POLICY - SOCIAL SECURITY

 

MYTHS V. REALITIES ON SOCIAL SECURITY 
in the UNITED STATES

Feedback/Corrections should be emailed to: feedback-at-eriposte-dot-com

PREFACE

[Washington Post - brown text is eRiposte edits]:

The campaign will use Bush's campaign-honed techniques of mass repetition [er, deception], never deviating from the script [er, dishonesty] and using the politics of fear to build support -- contending that a Social Security financial crisis is imminent when even Republican figures [as the U.S. media loves to say, facts are partisan these days] show it is decades away.

[Economist Paul Krugman]:

And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.
...
There are two serious threats to the federal government's solvency over the next couple of decades. One is the fact that the general fund has already plunged deeply into deficit, largely because of President Bush's unprecedented insistence on cutting taxes in the face of a war. The other is the rising cost of Medicare and Medicaid.

As a budget concern, Social Security isn't remotely in the same league. The long-term cost of the Bush tax cuts is five times the budget office's estimate of Social Security's deficit over the next 75 years. The botched prescription drug bill passed in 2003 does more, all by itself, to increase the long-run budget deficit than the projected rise in Social Security expenses.

That doesn't mean nothing should be done to improve Social Security's finances. But privatization is a fake solution to a fake crisis.

 
 

SUMMARY

Considering the astonishing amount of distortions, fabrications and propaganda being passed off as fact on the topic of Social Security, I thought it might be useful to compile the real facts in an easy-to-refer format in order to educate myself as well as readers of eRiposte. This page provides such a compilation. 

The facts are as follows. Social Security is financially in very good shape today - it is neither going "bankrupt" nor is it facing a "crisis". As years pass, the projected, so-called "doomsday" on Social Security has actually been pushing out even farther. The long-standing myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past (while, incidentally, privatization is simultaneously advocated by the Right using the opposing claim that stock market returns will somehow, in real terms, be much better in the future than in the past!) What is really in crisis is the Federal Budget *excluding* Social Security. The Bush administration hopes that the media will keep people uninformed about the fact that massive Social Security surpluses (the trust fund) have (has) been used for years to finance the record (General Fund) deficits due to Bush's massive tax cuts for the super-rich and out-of-control spending on Iraq and GOP pet projects. Correcting Social Security's projected shortfall decades from now is actually easier now than it would have been in the past. An oft-used "scare" metric, the number of workers per retiree, says little or nothing about the financial robustness of Social Security; yet this metric is frequently used to mislead people into believing the hoax of a social security "crisis".

Privatization of Social Security would mean a steep drop in program efficiency and sharp increases in administrative fees, leading to significantly lower benefits. Privatization requires trillions of dollars in additional borrowing (in addition to benefit cuts) and speculative investment of individual's funds in the stock market - the makings of another Bush driven disaster. Privatization proponents often use highly inflated/exaggerated stock market return projections to push for privatization. The Bush privatization proposal, as it stands, would lead to steep benefit cuts for retirees and poverty for many retirees; younger workers, women and minorities would be impacted the most. It would also lead to steep benefit cuts for non-retired workers drawing insurance for disability, or for workers' families drawing insurance upon the death of workers. It will, doubtless, be another exercise in class warfare - doling out massive corporate welfare to key campaign contributors in Wall Street at the expense of the poor and middle class. In the process, privatization could actually reduce economic growth and thereby further endanger social security. It must be noted that Bush-style privatization has been tried before in other countries, with costly or disastrous results. It is quite likely that the underhanded objective of the Bush privatization proposal is the eventual phasing out of Social Security.

In a real world with a free and truthful media dedicated to fact-finding, this kind of compilation would not be necessary. However, the U.S. media has a long history of mangling its coverage on Social Security (and most other serious policy topics) and unintentionally (or sometimes intentionally - as is often the case with cable "news" media) misinforming the American public on many basic facts. This hasn't changed substantially today. This is a structural problem that provides the Republican party leadership and its operatives (especially those embedded in the media in the form of opinion writers or representatives) an excellent opportunity --- an opportunity to exploit the tendency of a lot of the media to focus on "he said-she said" reporting (as opposed to real journalism) which leads to the uncritical transmission and repetition of misleading or false statements (from the Right) ad nauseam over the airwaves. The ultimate result is that Americans are subject to a vast misinformation campaign, provided relatively inexpensively to the Republican party (Remember the GOP leadership's unspoken motto: If you tell a lie repeatedly you can convince people it is the truth. It has certainly worked spectacularly well, for well over a decade now, to the detriment of the United States and its citizens/residents).


DETAILS

ACKNOWLEDGEMENTS

INTRODUCTION: How the Social Security system is set up in the United States and what it has accomplished

1. Facts on Social Security and Privatization

1.100 Social Security is Financially in Very Good Shape - it is not going "bankrupt" and is certainly not facing a "crisis"

1.110 As years pass, the projected so-called "doomsday" on Social Security actually has been pushing out even farther; plus even at the so-called [fake] "doomsday" citizens will get 73-81% of the benefits they were promised even if we did NOTHING today   

1.120 The long-standing myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past

1.130 What is really in crisis is the Federal Budget *excluding* Social Security - the Bush administration doesn't want people to know that massive Social Security surpluses are being used to finance the record deficits due to Bush's massive tax cuts for the super-rich and out-of-control spending on Iraq and GOP pet projects (contrary to Bush's 2000 campaign promises)

1.131 The programs that are really raising the prospects of bankruptcy and "crisis" (in a shorter time span) are President Bush's tax cuts and the Big Pharma Welfare Bill, aka the Medicare Bill

1.132 Claims that Social Security has an "unfunded liability" of "$11 trillion" are outright deception

1.140 By the definition of "bankruptcy" used by privatization proponents, our military is "bankrupt" TODAY (not in 2042 or 2052) - why are there no calls to "reform" the military? Medicare is far more of a problem - how come reform advocates are not spending sleepless nights proposing solutions to that?

1.150 The Social Security trust fund is not a "myth"; dishonest privatization proponents use the "myth" term when convenient, while dropping it when inconvenient

1.155 Some Republicans' claim that the U.S. Government is unlikely or not obligated to pay back the borrowings from the Social Security Trust Fund is downright illegal

1.160 Correcting Social Security's projected shortfall is actually easier now than it would have been in past decades

1.170 The number of workers per retiree says little or nothing about the financial robustness of Social Security; yet this metric is frequently used to mislead people into believing the hoax of a social security "crisis" 

1.175 Some say that current projections on Social Security solvency underestimate increases in life-expectancy. However, the data to-date suggests otherwise

1.180 The progressive nature of how benefits are paid is more than fair considering it is intended to offset the regressive nature of the social security tax structure 

1.181 Proposals to index the first social security payment to inflation rather than wages is nothing more than an underhanded attempt to usurp taxpayer funds and deny retirees their due

1.190 Even if social security taxes were to be increased to bridge the manageable gap expected decades hence, workers wages will continue to increase

1.200 Privatization of Social Security would mean a steep drop in program efficiency and sharp increases in administrative fees, leading to significantly lower benefits

1.210 Privatization requires trillions of dollars in additional borrowing (in addition to benefit cuts) and speculative investment of individual's funds in the stock market - the makings of another Bush driven disaster

1.220 Privatization proponents often use highly inflated/exaggerated stock market return projections to push for privatization

1.225 Bush administration claim that the current social security system is "inherently unfair" to African Americans is another outright lie

1.230 The Bush privatization proposal, as it stands, would lead to steep benefit cuts for retirees and poverty for many retirees; younger workers, women and minorities would be impacted the most

1.240 The Bush privatization proposal, as it stands, would also lead to steep benefit cuts for non-retired workers drawing insurance for disability or their families drawing insurance upon the death of the workers

1.250 The Bush privatization proposal will be another exercise in class warfare - doling out massive corporate welfare to key campaign contributors in Wall Street at the expense of the poor and middle class

1.260 The Bush privatization proposal could actually reduce economic growth and thereby further endanger social security

1.270 Bush-style privatization has been tried before in other countries, with costly or disastrous results

1.280 Private accounts would likely require a new Government bureaucracy 

1.290 Private accounts would very likely not protect workers from lower benefits due to inflation

1.300 While giving individuals "choice" sounds good in theory, one needs to be sure that individuals are actually able to exercise the "choice" in a manner that doesn't reduce their benefits; after all, the vast majority of individual investors are not market experts and what investors get when they retire will depend on when they retire

1.400 It is quite likely that the underhanded objective of the Bush privatization proposal is the eventual phasing out of Social Security

2. Where does your Senator or Congressman/Congresswoman stand on Social Security? 

3. Misleading Coverage or Fabrications on Social Security by many U.S. media outlets (including, in some cases, egregious, propagandistic stenography on behalf of the Bush administration)

4. A sample of the Bush administration's and Republican politicians' mendacity/misleading on Social Security

4.1 Bush continues his long-standing tradition of fake "town-hall" meetings using pre-screened die-hard supporters and scripted exchanges to deceive public on Social Security

4.2 Bush administration attempts to use non-partisan government workers (in Social Security Administration) to push partisan, dishonest privatization scam onto Americans

4.3 Some Republicans dismiss the notion of a "crisis" in Social Security

5. Fraudulent Republican Front Groups spread the fake "crisis" rhetoric and dishonest propaganda

6. George W. Bush's flip-flops on Social Security: A Promise Made is a Promise Unkept

APPENDIX: How should the Democratic Party respond to the fake crisis being propagated through the media?


ACKNOWLEDGEMENTS

The following websites/individuals were the source of the bulk of the information catalogued in this page. I would like to thank them in particular for their extensive coverage on this important topic and for making their analysis available on the Internet so that all Americans can get the real facts on social security.

INTRODUCTION: How the Social Security system is set up in the United States and What it has Accomplished

Kevin Drum (Political Animal) provided a nice overview which I am reproducing here:

Social Security is funded by payroll taxes. In 1983, Alan Greenspan headed up a commission that recommended saving Social Security from imminent doom by raising those payroll taxes to cover expected increases in Social Security payouts. But there was a twist: Greenspan recommended raising payroll taxes above what was required to actually pay current benefits to retirees, with the resulting surplus used to buy treasury bonds that would be piled up each year in Social Security's trust fund. And since these bonds were sold to the trust fund by the federal government, this means that the federal government got a big chunk of extra money every year for use in the general fund.

Under this scheme, payroll taxes were sufficient to cover payouts plus bond purchases until about 2018. Then, from 2018 to 2042, when payroll taxes would no longer be enough to cover payouts, the difference would be made up by cashing in the bonds in the trust fund. In other words, the feds would tap into the general fund to give back all the money that Social Security had handed over between 1983 and 2018. This money would come from the same place all general fund money comes from: income taxes.

Still with me? Here's what this means:

  • Between 1983-2018, this plan calls for payroll taxes to be higher than they need to be to cover payouts to retirees. However, because the surplus payroll taxes are handed over to the feds, it means income taxes are lower than they would otherwise be.

  • Then, between 2018-2042, payroll taxes will be less than they need to be to pay benefits to retirees. However, the difference will be made up by higher income taxes, which will be used to pay off the trust fund bonds.

Payroll taxes are paid mostly by the middle class and the poor. Income taxes are paid mostly by the well off.

So: for 35 years the middle class and the poor pay excess payroll taxes and the well off get a break on their income taxes. However, for the following 24 years the middle class and the poor get a break on their payroll taxes and the well off finance it by paying higher income taxes.

Now, this may sound like a dumb idea to you, but that was the deal. The bottom 80% take it on the chin for a few decades, followed by a couple of decades in which the well off get socked.

But suppose ÷ as conservatives are laying the groundwork for ÷ that Bush decides the trust fund is a mirage, just a giant IOU from one part of the government to the other. And as part of his "reform" plan he proposes a complex scheme that, when stripped to its essentials, entails doing away with the flim flam of that illusionary trust fund and the higher income taxes it will require when 2018 finally rolls around. What would that mean?

It would mean that the middle class and the poor got suckered into overpaying their taxes for three decades, and then when the bill came due the well off ducked out of their end of the bargain.

Of course, that would be a brazen rip off of the middle class in order to give a break to the well off and the rich. George Bush would never do something like that, would he?

Just for additional perspective, here is what George W. Bush promised in Campaign 2000, something the U.S. media have completely, completely allowed him to ignore in this debate:

2/27/01 - [Bush] "...To make sure the retirement savings of Americaâs seniors are not diverted into any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security and for Social Security alone..."
10/3/00 - [Bush]: "...The revenues exceed the expenses in Social Security to the year 2015, which means all retirees are going to get the promises made. So for those of you who [Gore] wants to scare into the voting booth to vote for him, hear me loud and clear: A promise made will be a promise kept..."
3/22/01 - [Bush] "...For years, politicians in both parties have dipped into the Trust Fund to pay for more spending. And I will stop it..."

Paul Starr has a nice review of Social Security's accomplishments in The American Prospect:

Superficially, Social Security resembles traditional employer pensions: Americans pay into the system during their working years and receive a monthly pension during retirement. But the differences are fundamental. Social Security benefits are based on a balancing of two principles: equity and adequacy. Equity means that what you put in is related to what you get out; in other words, workers with higher wages, who pay more into the system, receive higher benefits later on. But under the principle of adequacy, the Social Security benefit formula overlooks years of low earnings (for example, when a worker may have been disabled or unemployed), and it replaces a higher proportion of earnings for the poor than for the rich. Thatâs why itâs our most successful anti-poverty program. In addition, Social Security benefits are indexed against inflation and protected from the ups and downs of the economy and financial markets. Thatâs why the program provides security for the middle class.

Privatization would do away with the idea of guaranteeing a minimally adequate income for the elderly who have worked all their lives. From their own earnings, low-wage workers would be unlikely to generate enough funds in an individual account to maintain a decent standard of living in retirement. Even middle-class workers would be at greater risk of poverty in old age. Itâs intrinsic to financial markets that they yield unequal returns; many of those who did badly with their individual accounts wouldnât have enough from other sources to live on. And markets fluctuate: Some generations would retire during one of the long downturns that periodically hit the markets, when their investments would be convertible only into paltry annuities. Those who lived into their 80s or 90s would be especially likely to outlast their individual accounts, or, if they had bought annuities at retirement, see those annuities severely eroded by inflation.

The elderly used to be an age group with an especially high rate of poverty. One of the signal achievements of Social Security, hardly noticed today, is that poverty has fallen dramatically among Americans over age 65 to just 10 percent, lower than the 12-percent rate for the population as a whole. For millions of the elderly who would otherwise be poor, Social Security is the single biggest source of income, the financial bedrock of their lives. Indirectly, their working-age children are beneficiaries of the program because the elderly no longer have to move in with them. People under age 65 also benefit from two other elements of Social Security that often get forgotten: benefits during long-term disability and survivor benefits for dependents if a worker dies before retirement. These are also important anti-poverty programs that donât carry the stigma of welfare.

Social Security was never expected to be the sole source of retirement income for the middle class, who ideally also have employment-based retirement plans and personal savings. But if one thinks of these various sources of income as making up a ăportfolioä of retirement assets, Social Securityâs distinct value is even clearer. While other assets typically erode or become exhausted with advanced age, Social Security pensions keep their value because they have an annual cost-of-living adjustment. Moreover, as many employers convert from pension plans with a defined benefit to 401(k) and other plans with uncertain payouts, workers are already bearing more risk for retirement. In that context, Social Security provides a valuable hedge against the financial markets.

But whatâs wrong with voluntary and partial privatization -- giving people the option of holding back 3 percent or 4 percent of their Social Security contributions to deposit in individual accounts? Although we havenât yet seen the details of the Bush plan, these proposals typically come with sharp reductions in future benefits for younger workers who opt to remain in the system. These are really proposals to cut Social Security in which the individual-account option is an eye-catching decoy. Voluntary in appearance, these proposals would make Social Security such a bad deal that theyâd trigger a run on the system: Workers, especially those with higher earnings, would likely not only opt for private accounts but demand that the entire program become optional.

Social Security works because it is a compact that extends across income groups. If the affluent leave the system, it would become a welfare program, shorn of the political clout that comes from universal participation. The result would be a self-reinforcing cycle of decline.

Social Security also works because it has been a rolling compact across generations. For decades, the basis of the program was entirely pay-as-you-go -- the taxes paid by workers went to pay for current retirees. When those workers retired, they depended on the next generation to support Social Security. Then, in 1983, Congress raised payroll taxes above the level needed for immediate benefits in order to accumulate savings for the baby-boom generationâs retirement.


1. Facts on Social Security and Privatization

1.100 Social Security is Financially in Very Good Shape - it is not going "bankrupt" and is certainly not facing a "crisis"

Rex Nutting pointed out the following in CBS Marketwatch:

Bush: ăAs a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now.ä

The facts: The Social Security system cannot go "bankrupt," for it has no creditors. By law, the trustees will continue to pay reduced benefits even if the trust fund is exhausted. Payroll taxes will continue to come in and benefits will continue to be paid.

According to the trustees' intermediate economic forecast (neither doom nor boom), the trust fund will be able to pay about 73 percent of scheduled benefits in 2042 and about 68 percent of scheduled benefits in 2078.

Future presidents and Congresses could also choose to fully fund scheduled retirement benefits from general tax revenue.

As CEPR says (bold text is eRiposte emphasis):

According to the Social Security trustees report, the standard basis for analyzing Social Security, the program can pay all benefits through the year 2042, with no changes whatsoever. Even after 2042 the program would always be able to pay retirees a higher benefit (in today's dollars) than what current retirees receive. The assessment of the non-partisan Congressional Budget Office is that Social Security is even stronger. It projects that Social Security can pay all benefits through the year 2052 with no changes whatsoever. By either measure, Social Security is more financially sound today than it has been throughout most of its 69-year history.

Their accompanying chart ("Source: SSA, CBO, and authorsâ calculations") says it all.

Princeton economist Paul Krugman points out the following in his column "Inventing a Crisis" (bold text is eRiposte emphasis):

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire.

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Given these numbers, it's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come.

It's true that the federal government as a whole faces a very large financial shortfall. That shortfall, however, has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security.

But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government.

If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice.

But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.


1.110 As years pass, the projected so-called "doomsday" on Social Security actually has been pushing out even farther; plus even at the so-called [fake] "doomsday" citizens will get 73-81% of the benefits they were promised even if we did NOTHING today

Kevin Drum (Political Animal) has produced this useful and excellent chart. His comments on it are provided below the chart, but be aware that 2042 is NOT a real "doomsday" either! It is just the date when Social Security will cover only ~73-81% or so of promised benefits (depending on which estimate you use)! 

Chart from Kevin Drum (Political Animal):
Note that 2042 is NOT a real "doomsday" either! It is just the date when Social Security will cover only ~73-81% or so of promised benefits!
(depending on which estimates you use) 

So Silent E, this chart's for you: a year-by-year rundown of how much time is left until the Social Security trustees predict Social Security doom. Remarkably, no matter how much time goes by, we never seem to actually get any closer.

There's a very serious point to be made here. Projections of Social Security solvency are based on projections of future economic growth, and the Social Security trustees have been systematically too pessimistic about the economy for the past decade. What's more, there are good reasons to think that they're probably still being overly pessimistic.

If that's the case, then it's probable that the system as a whole is solvent forever and that we won't even have to touch the trust fund for another 40 years ÷ if then. And frankly, a "crisis" that's at least 40 years off and might very well never occur at all just isn't something we should be spending a lot of time on right now. Predicting economic growth within a few tenths of a point 40 years in the future is a mug's game, and trying to justify radical changes on such speculation is foolish.

Social Security is safer without private accounts than it is with them. We should leave it alone and convene again in ten years to see how things are going.

Rex Nutting pointed out the following in CBS Marketwatch:

Bush: "Most younger people in America think they'll never see a dime."

The facts: Social Security says younger people will see a lot more than a dime. Their retirement benefitsöeven under a "flat-bust" systemöwill be significantly higher than today's benefits in real terms.

For low-income Americans, currently scheduled benefits for those who retire in 2080 are $19,906 per year in 2004 dollars. If Social Security can pay only 68 percent of those benefits, that would be $13,536 per year, compared with benefits of $8,804 for low-income retirees who retired last year.

For the highest earners, Social Security is currently promising $53,411 per year for those who retire in 2080 (or $36,319 per year if Social Security can pay only 68 percent). Current maximum benefits are $21,891 per year for those who retired last year.

Roger Lowenstein also mentions this in the New York Times magazine (bold text is eRiposte emphasis):

The debate over Social Security's solvency is really two debates. The first is over how long the trust fund will last. The law requires the Social Security Administration to estimate its financial condition for 75 years into the future, and the agency's conclusions depend on the assumptions it makes about what America will look like decades hence -- how much people will earn, how large their families will be, how long they will live.

Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.


1.120 The long-standing myth of a social security "crisis" is based on the projection that the economy and productivity will grow much slower in the future than it has in the past (while, incidentally, privatization is simultaneously pushed using the opposing claim that stock market returns will somehow, in real terms, be much better in the future than in the past!)

UC-Berkeley economist Brad DeLong has this to say (bold text, except the header, is eRiposte emphasis):

Dean Baker Gives Us All a Social Security Test

He writes, apropos of Social Security:

MaxSpeak, You Listen!: DEAN RESPONDS TO SAMWICK: I have a test of my own that I have been trying to get economists to take (thus far unsuccessfully), in which I ask proponents of privatization to write down the set of dividend yields and capital gains that will give them the 6.5-7.0 percent real stock returns that they conventionally assume. Such returns were possible in the past because the price to earnings (PE) ratios have historically been much lower and profit growth was much faster. The price to earnings ratio averaged about 14.5 to 1 over the last seventy years, compared to more than 20 to 1 today. This is important, because if 60 percent of profits are paid out as dividends (or used for share buybacks), this gets you a dividend yield of over 4.0 percent with a PE ratio of 14.5 to one. It gets you just 3.0 percent with a PE ratio of 20 to 1, and of course less when the PE ratio is higher.

Let's see... Assume a payout ratio of 60%. Earnings yield of 5% per year... That gives you a dividend yield of 3% per year... That means that the profits of currently existing and traded companies (not aggregate profits!) have to grow at 3.5%-4% per year... That means that the economy as a whole has to grow at 4.5%-5% per year forever... That's much higher than the Social Security actuaries' long-run growth assumption, which heads for productivity growth of about 1% per year and very low population growth by 2050...

In other words, the stock market can attain its 6-7% per year real payoff only if the macroeconomic news in the future is much better than Social Security is projecting, in which case there's no Social Security financing problem at all.

What grade do I get?

Matthew Yglesias at The American Prospect also writes about this here:

The $11 trillion long-term Social Security deficit we've been hearing so much about lately -- and that pundits have been screaming about since, quite literally, I was one year old -- are based on a prediction that the economy will do significantly worse in the future than it has in the past. If this is right -- which it may be -- then the stock market will do worse, too, and solve nothing. Changing the underlying assumptions, which is what the privatizers are really doing, solves the problem on its own without any changes to policy.

Part of the Social Security Trustees' pessimism is warranted and based on the idea that population growth will slow down in the future. Demographic projections are never perfect, but demographers have gotten pretty good at making estimates, so this probably will happen.

Much less reasonable are the Trustees' assumptions about productivity growth. They say that after growing 3.8 percent in 2002, 3.4 percent in 2003, and 2.7 percent in 2004, productivity growth will crash to 1.8 percent in 2005 and then slowly decelerate to 1.6 percent by 2012. After that, growth will average 1.6 percent until the end of time. The historical table at the top of the Web page on which this prediction is to be found shows that productivity growth averaged 1.7625 percent from 1960 to 2000. Since 2000, annual productivity growth has averaged 2.75 percent. The postwar years up to 1960, not included on the chart, saw faster growth than did the 1960-2000 period.

The important thing to note is not that the Trustees are necessarily wrong but, simply, that it's silly to pretend to think a panel of government accountants can predict economic events in the year 2037, much less offer a full 75 projection of the future course of the American economy. The trustees might be right: An aging society might prove less innovative and less productive than the America we've come to know. If this is true, Social Security is going to have a problem. So will the stock market. So will the Defense Department. So will just about every aspect of the American government and economy. And if that happens, we'll have to figure out how to respond, ideally by coming up with policies that will boost productivity and get us out of the jam. If we can't do that, we're all going to need to tighten our collective belts -- not just on retirement security, but on all aspects of our lives -- compared with the rapid growth we've learned to expect.

In the meanwhile, we can focus on problems that we do have: a war on terrorism, a large general fund deficit, an inefficient health care system, and a decaying infrastructure. This is how we deal with other areas of public policy. We don't look at the growth in defense spending over the past few years, project it forward, compare it with the tax revenue we can expect under dubious economic assumption, and worry that we may go bankrupt in 2043. Instead, we ask if the size of our military is suited to our present defense needs, and we see if we can't mobilize the resources we need. If we can get by with spending less in the future, we'll spend less.

Kevin Drum (Political Animal) went a step further to point out how the future of Social Security would look like with more reasonable assumptions - using the Social Security Administration's own data/chart. Here is his summary and the accompanying chart from SSA.

SMOKE AND MIRRORS, PART 2....In my previous post I mentioned in passing that it's hard to come up with future projections in which (a) economic growth is bad enough that Social Security goes bust in 2042 but (b) economic growth is good enough that private accounts have investment returns of 7% annually ÷ and thus are lucrative enough to save Social Security. This point is worth expanding on a bit.

Every year the Social Security trustees produce a 75-year financial estimate. To do this, they make estimates of population growth, life expectancy, economic performance, and so forth, and then add them all up into an overall estimate of long-term solvency. In fact, they make three estimates (see chart on right), and the one you hear about in the news is the middle one, or "intermediate projection." In that projection, Social Security starts running a deficit in 2042. The key assumptions in the intermediate projection from 2015 forward are the following:

  • Labor force growth: 0.2% per year.

  • Productivity growth: 1.6% per year.

  • Average hours worked: no change.

Which leads to the following overall estimate:

  • GDP growth: 1.8% per year.

This growth is lower than we're used to, but that's because GDP growth = population growth + productivity growth. Since population growth is slowing down, so will GDP growth.

Still, what if you assume that things will be a little more robust than this? If you project GDP growth of around 2.6% per year, you end up with Estimate I, and in that scenario Social Security never runs out of money. In fact, if you project GDP growth just a few tenths higher than 1.8%, Social Security stays solvent for the next century.

In other words, if GDP growth averages, say, 2.2% over the next 75 years, Social Security is in fine shape and we don't have to do anything. We only need to "fix" it with private accounts if GDP growth is less than that.

So here's the puzzler: for private accounts to be worthwhile, they need to have long-term annual returns of at least 5%, and 6-7% is the number most advocates use. But are there any plausible scenarios in which long-term real GDP growth is less than 2% but long-term real returns (capital gains plus dividends) on stock portfolios are well over 5%?

Privatization enthusiasts are encouraged to leave their answers in comments.

[From SSA.gov report]
Figure II.D7.--Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions
 
[Assets as a percentage of annual cost]

Kevin has a follow-up post in which he points out that the projection labeled I in the chart above is actually quite believable based on historical results.

When the Social Security trustees project the future, they actually make three projections: pessimistic, optimistic, and intermediate. The intermediate one gets all the press, but which one has historically turned out to be most accurate? Roger Lowenstein tells us today in the New York Times Magazine:

David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case ÷ sort of a doomsday situation ÷ was wildly inaccurate.

In the "optimistic" case, of course, Social Security is solvent forever even with no changes ÷ as the chart on the right shows [eRiposte note: the chart that Kevin is referring to is the one on top and by "optimistic" case he is referring to the line labeled "I"]. (Note: the chart illustrates the projected health of the trust fund under all three scenarios. When the blue lines hit zero, the trust fund is exhausted. Click the chart to read the underlying details.)


1.130 What is really in crisis is the Federal Budget *excluding* Social Security - the Bush administration doesn't want people to know that massive Social Security surpluses are being used to finance the record deficits due to Bush's massive tax cuts for the super-rich and out-of-control spending on Iraq and GOP pet projects (contrary to Bush's 2000 campaign promises) 

Brad DeLong's chart provides a visual picture of what is going on:


1.131 The programs that are really raising the prospects of bankruptcy and "crisis" (in a shorter time span) are President Bush's tax cuts and the Big Pharma Welfare Bill, aka the Medicare Bill

Josh Marshall at Talkingpointsmemo offers some perspective (bold text is eRiposte emphasis):

Here is one of many comparisons and observations we'll be making to provide some counterweight to the White House's efforts to deceive the American people about Social Security.

The Social Security Trustees estimate that over the next 75 years the program faces a budget shortfall of $3.7 trillion.

As we've noted previously and will again, the Trustees use a very pessimistic estimate of future economic growth to arrive at that figure. But, for the moment, let's stipulate to that amount.

$3.7 trillion is a lot of money.

But how much will the president's Medicare drug benefit plan cost over the next 75 years?

$8.1 trillion, say the Trustees of that program.

And over the next 75 years how much will the president's 2001 and 2003 tax cuts cost if made permanent, as the president wants?

$11.6 trillion.

So you add that up and you get $3.7 trillion we need to cover Social Security's shortfall and $19.7 trillion we need just to cover the costs of the two major domestic policy initiatives of the president's first term.

And yet Social Security, says the president, is in crisis and destined to chew through the rest of the federal budget.

(These statistics are noted in this budgeting summary from the Center on Budget and Policy Priorities.)

I would submit to you that in any reasonable universe this simple comparison shatters the president's credibility on fiscal 'icebergs' and spending crises. And yet these basic facts seem to garner little notice.

That is because, in the last couple decades, in the culture of Washington -- particularly among the elite commentators and reporters (just watch Meet the Press) -- presuming that Social Security is financially unviable has become an ready shorthand for public policy seriousness, much as many use a basic knowledge of imported wines or a familiarity with classical music to signal refinement.

This is something the president is exploiting. And the defenders of Social Security must find ways to overcome it.


1.132 Claims that Social Security has an "unfunded liability" of "$11 trillion" are outright deception

Dean Baker, among others, has pointed this out in The American Prospect:

But the proponents of the crisis story have been largely successful in spreading fear. Part of this success is due to the use of deceptive language in framing the issue. The promoters of the crisis routinely speak of an $11 trillion ăunfunded liabilityä for Social Security. But most of the people who hear the $11 trillion figure or use it (including reporters) probably have no idea what it means.

The $11 trillion is obtained by projecting Social Security taxes and spending for the infinite future. The gap between projected spending and taxes for all time is then summed up (using a 3-percent real-discount rate) to get a projection of $11 trillion of debt.

However, more than two-thirds of this projected debt is due to spending beyond the 75-year planning period for Social Security. This means that the debt is not something that we are imposing on our children or grandchildren. Rather, it is a debt that we are projecting that our great-grandchildren would impose on their grandchildren -- assuming pessimistic economic projections.

The basic story is that life expectancies are projected to increase through time. This raises the cost of the program through time. If taxes are never raised and benefits are never reduced, the shortfall would eventually be very large.

But serious people donât worry about designing Social Security for the 22nd century. (The secret here is that we donât actually get to design Social Security for the 22nd century anyhow -- the people who are alive in 50, 60, and 70 years will design the program in a way that makes sense to them. They will not care at all about what we thought was a good system in 2005.)

If we just confine ourselves to the already lengthy 75-year planning period, the projected shortfall comes to $3 trillion. This may still sound very large. However, the Social Security trustees calculate that this shortfall is 0.7 percent of national income over the planning period. The CBO projects an even smaller number, just 0.4 percent of income over the next 75 years.

By comparison, the increase in annual defense spending since 2001 has been more than 1 percent of the gross domestic product, twice the size of the Social Security shortfall projected by the CBO. And Bushâs tax increases equal about 2 percent of the GDP. In fact, rolling back Bushâs tax cuts on the very wealthiest would raise sufficient revenue to cover the shortfall for 75 years.

Incidentally it is the Bush administration that is spreading this garbage. As Josh Marshall points out at Talkingpointsmemo:

If you have a blog and can't think of a topic to dig into today, try reading through this online Q&A the White House just held with Chuck Blahous, President Bush's Social Security phase-out maven.

Listen to this exchange with "Stuart" from New Jersey (italics added) ...

Stuart, from New Jersey writes:
How can we make the transition to invester owned social security without incurring 2 trillion in dept to fund current citizans recieving assistance?

Chuck Blahous
As long as we have a Social Security system, there will be costs no matter what we do. The Social Security Trustees have told us the cost of maintaining the current system without change. It is approximately $10.4 trillion, in present value. That is the extra revenue that the system would need to have on hand today, above and beyond all payroll taxes, to meet the gap between taxes and promised benefits.

A number of comprehensive proposals have been put forward, some by Members of Congress, others by the Presidentâs bipartisan Commission to Strengthen Social Security. President Bush has not selected a specific reform proposal. Several of these proposals would fix the system permanently while considerably reducing the cost of sustaining the system under current law.

The current system would begin its ătransitionä from the black to the red in 2018. From that date onward, under current law, the current system would face a deficit that is growing worse with each following year. The President has proposed that we head off this event by beginning to invest now in the future of Social Security. We can do this for far less than the $10 trillion cost of sustaining the current system.

Wow, Social Security Administration needs ten trillion dollars on hand today and it's got nuthin'. That really is a crisis!

Infinity? Today? But, hey, who's counting?

Does Blahous not think anybody's going to read this stuff?

Josh has this note as well:

The Times states the facts correctly: "Starting last year, as the groundwork was being set for the emerging debate, the Social Security trustees took the liberty of projecting the system's solvency over infinity, rather than sticking to the traditional 75-year time horizon. That world-without-end assumption generates the scary $10 trillion estimate, and with it, Mr. Bush's putative rationale for dismantling Social Security in favor of a system centered on private savings accounts."

The whole editorial is well worth your reading.

What follows also tells an important part of the story ...

The American Academy of Actuaries, the profession's premier trade association, objected to the change. In a letter to the trustees, the actuaries wrote that infinite projections provide "little if any useful information about the program's long-range finances and indeed are likely to mislead any [nonexpert] into believing that the program is in far worse financial condition than is actually indicated."

As it often does with dissenting professional opinion, the administration is ignoring the actuaries. But that doesn't alter the facts or common sense. If the $10 trillion figure is essentially bogus, so is the claim that Social Security is in crisis. The assertion that doing nothing would be costlier than enacting a privatization plan also turns out to be wrong, by the estimates of Congress's own budget agency.

I wouldn't imagine that the American Academy of Actuaries annual convention would be the one you'd want to go to for the most rockin' parties. But presumably this is a topic they know something about.


1.140 By the definition of "bankruptcy" used by privatization proponents, our military is "bankrupt" TODAY (not in 2042 or 2052) - why are there no calls to "reform" the military? Medicare is far more of a problem - how come reform advocates are not spending sleepless nights proposing solutions to that?

Matthew Yglesias notes this at TAPPED (bold text is eRiposte emphasis):

WHEN IS A BANKRUPTCY NOT A BANKRUPTCY? I was groping toward this analogy myself, but Daniel Mitchell, professor of management and public policy at UCLA (via Mark Kleiman) has the numbers:

Those seeking radical restructuring of Social Security use the word "bankruptcy" to mean that the day will come when the program's trust fund will be exhausted and its earmarked tax revenue will be insufficient to pay all entitlements. By that definition, the military is bankrupt today. We spend about $500 billion per year on the military, including veterans' payments. Yet the Pentagon has no earmarked tax revenue and no trust fund. If our indefinite entitlement to national defense were treated analogously to Social Security, the Pentagon's "unfunded liability" would be on the order of $15 trillion to $20 trillion ÷ that's trillion! Yet no calls for radical restructuring of the "bankrupt" military are heard.
There are two points to be made here. One is that the nonöSocial Security budget deficit is a much more pressing concern than is Social Security's projected financial shortfall, which may not even arise depending on how things go in the future. The other is that government programs -- and, indeed, whole governments -- don't go "bankrupt" when expenditures exceed revenues. If promised benefits do wind up exceeding payroll tax receipts at some point in the future, the government can just run a deficit for a year or two while the politicians of that era decide what to do.

Kevin Drum provides an excellent comparison of Social Security and Medicare here.

Bob Somerby has more at The Daily Howler:

...almost everyone agrees that, in some sense or other, Social Security faces future revenue problems. But should we refer to this as ăbankruptcy?ä For the record, this situation doesnât ăsound a lot like bankruptcyä to us, the judgment our reader reports. When John Smith canât afford to pay his full rent, people donât normally say that heâs bankrupt. They say he should move to a cheaper apartment, or that he should take on a second job, or that he should borrow some money or sell his slick car. So no÷English being our mother tongue, we donât feel inclined to say that SS is going ăbankrupt,ä ăbrokeä or ăbelly-up.ä We think those formulations are semantic propaganda÷carefully chosen formulations designed to mislead, not inform.

And make no mistake÷these locutions have misled the public. For the most obvious example, consider what our e-mailer says about his own past understanding. ăI have long assumed that ÎSocial Security won't be there for me,âä he writes. ăIt appears that I was wrong.ä But why did our reader ever believe that Soc Sec ăwouldnât be thereä for him? Most likely, he reached this conclusion because he kept hearing people say that the system was going ăbankruptä (ăbelly-upä). These locutions are vastly misleading, as the e-mailerâs experience shows. Most likely, thatâs exactly why the locutions were chosen as conservative talking-points.

Over the course of the past several decades, the RNC has become quite adept at formulating poll-tested bits of language÷locutions baldly designed to mislead. In their 1996 book, ăTell Newt to Shut Up,ä David Maraniss and Michael Weisskopf wrote a brilliant chapter on the mid-90s Medicare debate, describing how the GOP developed the language that became their great banner: No one is cutting Medicare; weâre just slowing the rate at which the program will grow. This formulation was vastly misleading; along with Standard Data the party used in its sales pitch, many voters were led to believe that the GOP plan would produce a vast increase in Medicare services, a belief which was pleasing but surely mistaken. The locutions were slick÷and vastly misleading. For a full discussion of this episode, you know what to do: Just click here.

The ăbankruptcyä metaphor serves the same purpose. Why must this locution be challenged? Because it has led a generation of Americans to believe things that are plainly false÷to believe that Social Security ăwonât be thereä when they retire, for example. In his e-mail, our reader says he realizes now that he was wrong in that belief; 81 percent of promised benefits isnât nothing, after all. But why do so many younger Americans believe SS ăwonât be thereä for them? The ăbankruptcyä metaphor has vastly misled them. For ourselves, weâll assume thatâs why the locution was chosen. But at any rate, the locution does mislead, and thatâs why it should be challenged at every turn in this debate.


1.150 The Social Security trust fund is not a "myth"; dishonest privatization proponents use the "myth" term when convenient, while dropping it when inconvenient  

Roger Lowenstein writes the following in the New York Times magazine:

The second debate concerning solvency is over whether the securities in the trust fund will be honored or whether, in Moore's pointed imagery, the fund will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This seems an odd preoccupation. Social Security does not own junk bonds or third-world debt; it invests in U.S. Treasuries, considered the safest investment on the planet. Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss. Goss, the agency's actuary, says he has no doubt it will be able to do so again. ''Absolutely,'' he said when asked if the trust-fund bonds are sound.

This isn't what some conservatives have said. Paul O'Neill, the former treasury secretary, went so far as to say that Social Security has no assets. In anti-Social Security literature, the ''no assets'' contention isn't even debated; it's treated as gospel. According to Michael Tanner, head of the Cato Institute Project on Social Security Choice, the agency's pauperism has turned America's seniors into ''supplicants'': after working and paying taxes their entire lives, ''they earn the privilege of going hat in hand to the government and hoping that politicians decide to give them some money for retirement.'' The implication is that the money isn't there: graybeards will have to beg for it.

Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.)

Such hyperbolic claims aside, there is a serious issue at the heart of what worries critics. It isn't that the trust fund is broken; it's that the existence of the fund is seducing the government to spend more than it otherwise would, thus brooking larger deficits in the future. Since Social Security lends its surplus to the Treasury (that's what it means to be investing in Treasuries), it is parking its surplus cash with the government. And just as lending money to a child outside a candy store may impose an impossible temptation, so the government may feel tempted while it holds onto Social Security's purse.

Ideally, Congress would recognize that the surplus is only temporary and would, therefore, take pains that the money lent to it is properly saved -- that is, that it run a surplus. But the government is operating at a deficit. So you must conclude that rather than saving Social Security's surplus, the government has been spending it -- on the military, education, tax cuts. In only 15 years, the government will have to start repaying its debt to Social Security. It will be able to do so. If need be, it will borrow, as it has borrowed for many purposes since 1776. The amount of borrowing, which could very gradually scale up to 1 or 2 percent of the country's gross domestic product, will be far smaller than the present federal deficit, which is just under 4 percent of G.D.P. But to avoid layering one deficit atop another, the government needs to exercise discipline -- to not overindulge in candy -- in the years when Social Security is running a surplus.

Bob Somerby at the Daily Howler says:

Pundits love to wring their hands about those worthless IOUs in the trust fund. But please note÷an ăIOUä is all anyone gets when he loans money to the government! When Ross Perot buys government bonds, he expects that heâll be repaid on schedule. But all he has is the governmentâs promise÷a promise that becomes a ăworthless IOUä when we start talking about SS. Everyone who loans money to the government receives a promise to be repaid. And no one calls this a ăworthless IOUä÷until we start using the slick-slippery spins cooked up to bring down this key system.

As Somerby also notes here:

But, just like the other Scary Scripts, this one is pure propaganda. Over the past twenty years, Congress has sold bonds to (borrowed money from) the Soc Sec trustees, as it has done with many other individuals and entities. Over that time, Congress has borrowed money from (sold bonds to) many sources÷and everyone always gets paid back. If Congress hadn't borrowed the money from the SS trustees, they would just have borrowed it from someone else÷and those parties would have been paid back too, just as everyone gets paid back, just as the trustees will get paid back. This "IOU" story is Pure Grade A Bullroar, but it's been recited about ten million times. Hereâs how Baker and Weisbrot approach it:

BAKER/WEISBROT (page 29): What does it mean, then, to say that Social Security must be cut rather than that the government must meet its obligations to the trust fund? When government bonds held by Bill Gates or Ross Perot or any other wealthy individual or pension fund mature, nobody proposes that the creditors should not be paid their principle. Yet the reformers insist that the 144 million Americans who loan money to the U.S. Treasury from the Social Security trust fund somehow do not have the same claim.
Over the past two decades, the government has borrowed large sums from many sources. Everybody gets paid back. But when they think about paying back the SS trustees, scripted pundits gasp and gag, suggesting that it just canât be done. Perot and Gates? All they have is IOUs too! But no one suggests they shouldnât be paid. Itâs just the same with these other ăIOUsä÷the ones the trustees are holding.

The Russerts have peddled a fake tale for years÷but citizens need the full range of facts.

Kevin Drum at Washington Monthly also commented on this hoax being pushed on to Americans:

REAL MONEY....One of the most common conservative critiques of Social Security is that the Social Security trust fund is a myth. Since it consists solely of treasury bonds, it's nothing more than a promise from one branch of the government to another. It's not real money, it's just an IOU.

But that's a serious misunderstanding of what money is. It's a promise. After all, you don't think those dollar bills in your wallet or the bits and bytes in your bank account have any real value, do you? In fact, their only value is that they're a promise: a promise that you can exchange them at some future time for concrete goods and services. When people no longer believe in that promise (think Weimar Germany), money no longer has any value.

The trust fund works the same way: it's a promise to the taxpayers who filled it up that at some later date it can be used to buy goods and services. The mechanism for honoring this promise ÷ that is, ensuring that at some point in the future the original investors get the goods and services they were promised ÷ is to collect taxes and turn the resulting revenue over to retirees. This promise can no more be broken than the promise that the United States government accepts dollar bills as legal tender.

Still not convinced? Try this instead: how about if we sell off the current contents of the trust fund to outside investors? They think it's real, and they'd be happy to buy those bonds ÷ in an orderly way, of course. After that was done and the money was reinvested, the trust fund would be full of stocks and corporate bonds ÷ and voila, suddenly everyone would magically agree that it's real money.

So yes, the trust fund is real. It's a promise from the United States government backed up by its taxing authority, just like real money, and it's accepted by outside investors, just like real money. How much more real can it get?

Economist Paul Krugman has written eloquently on the dishonesty of privatization proponents in The Economist's Voice:

But the privatizers wonât take yes for an answer when it comes to the sustainability of Social Security. Their answer to the pretty good numbers is to say that the trust fund is meaningless, because itâs invested in U.S. government bonds. They arenât really saying that government bonds are worthless; their point is that the whole notion of a separate budget for Social Security is a fiction. And if thatâs true, the idea that one part of the government can have a positive trust fund while the government as a whole is in debt does become strange.

But there are two problems with their position.

The lesser problem is that if you say that there is no link between the payroll tax and future Social Security benefits ÷ which is what denying the reality of the trust fund amounts to ÷ then Greenspan and company pulled a fast one back in the 1980s: they sold a regressive tax switch, raising taxes on workers while cutting them on the wealthy, on false pretenses. More broadly, weâre breaking a major promise if we now, after 20 years of high payroll taxes to pay for Social Securityâs future, declare that it was all a little joke on the public.

The bigger problem for those who want to see a crisis in Social Securityâs future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, itâs just part of the federal budget: there canât be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but itâs hard to make the case that it will be central.

...

But let me try this one more time, by asking the following: What happens in 2018 or whenever, when benefits payments exceed payroll tax revenues?

The answer, very clearly, is nothing.

The Social Security system wonât be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. Thatâs not going to happen. So legally, mechanically, 2018 has no meaning. Now itâs true that rising benefit costs will be a drag on the federal budget. So will rising Medicare costs. So will the ongoing drain from tax cuts. So will whatever wars we get into. I canât find a story under which Social Security payments, as opposed to other things, become a crucial budgetary problem in 2018.


1.155 Some Republicans' claim that the U.S. Government is unlikely or not obligated to pay back the borrowings from the Social Security Trust Fund is downright illegal

Josh Marshall at Talkingpointsmemo brought this to our attention:

Sen. Wayne Allard of Colorado has an interesting approach to the Social Security and the Trust Fund.

He says that the US government will simply go into default and never pay the money back.

You'd think that would make some news.

From today's Greeley Tribune ...

"I believe we have a problem with Social Security that will emerge in 2018," he said. "At that point in time, Social Security pay out will be more than what is in the fund put in by working people or employers."

Allard said there are no reserves in Social Security because what is there is automatically transferred into the general fund, leaving a debt of $28 trillion. But he doesn't believe the money will ever be repaid to the fund.

"The money is spent," he said. "I don't believe in my own opinion we'll be able to raise the funds to pay it back."

Do other Republicans think default is the solution? Does the president?

And since the portion of our national debt owed to the Social Security Trust Fund makes up (I believe) less than a third of our total debt, are we going to default on the rest of those bonds too?

Via Dave Johnson at Seeing the Forest, here's Brad DeLong commenting on this travesty:

Yesterday a note from historian David Kaiser crossed my desk that points out that things are worse than Max suspects. Not only does Wayne Allard support policies that are craven, reactionary, Leninist, oligarchical, and expropriationist, it is also the case that Wayne Allard's very words are a gross and unconstitutional violation of his oath of office as a senator. As Kaiser writes, section four of the Fourteenth Amendment begins:

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

If the [Social Security] Trust Fund should ever have trouble collecting on that asset... some citizens' organization should file suit under this provision to... reaffirm the validity of the Federal Government's obligation to the [Social Security] Trust Fund.

My view: Why wait? Expel Wayne Allard from the Senate immediately for this gross violation of his oath of office.


1.160 Correcting Social Security's projected shortfall is actually easier now than it would have been in past decades

As CEPR says (bold text is eRiposte emphasis):

It has been necessary to raise Social Security taxes in the past, primarily because people are living longer than they used to. The tax increase that would be needed to make the program fully funded over its seventy five year planning period is actually smaller than tax increases we have seen in prior decades. In other words - it would have made more sense to talk of a Social Security "crisis" in 1965 than in 2005. In fact, according to the Congressional Budget Office estimates, Social Security can be made solvent throughout its seventy five year planning period with a tax increase that is less than one quarter as large as the one in the eighties.

While tax increases are never popular, the fact is that prior tax increases did not prevent decades like the fifties or sixties from being periods of great prosperity. Of course, if the economy maintains anywhere near its recent pace of growth, any tax increases can be put off for many decades into the future, and possibly forever.

Their accompanying chart below ("Source: SSA and authorsâ calculations") provides a visual summary. For reasons discussed elsewhere in this page, I consider the CBO projection to be more trustworthy.


1.170 The number of workers per retiree says little or nothing about the financial robustness of Social Security; yet this metric is frequently used to mislead people into believing the hoax of a social security "crisis" 

Bob Somerby points this out using the writings of David Brooks at the New York Times to illustrate:

TOLD BY AN IDIOT: ăI may be a complete idiot,ä David Brooks says near the end of this morningâs column. But that would be the innocent explanation. Stupid÷or storebought? You be the judge as Brooks types the Requisite Script:
BROOKS (12/11/04): Plans to create private Social Security accounts aren't sops to the securities industry. They use the power of the market to solve an otherwise intractable problem.

The outline of the problem is clear. When the Social Security program was created, there were 42 workers for each retiree. Now there are about three workers per retiree, and in 2030 there will be two.

Without the use of private accounts, Social Security presents an ăintractable problem,ä Brooks says. And, to help readers see how intractable it is, he provides the Requisite Scripted Scare Story÷the story every good boy know to type. Back in 1935, he says, there were 42 workers for every retiree!!! And soon, the ratio will be 2-to-1!!! How could the system survive it?

Is Brooks just an idiot, as he suggests? Or is he engaged in deliberate misdirection? As we have noted before, that frightening 42-to-1 ratio sheds absolutely no light on whether the Soc Sec problem is ăintractableä (see THE DAILY HOWLER, 12/8/04). And Brooks fails to note the basic fact that is relevant; he fails to note that, under the current 3-to-1 ratio, Social Security is producing a surplus! Could the system remain in balance as the ratio moves closer to 2-to-1? That is a very good question. And Brooks offers data that are clearly designed to stop folks from puzzling it out.

So which is it? Is Brooks just an idiot? Or is he corrupt? Those who want to riddle that out might also consider this presentation. Can Brooks be this idiotic?

BROOKS: What you hear these days is not liberalism. It's conspiracyism. It's the belief that the Bushite corporate cabal is going to do to domestic programs what the Bushite neocon cabal did in the realm of foreign affairs. It's the belief in malevolent and shadowy forces that will grab everything for their own greedy ends. This is Michael Moore-ism applied to domestic affairs, and it will leave the Democrats only deeper in the hole.
Name-calling brilliantly, Brooks accuses Dems of ăconspiracyism,ä and, of course, he invokes Michael Moore. But might the people who scammed the country about Iraq also scam you on Social Security? This thought would occur to almost anyone÷except, of course, for complete idiots, and except for the store-brought, scripted tribunes who type Standard Tales of the rich.

Every reader gets to decide why Brooks wrote this morningâs column. But you have two choices when cultured fellows like Brooks present that irrelevant ă42-to-1" datum. It may be that theyâre just complete idiots, the explanation Brooks suggests. But that would be the innocent reading. When writers throw in irrelevant, scripted facts÷and fail to offer the relevant data÷weâd suggest the real explanation may lie in darker parts of lost souls.

Another link from Somerby:

Indeed, in Social Security: The Phony Crisis, Baker and Weisbrot discussed the scary facts which Russert loves to recite:

BAKER/WEISBROT (page 32): Another statistic played up by [advocates of privatization] is the ratio or workers to retirees. It is often noted, for example, that the number of workers paying Social Security taxes for every retiree drawing benefits will fall from 3.3 today [1999] to 2.1 by the year 2030. It is thus argued that the system will become unsustainable without serious benefit cuts.

Too many old folks! And way too few workers! Russert loves reciting these facts, which suggest the system is headed for disaster. But as they continue, Baker and Weisbrot, somewhat drily, offer a larger context:

BAKER/WEISBROT (continuing directly): But the decline in this ratio has actually been considerably steeper in the past. In 1955 there were 8.6 workers per retiree, and the decline from 8.6 to 3.3 did not precipitate any economic disaster.

These figures also neglect to take into account the reduced costs faced by the working population from having a smaller proportion of children to support. A more accurate measure of the actual burden faced by the employed labor force would be the total dependency ratio, which includes both retirees and children relative to the number of workers. This ratio is projected to increase from 0.708 today to 0.796 in 2035. This is not a large increase, and the latter figure is considerably below the ratio for the year 1965, which was 0.947.

In short, those future workers÷the ones Russert cites÷may not have it so bad after all. Yes, theyâll have more dependent retirees on their hands÷but theyâll have fewer dependent children. But then, The Phony Crisis is full of facts which place the situation in a broader context. Why then do we only hear facts which suggest a ălooming crisis?ä

As Somerby also points out:

Here are Baker and Weisbrot early in The Phony Crisis:

BAKER/WEISBROT (page 2): The program has promised, and historically delivered, a benefit that rises with wages in the economy. In order to maintain this commitment, we may have to increase the systemâs revenues at some point. Would this place an undue burden on the post-2034 labor force? Hardly. Even if we were to increase payroll taxes to cover the shortfall, the added cost would barely dent the average real wage in 2034, which will be over 30 percent higher than it is today.

Baker and Weisbrot wrote this in 1999; the dates and numbers would be somewhat different today. But how can we get from the current ratio (roughly three workers per retiree) to the future ratio (roughly 2-to-1)÷the ratio pundits say is so scary? Easy! With that current 3-to-1 ratio, we are producing an annual surplus in Soc Sec revenues. By the time the ratio hits 2-to-1, a larger economy will help offset the declining number of workers. Donât be fooled when pundits present that Scary Ratio, or when they talk about the Frightening Number of Retirees:

BAKER/WEISBROT (page 32): In fact, the proportion of people over 65 is 12.7 percent today, and will grow to 20 percent by 2030. At the same time, the economy is projected to grow by 59 percent. Can an economy that is 59 percent bigger support an increase of this size in its retired population? There is little reason to doubt that it can, and, as we will see, with little adverse impact on the rising living standards of the rest of the nation.
So donât let [Sen. Lindsey[ Graham and [Tim] Russert fool you with those Scary Ratio Tales. They offer irrelevant, dated ratios (16-to-1!) to make the current situation seem frightening. But the current ratio, around 3-to-1, is throwing off annual Soc Sec surpluses! And, as Baker and Weisbrot explain in more detail (se page 24, for example), the growing economy will keep the system reasonably shipshape as the ratio drops. Citizens need to know these facts÷and they need to shout them out when Russert, typing from a breezy island, offers Scripted Frightening Tales about the ratio back in the â30s (42-to-1!!). That pointless old fact is frightening but irrelevant. It needs to be thrown directly back into Russertâs breeze-blown, island face.

1.175 Some say that current projections on Social Security solvency underestimate increases in life-expectancy. However, the data to-date suggests otherwise.

Kevin Drum at Political Animal (Washington Monthly) has addressed this:

...a few weeks ago the New York Times ran an article suggesting that the government's projections of life expectancy were actually too optimistic, and thus made the system seem healthier than it really was.

I didn't post about it because I was on vacation at the time, and in any case it was a very frustrating article, full of dueling quotes with practically no backup for their various contentions. For example:

Last year an expert panel advising the Social Security Administration found "an unprecedented reduction in certain forms of old-age mortality, especially cardiovascular disease, beginning in the late 1960's."

....David A. Wise, a Harvard professor who is director of the program on aging at the private, nonpartisan National Bureau of Economic Research, said: "Almost all demographers outside the government think that death rates will continue to fall faster than the decline incorporated in the projections of the Social Security Administration. Most think life expectancy will increase more rapidly than Social Security says. That's not good for the finances of Social Security."

Maybe. But take a look at the chart on the right [eRiposte note: the chart is not shown here, but is available at Kevin's post and is based on this data], which shows life expectancy at age 65 for the past six decades. Nothing about it seems either radical or unprecedented.

For men, there's an inflection point in 1973. Since then, male life expectancy has increased steadily by one year per decade.

For women, there's an inflection point in 1979. Since then, female life expectancy has hardly budged. In fact, in the past two decades female life expectancy at age 65 has increased by a grand total of four months.

These numbers are so steady and unambiguous that it's unclear why anyone thinks they're suddenly going to start skyrocketing beyond the current projections used by the Social Security actuaries. On Sunday,
the New York Times Magazine provided an explanation ÷ of sorts:

A 65-year-old man today can expect to live to nearly 82. According to the most likely projection, in 2080 he should expect to live to 86. [Social Security's chief actuary Stephen] Goss says that the agency is assuming that medical technology will deliver more ''miracles.'' Most demographers agree with him, and some even think the agency is not being optimistic enough. The only trouble is, as Goss notes, that over the past 20 years ''they have been wrong at every turn. There has been less improvement than we were expecting.'' Indeed, the improvement in mortality has slowed significantly. And no one is sure why it has slowed. Nonetheless, the agency expects a sharp rebound over ensuing decades. Its fiscal gloominess thus depends on a speculative uptick in medical miracles.

In other words, historical data suggests that Social Security's longevity projections are fine. In fact, more than fine: they already project higher life expectancies than the data supports, and the only reason to think they should be higher still is if you assume even more spectacular medical breakthroughs than they do.

And who knows? Maybe that's what will happen. Then again, maybe our Big Mac consumption will outstrip medical science's ability to save us from ourselves. But in any case it hardly seems reasonable to base current policy on unknowable future breakthroughs. For now, it looks to me like Social Security's life expectancy projections are probably pretty reasonable.


1.180 The progressive nature of how benefits are paid is more than fair considering it is intended to offset the regressive nature of the social security tax structure 

As CEPR says (bold text is eRiposte emphasis):

Social Security benefits are highly progressive, so that low wage workers get a much higher share of their wages in benefits than do high wage workers. A worker who earned $10,000 a year during their working lifetime can expect to see a benefit that is equal to approximately 75 percent of their average wage. A worker who earned $33,000 a year will get a benefit that is equal to approximately 45 percent of their wage, while a worker who earned $50,000 on average will get a benefit that is equal to 39 percent of their wage.

While poorer workers do not live as long as higher paid workers, the progressive benefit structure largely offsets differences in life expectancy (as do disability and survivors benefits for those who do not live to normal retirement age). Furthermore, since plans are being made for the distant future, the United States could reduce the gaps in life expectancy by income and race, as other countries have done.

Their accompanying chart ("Source: SSA and authorsâ calculations") provides a visual summary.


1.181 Proposals to index the first social security payment to inflation rather than wages is nothing more than an underhanded attempt to usurp taxpayer funds and deny retirees their due

Matthew Yglesias at The American Prospect has written about this (bold text is eRiposte emphasis):

Last week, Peter H. Wehner -- Karl Rove's deputy inside the White House -- shared with us, in a leaked memo, his view that "no one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives." This was part of his explanation of why the forthcoming Bush plan should solve the phony Social Security "crisis" by freezing the growth in benefits -- thus offering the retirees of the future a 40 percent cut in promised benefits.

One's suspicions that the Bush economic policy is being crafted in the Gamma Quadrant are only bolstered by talk of this sort, since, on the planet where I live, Earth, plenty of people can tell you why this should be so. As a member of the About to Be Screwed Generation at the tender age of 23, however, a special obligation rests on me to explain why we shouldn't pay for the fiscal profligacy of the Bush era by slashing my Social Security benefits. The underlying issue here is what's known in the business as shifting the program from its current "wage index" system to a "price index" system. Right now, a retiree's initial benefit level is linked to, among other things, the growth in average wages rather than the growth in the Consumer Price Index.

The most basic reason why I'm entitled to wage-indexed benefits is, simply: That's what the law says. Since wages normally grow faster than prices, this means benefits get more generous in real terms over time. Just as 2004's wages are more generous than the wages paid in 1974, so, too are the benefits paid in 2004 more generous than those of 1974. And every month, my tax dollars are paying for those more generous benefits. This is OK for two reasons. First, since 2004's wages are more generous than 1974's, I can afford to pay more tax in absolute terms than could the young journalists of 1974. Second, the program I'm paying for right now is supposed to endure over time. A portion of my 2004 wages goes to pay 2004-level benefits on the assumption that, when I start collecting benefits in the still-richer 2048, I'll get 2048-style benefits -- not 2004-style ones. As the "moral values" crowd could no doubt tell you, it isn't fair to break promises, especially when we've been doing things (like collecting payroll taxes) on the assumption that the promise will be fulfilled.


One can get a more fundamental answer to Wehner's question by simply asking why I, a 23-year-old in 2004, should enjoy a better life than did my parents' generation, and their parents' generation, when they were my age. I'm typing this column on an Apple PowerBook G4. This machine is not only considerably more powerful than anything my father owned when he was 23, it's more powerful than the best computer that existed in the entire world back in the mid-1970s. I have an iPod, a DVD player, cable, and a cell phone. All this is made possible by the enormous technological progress that my generation is able to enjoy -- even though, so far, we've contributed almost nothing to American prosperity.

In addition to technological progress, there's the simple accumulation of capital goods. The Metro station across the street from my house that I use almost every day to get around town didn't exist when my father was my age. Neither did the street I live on. The entire Washington, DC, Metro system hadn't yet been built when my grandparents were my age. Back then, average people not only didnât have cable, they didn't have televisions at all. It was massively more expensive to ship food around the world, making it impossible to acquire the fresh, out-of-season produce we take for granted today. Air travel was a rarity back then, as was air conditioning.

The point is simple: Life gets better over time because the economy grows in real, per capita terms. In some sense, there's no way to justify the arbitrary good luck that people enjoy in virtue of being born later in the saga of historical progress. In another sense, we take this for granted. Since each generation, in the course of improving its own standard of living, inevitably leaves its children better off, there's no serious injustice here. Social Security benefits grow in real terms over time so that senior citizens have the opportunity to share in the increased prosperity that was made possible by their hard work in earlier years. Today, thanks to wage-indexing, the living members of the much-heralded Greatest Generation enjoy a standard of living befitting the early 21st century. If we'd implemented a price index from the beginning, they'd currently be stuck at the much lower standard of living enjoyed in their youth -- a time when many Americans lacked telephones and electricity.

What was considered a normal life back then would be abject poverty today. President George W. Bush is proposing that my generation be condemned to a similar fate. No one knows what life will be like decades from now; but, unless something goes badly wrong, it will be much better than life today.
It will be better, in part, because of the contributions people my age will make to America's growing store of public and private capital and technical knowledge. Social Security will allow us to participate in the prosperity that we will have helped to create. Bush wants to deny us that opportunity, and it isn't right.

And it's important to note that things will only get worse and worse over time under Bush's proposal.
...
But they don't dare come out and say so by just eliminating the program outright. Instead, Bush wants to kill it slowly -- leaving things more or less intact for himself, Dick Cheney, John Snow, Alan Greenspan, and the rest of the gang, while leaving my generation, our children, and our children's children holding the bag.

 


1.190 Even if social security taxes were to be increased to bridge the manageable gap expected decades hence, workers wages will continue to increase

There are many possible ways to bridge the manageable gap in social security decades down the line. 

Economists Peter Diamond and Peter Orszag have a good proposal worth examining in their publication: "Saving Social Security: A Balanced Approach" (via TCF).

Kevin Drum at Washington Monthly has one proposal - using a Value Added Tax (VAT).

CEPR has this to say (bold text is eRiposte emphasis):

If it proves necessary to raise more money for Social Security through taxes, workers will still see large increases in their after-tax wages. This is true even if they end up paying a larger share of their wages in Social Security taxes. According to the Social Security trustees' projections, the average after-Social Security tax wage for a worker in 2050, will still be more than 70 percent higher than it is today, even if taxes are raised to keep the program solvent. The CBO projections imply an even larger increase in after-tax wages.

Raising payroll taxes is not the only way to increase the revenue for Social Security. An alternative is to raise the ceiling on taxable wages. Currently, no Social Security taxes are paid on income earned above $87,900 in any given year. If the ceiling were raised to $110,000 to cover 90 percent of the country's income from wages (the level set by the Greenspan commission in 1983), it would eliminate approximately 40 percent of the projected funding shortfall. Using the CBO projections, this change alone would be almost enough to make the program solvent through the seventy-five year planning period.

Their accompanying chart ("Source: SSA and authorsâ calculations") provides a visual summary.


1.200 Privatization of Social Security would mean a steep drop in program efficiency and sharp increases in administrative fees, leading to significantly lower benefits

As CEPR says (bold text is eRiposte emphasis):

On average, less than 0.6 cents of every dollar paid out in Social Security benefits goes to pay administrative costs. By comparison, systems with individual accounts, like the ones in England or Chile, waste 15 cents of every dollar paid out in benefits on administrative fees. President Bush's Social Security commission estimated that under their system of individual accounts 5 cents of every dollar would go to pay administrative costs.

In addition, under Social Security workers automatically get an annuity (a life-long monthly payment) when they retire. By contrast, financial firms typically take 10 to 20 percent of workers' savings to provide an annuity when they reach retirement.

Their accompanying chart ("Source: SSA and authorsâ calculations") provides a visual summary.


1.210 Privatization requires trillions of dollars in additional borrowing (in addition to benefit cuts) and speculative investment of individual's funds in the stock market - the makings of another Bush driven disaster

People like David Brooks at the New York Times and the Washington Post editorial board have been peddling the false Bush administration propaganda that there will be no net borrowing required by the Federal Government if we migrate part of Social Security to private accounts. There are two problems with this. The first one is examined below by economist Paul Krugman in one of his recent columns (bold text is eRiposte emphasis) - (the second one is covered in the next sub-section - about the inflated stock returns claimed by privatization proponents)):

Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall.

This would sharply increase the government's debt. Never mind, privatization advocates say: in the long run, they claim, people would make so much on personal accounts that the government could save money by cutting retirees' benefits. Financial markets won't believe this claim, as I'll explain in a minute, but let's temporarily grant the point.

Even so, if personal investment accounts were invested in Treasury bonds, this whole process would accomplish precisely nothing. The interest workers would receive on their accounts would exactly match the interest the government would have to pay on its additional debt. To compensate for the initial borrowing, the government would have to cut future benefits so much that workers would gain nothing at all.

How, then, can privatizers claim that they could secure the future of Social Security without raising taxes or reducing the incomes of future retirees? By assuming that workers would invest most of their accounts in stocks, that these investments would make a lot of money and that, in effect, the government, not the workers, would reap most of those gains, because as personal accounts grew, the government could cut benefits.

We can argue at length about whether the high stock returns such schemes assume are realistic (they aren't), but let's cut to the chase: in essence, such schemes involve having the government borrow heavily and put the money in the stock market. That's because the government would, in effect, confiscate workers' gains in their personal accounts by cutting those workers' benefits.

Once you realize that privatization really means government borrowing to speculate on stocks, it doesn't sound too responsible, does it? But the details make it considerably worse.

First, financial markets would, correctly, treat the reality of huge deficits today as a much more important indicator of the government's fiscal health than the mere promise that government could save money by cutting benefits in the distant future.

After all, a government bond is a legally binding promise to pay, while a benefits formula that supposedly cuts costs 40 years from now is nothing more than a suggestion to future Congresses. Social Security rules aren't immutable: in the past, Congress has changed things like the retirement age and the tax treatment of benefits. If a privatization plan passed in 2005 called for steep benefit cuts in 2045, what are the odds that those cuts would really happen?
...
If Mr. Bush were to say in plain English that his plan to solve our fiscal problems is to borrow trillions, put the money into stocks and hope for the best, everyone would denounce that plan as the height of irresponsibility. The fact that this plan has an elaborate disguise, one that would add considerably to its costs, makes it worse.

Krugman has more here (bold text is my emphasis):

The administration expects us to believe that drastic change is needed, and needed right away, because of the looming cost of paying for the baby boomers' retirement.

The administration expects us not to notice, however, that the supposed solution would do nothing to reduce that cost. Even with the most favorable assumptions, the benefits of privatization wouldn't kick in until most of the baby boomers were long gone. For the next 45 years, privatization would cost much more money than it saved.

Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front, and then the system will become self-sustaining. The Wehner memo talks of borrowing $1 trillion to $2 trillion "to cover transition costs." Similar numbers have been widely reported in the news media.

But that's just the borrowing over the next decade. Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt.

These numbers are based on a Congressional Budget Office analysis of Plan 2, which was devised by a special presidential commission in 2001 and is widely expected to be the basis for President Bush's plan.


Under Plan 2, payroll taxes would be diverted into private accounts while future benefits would be cut. In the short run, this would worsen the budget deficit. In the long run, if all went well, cutting benefit payments would reduce the deficit.

All wouldn't go well; I'll explain why in another column. But suppose that everything went according to plan. Even in that unlikely case, privatization wouldn't even begin to reduce the budget deficit until 2050. This is supposed to be the answer to an imminent crisis?

While we waited 45 years for something good to happen, there would be a real risk of a crisis - not in Social Security, but in the budget as a whole. And privatization would increase that risk.

The Century Foundation also points out:

REASON #2: Creating private accounts would make Social Security's financing problem worse, not better.

Social Security is funded by a flat tax of 12.4 percent of each worker's wage income, up to $90,000 in 2005, split evenly between employers and employees. About four out of five of those tax dollars go immediately to current beneficiaries, and the remaining dollar is used to purchase U.S. Treasury securities held in the system's trust funds. Beginning in 2018, well after the huge generation of baby boomers born between 1946 and 1964 begins to retire, a portion of general income tax revenues will be needed to pay interest and eventually principal on those bonds to fully finance benefits. A "crisis" is not forecast to arise until the program becomes entirely "pay as you go" again (as it was throughout its history before 1983) in either 2042 according to the trustees' forecast or 2052 according to the Congressional Budget Office. (By way of perspective, in 2052 the oldest surviving baby boomers will be 106 years old and the youngest will be 88.)

Diverting 2 percent of payroll to create private accounts as proposed by the President's Commission to Strengthen Social Security doesn't sound very radical, but it would shorten significantly the time until current benefit levels could only be sustained by raising taxes. In part, this is because funds now being set aside to build up the trust funds to provide for retiring baby boomers would be used instead to pay for the privatization accounts. The government would have to start borrowing from the private sector almost immediately to be able to meet commitments to retirees and near-retirees. As the figure below shows, the trust funds would be exhausted before 2030 instead of the thirty-eight to forty-eight years projected if nothing is done. In such a short time frame, the investments in the personal accounts will not be nearly large enough to provide an adequate cushion. The upshot: a much larger share of today's workers would confront large benefit cuts, or tax increases, than if no changes were implemented.

Click to view Figure 1: Effect of a 2 Percent Carve Out on Trust Fund Assets to 2030

Source: Based on analysis in Peter A. Diamond and Peter R. Orszag, "An Assessment of the Proposals of the President's Commission to Strengthen Social Security," The Brookings Institution, Washington, D.C., June 2002.


1.220 Privatization proponents often use highly inflated/exaggerated stock market return projections to push for privatization

Economist Paul Krugman makes this clear in The Economist's Voice:

Historically, the price-earnings ratio averaged about 14. Now, itâs about 20. Siegel tells us that the real rate of return tends to be equal to the inverse of the price-earnings ratio, which makes a lot of sense.1 More generally, if people are paying more for an asset, the rate of return is lower. So now that a typical price- earnings ratio is 20, a good estimate of the real rate of return on stocks in the future is 5 percent, not 7 percent.

Hereâs another way to arrive at the same result. Suppose that dividends are 3 percent of stock prices, and that the economy grows at 3 percent (enough, by the way, to make the trust fund more or less perpetual.) Not all of that 3 percent growth accrues to existing firms; the Dow of today is a very different set of firms than the Dow of 50 years ago. So at best, 3 percent economic growth is 2 percent growth for the set of existing firms; add to dividend yield, and weâve got 5 percent again.

Thatâs still not bad, you may say. But now letâs do the arithmetic of private accounts.

These accounts wonât be 100 percent in stocks; more like 60 percent. With a 2 percent real rate on bonds, weâre down to 3.8 percent.

Then there are management fees. In Britain, theyâre about 1.1 percent. So now weâre down to 2.7 percent on personal accounts ÷ barely above the implicit return on Social Security right now, but with lots of added risk. Except for Wall Street firms collecting fees, this is a formula to make everyone worse off.

Privatizers say that theyâll keep fees very low by restricting choice to a few index funds. Two points.

First, I donât believe it. In the December 21 New York Times story on the subject, there was a crucial giveaway: ăAt first, individuals would be offered a limited range of investment vehicles, mostly low-cost indexed funds. After a time, account holders would be given the option to upgrade to actively managed funds, which would invest in a more diverse range of assets with higher risk and potentially larger fees.ä (My emphasis.)

At first? Hmm. So the low-fee thing wouldnât be a permanent commitment. Within months, not years, the agitation to allow ăchoiceä would begin. And the British experience shows that this would quickly lead to substantial dissipation on management fees.

Second point: if youâre requiring that private accounts be invested in index funds chosen by government officials, whatâs the point of calling them private accounts? Weâre back where we were above, with the trust fund investing in the market via an index.

Now I know that the privatizers have one more trick up their sleeve: they claim that because these are called private accounts, the mass of account holders will rise up and cry foul if the government tries to politicize investments. Just like large numbers of small stockholders police governance problems at corporations, right? (Thatâs a joke, by the way.)

If we are going to invest Social Security funds in stocks, keeping those investments as part of a government-run trust fund protects against a much clearer political economy danger than politicization of investments: the risk that Wall Street lobbyists will turn this into a giant fee-generating scheme.

To sum up: claims that stocks will always yield high, low-risk returns are just bad economics. And tens of millions of small private accounts are a bad way to take advantage of whatever the stock market does have to offer. There is no free lunch, and certainly not from private accounts.

UC-Berkeley economist Brad DeLong has this to say (bold text, except the header, is eRiposte emphasis):

Dean Baker Gives Us All a Social Security Test

He writes, apropos of Social Security:

MaxSpeak, You Listen!: DEAN RESPONDS TO SAMWICK: I have a test of my own that I have been trying to get economists to take (thus far unsuccessfully), in which I ask proponents of privatization to write down the set of dividend yields and capital gains that will give them the 6.5-7.0 percent real stock returns that they conventionally assume. Such returns were possible in the past because the price to earnings (PE) ratios have historically been much lower and profit growth was much faster. The price to earnings ratio averaged about 14.5 to 1 over the last seventy years, compared to more than 20 to 1 today. This is important, because if 60 percent of profits are paid out as dividends (or used for share buybacks), this gets you a dividend yield of over 4.0 percent with a PE ratio of 14.5 to one. It gets you just 3.0 percent with a PE ratio of 20 to 1, and of course less when the PE ratio is higher.

Let's see... Assume a payout ratio of 60%. Earnings yield of 5% per year... That gives you a dividend yield of 3% per year... That means that the profits of currently existing and traded companies (not aggregate profits!) have to grow at 3.5%-4% per year... That means that the economy as a whole has to grow at 4.5%-5% per year forever... That's much higher than the Social Security actuaries' long-run growth assumption, which heads for productivity growth of about 1% per year and very low population growth by 2050...

In other words, the stock market can attain its 6-7% per year real payoff only if the macroeconomic news in the future is much better than Social Security is projecting, in which case there's no Social Security financing problem at all.

What grade do I get?

As CEPR says (bold text is eRiposte emphasis):

Proponents of private accounts have often used highly exaggerated assumptions on stock returns to argue for the benefits of private accounts. For example, even at the height of the stock bubble in 2000, when the price to earnings ratio in the market exceeded 30 to 1, many proponents of private accounts assumed that stocks would generate 7.0 percent real returns annually. This assumption was absurd on its face - it implied that price to earnings ratios would rise to levels of more than 100 to 1. Unfortunately, even the Social Security Administration has used these unfounded assumptions in assessing privatization plans.

Given current price to earnings ratios and the Social Security trustees' profit growth projections, real stock returns will average less than 5.0 percent annually. Some proponents of private accounts are still using exaggerated stock return assumptions to advance their case.

Their accompanying chart ("Source: SSA and authorsâ calculations") provides a visual summary.

Economist Brad DeLong provides an extract from a recent New York Times piece by Edmund Andrews (bold text is my emphasis):

The New York Times > Business > Your Money > Economic View: Social Security Reform, With One Big Catch: OF all the arguments being made to replace part of Social Security with private retirement accounts, few are more seductive and more misleading than the prospect of earning higher returns. Get ready to hear a lot about this next week.... Under the current system, investment returns from Social Security are "abysmal," Mr. Bush said in one recent speech, because the trust fund is allowed to hold only low-yielding Treasury bonds.... According to the Social Security Administration, Treasury bonds can be expected to yield a real annual rate of return of about 3 percent. Equities, by contrast, can be expected to earn 6.5 percent.

That assumption is crucial to arguments that personal accounts can reduce Social Security's long-term shortfall - which the government estimates to be at least $3.5 trillion. Most of the proposals to overhaul Social Security call for steep reductions in future benefits that would be offset by the higher returns people would presumably earn on their investments. Stephen Goss, the Social Security Administration's chief actuary, has endorsed the assumption of higher returns.... "The entire argument is absurd," said William C. Dudley, chief United States economist at Goldman Sachs. "These returns weren't free. You are getting these returns precisely because you are taking on risk."...

Mr. Goss of the Social Security Administration suggested that returns in the future might be even higher than those of the past. "A consensus is forming among economists that equity pricing as indicated by price-earnings ratios may be somewhat higher in the long-term future than in the long-term past," wrote Mr. Goss.... In an interview last week, Mr. Goss acknowledged that many experts believe investment returns should be adjusted for risk and that the common proxy for a risk-free return is the real yield earned on Treasury bonds....

Other government analysts take a much more conservative approach. The nonpartisan Congressional Budget Office, which is run by a former chief economist in President Bush's own Council of Economic Advisers, assumes that equities and bonds will earn no more than Treasury bonds... the White House's own Office of Management and Budget recently made the same assumption....

The more basic question is this: Should a rational person believe that Social Security's very real financial shortfall can be reduced just by shifting from bonds into stocks?...


1.225 Bush administration claim that the current social security system is "inherently unfair" to African Americans is another outright lie

Liberal Oasis, among others, has highlighted this:

The most disgusting and appalling moment in yesterdayâs ătown hallä was when Bush advanced the lie that African-Americans get shortchanged by Social Security:

African American males die sooner than other males do, which means the system is inherently unfair to a certain group of people. And that needs to be fixed.

This lie has been debunked over and over and over again.

But conservatives continue to push it to try to undermine Social Security in the African-American community.

Bush cannot be allowed to spread this garbage unchallenged.

Furthermore, if Bush and the rest of the GOP really care so much about African-American life expectancy, they could start addressing the massive racial disparity in our nationâs health care system.

As Jodi Kantor pointed out way back in 1999 in Slate:

Their argument is simple and plausible: Everybody pays into the system during his or her working years then gets a monthly check during retirement. Since blacks have a shorter life expectancy than whites, they are getting a worse deal and, in effect, subsidizing longer-living whites.

So, why is this wrong? First of all, Social Security is progressive by design. Everybody pays the same share of income into the system each year (about 6 percent, plus another 6 percent from your employer). But the formula for benefit payouts isn't proportionate to what is paid in: Low-income people get more (not in absolute terms, but compared with their contributions), while affluent retirees get less. A February report by the General Accounting Office confirms that this formula outweighs the effect of lower life expectancy for all low-income people, including African-Americans.

Second, Social Security benefits don't go just to elderly retirees. The program pays benefits to younger people with disabilities that prevent them from earning a living, and also to surviving spouses and minor children of deceased participants. Blacks benefit disproportionately from these aspects of the system. Although only 12 percent of the U.S. population is black, African-Americans get almost a quarter of the Social Security benefits paid to surviving children.

The main source for the Social Security Screws Blacks campaign is a study by (who else?) the Heritage Foundation. Its study has been pretty well demolished by the GAO's actuaries and by a counterstudy by the Center on Budget and Policy Priorities, a liberal think tank. Among other distortions, it assumes that everyone retires at 65, although two-thirds of all workers stop paying in and start collecting benefits earlier than that--which reduces the disadvantage of a shorter life span.

Here's another summary:

MYTH #9: AFRICAN AMERICANS HAVE ESPECIALLY MUCH TO GAIN FROM PRIVATIZATION.

This argument is based on the fact that African Americans have shorter life expectancy than whites and therefore collect retirement benefits for fewer years, on average. But African Americans also have lower average earnings than whites. Because Social Securityâs retirement benefits replace a larger share of past earnings for low-income versus high-income beneficiaries, African Americans receive a higher annual payoff in comparison to their past tax contributions than whites. African Americans also own fewer assets, and have less extensive pension coverage than whites, so they are more likely to be highly dependent on Social Security benefits. Moreover, the flip side of African Americansâ shorter enjoyment of retirement benefits is their greater dependence on the life insurance and disability features of Social Security. African Americans constitute 12 percent of the U.S. population, but 25 percent of the children receiving deceased worker benefits in 1996, and 18 percent of the workers receiving disability benefits.

The claim that African Americans have especially much to gain from privatization overlooks a further feature of privatization proposals: annuitization. Every serious proposal to replace part of Social Security with private accounts includes limits on the way individuals may dispose of their retirement nest egg. To prevent a retiree from mismanaging the nest egg, jeopardizing his or her family, every retiree must obtain an annuity upon retirement, converting the nest egg to an income stream over the rest of the expected life. This process would create a system that is very similar to the present system, from the workerâs point of view. The retiree would receive an income until death, at which time survivors would receive support. There would be no additional bequest from the privatized retirement account.

 


1.230 The Bush privatization proposal, as it stands, would lead to steep benefit cuts for retirees and poverty for many retirees; younger workers, women and minorities would be impacted the most

The Center for American Progress points out:

The president had promised his proposed privatized accounts would give workers a "better rate of return," but David John, "an analyst at the conservative Heritage Foundation who has met frequently with White House officials as they prepare their proposal, said he has 'absolutely no doubt' that Bush will have to reduce the planned growth of benefits." Last week, top White House economic adviser Greg Mankiw admitted the Social Security overhaul would "include major cuts in guaranteed benefits for future retirees."

As CEPR says (bold text is eRiposte emphasis):

The proposal that President Bush is using as the basis for his plan phases in cuts over time. A worker who is 45 today can expect to see a cut in guaranteed benefits of around 15 percent. A worker who is age 35 can expect to see a cut in the guaranteed benefit of approximately 25 percent. A 15 year old who is just entering the work force can expect a benefit cut of close to 40 percent. For a 15 year old, this cut would mean a loss of close to $160,000 in Social Security benefits over the course of their retirement.

Private accounts will allow workers to earn back only a small fraction of this amount. For example, a 15 year-old can expect to make back approximately $50,000 from the $160,000 cut with the earnings on a private account. If this worker retires when the market is in a slump, then it could make their loss even bigger.

Their accompanying chart ("Source: SSA and authorsâ calculations") provides a visual summary.

The Century Foundation has also covered this in some detail:

REASON #9: Young people would be worse off.

Social Security privatization is often sold to young adults as a much better deal for them than the current system. But two recent studies show that if Social Security is converted to a system of private accounts, younger generations will be the ones who bear the costs of transforming the program. The added costs arise from the huge increases in federal borrowing needed to finance the new accounts while continuing to direct payroll taxes toward existing benefits for current retirees. According to the Congressional Budget Office, "to raise the rate of return for future generations by moving to a funded system, some generations must receive rates of return even lower than they would have gotten under the pay-as-you-go system."

A July 2004 Congressional Budget Office analysis of a private account proposal by the President's Commission to Strengthen Social Security compares it with the existing system.
...nearly all birth cohorts at all income levels born from the 1940s through the first decade of the 21st century on average do worse under the proposed system of private accounts. Only individuals in the lowest earning quintiles from the 1950s and the 1990s do slightly better, on average. Even assuming a worst case scenario where the trust funds evaporate and benefits are cut substantially, cohorts from the 1960s to 2000s would see reductions with private accounts between 1 percent and 17.5 percent on average, depending on their income and birth year.

An earlier analysis by economists Henry Aaron, Alan Blinder, Alicia Munnell, and Peter Orszag used the broad outlines of then-Governor Bush's Social Security privatization proposals to compare retirement benefits under current law to those if private accounts were introduced. They found that benefits for an average earning worker who retired in 2037 at age 67 (someone aged 34 today) would be 20 percent lower than they are now given historical rates of return over a fifty-year period.

REASON # 10: Women stand to lose the most.

The Social Security system is gender-blind. None of its provisions treat women differently from men. But that does not mean that the results are gender-neutral. Various cultural and biological differences add up to the fact that Social Security is much more essential, and a much better deal, for women than for men. Of all groups, none has more to lose from the privatization of Social Security than women. Compared to the average man, the average woman

  • works fewer years outside the home,
  • earns less per year, and
  • lives longer after retiring.

Together, these differences mean that women depend more than men do on spousal and survivors' benefits, they collect benefits for more years than men do, and a greater proportion of their total retirement income comes from Social Security.

Since women on average work fewer years at lower pay, they contribute less in payroll taxes over their lifetimes than do men. But in their various roles as retirees, spouses, and widows, women collect Social Security benefits for more years than men. The result is that women get more net benefits over their lifetimes than do men.

There are fourteen women for every ten men aged 62 or older. Above age 85, this ratio reaches twenty-four women per ten men. Consequently, 60 percent of all Social Security beneficiaries are women. Among those receiving survivor and disability benefits, women and children constitute 85 percent. Women also depend more on Social Security. Older women who are not part of a couple (either widows, divorcees, separated, or never married) get 51 percent of their income from Social Security, and 25 percent of them have no income but Social Security. For men in the same situation (a far smaller proportion of the total), the figures are 39 and 20 percent, respectively.

The poverty rate for older women is almost twice that of older men (in 1997, 13.1 percent versus 7.0 percent). For older women who are not in a couple, the rate gets much higher: more than one in four lives below the poverty line. Fewer than half of them had incomes in 1997 above $1,000 per month. Without Social Security's guaranteed benefits, the already marginal income security for older women would be much worse.

In spite of the improvement in employment opportunities for women, the role of homemaker and primary parent still falls unequally on wives and mothers. Private accounts would jeopardize income that wives, widows, and divorcees now receive under Social Security.
... 

REASON #11: African Americans and Latin Americans also would become more vulnerable under privatization.

Privatization advocates often claim that converting Social Security to a system of private accounts would disproportionately help African Americans and Latin Americans because those groups are purportedly shortchanged by the current system. But in fact there is almost no difference in Social Security's payback by race. And because both of those groups on average earn lower lifetime earnings than whites, those minorities would be at greater risk of facing poverty in their retirement under privatization.

African Americans on average have two characteristics that are disadvantageous under Social Security: shorter life expectancy and a lower marriage rate. But they also have traits that lead to greater benefits under Social Security: a higher disability rate, more survivors receiving benefits, and lower average wages. Latinos also have relatively low incomes on average, but a longer life expectancy and fewer average years in the workforce. As the figure below shows, the bottom line is that there is almost no difference by race in the benefits per dollar of Social Security taxes paid.

Click to view Figure 3: Benefits Received per Dollar of Payroll Taxes, by Race and Ethnicity [eRiposte note: Link will not work - the picture is shown below] 

Source: Lee Cohen, C. Eugene Steuerle, and Adam Carasso, "Social Security Redistribution by Education, Race, and Income: How Much and Why," paper presented at the Third Annual Conference of the Retirement Research Consortium, "Making Hard Choices about Retirement," Washington, D.C., May 17-18, 2001. A 2 percent discount rate is used, which tends to reduce the benefits per dollar of taxes. The numbers are for those born between 1956 and 1964.

But because African-Americans and Latinos on average have substantially less wealth upon retirement than whites, they are far more dependent on Social Security. Converting the program into a system where their retirement income would be more dependent on investment markets would make those groups even more vulnerable to poverty.

Click to view Figure 4: Median Wealth at Retirement by Race and Ethnicity [eRiposte note: Link will not work - the picture is shown below] 

Source: Marjorie Honig, "Minorities Face Retirement: Worklife Disparities Repeated?" in Forecasting Retirement Needs and Retirement Wealth, B. Hammond, O. Mitchell, and A. Rappaport, eds. (Philadelphia: University of Pennsylvania Press, 1999), Table 4. The data are for 1992 adjusted to 2001 prices.

As economist Paul Krugman pointed out:

Privatizers who laud the Chilean system never mention that it has yet to deliver on its promise to reduce government spending. More than 20 years after the system was created, the government is still pouring in money. Why? Because, as a Federal Reserve study puts it, the Chilean government must "provide subsidies for workers failing to accumulate enough capital to provide a minimum pension." In other words, privatization would have condemned many retirees to dire poverty, and the government stepped back in to save them.

The same thing is happening in Britain. Its Pensions Commission warns that those who think Mrs. Thatcher's privatization solved the pension problem are living in a "fool's paradise." A lot of additional government spending will be required to avoid the return of widespread poverty among the elderly - a problem that Britain, like the U.S., thought it had solved.

Britain's experience is directly relevant to the Bush administration's plans. If current hints are an indication, the final plan will probably claim to save money in the future by reducing guaranteed Social Security benefits. These savings will be an illusion: 20 years from now, an American version of Britain's commission will warn that big additional government spending is needed to avert a looming surge in poverty among retirees.

So the Bush administration wants to scrap a retirement system that works, and can be made financially sound for generations to come with modest reforms. Instead, it wants to buy into failure, emulating systems that, when tried elsewhere, have neither saved money nor protected the elderly from poverty.


1.240 The Bush privatization proposal, as it stands, would also lead to steep benefit cuts for non-retired workers drawing insurance for disability or their families drawing insurance upon the death of the workers

The Century Foundation points this out in an excellent report on the privatization hoax:

"Rate of return" calculations neglect the value of Social Security's insurance protections. Of the 45 million Americans who collect payments from the Social Security program, over one-third (almost 17 million) are not retired workers. Among those currently receiving Social Security payments are 5 million spouses and children of retired and disabled workers, 7 million spouses and dependent children of deceased workers, and 5 million disabled workers. Proposals to privatize Social Security involve shifting some of the money financing the current insurance program into investment accounts assigned to each worker. But the payroll taxes carved out to pay for personal accounts are resources that are need to support today's payments to recipients of Social Security's survivors and disability insurance as well as retirement benefits. Simple arithmetic suggests that every dollar shifted from Social Security programs to personal accounts is a dollar less to provide guaranteed income to the 37 percent of beneficiaries who are not retired workers.

The three alternatives put forward by the President's Commission to Strengthen Social Security would, in the absence of individual accounts, restore long-term Social Security solvency either largely or entirely through benefit reductions that would apply to all beneficiaries-including the disabled. In the principal proposals put forward by the Commission, the reduction in disability benefits was draconian, with cuts ranging from 19 percent to 47.5 percent after the year 2030. The commission itself somewhat disavowed this aspect of its proposals, suggesting that a subsequent commission or other body that specializes in disability policy might revise how its plans apply to the disabled.

Economists Peter A. Diamond (MIT) and Peter R. Orszag (Brookings) have noted that the disabled would have limited ability to mitigate the effects of these benefit reductions by securing income from individual accounts. One reason is that their individual accounts often would be meager, since those who become disabled before retirement age may have relatively few years of work during which they could make contributions to their accounts. Second, under the commission proposals, disabled beneficiaries (like all other beneficiaries) would not be allowed access to their individual accounts until they reached retirement age.

As the Bush commission itself acknowledged, preserving existing disability and survivor's insurance greatly escalates the cost of financing private accounts. It is difficult to imagine how any Social Security privatization plan can avoid significant cuts in those essential protections.


1.250 The Bush privatization proposal will be another exercise in class warfare - doling out massive corporate welfare to key campaign contributors in Wall Street at the expense of the poor and middle class

The Center for American Progress has pointed out (bold text is eRiposte emphasis):

So who wins from Social Security privatization? Bush administration allies on Wall Street are trying to discredit the idea that investment firms will benefit from Bush's plan, citing a new study which says firms stand to make "as little as $39 billion for investment firms over the next 75 years and no more than $279 billion." But that decidedly ambiguous estimate comes from a study sponsored by the Securities Industry Association, which stands to benefit from privatization, has campaigned for it in the past and lists an agenda almost identical to President Bush's. A study published in September by University of Chicago business school professor Austan Goolsbee "predicted Wall Street could collect $940 billion or more over 75 years, an amount he called the largest windfall in American financial history."

Here's a snippet on the SIA "study":

The SIA, like Goolsbee, addressed two privatization scenarios under consideration.

Under one, the federal government would administer private accounts in which workers could contribute a portion of their Social Security taxes to buy a very limited number of mutual funds tied to a stock index, such as the Standard & Poor's 500.

The SIA said this scenario would operate much like the Thrift Savings Plan, a government program that allows federal and military employees to invest part of their basic pay in index funds carrying very low fees. The SIA report suggested that Wall Street firms would pull in about 0.04 percent of invested assets each year based on this "limited choice" plan.

Based on a participation rate of 75 percent (Goolsbee assumed 100 percent), the SIA said Wall Street firms would get about $39 billion in fees over 75 years under this limited plan, an amount the group said was equal to about 1.2 percent of total anticipated revenue for the financial services sector over the same period.

Under a second scenario addressed by the SIA, investors who contribute more than a given amount, perhaps $5,000, to their private Social Security accounts would be allowed to invest in actively managed mutual funds that carry higher fees. The SIA said Wall Street would probably generate about $279 billion over 75 years under this plan, an amount equal to about 8 percent of total anticipated financial services revenue for the period, according to SIA figures.

Henry Aaron, a scholar at the Brookings Institution and an opponent of privatization, described the SIA comparison to the Thrift Savings Plan as faulty. He said administering a plan for millions of workers across different industries would be much more complicated and expensive than managing a single plan for federal employees.

And he said Wall Street firms would push to offer more expensive services. "I would fully expect and would not criticize folks on Wall Street for wanting to offer more plans with more services and, not incidentally, higher costs," he said.

In his study, Goolsbee estimated that Wall Street would collect closer to 0.8 percent of assets per year for accounts with limited investment options, generating about $940 billion over 75 years, or 25 percent of the current Social Security deficit. He said accounts with multiple options would generate about $1.2 trillion for Wall Street over 75 years.

The Century Foundation has pointed out that Securities/Financial firms will reap massive windfalls:

Among the one hundred best stock mutual funds, management fees range from 0.2 percent per year to 1.4 percent of the asset value of an account. The average is near the high end of that range, however, and many mutual funds charge substantially more. Smaller accounts require proportionately larger management fees because many costs such as gathering and mailing out information do not depend on account size. Indeed, most mutual funds actively discourage small accounts by setting a minimum opening deposit of $1,000 to $3,000.

Experience in the United Kingdom offers a warning about what the future could bring regarding management costs. Workers there have been allowed to open private accounts starting in 1988, since which time management fees and marketing costs among financial intermediaries have eaten up an average of 43 percent of the return on investment.

As economist Paul Krugman pointed out (bold text is eRiposte emphasis):

Yet, aside from giving the Cato Institute and other organizations promoting Social Security privatization the space to present upbeat tales from Chile, the U.S. news media have provided their readers and viewers with little information about international experience. In particular, the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers' contributions on fees to investment companies.

It leaves many retirees in poverty.

Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems.

These fees cut sharply into the returns individuals can expect on their accounts. In Britain, which has had a privatized system since the days of Margaret Thatcher, alarm over the large fees charged by some investment companies eventually led government regulators to impose a "charge cap." Even so, fees continue to take a large bite out of British retirement savings.

A reasonable prediction for the real rate of return on personal accounts in the U.S. is 4 percent or less. If we introduce a system with British-level management fees, net returns to workers will be reduced by more than a quarter. Add in deep cuts in guaranteed benefits and a big increase in risk, and we're looking at a "reform" that hurts everyone except the investment industry.

Advocates insist that a privatized U.S. system can keep expenses much lower. It's true that costs will be low if investments are restricted to low-overhead index funds - that is, if government officials, not individuals, make the investment decisions. But if that's how the system works, the suggestions that workers will have control over their own money - two years ago, Cato renamed its Project on Social Security Privatization by replacing "privatization" with "choice" - are false advertising.

And if there are rules restricting workers to low-expense investments, investment industry lobbyists will try to get those rules overturned.

For the record, I don't think giving financial corporations a huge windfall is the main motive for privatization; it's mostly an ideological thing. But that windfall is a major reason Wall Street wants privatization, and everyone else should be very suspicious.


1.260 The Bush privatization proposal could actually reduce economic growth and thereby further endanger social security

The Century Foundation points out this often missed factor:

Privatizing Social Security will escalate federal deficits and debt significantly while increasing the likelihood that national savings will decline-all of which could reduce long-term economic growth and the size of the economic pie available to pay for the retirement of the baby boom generation. The 2004 Economic Report of the President included an analysis of the fiscal impact over time of the most commonly discussed privatization proposal by the president's commission. It found that the federal budget deficit would be more than 1 percent of gross domestic product (GDP) higher every year for roughly two decades, with the highest increase being 1.6 percent of GDP in 2022. The national debt levels would be increased by an amount equal to 23.6 percent of GDP in 2036. That means that, thirty-two years from now, the debt burden for every man, woman, and child would be $132,000 higher because of privatization.

One impact of those seemingly abstract numbers after privatization is that interest rates are likely to be substantially higher, raising the cost to the average household of mortgages, car loans, student loans, credit cards and so on. As a result, the economy would be likely to grow more slowly than it would otherwise.

Creating private accounts with increased federal borrowing at first blush would seem unlikely to affect national savings, because additional savings in the new accounts would offset exactly any new government borrowing to pay for those accounts. Economists believe that increased national savings, especially in a country with savings levels as low as they are in the United States, can increase growth by keeping interest rates low and financing investments in productive activities.

But privatization is actually more likely to reduce than increase national savings. Diamond and Orszag point out that evaluating the overall effect on national savings requires taking into account the likely responses of government, employers, and households. Historically, neither the government nor businesses have changed their spending levels consistently in response to large changes in deficit levels. But households that consider the new accounts to constitute meaningful increases in their retirement wealth might well reduce their other saving. Diamond and Orszag argue, "If anything, our impression is that diverting a portion of the current Social Security surplus into individual accounts could reduce national saving." That, in turn, would further weaken economic growth and our capacity to pay for the retirement of the baby boomers.


1.270 Bush-style privatization has been tried before in other countries, with costly or disastrous results

As economist Paul Krugman mentioned the case of Argentina in one of his recent columns (bold text is eRiposte emphasis):

Second, a system of personal accounts, even though it would mainly be an indirect way for the government to speculate in the stock market, would pay huge brokerage fees. Of course, from Wall Street's point of view that's a benefit, not a cost.

There is, by the way, a precedent for Bush-style privatization. One major reason for Argentina's rapid debt buildup in the 1990's was a pension reform involving a switch to individual accounts - a switch that President Carlos Menem, like President Bush, decided to finance with borrowing rather than taxes. So Mr. Bush intends to emulate a plan that helped set the stage for Argentina's economic crisis.

The Century Foundation provides very important data that is rarely cited by the media or the Bush administration or other privatization proponents:

Advocates of privatization often cite other countries such as Chile and the United Kingdom, where the governments pushed workers into personal investment accounts to reduce the long-term obligations of their Social Security systems, as models for the United States to emulate. But the sobering experiences in those countries actually provide strong arguments against privatization.

A report this year from the World Bank, once an enthusiastic privatization proponent, expressed disappointment that in Chile, and in most other Latin American countries that followed in its footsteps, "more than half of all workers [are excluded] from even a semblance of a safety net during their old age."

Other cautionary points made in the World Bank report and other studies about the experience in Chile:

  • Investment accounts of retirees are much smaller than originally predicted-so low that 41 percent of those eligible to collect pensions continue to work.
  • Voracious commissions and other administrative costs have swallowed up large shares of those accounts. The brokerage firm CB Capitales calculated (see english language discussion by Stephen Kay here) that when commission charges are taken into consideration in Chile, the total average return on worker contributions between 1982 and 1999 was 5.1 percent-not 11 percent as calculated by the superintendent of pension funds. That report found that the average worker would have done better simply by placing their pension fund contributions in a passbook savings account.
  • The transition costs of shifting to a privatized system in Chile averaged 6.1 percent of GDP in the 1980s, 4.8 percent in the 1990s, and are expected to average 4.3 percent from 1999 to 2037. Those costs are far higher than originally projected, in part because the government is obligated to provide subsidies for workers failing to accumulate enough money in their accounts to earn a minimum pension.

In the United Kingdom, which began encouraging workers to divert payroll taxes to personal investment accounts in 1978, many citizens were victimized by poor investment choices as well as unscrupulous brokers. The national government was left with substantial new administrative expenses, lost tax revenues, and responsibilities to bail out some failed private pension plans. Indeed, the problems were so wide-ranging that even the most enthusiastic supporters of private accounts now say that the United Kingdom simply did not do it right.

A British government commission headed by Adair Turner reported in October 2004 that Britain had been living in "a fool's paradise" by thinking it had solved its pension problems. According to pension experts at the Organization for Economic Cooperation and Development (OECD), the Adair Turner report has sounded alarm bells. "What looked like a very good idea from a financial perspective in cutting costs has put pensioner poverty, which had been all but eradicated, back on the agenda."

More here from TCF on the Chile debacle.

Kevin Drum (Political Animal) briefly covered Chile and Sweden:

SOCIAL SECURITY AROUND THE WORLD....Airy fairy theorizing is one thing, but how about some concrete data in the great Social Security privatization debate. In particular, how has Social Security privatization fared in other countries that have tried it? After all, the United States isn't the first country to think about doing this. Let's take a peek.

First there's Chile. They implemented privatization a couple of decades ago, and originally the World Bank was enthusiastic. Today, though...not so much. Greg Anrig of the Century Foundation summarizes:

  • Investment accounts of retirees are much smaller than originally predicted ÷ so low that 41 percent of those eligible to collect pensions continue to work.

  • The World Bank found that half of the pension contributions of the average Chilean worker who retired in 2000 went to management fees. The brokerage firm CB Capitales...found that the average worker would have done better simply by placing their pension fund contributions in a passbook savings account.

  • The transition costs of shifting to a privatized system in Chile averaged 6.1 percent of GDP in the 1980s, 4.8 percent in the 1990s, and are expected to average 4.3 percent from 1999 to 2037.

Bummer! Still, maybe that's just Chile. How about results from some nice, progressive, wealthy country instead? How about Sweden?

Sweden implemented a partial privatization back in 2001. Here's what the president of the Swedish Society of Actuaries reports:

General benefit levels have been significantly lowered, future benefits are impossible to forecast, and administrative costs have quadrupled ÷ mostly because of the mutual fund part ÷ to 2.0% of total benefits. (If real investment return is 3% per annum, the amount accumulated after 30 years of regular annual savings will be 22% lower if the cost factor is 2.0% instead of 0.5%.)

....Everyone in the new system is forced to speculate in mutual funds and results in the first years have been disastrous. From March 2000 until March 2003, the Swedish stock market declined by 68%. As of 31st January 2004, 84% of all accounts had lost money, despite the upturn in the market since March 2003.

Aren't you glad that President Bush wants to follow in the footsteps of glorious successes like these?

Norma Cohen covered Great Britain's privatization system in The American Prospect (bold text is eRiposte emphasis):

A conservative government sweeps to power for a second term. It views its victory as a mandate to slash the role of the state. In its first term, this policy objective was met by cutting taxes for the wealthy. Its top priority for its second term is tackling what it views as an enduring vestige of socialism: its system of social insurance for the elderly. Declaring the current program unaffordable in 50 yearsâ time, the administration proposes the privatization of a portion of old-age benefits. In exchange for giving up some future benefits, workers would get a tax rebate to put into an investment account to save for their own retirement.

George W. Bushâs America in 2005? Think again. The year was 1984, the nation was Britain, the government was that of Margaret Thatcher -- and the results have been a disaster that America is about to emulate.

For all the fanfare that surrounds the Bush administrationâs efforts to present a bold new idea on pension reform, the truth is that it is not new at all. In fact, the proposal looks suspiciously like the plan set in train during Thatcherâs first term in 1979 and which has since led Britain to the brink of a crisis. Since then, the nationâs basic pension, which is paid for out of tax receipts, has shrunk dramatically. The United Kingdom has the stingiest state pension program of any G8 nation, and there is growing consensus -- even among British conservatives -- that reform is needed. And ironically enough, considering that America is on the verge of copying Britainâs mistake, most experts seek reform in the direction of a more generous, and simpler, basic state pension -- one similar in design, in other words, to Americaâs Social Security program.

David Willetts, the Conservative MP who is the opposition spokesman on pensions (and whose intellectual agility has earned him the sobriquet ăTwo Brainsä), is one admirer of the U.S. system. ăI like the way they distinguish between Social Security and means-tested welfare,ä he says. ăThey have higher Social Security benefits to keep elderly people off welfare.ä And last year, in a startling reversal of its decades-old policy, the Confederation of British Industry, the United Kingdomâs premier business group and the functional equivalent of the U.S. Chamber of Commerce, called for a more generous state retirement benefit, saying -- remember, this is the nationâs leading business lobby talking -- that it would even support raising taxes to help pay for it. (It also called for raising the retirement age.)

Britainâs experiment with substituting private savings accounts for a portion of state benefits has been a failure. A shorthand explanation for what has gone wrong is that the costs and risks of running private investment accounts outweigh the value of the returns they are likely to earn. On average, fees and charges can reduce pension lump sums by up to 30 percent on retirement. The nationâs savings industry, which sells those private accounts, has already acknowledged this. Which brings us to irony No. 2: Just as the United States prepares to funnel untold billions to its private sector for the management of private accounts, back in 2002, many U.K. insurance companies, mindful of tough new rules against giving bad advice, began to write to their customers urging them to consider abandoning their private savings and returning to the state pension system -- something hundreds of thousands of Britons have done already.

And this is the system that the United States is seeking to emulate?

...


1.280 Private accounts would likely require a new Government bureaucracy 

This has been noted by The Century Foundation:

From the standpoint of the system as a whole, privatization would add enormous administrative burdens. Instead of the current trust fund accounts, the government would need to establish and track many small accounts, perhaps as many accounts as there are taxpaying workers-147 million in 1997.

Many workers' accounts would be so small that they would be of no interest to profit-making firms. The average taxable earnings of a worker are roughly $25,000 (in 1997, the last year with complete data, the average taxable earnings of the workers who paid into the system were $22,400). Two percent of $25,000 comes to $500 per year. Francis X. Cavanaugh, who has supervised the thrift savings program for federal employees, a program that privatization advocates often point to as a model, has argued that the costs of administering so many small accounts would overwhelm any benefits to be gained from the stock market. For example, he estimates that the government would need to hire 10,000 highly trained workers just to oversee the accounts and answer questions from workers. In contrast, today's Social Security has minimal administrative costs amounting to less than 1 percent of annual revenues.


1.290 Private accounts would very likely not protect workers from lower benefits due to inflation

This has also been noted by The Century Foundation:

Social Security privatization plans, including all three recommended by the President's Commission to Strengthen Social Security, require retirees to convert the lump sums in their personal accounts into annuities that provide them with monthly payments until their death. The reason for that is that otherwise retirees could outlive their nest eggs, or even squander them, requiring taxpayers to bail them out.

The market for annuities, which are financial contracts sold by insurance companies, is very thin now, with relatively few bought and sold. Such a market would probably develop under privatization, but it is unlikely that those annuity payments would increase in line with inflation, as today's Social Security benefits do. Without inflation protection, the purchasing power of retirees' pensions would fall precipitously during times when prices are rising rapidly. Because insurance companies would bear significant new risks for offering inflation protection, they would be likely to charge very substantial fees over and above the already steep 10 percent that they now charge.


1.300 While giving individuals "choice" sounds good in theory, one needs to be sure that individuals are actually able to exercise the "choice" in a manner that doesn't reduce their benefits; after all, the vast majority of individual investors are not market experts and what investors get when they retire will depend on when they retire

The Century Foundation points out:

Privatization advocates like to stress the appeal of "individual choice" and "personal control," while assuming in their forecasts that everyone's accounts will match the overall performance of the stock market. But studies by Yale economist Robert J. Shiller and others have demonstrated that individual investors are far more likely to do worse than the market generally, even excluding the cost of commissions and administrative expenses. Indeed, research by Princeton University economist Burton Malkiel found that even professional money managers over time significantly underperformed indexes of the entire market.

Moreover, a number of surveys show that most people lack the knowledge to make even basic decisions about investing. For example, a Securities and Exchange Commission report synthesizing surveys of investors found that only 14 percent knew the difference between a growth stock and an income stock, and just 38 percent understood that when interest rates rise, bond prices go down. Almost half of all investors believed incorrectly that diversification guarantees that their portfolio won't suffer if the market drops and 40 percent thought that a mutual fund's operating costs have no impact on the returns they receive.

While predictions vary significantly about how investment markets will perform in the decades ahead, it's safe to say that any growth in individual accounts under privatization will be significantly lower than what the overall markets achieve.

REASON #6: What you get will depend on whether you retire when the market is up or down.

In the twentieth century, when stocks generally grew significantly, there were three twenty-year periods over which the market either declined or did not rise. The volatility of investment markets means that it matters a great deal whether you retire during an upswing or downturn. For example, a worker who invested his or her retirement fund in a stock portfolio that matched the Standard & Poor's 500 index and cashed out upon retirement in March 2000 would have a nest egg almost a third larger than someone who retired just a year later using exactly the same investment strategy. Of course, that is because the stock market plunged over those twelve months.

Gary Burtless of the Brookings Institution demonstrated how much timing matters under privatization by examining what would have happened to workers with forty-year careers who retired in each year from 1911 until 2002. Following Burtless's method, the figure below assumes that each worker put 7 percent of his or her earnings in the stock market every year (reinvesting dividends) and earned the actual historical return, year by year. It shows the wide variation in the retirement income workers would have received. Clearly, some workers would do much better than others based simply on when they happened to retire-that would be a major change from today's system.

Click to view Figure 2: Value of Annuity Purchased At Retirement With Individual Account Invested In Stocks
[eRiposte note: The link will not work; the figure is reproduced below]

Note: Assumed contribution rate is 7 percent of wages. Author's tabulations of U.S. equity and bond return data supplied by Global Financial Data (March 2003).

Source: Gary Burtless, Personal communication.


1.400 It is quite likely that the underhanded objective of the Bush privatization proposal is the eventual phasing out of Social Security

As CEPR says (bold text is eRiposte emphasis):

President Bush's proposal gradually shrinks the traditional guaranteed Social Security so that it will eventually become irrelevant for middle income workers. For today's twenty year old average wage earners, the guaranteed benefit will be equal to just 15 percent of their annual earnings when they reach retirement age. The guaranteed benefit will be equal to just 7 percent of annual earnings for a child born ten years from now.

As the traditional Social Security benefit becomes less important for middle-income workers, Social Security will increasingly become a poor people's program. This may be a clever strategy if the purpose is to undermine political support for Social Security; it is not a good way to structure the program if we expect it to be there for our children and grandchildren.

Their accompanying chart ("Source: Presidentâs Commission to Strengthen Social Security and Authorâs Calculations") provides a visual summary.

Economist Paul Krugman has appropriately stated in The Economist's Voice:

As Iâve described it, the case for privatization is a mix of strange and inconsistent budget doctrines, bad economics, dubious political economy, and science fiction. Whatâs wrong with these people?

The answer is definitely not that they are stupid. In fact, the case made by the privatizers is fiendishly ingenious in its Jesuitical logic, its persuasiveness to the unprepared mind.

But many of the people supporting privatization have to know better. Why, then, donât they say so? Because Social Security privatization is a solution in search of a problem. The right has always disliked Social Security; it has always been looking for some reason to dismantle it. Now, with a window of opportunity created by the publicâs rally-around-the-flag response after 9/11, the Republican leadership is making a full-court press for privatization, using any arguments at hand.


2. Where does your Senator or Congressman/Congresswoman stand on Social Security?  

Via Josh Marshall at Talkingpointsmemo, there is this blog Saving Social Security that is compiling this information. Please make sure you visit the blog and help convince your Representative or Senator on the need to bring out the real facts, fight the distortions and fabrications, and come up with a policy solution that is really bipartisan and which actually *solves* the problem.

 


3. Misleading Coverage or Fabrications on Social Security by many U.S. media outlets (including, in some cases, egregious, propagandistic, stenography on behalf of the Bush administration)

There is so much to mention here and too little space/time - so I'm just going to provide a handful of links. Omission from this list does not mean the corresponding media outlet or spokesperson provided an accurate picture - it is usually uncommon to see accurate and non-conservative-slanted coverage on Social Security (or for that matter most topics) in the U.S. media. (That said, there are some cases where authors have provided at least halfway decent coverage - which, while good, is not exactly a reason to celebrate considering it still tends to be a minority and only halfway decent).


4. A sample of the Bush administration's and Republican politicians' mendacity / misleading on Social Security

The misleading statements or outright lies on Social Security by President Bush, his subordinates and his cronies have been vast and a book can easily be written on the subject. Indeed, this disinformation campaign was started a long time ago (on most topics) - and it was a regular feature even during Campaign 2000. Due to lack of space I am including just a handful of examples here.

A brief introduction as to what is coming in 2005 and beyond -- by The Center for American Progress:

President Bush continued pushing the idea that there is a "crisis in Social Security" ö a misconception repeated uncritically by major news stations. But a 2004 report prepared by several Bush appointees said that while "the financial difficulties facing Social Security" should be addressed "in a timely manner," the program's assets are in little danger of running out before 2042. To "build public support and circumvent critics in Congress and the media," the president is planning to dust off the strategy he used "to sell his Iraq and terrorism policies during the first term." That means narrowing the circle of influence, whipping up a frenzy about the "disastrous consequences of inaction," enlisting the help of "well-funded conservative groups" and leaving the details for later.

EXAMPLE 1 - The Daily Howler:

Left alone, will Social Security ăbe thereä for DeHaven? As Paul Krugman noted in last Tuesdayâs column, a recent CBO report shows how silly his spin-point is÷the spin-point we all hear incessantly. What did the CBO report say? If Social Security is left alone, it will be able to pay 81 percent of promised benefits to recipients in the year 2052 (see THE DAILY HOWLER, 12/7/04). Thatâs not as good as 100 percent÷but itâs absurd to say that the program ăwonât be there.ä But so what! DeHaven made a bogus claim, and Roberts made no attempt to rebut it. But so it has gone for the past fifteen years as the public gets baldly disinformed.

Todd DeHaven is an activist [eRiposte note: He was more than just an activist and Kevin Drum has the details]; presumably, Chelsea Naja is not. But why do so many younger people believe SS ăwonât be thereä for them? They believe it because of men like Roberts÷and because of men like George Bush. Here was the president, bull-sh*tting again, in his radio address last Saturday:

BUSH (12/11/04): Good morning. Social Security is one of the great moral achievements of American government. For almost 70 years, it has kept millions of elderly citizens out of poverty and assured young Americans of a more secure future. The Social Security system is essential, yet it faces a deepening long-term problem.

While benefits for today's seniors are secure, the system is headed towards bankruptcy down the road. If we do not act soon, Social Security will not be there for our children and grandchildren.

President Bush is lying again÷and scribes like Roberts stare into air. Social Security is not ăheaded towards bankruptcy,ä and itâs absurd to say that the program ăwonât be thereä if we donât take emergency measures now. Why is Naja so misinformed? Because people like Bush keep misinforming her. In a rational word, journalists like would challenge Bushâs remarks. In our world, they rush hacks on the air to repeat them.

EXAMPLE 2 - The Daily Howler:

Nutting is Washington bureau chief for CBS Marketwatch, and he seems to be the only reporter in that city with the nerve to tell the American people that their president is baldly dissembling. Hereâs the opening of his report:

NUTTING (1/11/05): President Bush made several factual errors Tuesday about Social Security's long-term financing problems at a photo op event designed to educate the public about the retirement system.

Yes, that paragraph is quite politeöbut Nutting actually saw that it was news when Bush made his wild misstatements! And, after laying out a few background facts, Nutting did get down to brass tacks. Hereâs the first entry; the fact-checks appeared beneath a tangy sub-headline:

NUTTING:

Bush vs. facts

Bush: ăAs a matter of fact, by the time today's workers who are in their mid-20s begin to retire, the system will be bankrupt. So if you're 20 years old, in your mid-20s, and you're beginning to work, I want you to think about a Social Security system that will be flat bust, bankrupt, unless the United States Congress has got the willingness to act now.ä

The facts: The Social Security system cannot go "bankrupt," for it has no creditors. By law, the trustees will continue to pay reduced benefits even if the trust fund is exhausted. Payroll taxes will continue to come in and benefits will continue to be paid.

According to the trustees' intermediate economic forecast (neither doom nor boom), the trust fund will be able to pay about 73 percent of scheduled benefits in 2042 and about 68 percent of scheduled benefits in 2078.

Future presidents and Congresses could also choose to fully fund scheduled retirement benefits from general tax revenue.

At this point, we were upset because Nutting hadnât explained how large those ă73 percentä payments would be. But wouldnât you know it? Making it look amazingly easy, he laid that out in his next entry:

NUTTING:

Bush: "Most younger people in America think they'll never see a dime."

The facts: Social Security says younger people will see a lot more than a dime. Their retirement benefitsöeven under a "flat-bust" systemöwill be significantly higher than today's benefits in real terms.

For low-income Americans, currently scheduled benefits for those who retire in 2080 are $19,906 per year in 2004 dollars. If Social Security can pay only 68 percent of those benefits, that would be $13,536 per year, compared with benefits of $8,804 for low-income retirees who retired last year.

For the highest earners, Social Security is currently promising $53,411 per year for those who retire in 2080 (or $36,319 per year if Social Security can pay only 68 percent). Current maximum benefits are $21,891 per year for those who retired last year.

Cruelly, Nutting even includes a section of the official transcript where Bushâs unknowing audience engages in [LAUGHTER] as their president baldly misleads them.

We do have one complaint about Nuttingâs piece. He uses the official projections of the SS trustees without explaining that these projections are based on pessimistic assumptions about economic growth. At one point, Nutting does explain that the CBO offers a rosier view of these matters, but he doesnât explain why that is. When a journalist relies on those SS projections, he really ought to tell his readers that the projections are gloomy.

But put that one complaint to the side. Nutting wrote the kind of report that should have appeared in every newspaperöand on every TV channel as well. When a president convenes a major forum and proceeds to make outrageous misstatements, that is the biggest news of the day. And the American people need to be told that this event has occurred. They deserve to be shown the actual facts. And they deserve to be told, quite directly, that their ăpresidentä has been misstating facts.

EXAMPLE 3 - Josh Marshall at Talkingpointsmemo:

Administration Social Security lies round-up from yesterday's shows, from the AP (emphasis added) ...

Both Card and Snow, who appeared on "Fox News Sunday," said Social Security is beyond repair as it now stands. They said details of a plan to overhaul it remain to be worked out.
...
Asked whether Bush's ideas would remove guarantees of Social Security benefits to younger workers, Card said: "Under no one's plan will younger workers receive benefits they've been promised because the Social Security system doesn't have the financial underpinning, the foundation to support the expectations of social security 75 years from now, 50 years from now."

Straight-up lies, disinformation. I was going to say just like Iraq, but it's far more brazen since our knowledge in this case is much more certain. See this excellent post by Kevin Drum for more on the reality about Social Security's fiscal health and long-term viability.

Perhaps next there can be some effort to get the media to provide some check on demonstrably false statements made by administration spokespeople.

EXAMPLE 4 - Josh Marshall at Talkingpointsmemo:

"Young workers who elect personal accounts can expect to receive a far higher rate of return on their money than the current system could ever afford to pay them."

Vice President Dick Cheney
Catholic University of America
January 13th, 2005

"Calculations of the median voterâs return from ăinvestingä in Social Security suggest that for a majority of voters the U.S. Social Security system provides higher ex-post, or actual, returns than alternative assets."

Vincenzo Galasso
Social Security Bulletin
(The quarterly research journal
of the Social Security Administration)
Vol. 64 đ No. 2 đ 2001/2002

EXAMPLE 5 - Edmund Andrews does a good job at the New York Times (via Josh Marshall):

Introduced as a "single mom" from Iowa, Sandra Jaques was cool and confident as she praised President Bush's plan to partly replace Social Security with private savings accounts.

"I have a daughter at home. Her name is Wynter," said Ms. Jaques, sitting a few feet from President Bush at the White House economic conference on Thursday. "I want to make sure that she has Social Security when she retires as well."

Mr. Bush chimed in a moment later. "One of my visions of personal savings accounts is that Sandy will be able to pass her account on to Wynter as part of Wynter's capacity to retire as well."

The exchange was an example of how Mr. Bush promotes his agenda with testimonials from "regular folks," in the words of Joshua B. Bolten, the White House budget director, who introduced Ms. Jaques.

But Ms. Jaques is not any random single mother. She is the Iowa state director of a conservative advocacy group, FreedomWorks, whose founders are Jack F. Kemp, the former vice-presidential nominee, and Dick Armey, the former House Republican leader.

Ms. Jaques also spent much of the past two years as a spokeswoman in Iowa for a group called For Our Grandchildren, which is mounting a nationwide campaign for private savings accounts.

Her path to the stage was engineered by another advocate for private accounts, Leanne Abdnor, who previously organized a business coalition in Washington called the Alliance for Worker Retirement Security.

"Sandy is the perfect person to explain the benefits of this for women," said Ms. Abdnor, who has founded another group, Women for a Social Security Choice.

Ms. Abdnor said she had raised start-up money from friends, whom she would not identify. She said the group would wage a publicity campaign to counter groups that oppose private accounts.

EXAMPLE 6 - The Daily Howler:

And when Candidate Bush proposed Soc Sec privatization during Campaign 2000, he too made a ăfree moneyä pitch. ăThe reforms I have in mind will actually increase [younger workersâ] retirement income,ä he said, in the speech in which he introduced his great ăprinciples.ä Here was the free-money pitch which helped Bush get to the White House:

BUSH (5/15/00): The reforms I have in mind will actually increase [younger workersâ] retirement income. Right now, the real return people get from what they put into Social Security is a dismal 2 percent a year. Over the long term, sound investments yield about a 6 percent return·A worker who invests even a limited portion of his or her paycheck could, over a career, end up with hundreds of thousands of dollars.
Jeez! Who wouldnât prefer six percent over two? Who wouldnât want ăhundreds of thousands of dollarsä÷extra dollars, beyond what they were scheduled to get? Bushâs pleasing promise was based, of course, on utterly bogus sleight-of-hand. Paul Krugman explained the problem again and again (links below), but the rest of the press corps stared into air. Instead of debunking his phony spin-point, pundits praised Bush for his ăbold leadershipä÷and criticized Gore for rank negativity when he ăattack attack attackedä Bushâs plan. And yes: This is the way your ăpress corpsä has acted in all recent budget debates.
...
During Campaign 2000, pundits pretended not to notice the fact that Bushâs Sec Sec pitch was bogus. See THE DAILY HOWLER, 5/17/02. To see them trash Gore because he did notice, see THE DAILY HOWLER, 12/2/04. And yes: This is the way your ăpress corpsä has acted in all recent budget debates.

Somerby also chronicles one of countless examples of the U.S. Press Corps' egregious misbehavior during Campaign 2000 when they repeatedly ignored the plain facts on Bush's dissembling about Social Security and trashed Gore instead.

All the stoolpigeons knew what to say when Bush announced his vague, pleasing ăprinciples.ä Bush was showing bold leadership, they said, and Gore was being disturbingly negative. How goon-like was the corpsâ script-reading? Here are excerpts from three cable discussions. The script about Gore? He was being too negative. It was all just ăattack, attack, attack:ä

Hardball, MSNBC, May 5, 2000:
CHRIS MATTHEWS: Norah, letâs start in talking about this amazing campaign. Who would have believed that George W. Bush would have looked so clean and so good right now after that bruising fight with John McCain? Heâs up five points in a number of polls this week, and yet you see Al Gore picking away at him with these left jabs of his·Itâs the same thing he did to Bill Bradley÷attack, attack, attack.

Russert, CNBC, May 6, 2000:
JOE KLEIN: The concern I have about the Gore campaign is that he has learned one lesson and heâs kind of becoming a one-trick pony.
TIM RUSSERT: Attack. Attack. Attack.
KLEIN: Attack. Attack.
RUSSERT: Governor Bush put forward a Social Security plan calling for a partial privatizing, and he attacks, saying that is risky·Why÷why÷why does Gore just, almost knee-jerk, attack, attack, attack?

Inside Politics, CNN, May 17, 2000:
CHARLES COOK: For Governor Bush, itâs a chance to show sort of bold leadership·But at the same time, getting into that area is certainly a risky thing and itâs going to test all of George Bushâs abilities of persuasion to sell this, because Al Gore is very good at the attack, just look at what he did to Bill Bradley on health care·
BERNARD SHAW: What comes to mind, Stu?
STUART ROTHENBERG: Well, in general, he has been attacking for months now and thereâs been a lot of criticism that heâs been overly negative. Once again, here, attack, attack.

ăAlmost knee-jerk,ä Russert said, describing his own reaction.

Rothenberg was right about one thing, of course; there had been ăa lot of criticismä of Goreâs disturbing behavior. Indeed, The Storeboughts all knew they should criticize Gore for his troubling criticism of Bush. For a four-part critique of the clownish way your ăpress corpsä ăcoveredä Soc Sec during Campaign 2000, see THE DAILY HOWLER, 5/15/02, along with the three HOWLERS which follow it.

LOOK WHOâS ATTACK-ATTACK-ATTACKING: Mort and Fred were pimping the script even before Bush announced his high principles. Here they are on The Beltway Boys on April 30, 2000:

KONDRACKE (4/30/00): Look, the dynamic here is perfectly obvious. Gore is behind in all the polls, so he's doing what worked with Bill Bradley, attack attack attack, and, you know, and he's hoping that it'll work on George W. Bush. The difference is that George W. Bush is not going to take it forever. I mean, George W. knows how to counterpunch, and I predict soon that he'll start doing it.

BARNES: Yes, he's not going to be the guy on the ropes just getting punched. No rope-a-dope for him. But look, Gore was attack attack attacking, and he's÷in the beginning, and now he's been going down as a result of that attack attack attacking. He doesn't÷I don't think he knows how to deal with Bush, who doesn't want to really get÷engage him in a back-and-forth, wisely.

Amazing, isnât it, to see the way these goons all agree to recite the same points? As Mort said, the dynamic was perfectly obvious all through the spring of this year.

EXAMPLE 7 - The Daily Howler:

SENATOR LINDSEY GRAHAM: Well, you can't afford not to do it. Social Security is going bankrupt, it's coming apart at the seams. When I was born in 1955, there were 16 workers for every retiree. In about 15 years, there will be two workers for every retiree. Between 2011 and 2030, there will be a 65 percent increase in retirees and 8 percent increase in the work force. We're short of money to pay the benefits. If we do nothing, the cost will be trillions; if we do something progressive, the cost can be managed. But to do nothing is a death blow to Social Security.

Body and Soul has chronicled Bush's attempt to fake his way over the word "privatization".


4.1 Bush continues his long-standing tradition of fake "town-hall" meetings using pre-screened die-hard supporters and scripted exchanges to deceive public on Social Security

Liberal Oasis caught this example:

Dubya had one of his patented invite-only ătown hallsä yesterday, with all attendees die-hard backers of Social Security privatization.

How scripted was this event? Check out this exchange:

MS. STONE: I would like to introduce my mom. This is my mother, Rhoda Stone. And she is grandmother of three, and originally from Helsinki, Finland, and has been here over 40 years.

THE PRESIDENT: Fantastic. Same age as my mother.

MS. STONE: Just turned 80.

Of course, the script probably told Bush to say, ăsame age as my motherä after Ms. Stone mentions her mom is 80.


4.2 Bush administration attempts to use non-partisan government workers (in Social Security Administration) to push partisan, dishonest privatization scam onto Americans

Josh Marshall has an appropriate summary:

Downright criminal.

Just out from the Times ...

Over the objections of many of its own employees, the Social Security Administration is gearing up for a major effort to publicize the financial problems of Social Security and to convince the public that private accounts are needed as part of any solution.

The agency's plans are set forth in internal documents, including a "tactical plan" for communications and marketing of the idea that Social Security faces dire financial problems requiring immediate action.

Social Security officials say the agency is carrying out its mission to educate the public, including more than 47 million beneficiaries, and to support the agenda of President Bush.

But agency employees have complained to Social Security officials that they are being conscripted into a political battle over the future of the program. They question the accuracy of recent statements by the agency, and they say that money from the Social Security trust fund should not be used for such advocacy.

They transgress every limit, every rule. Now the Armstrong Williams episode turns out to have been just a blip on the radar, a faint premonition. Your payroll taxes and the whole edifice of the Social Security Administration is being joined to Karl Rove's outside astroturf groups pushing the Social Security phase-out. Or, I guess you could say that your payroll taxes are being used to cheat you out of what you've spent the last decade or two or three paying them for.

Gives a whole new meaning to raiding the Trust Fund.

The White House is intent on making this into a fight about what the country is. So the battle is joined.

Here's the page the Social Security Administration says to use if you have a complaint.

How does Senator McCain feel about this? Congressman Leach? Senators Chafee and Specter and Snowe?

One more thought: As we've tried to show in the last few days, when you dig down into the Social Security Administration website you find a wealth of information which directly contradicts the lies coming out of the White House. How much longer you figure that stuff's going to stay there? Perhaps some handy folks should start doing some quick site archiving. Call it the Memory Hole Project.


4.3 Some Republicans dismiss the notion of a "crisis" in Social Security

Via Josh Marshall, here's U.S. Rep. Robert Aderholt in the Decatur Daily (note that he also gets it partly wrong in that Social Security is not going "bankrupt" in several decades):

What crisis?

Aderholt agrees with reform critics who say Social Security is not in crisis. Aderholt said he believes reform is needed, but there is no reason to rush the reform effort.

"It's sort of deceiving when we talk about the situation being that we are on the brink of disaster. We're not. It will be several decades before the system goes bankrupt," Aderholt said.

Aderholt worries that political rhetoric designed to push legislation through Congress will scare his retired constituents.


5. Fraudulent Republican Front Groups and Ideological Proponents of Social Security privatization spread the fake "crisis" rhetoric and dishonest propaganda

Josh Marshall at Talkingpointsmemo talks about the Orwellian "Progress for America, Inc." (which has nothing to do with the Center for American Progress):

From a press release just out from Sen. Harry Reid's leadership office: "Senator Harry Reid (D-NV) today joined James Roosevelt Jr., grandson of President Franklin Delano Roosevelt, in calling on the group Progress for America Inc. to cease running its latest television ad, which misleadingly features photos of President Roosevelt in its pitch for Social Security privatization. As James Roosevelt Jr. writes in his letter to Progress for America, 'to compare the courage it took to provide a guaranteed insurance program for our seniors and the disabled to the courage it will take to dismantle the most successful social program in history is simply unconscionable.'ä

More about Progress for America here. As Josh points out:

Note to who's behind "Progress for America", the big anti-Social Security astroturf group -- none other than Tony Feather and Tom Synhorst, the Johny Appleseed of GOP astroturf operators.

Josh also has this snippet on the "Republican Jewish Coalition":

The Republican Jewish Coalition joins the ranks of organizations running ads in favor of the president's Social Security phase-out plan ...

The Republican Jewish Coalition announces the launch of an advertising campaign in support of President Bushâs proposal to reform Social Security. Beginning the week of January 17th, the RJC will run full-page ads in major Jewish newspapers around the country as well as in Roll Call, a Washington, DC newspaper widely read by the White House, member of Congress, their staffs, and other leading policy-makers and opinion leaders.

The ads support the Presidentâs proposal for allowing young families to voluntarily invest part of their Social Security contribution, while maintaining the current benefits for those on Social Security or nearing retirement. Social Security is headed for bankruptcy.

Whether it fails completely in 15 years or 40 years, there will come a day when it will no longer be possible for Social Security to provide full benefits to retirees. Raising Social Security taxes or cutting benefits will delay that failure, but will not prevent it.

Fails completely in 15 years? Even the president doesn't fib that bad.

What would Bubbe say?

Media Matters mentions Pat Robertson's false statements/propaganda in The 700 Club (program on the Christian Broadcasting Network). They have also covered the false nonsense from privatization proponent Peter Peterson - President of the Concord Coalition.

This section would be incomplete if I did not mention the lie-and-garbage factory at National Review Online (NRO) and the Washington Times. Media Matters covers the crackpot Donald Luskin and Brad DeLong covers Ramesh Ponnuru - at NRO. Media Matters has a snippet on the Washington Times here.


6. George W. Bush's flip-flops on Social Security: A Promise Made is a Promise Unkept

No telling of the Social Security problem would be complete without pointing out the egregious broken promises (also known as "flip-flop" these days) on Social Security from the current resident of the White House. The U.S. media's deafening silence on this is also worth noting.

FLIP
2/27/01 - [Bush] "...To make sure the retirement savings of Americaâs seniors are not diverted into any other program, my budget protects all $2.6 trillion of the Social Security surplus for Social Security and for Social Security alone..."
10/3/00 - [Bush]: "...The revenues exceed the expenses in Social Security to the year 2015, which means all retirees are going to get the promises made. So for those of you who [Gore] wants to scare into the voting booth to vote for him, hear me loud and clear: A promise made will be a promise kept..."
3/22/01 - [Bush] "...For years, politicians in both parties have dipped into the Trust Fund to pay for more spending. And I will stop it..."
IN SHORT:
(a) Will protect Social Security surplus in its entirety - a promise made on safeguarding Social Security surplus will be a promise kept
(b) Will never dip into Social Security Surplus to finance spending

FLOP
7/11/01 - [Link]: "During last year's campaign, George W. Bush solemnly pledged that his tax cuts would not come at the expense of future retirees, that the reserve the Social Security system was accumulating to help it pay benefits to the baby boomers would be kept in a "lockbox" ÷ that is, that Social Security surpluses would not be used to cover deficits in the rest of the budget. 
Ever since Mr. Bush was sworn in, however, it has been apparent that he takes some of his promises more seriously than others. And so no sooner were big tax cuts for the rich in the bag ÷ an event followed, with breathtaking speed, by the revelation that revenue projections are in free fall ÷ than administration officials suddenly discovered that the lockbox is a silly idea. Here's what Mitch Daniels, director of the Office of Management and Budget, said last weekend: "There is no box, there is no mattress. Paul O'Neill doesn't have a hole in the backyard where this money goes. . . . What's unfair is to mislead the American people into thinking this money's in a box somewhere. It isn't. That box has nothing but promissory notes in it." (Thanks to Joshua Micah Marshall for that quote.)
Clearly, Mr. Daniels knows that because of the tax cut Mr. Bush will soon break his promise to protect the Social Security surplus. (I could have told you that would happen eventually. In fact, I did. But the truth is coming out ahead of schedule.)"
4/02 - [Link]: 
"Bush Budget Will Spend the Entire Social Security Trust Fund Over Next Two Years. The Wall Street Journal reported that Bush uses "all the Social Security surpluses ... to fund the government for the next two years, and to spend well over $100 billion of Social Security funds in each of the following three years." [Wall Street Journal, 2/5/02]
Bush Raids Social Security Trust Fund of $1.6 Trillion. A House Budget Committee Democratic staff analysis of the Bush budget proposal found that over the next ten years $1.6 trillion of the Social Security Trust Fund is spent on other government operations. CBO found that without assuming any new spending ÷ such as homeland security and prescription drug coverage for Medicare ÷ the Social Security Trust Fund would be raided every year through FY 2009. After including Bush's spending proposals, CBO predicted a trust fund raid every year through 2012 and an on-budget deficit of $1.8 trillion. [House Budget Committee, Democratic Staff, "Return to Red Ink: Back to Budget Deficits," 2/8/02; CBO, Budget and Economic Outlook: Fiscal Years 2003-2012, 1/31/02, Summary Table 2; CBO, An Analysis of the President's Budgetary Proposals for 2003, Table 1, 3/6/02]
Bush Was on Track to Breach Social Security Trust Fund Before September 2001. Contrary to Bush and Republican rhetoric that the terrorist attacks of September 11 forced the raid of the Social Security Trust Fund, CBO reported as early as August 2001 that Bush was due to tap the Trust Fund. CBO also said the Bush administration would raid the Trust Fund again in FY 2003 and 2004. USA Today reported, "The White House is backing away from its pledge to protect every cent of Social Security reserves in the face of a report today that the government is tapping Social Security taxes for other programs." [Associated Press, 4/7/02; CBO, The Budget and Economic Outlook: An Update, August 2001; USA Today, 8/28/01]" 
1/9/04
- [Link]: "In the 2000 campaign, Vice President Al Gore said we should sequester the Social Security surpluses in a "lockbox" to prevent appropriators from spending them. Bush agreed in principle. But that commitment went out the window soon after the inauguration. In his first three budgets, Bush (who had the good fortune to take office at a time when the surpluses were growing rapidly) and Congress used $480 billion in excess Social Security payroll taxes to fund basic government operations÷about $160 billion per year! 
By so doing, Washington spenders have masked the size of the deficit. For Fiscal 2004÷which began in October 2003÷if you factor out the $164 billion Social Security surplus, the on-budget deficit will be at least $639 billion, rather close to the modern peak of 6 percent of GDP. And according to its own projections (the bottom line of Table 8 represents the Social Security surplus), the administration plans to spend an additional $990 billion in such funds between now and 2008. That year, according to the Office of Management and Budget's projections, the on-budget deficit will be about $464 billion. Only by using that year's $238 billion Social Security surplus does the administration arrive at a total, unified deficit of $226 billion. And the ultimate on-budget deficit will almost certainly be worse. OMB has proven in the past few years that its projections can't be trusted.
The accounting for Social Security surpluses has always been dishonest. But in the past few years, the Bush administration has made this shady accounting a central pillar of its fiscal strategy. The unprecedented reliance on these funds hides the failure of the administration to ensure that there is some reasonable correlation between the resources it has at its disposal and the spending commitments it makes. Bush & Co. have redesigned the tax system so that collections of the progressive taxes that are supposed to fund government operations÷like individual income taxes÷have plummeted. Instead, with each passing year we rely for our current needs more on the regressive payroll taxes that are supposed to fund our collective retirement."
Also see here, here, here, here, and here.
IN SHORT:
(a) Will NOT protect Social Security surplus - a promise made on safeguarding Social Security surplus will NOT be a promise kept
(b) WILL dip happily into Social Security Surplus to finance spending


APPENDIX: How should the Democratic Party respond to the fake crisis being propagated through the media?

On this topic, I recommend reading the following posts:

  • This piece by Ryan Lizza at The New Republic
    • This is a superb piece trying to show Democrats how the Republicans built their current majority, from a minority position early in the Clinton years - and the lessons they need to learn on how to deal with Bush's Social Security privatization plan
  • This piece by Josh Marshall at Talkingpointsmemo
    • A very important post that Democrats would ignore at considerable peril to themselves. Josh makes a point I have been making to many people over the last few months - that using Bill Clinton or his style as guidance in these times is a completely disastrous approach for the Democrats. What worked for Clinton in a position of power as the POTUS simply does not work for a sidelined opposition party with ZERO power. You simply do not have the luxury of simply claiming, as Clinton did in his speech at the DNC, that Bush and the
      Dems only disagree on the policy details but are both "well-intentioned" (paraphrasing). I thought Clinton did a lot of damage to the cause of the party in general with that sentiment (despite his otherwise good speech) and the Dems continue to spread that damage. I see one DNC'er after another taking on a so-called "centrist" mantle in what seems to be attempts at aping Clinton and the folks at the DLC - and one by one they add to the disaster. They neither convey to the people the fact the current POTUS rules by mass deception, nor do they give *ill-informed people* a reason to think that their opposition is based on any real, substantial difference rather than mere partisanship. Their approach is particularly poisonous to the Dem party now because the Press is effectively in the pocket of the RNC.
  • This piece by Josh Marshall at Talkingpointsmemo
  • This piece by Bill Scher at Liberal Oasis
  • This piece by Kevin Drum at Political Animal
  • The following pieces at The Left Coaster: Yuval Rubinstein, Steve Soto, Steve Soto 2

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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