The Plot Against Social Security

This is a link to an adapted excerpt from Michael A. Hiltzik's new book, The Plot Against Social Security: How the Bush Plan Is Endangering Our Financial Future  appearing in the Los Angeles Times. This article makes it very clear that the campaign to reform Social Security is driven by ideology, not economics.  The article itself is fairly lengthy and, of course, the book is even longer. Here are a few passages worth highlighting, but read the whole thing and pay attention to the line at the end about a $100 million war chest:

Undoing the New Deal, by Michael A. Hiltzik, Los Angeles Times: … If there were any doubts that Bush's campaign against Social Security was not fiscal or economic but strictly ideological, Wehner's memo dispelled them in a stroke. But his words weren't meant for the public eye (although they were promptly leaked to the press). In its public language, the Bush campaign for Social Security reform has steered clear of the elemental ideological conflict, sticking instead to the language of economics. The magic of privatization, as President Bush would repeat often over the next few months, would save Social Security from impending bankruptcy; never was heard a single word about the goal of ensuring victory for the conservative movement in "the battle of ideas." … On Social Security privatization, Cato is the center of the universe. For 25 years the rightist think tank has been a relentless promoter of private accounts and the fount of hundreds of white papers, book-length studies and op-eds driving the battle plan. … Michael Tanner, the chairman of its Social Security task force … left no room for doubt that Cato … saw the issue in terms of ideology, not economics—as a classic battle to promote libertarian ideals hostile to the very principle of social insurance. "In the end, this isn't a debate about the system's solvency in 2018 or 2042," he told me, mentioning the years in which, according to Social Security doomsayers, the system's fiscal health would start to ebb, then collapse. "It's about whether you think the government should be in control of your retirement or people should take ownership and responsibility. That's why the debate is so intense—why would anyone get so excited about transition costs? This is about whether we redefine a relationship between individuals and government that we've had since 1935. …

When members of Congress returned to Washington in March 2005 from a mid-term break in their home districts, the Republicans seemed shaken. … In the weeks and months that followed, more polls suggested that on the issue of Social Security, public doubts were rising, if not about President Bush's courage and honesty, then at least about his wisdom. … And yet he stuck to his guns. "I'm going to continue traveling our country talking about Social Security reform," he told a news conference on June 2. What he didn't mention was that the war chest, $100 million strong, was still available for deployment. He sounded as though the fight had not yet begun. And it was entirely possible that he was right.

This battle isn't over.

Comments

[Bruce Webb]

"driven by ideology, not economics"

The numbers were just supposed to be there. Indeed five years ago they could have argued that the numbers WERE there. They were talking GDP then and not the rather mysterious 'Productivity'. In 2000 the GDP spread between Low Cost and Intermediate Cost was .9 points for any typical year and Low Cost was sitting in "pretty high in the sky" territory.
http://www.ssa.gov/OACT/TR/TR00/triid.html#pgfId-30405

We could have had a titanic battle over the numbers, Tables and Figures and percentages could have been flying left and right and Right and Left for that matter. I was ready for a drag out fight and even resigned to the fact that Social Security opponents might win the battle of the numbers and tables. I didn't believe they could win that battle using fair and honest tactics, but even then I didn't expect a Karl Rove led team to be either fair or honest. But between then and now the numbers rolled in.

When the time came it was kind of anti-climactic, by the 2003 Report the numbers were almost too pathetic to mention, the 2004 Report had to have heroic medical measures taken just to get it to Life Support.

This debate was odd from the outset. I flitted from economist site to economist site tugging on total strangers' coats and asking "Hey mister, could you look at Table V.B1 and tell me what I am missing?". But numbers were not flying fast and furious, indeed numbers were almost invisible on both sides. (Not entirely true, when the talk turned to P/E suddenly numbers and formulas abounded on all sides, but absent that no one seemed to care about the underlying question of solvency.)

Which fact is still true. And I strongly suspect that is due to an asymmetry in information on those numbers. Privatizers like Samwick know enough to pluck obscure infinite future projections from deep within the Tables of the Reports. Somehow I doubt he just passed by Table V.B1 (Principle Economic Assumptions) without reading it, or understanding its implications. Or that he just ignored the clear outcome shown in Figure II.D7 of hitting Low Cost. But he sure latched onto that 3.5% payroll gap which results from extending 1.6% productivity from now until heat death of the sun.

"driven by ideology, not economics" Who woulda thunk it?

[TDM]

What exactly is the economic justification of forcing everyone to contribute 1/6th of their labor to an unfunded ponzi scheme? There is no economic basis why anyone would create the current Social Security system if we didn't already have it. The private sector already competitively provides retirement accounts, annuities, life and disability insurance, and treasuries are available outside of Social Security. The government could simply mandate that everyone save and buy insurance so they will not be dependent on government when they want to retire. The big partisan debate over when the system runs out of money may not be completely honest, but it is mostly irrelevant. Reformers want to create a better system to allow us to improve our financial future. Opponents say this is endangering Social Security, as if it was inconceivable that social insurance could be provided without the government. Supporters of Social Security are more concerned about preserving the system than about the financial future of young workers. Anti-reformers are driven by the ideology that any government program, once created, must have eternal life.

[pgl]

TDM: Soc. Sec. is not a Ponzi scheme. And if you think there is no ecnomic basis for insurance - you should review the archives of Mark's blog.

[Bruce Webb]

One, the system is fully funded under all reasonably expected economic outcomes.

Two, elderly poverty was once the norm, now it is rare.

Three, you could source how competive lifetime disability insurance is.

There was a saying back on dKos in the early days, I don't know if I actually invented it, but I certainly did my best to popularize it.

"On dKos you don't get to simply make shit up".

Privatizers simply make shit up all the time. In particular they never, ever directly address the productivity issue. They never, ever admit that in using the dates they do they simulatneously claim that economic growth will crash to 2.0% this year, that it will sink to 1.6% by the end of the decade and stay there forever, oh and by the way in the face of worker shortages over the next four decades, immigration both legal and illegal will shrink not just in relative terms but in absolute ones.

This is an economist's site. Bring numbers you will back or shut up. The odd notion you folks have that just saying something you think you know, backed up by three initials somehow carries weight. It doesn't.

I could handle the disagreement, it is the contemptuous attitude. Friend you simply do not know what you think you know. Ayn Rand got it all wrong and so did Uncle Miltie. Cato screwed up, their numbers didn't work out. Private accounts are going down not because a system could not be designed to accommodate them, but because idiots like you lied about the fundamental health of Social Security in a way that forced defenders to take an all or nothing defense.

Cato chose the battlefield, they chose to hide the ideology behind the numbers. Too bad so sad that in the end the numbers deserted them.

[Lee A. Arnold]

Mark, I want to thank you for being first to run notice of the little animation "Social Security: the Real Connections" at http://ecolanguage.net. And I also want to thank you for finally attracting the single negative comment about it (below, under the announcing post on June 11.)

That negative commenter launched a short and rather endearingly goofy broadside, based on the "markets increase innovation" theology, popular among some of the younger "college-educated" set. It is perhaps no coincidence that this is precisely the same half-baked truism used by the ideologues in Mr. Hiltzik's book.

But of course, the aim with these newer ideologues does not appear to be the truth, nor to have a real discussion. "Free markets cure all ills" is one of the major propaganda talk-points of conservative think-tankery over the last thirty years, and carefully planted with tons of dough. It may be the final phony intellectualism to be demolished, and it will die a-flailin'.

It may be no accident that it is difficult to reply to this ideology succinctly, since it is, in its own way, based upon belief and buttressed by selected facts, rather like Marxism. Any real discussion of it must rest upon a broad and deep groundwork of history, psychology, economics, and philosophy of science. As you blogging econ guys say, "Where to begin?"

So it may be easiest to bypass it entirely, ho-hum, and point out that if laissez-faire worked 100%, all our troubles would've been solved 225 years ago. And Enron never collapsed!

Indeed, given the extraordinarily high stakes in this game, we may soon be inundated by the K Street Trolls on the theory that "endless repetition creates truth." The Republican credibility, such as it is, has reached a crisis.

The reason the Democrats don't even have to come up with a new plan is over at http://bruceweb.blogspot.com/. Simply, there is no solvency problem with this particular program, and this will become news even the newspapers must acknowledge, once the trustees plug in the new productivity numbers. Or, as someone else once said, "the plan IS Social Security."

So, other than that lone negative comment, the other 10,000 people so far seem to have liked it! Although, a few people had no idea they can download Quicktime for Windows free from Apple.com, no viruses for anything. And a few people complained they get inaudible or very low sound, which seems to have no pattern to its occurrence.

Plus, as always, a couple of my oldest and dearest friends say I still sound like a "pompous pain in the ass." But these are people I never argue with!

[cl]

"What exactly is the economic justification of forcing everyone to contribute 1/6th of their labor to an unfunded ponzi scheme? "

To answer your question -- security pure and simple. Let me ask you this --What is the economic justification for gutting a highly successful program with low adminstrative costs, that seems to be working fine? And don't feed me the Cato BS about a Ponzi scheme.

[Jim Glass]

"Soc. Sec. is not a Ponzi scheme."

I dunno, Paul Samuelson praised Social Security's "Ponzi" financing back in the good old days when it was making everyone richer rather than poorer on a lifetime basis (as per the quote provided before)

Paul Krugman, we all know, lamented in 1996 that SS is "redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over..."

And Milton Friedman -- well, you don't have to Google long to find him using "Ponzi" to describe Social Security.

Those are three pretty good economists there who have all used the word.

"And if you think there is no ecnomic basis for insurance - you should review the archives of Mark's blog."

The SS retirement benefit is a defined benefit pension plan. That's why the Social Security Adminstration and the various SS Advisory Commissions call it a defined benefit pension plan.

SS will be insurance -- "just like fire insurance" -- against poverty come the day when people start collecting on fire insurance policies by age, regardless of whether they ever had a fire, and when Warren Buffett stops collecting on his insurance against poverty because he is so very, very not poor.

One understands the desire to now refer to the SS retirement benefit as something other than a pension, being that its financial performance as a pension has become so lousy since Samuelson's day (as Krugman and Friedman have both noted) and continues to deteriorate.

But still, a "defined benefit pension" and "insurance" are two different things, which is why there are different words for them. And a bad pension doesn't make a good insurance policy any more than a bad insurance policy makes a good defined benefit pension.

[pgl]

Jim - cherry picking quotes from Samuelson? Please provide the whole discussion if you wish to quote Dr. Samuelson. And yes - I prefer to use the term defined benefits over insurance, which is our host's term. But again - our host has explained very ably why the insurance aspects of this defined benefits plan are important to the average Joe. If you wish to write a full discussion on how you would improve the current defined benefits plan - great. But nitpicking over terms? You're better than that.

[TDM]

Yes, there is an economic basis for insurance, which is why the private sector provides it competitively. Mark misses that the unique position of government insurance is that it is risk blind. Only the government can be blind to risk and not go out of business. There is a case to offer a risk blind government annuity as a safety net. But it would be better to give the people more choice about it rather than having no choice as it is now.

And why does Social Security get all the credit for reducing poverty when so few people actually lived to the retirement age when it was first created? Private pension and retirement accounts, increased home ownership, and economic growth have done much to increase the standard of living of the the elderly, yet government wants to take all the credit. The private sector can now provide everything that Social Security does so current programs should make use of it.

Reformers are probably hurting their case by focusing too much on the finances of the program and not enough on improving it. Even if the program is solvent it still can and should be improved. Supporters are too concerned about preserving the program of the past and not about how best to provide for our future. What may have worked in the past is not necessarily the best option for the future. If Social Security is a good program today, then why do so many people want to opt-out while no-one is proposing allowing additional voluntary opt-in? Just add a line on the tax form for additional voluntary payroll tax contributions. Mickey Kaus asks the excellent question: "is sending out these checks the highest and best use of 12.4 percent of our payroll?"

[cl]

"Reformers are probably hurting their case by focusing too much on the finances of the program and not enough on improving it. Even if the program is solvent it still can and should be improved."

When the purpose of these "reformers" are to gut the SS program, why should we trust anything from them? Wall street sitting on the sidelines, salivating, waiting for all those $$ in payroll taxes to pour into fees and the like for private accounts. Reform my A.., they're simply interested in gutting the program.

Do you think the best use of my income tax and payroll tax dollars were the war in Iraq? So why stop worrying about how efficient those dollars are with one particular program? Why aren't these reformers up in arms about that? Or the waste and fraud in procurement by private contractors?

I think the answer is, they only care about gutting the program.

[calmo]

It is so obvious cl and yet the WH continues to push even when the polls show that the main component of Bush's fall in popularity is privatization of SS.
Losing support on the home front and worsening news coming from Iraq and the Blair memo, may have prompted Rove to pull that speech out to arrest the president's slide.
The issue is killing Bush and it looks like Rove is aware that his boy is in trouble.