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As weve been noting

As we've been noting, if productivity rises faster than anticipated, that will make Social Security's deficit smaller than anticipated. And there's very good reason to think that productivity will rise faster than the Social Security administration is predicting. It's very unlikely that productivity will rise fast enough to make the whole problem go away, but it probably will be smaller.

Now insofar as one is inclined to contemplate benefit cuts as a method of closing the whole, it stands to reason that if the problem turns out to be smaller, the cuts will also be smaller. Makes sense, right? The less you need to cut, the less you cut.

But since the president's plan cuts benefits by the difference between wage growth and price growth, and that difference gets bigger the faster productivity grows, it would accomplish the reverse. The less we need to cut, the more he cuts! If I had a seat in the White House press room, I would ask someone about that.

As I said before

As I said before, I was moving furniture yesterday morning when the Sunday chat shows were on, but a couple of emailers have described to me a chart that went up on This Week which George Stephanopoulos used to challenge Nancy Pelosi. Assuming my correspondents are describing the chart accurately, it was what I would describe in terms that aren't appropriate for a family blog. To make a long story short, it compared benefits under the Pozen plan to the benefits people will get if we do nothing to change Social Security and concluded that almost everybody will get more money under Pozen/Bush.

Now since the Pozen plan cuts benefits for most people and leaves benefits unchanged for others, you may be wondering how that could be possible. Well, it's possible because for the "do nothing" scenario they were using benefits payable rather than scheduled benefits. In other words, it's how much you can get if we assume that the Trust Fund runs out of oney in 2041 and benefits thereafter need to be cut down to what can be paid for out of current tax revenues. As you might be able to guess, the cuts are not small. But since the Pozen plan achieves solvency without any changes to the retirement age or any tax increases, how could it possibly cut benefits by less than just doing nothing and then cutting benefits when the Trust Fund runs out of cash?

Good question. The answer is that Pozen's cuts are smaller because the Pozen plan doesn't achieve solvency. It only gets you 70 percent there. With the modifications Bush is propsing, it gets you about 50 percent of the way there.

So what the chart proves is that a plan that only gets you halfway to solvency can be more generous than a plan that gets you all the way there. Which is obvious. And a rather stupid thing to be pointing out. But it only looks stupid if you bother to inform your readers that you're making a pointless apples and oranges comparison. Which, it seems, ABC didn't.

I used to get mad at the administration for trying to manipulate people all the time. I don't anymore. You can hardly blame them. Everyone would act this way if the media were so casual about letting them get away with it. But now we're well beyond letting them get away and deep into aiding-and-abetting territoriy.

Theres more to life

There's more to life -- and to politics -- than Social Security. Perhaps most crucially, as this bloody week in Iraq reminds us, there's national security, the issue that metaphorically killed the Democrats in 2004 and that literally kills people each and every day. As the author of an article criticizing the Democratic Party's tendency to try and avoid these issues and head for the high ground of domestic economic policy, I must admit to some fears that the party -- and liberalism more broadly -- may be falling into just that trap at the moment. Social Security is an important issue, this fight is an important fight, and we need to try our best to win it.

But at the same time, it's a comfortable fight for liberals. We've won a lot of elections on Social Security over the years. And when that strategy hasn't worked, it's never been because the other side won the debate about retirement. Instead, it's been because the public just didn't think Social Security was the most important issue. Right now, Bush has made it the most important issue, and he's paying a price for it. But unless you assume that the Republican Party's campaign operatives are all going to be replaced by idiots, you can get that national security will be back with a vengeance in the election cycles to come. And rightly so since there's no government responsibility more fundamental than national defense. To succeed -- and, frankly, to be worthy of success -- Democrats need to get better at tackling this stuff.

Yesterday on the excellent, new-ish Democracy Arsenal blog, Suzanne Nossel cited "The Energy of the Progressive Foreign Policy Opposition" as one of the top ten things at stake in the John Bolton nomination. "Let’s face it," she wrote, "Bolton’s helping us get our groove back." I certainly hope that proves correct. But so far, the debate over his nomination has centered heavily on questions about Bolton's personal behavior. Not personal in an illegitimate sense -- the material's all been relevant to his conduct in office -- but personal in the sense of being idiosyncratic to Bolton. That's a good way to beat a nominee, but it doesn't do much work in terms of discrediting the broad approach of the Republican Party toward these issues or bolstering the public's sense that Democrats have a good handling on them. Perhaps this isn't the time or place for doing that, but we're going to have to find some time and some place to really lay out a compelling liberal internationalist vision for the 21st century.

As several readers have

As several readers have written in to point out to me, Senator George Allen (R-VA) made some odd comments on Meet The Press yesterday while I was busy trying (successfully!) to stuff a Klippan couch into a Honda Element. Allen says that "in the event that a personal savings account approach is taken" with Social Security, we ought to allow people "to invest in a home in addition to . . . stocks, bonds and other financial instruments." After that he suggested that old people should finance their retirements by selling their homes because "they don't want to be cutting grass and trimming hedges, and that is good for the economy as well."

This suggests some intriguing new spin possibilities. Why do Republicans want to cut Medicare and food stamps? To save poor people from the trouble of going to the grocery store and taking kids to the doctor!

Snark aside, there's a serious point to be made here. When selling phase-out to policy mandarins, journalists, etc. the administration is always quick to point out that there will be severe restrictions on where people can put their money. Just four or five balanced investment funds, all relatively safe. That's important, because if people are given free reign to do whatever they want with their nest egg, some people will invest it very poorly or very unluckily. Even if most people do fine, this is a problem, because if any non-trivial number of people see their account tank, there's going to be irresistable political pressure to bail them out. But once you start bailing a few people out you create a moral hazard and we'll wind up in a downward spiral of bad investments.

But when selling the plan to the public, the White House is all about choice. Your private accounts will be yours and yours alone! The government has no right to tell you what to do! There are going to be a lot of business lobbies out there working right away to loosen the restrictions on what people can invest in. Real estate interests will push for the Allen plan. Financial services companies will want to let people pick and choose individual stocks -- or at least invest in heavily-managed mutual funds that generate more fees. And just as with 401 (k) plans, the coalition of lobbyists and libertarians will succeed. Some folks will think that's great. I disagree (see moral hazard below). But agree or disagree, everyone should understand that the administration's promises on this score are not credible. But then again, when are they?

An excellent Jonathan Kaplan

An excellent Jonathan Kaplan article in The Hill notes that when privatization maestro Edward Prescott tried to sell the Treasury Department's professional economists on phase-out "as part of the department’s effort to build support for its plan in academia and on Capitol Hill," the economists told Prescott that lots of the things the administration's been saying about Social Security are, to put it bluntly, untrue. Kaplan also makes the point that this is part of a larger pattern, just one more step in the development of the postmodern presidency as someone once put it.

Every time Ive mentioned

Every time I've mentioned on my blog that faster productivity growth (and therefore faster wage growth) will shrink the Social Security deficit in come the emails complaining that this won't work because wage growth increases Social Security's costs as well as its revenues. You can also find this complaint being made by many a conservative pundit. Make the case to a bigger audience here on TPM, the number of complaints is only higher. But the complaint is wrong. Read the Social Security Administration's annual report and you'll see that it's wrong. Faster productivity growth leads to an improvement in Social Security's finances. That's why one of the assumptions of the (historically more accurate) "low cost scenario" (under which no deficit whatsoever is projected) is that productivity growth will be faster. Read Brad Delong's explanation if you want to know why. The short version is that while initial benefit levels are indexed to wage growth, annual benefits above the initial level increase only at the rate of price inflation.

The Frist Filibuster continues

The Frist Filibuster continues today at Princeton. Congressman Frank Pallone is supposed to be by in about ten minutes and the Princeton Progressive Review folks say they'll be live-blogging his appearance here. Word on the street is that some other pols may join the fun in the days to come.

This is bad. I

This is bad. I see the Social Security mumbo-jumbo has gotten so bad that even the usually sharp Michael Kinsley is taking a sip or two of kool-aid. One problem with the column is the assertion that "if privatization is truly voluntary, it can't do much harm." Kinsley should know better, since he himself writes earlier that "Bush's privatization ideas are a mathematical fraud." Fraudulent business proposals are almost always voluntary. Nobody needs to get suckered in. But they're not harmless. Nor is, say, heroin harmless even though nobody's forced to take it.

A more serious error, in many ways, because it lends a liberal imprimatur to a bit of pure rightwing spin is this: "The problem is fewer and fewer workers supporting more and more retirees." For one thing, it's simply not the case that we're looking at fewer and fewer workers. The population is aging, not shrinking. There will be both more workers and more retirees, it's just that the number of retirees is increasing faster than the number of workers. That's a different sort of problem. And the mere fact of aging doesn't necessarily cause any problems for a pay-as-you-go social insurance plan. The reason is that over time thanks to the accumulation of capital goods, improvements in education, and so forth, workers grow more productive. That's to say that a single person in 2005 can produce a lot more value in terms of goods and services than could a single person in 1905. So we're looking at a smaller worker/retiree ratio in the future, but future workers will be super-sized compared to today's workers and therefore capable of supporting more retirees while also seeing their own livings standards improve.

Now all that notwithstanding, the rapid one-time shift in population composition associated with the baby boom is projected to outpace increases in productivity growth. This, though, was entirely foreseeable a long time ago. And, in fact, a bipartisan commission chaired by Alan Greenspan came up with a plan to cope with the problem, a plan that was passed by the congress and signed into law by Ronald Reagan. That plan was the build-up of a Trust Fund that was supposed to generate sufficient additional money to cover the demographic transition and leave us with clear sailing, which was what we were projected to have in 1983. Now by 2005, clear skies are no longer forecast. What went wrong? Did Greenspan count the number of baby boomers wrong? Well, that would be a pretty stupid mistake. And, in fact, it's not a mistake that was made. Josh Bivens of the Economic Policy Institute took a look at what actually went wrong and concluded that "The deterioration in the 75-year actuarial balance of Social Security that has occurred since 1983 has been caused overwhelmingly by economic developments, trends in disability incidence, and programmatic changes to Social Security."

Specifically productivity growth from 1983-1995 was very bad by historical standards and more people have been becoming disabled than we expected. Fortunately, since 1996 the productivity situation has turned around. Unfortunately, the Social Security Administration adopted a methodological change two years ago that prevents them from considering recent trends in productivity growth that suggest the shortfall will be more like the one originally forecast in 1983 (which is to say nonexistent) than like the one being projected today. Policy measures to increase wage growth, reduce disability rates, and reform immigration -- all of which are worth doing on their own terms -- could very well eliminate the whole problem without any benefit cuts or tax hikes whatsoever.

The president takes a

The president takes a lot of heat from the liberal blogs for all the mumbo-jumbo he puts on offer, but he wouldn't bother unless there were all these people out there eager to lap it up. Case in point, today's witless Washington Post editorial that opens with the astounding observation that "For the past three months Democrats have declined to engage in a debate over Social Security."

Now I'm not sure where Fred Hiatt lives, but here on the planet earth Democrats have very much been engaged in a debate over Social Security. There's a debate on about whether we should have Social Security or whether it should be phased-out and replaced with something radically different. The White House initiated this debate by proposing that we get rid of Social Security, and Democrats have engaged by saying we should keep it. So far, Democrats are winning this debate.

On Planet Hiatt there's some other debate taking place about how we should phase Social Security out and what, exactly, we should replace it with. These can be interesting debates. Reason is a stylish and witty libertarian magazine where several of my friends work. As libertarians, they take it for granted that we should get rid of Social Security. Consequently, they hosted a debate in their pages between James "Dow 36,000" Glassman and Tyler Cowen, a very sharp libertarian economist. Naturally enough, the credibility-deprived hack endorsed something very much like the president's proposal. Cowen prefers to just radically reduce benefits and leave things at that. The debate's worth reading. Nevertheless, this is a whole other debate from the one the country is having right now, which is about whether or not Social Security should be saved. That's the debate Democrats need to be -- and are -- engaged in right now. They have no business engaging in the other debate. Anyone who's genuinely confused as to how a pro-Social Security administration might make the numbers add up can look at any number of plans liberal wonks have put together. But those internecine debates within the Social Security faction are, at the moment, every bit as irrelevant as the internecine debates within the phase out faction. Right now, the debate is about phase out pure and simple. Bush, and the Post, are for it. Democrats are against it.

Efficiency and progress are

Efficiency and progress are ours once more?

On the campaign trail back in 2000, George W. Bush criticized congressional Republicans for trying to "balance the budget on the backs of the poor" for proposing cuts in the Earned Income Tax Credit. The credulous media took this as an indication that Bush was "a different kind of Republican" who would govern the country in a kinder, gentler, more compassionate manner. Now it's clear that he meant something rather different: The congress just shouldn't balance the budget -- screwing over poor people is fine.

How else to understand the budget the House/Senate Conference Committee came up with at the end of last week? It doesn't balance the budget and, thanks to adding even more tax cuts on to what we've already had, doesn't even shrink the deficit. Nor does it even cut spending very much. But it does cut spending on Medicaid and, fulfilling Ed Kilgore's February prediction, managed to turn the excellent idea of cutting farm subsidies into the terrible idea of cutting food stamps. All disagreement aside about how much overall spending is desirable, I don't think you can find anyone who thinks on the merits that giving food and medicine to poor people rank number one -- or even close to number one -- on the list of dubious government projects that ought to be on the chopping block. So how is it that these particular programs wound up being the ones to get the ax? Well, it's not too difficult to understand. These are programs that benefit poor people who can't hire lobbyists and who, therefore, lack clout in a Washington, DC run by a Republican Party that's decided to outsource policymaking to K Street.

There are a few lessons to be learned here. One is that Republicans are bastards. Another is that this is what will happen to Social Security if it's transformed into a welfare program instead of the universal social insurance program it is today. The third is that every conservative who promises that no such thing will ever happen but who isn't exactly speaking out forthrightly against these "soak the poor" cuts (i.e., pretty much all of them) is not to be trusted.

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