agree with Eleanor as to the motives of the privatizers. The factors she mentions all operate but when quantified aren't really that significant.

Social Security serves as the Canary in the Coal Mine for the Big Government is the Problem folk. They have eagerly been waiting for decades to see it fall off its perch and hence validate their Big Idea. That the bird continues to merrily sing away and even show signs of perking up over time is immensely frustrating to the Cato types. Because what if the miners add a Universal Coverage canary to the cage and both birds continue to sing? Before you know it there might be a whole aviary of Social Democratic canaries and God knows we can't have that. It might distract the miners from extracting coal for the benefit of the pit owner.

A solvent Social Security system is an existential threat to the entire Right Economic program. Sure they will take the money if they can get it, but truth be told they would actually get a lot more dollars by pushing for an opt-out program for higher earners while leaving lower earners in the current system. That they are pushing for all or nothing shows that it is not about the Benjamins but instead about pissing on FDRs grave.

Myrtle Blackwood said...

Bruce Webb said: "...Because to an outside observer, even one as talented as Brenda the net effect of reading supposedly informed comment in the newspapers of record and most standard political and economic commentary would lead most informed persons to that same conclusion.Which is why Brenda's maybe distant cousin Barkley and I are tearing our hair out. Social Security is not an accounting scam, it is a perfectly sound Social Insurance plan..

Bruce, I don't mind being called a 'talented outside observer'. Keep the compliments flowing!

However, I was a little perturbed at the misunderstanding of my above comment. I don't know that much about the US Social Security system but I have been reading your and Barkley's commentaries by way of the odd paragraph at a time. Yes, it was my understanding that the Social Security system is intact over there but that key powerful players want to portray it as bust so that they can get their hands on the ('someone else's') money.

It looks like they already have taken the funds and left the dollars in the fund only 'nominal'. Thus, the understandable temptation to portray the fund as unviable. A way to cover for the theft that has already occurred??

Is that correct? said...


Well, not exactly. Yes, the social security fund has been lending money to the rest of the government, currently at the rate of nearly $200 billion per year, the surplus on the fund, technically owed to the fund by the rest of the government. If you want to call that theft, you may, but it is not really.

No, I (and I suspect Bruce also, not to mention our pal Dean Baker, who used to blog at the old maxspeak but now runs his own show over at "Beat the Press) think that what is being contemplated is a future theft from future beneficiaries, along with a big boondoggle money handout to Wall Street investment banks that would get to handle (and receive fees for doing so) mandatory private accounts that seem to the constant goal of this "crisis" crowd.

The big joke is that if the economy really does as badly as all these people forecast, the stock market will also do badly, and therefore not be a good alternative to the public funding.

Myrtle Blackwood said...

Thanks Barkley. I found a description of US SS this morning: "a retirement plan, a life insurance policy that covers the family of every worker (equivalent to a $300,000 life insurance policy) and a disability insurance program (equivalent to a $200,000 disability insurance policy.)

It's interesting that the program already encompasses strong elements of privatisation. It's somewhat different in Australia. When an individual goes on Social Security here (for those unfamiliar with the Australian system) their health costs are almost completely covered. That is, there is no 'insurance' component. It's simply the public provision of health services. The Government also pays a certain amount of dollars into one's bank account each fortnight to provide for living expenses. In addition significant discounts are provided for medicines, transport; lesser ones for electricity and phone.

The filling of a doctor's prescription for medicine will cost a maximum of $4.80 except for the odd circumstance where a patient may need an important drug that's not on the Federal Government's 'Pharmaceutical Benefits Scheme' (PBS). In that case often the hospital will pay for it if the drug cannot be avoided.

Since 1983 the neoliberal Labor and Liberal governments have been trying to convert the system to one funded privately. Workers now have to pay compulsory contributions to superannuation funds that are then invested in the stock market and other places. They cannot withdraw this money until they are at least 55 years old and no longer working. Over the last couple of decades the level of compulsory contributions has been steadily increased from 2% to (I think about) 9% recently.

In addition to that funding has been progressively withdrawn from the public provision of cheap housing, hospitals, schools, education and other services.

However, the old Social Security system has been left intact. It's just that when workers withdraw their superannuation in retirement their social security pension is reduced or eliminated according to the level of the private payout they receive from their superannuation scheme.

Personally, I think that any scheme designed to assist people in need should not rely on vast pools of private or public money. The direct public provision of money and services worked well in Australia. It was changed (interestingly) at a time when the Australian currency came under speculative attack and the Federal Government lost control of the national exchange rate.

It also coincides with a remarkable concentration of corporate ownership of the Australian media.