The favorite bogeyman of the Right, Social Security insolvency, is rearing its ugly head once again. Obama's deficit commission has been told that no solution is off the table, and Dean Baker notes it wouldn't be the first time that a Democratic administration went forward with plans that a Republican couldn't sell to the American people.
Baker joins us via Skype to remind us once again that Social Security is solvent for many years, and that there are simple fixes for it if there are problems. He also notes that austerity is a lousy prescription for an economy suffering from a lack of spending.
Dean Baker is a liar. He knows full well that this year social security went into the red. In that the benefits paid out exceed the money collected. The “solvent until 2037″ delusion is based on the “trust fund” figures. But the “trust fund” is solely and only papers: government bonds that supposedly can be cashed. For many a year, all the funds that social security collected, that weren’t paid out in benefits or administrative costs, went into the general fund for Federal government expenditures. And in exchange for those funds, a paper scam was done, issuing government bonds in exchange. But every single one of those government bonds, if cashed, would require the government go out and sell a bond of equal value, thereby increasing the deficit. Medicare (the medical costs and hospitalization expenditures) went into the red two years ago.
If we don’t do something about every last bit of government spending, we will soon be in very hot water.
By Warren Metzler on August 13th, 2010 at 12:16 am
You must have read Allan Sloan’s piece in the Post which Baker has already dispelled. From the CEPR blog:
“Allan Sloan is a thoughtful business columnist whose work is generally quite insightful. His piece on the Social Security trust fund is not up to his usual standards.
There is nothing mysterious or shady about the trust fund. It is an asset to the Social Security system, which means that it can be used to pay benefits. Of course, as Sloan points out, its assets are U.S. government bonds, which are liabilities for the federal government, just like the government bonds held by banks, corporations and the general public.
To see the basic logic, imagine that we had a huge private pension fund to which we all contributed a portion of our wages. Call it “Private Social Security” or PSS. Suppose that PSS had an investment policy of investing its excess contributions entirely in Treasury bonds, just as Social Security does.
At some point, PSS plans to stop accumulating money and will instead begin to sell off its Treasury bonds to meet its benefit obligations. When it begins selling these bonds, the government will have to find other buyers for its debt. This could lead to higher interest rates for the federal government, as a major buyer for its debt has now become a seller. However, no one would describe this as a problem for PSS. It is selling its bonds just as any other bondholder might do. As long as it has bonds to sell to pay its benefits, we would consider PSS to be fine in terms of its ability to meet its obligations, unless the solvency of the federal government itself was called into question.
Now, let’s take away the “P.” What is the problem with the Social Security trust fund selling off its bonds to pay benefits? This is exactly the way the program was designed. It quite deliberately accumulated government bonds during the years that the baby boomers were in the work force with the intention that they would be sold off when baby boomers retire to help fund their benefits.
It’s true that the government must find other buyers for these bonds, or alternatively raise taxes or spend less. But, that would be equally true in the case of PSS. This is an issue for the government, but not for either the PSS pension fund or Social Security.
And, this is not just semantics. By definition workers, and only workers, pay Social Security tax. It is a payroll tax that is capped at just $106,000, so the chairman of Goldman Sachs pays no more in Social Security tax than a senior teacher or firefighter who may also hit the wage cap. By contrast, most of the general budget is financed through personal and corporate income taxes, which disproportionately come from higher income taxpayers. So it matters hugely that the bonds held by the trust fund are repaid from general revenue, as opposed to coming from additional Social Security taxes.
It is often claimed that the Social Security surplus has been used to hide the government deficit. It is not clear what is meant by this, but the government certainly has not been doing the hiding. Every government budget document directly shows the budget deficit, excluding the surplus from Social Security. If anyone has used the surplus to hide the deficit it would be the reporters who convey information about the deficit to the public.”
By plainofjars on August 13th, 2010 at 12:35 pm
Plain of jars, thank you for confirming my view of Dean Baker’s assessment skills. I wonder how you didn’t catch it.
By the way, I never read Alan Sloan, I just used my common sense.
If P sells its government bonds, and sells them to the government, we have a huge problem, because then the government has to go out and sell another bond, which does nothing for the deficit. But in most cases when P sells its bond, it sells it to a non-government agency, thereby allow its to reap a benefit (the interest it earned so far) and the US government doesn’t have to find another buyer. Obviously you nor Dean Baker was ever the owner or anything. So you are oblivious of how business (bringing in money) actually works. No one survives in business by borrowing money, except to build assets, and the US government never builds assets. Anyone who believes that it is good business practice to pay bills by borrowing money, in time becomes totally destitute, and has to declare bankruptcy, live forever on the run from creditors, of serving time in debtor’s prison.
Please note one of Dean’s points: “It is often claimed that the Social Security surplus has been used to hide the government deficit. It is not clear what is meant by this, but the government certainly has not been doing the hiding. Every government budget document directly shows the budget deficit, excluding the surplus from Social Security.” What this means is that the government doesn’t declare the IOU’s it issues to SSI as increasing the deficit, which it is certainly doing. And why not? Because the government knows this would present a very unfavorable picture of its actions. If SSI is being looked on as operating as PSS, it would actually take its money, purchase government bonds through the Fed, as does everyone else, and have those purchases be listed as deficit funds.
The mind-set of people like Dean Baker is that the government is a sugar daddy, responsible for people’s needs. Which it certainly is not. What makes this country great is its foundation of inalienable rights, eg. life, liberty and the pursuit of happiness. You cannot take advantage of those rights by asking the government to take care of your problems for you. To continue in this progressive socialistic manner, is to move further away from our birthright, become more and more corrupt, and closer and closer to destruction. And when that destruction arrives, it will arrive precipitously. Whereupon all the “brilliant” pundits will exclaim with amazement, ” how comes we didn’t see this coming”. They did, they just ignored the signs.
By Warren Metzler on August 13th, 2010 at 3:29 pm
And, Plain of Jars, I did some research, further proving how duplicitous is Dean Baker; and to think that progressives accuse the Republicans of having hidden agendas. If you buy a Federal Government bond, which Dean Baker claims SSI did, then the Fed WILL NOT buy back your bond. So in his example, PSS never sells those bonds back to the Fed, but finds a non-US governmental buyer to take those bonds off his hands.
I am not opposed to the government setting up a retirement plan, FOR PEOPLE WHO REALLY NEED THAT PLAN. So I would have no problem if there was SSI, everyone paid taxes into it, and its payments were limited to people who could demonstrate they were 62 years old, and didn’t have any funds over say $500,000.00. But no medical benefits for older people, when there are none for other citizens. No dialysis for every one, as is now the case. No college stipends for people who are younger than 22 years of age (my younger brother got a stipend through his entire four years of college, because my father died when he was 16 years old). No disability for people who paid nothing for disability insurance, and so forth. Why doesn’t Dean Baker talk about creating a means test for SSI, and eliminating all the many, many pay outs that have nothing to do with retirement funds for people who had little savings because of the low wages they received in most of their jobs. He doesn’t talk about it, because he is a stone cold socialist, who has never yet met a government pay out program he didn’t like; and even though he is very smart, is obviously oblivious as to who is to pay for all this largess.
By Warren Metzler on August 14th, 2010 at 5:20 am
Boy, what a bunch of cold hearted, unfeeling right wing ideologue commentators. WE ALL PAY INTO SOCIAL SECURITY, why do you want to deny those WHO YOU CHOOSE some or all of it’s benefits??? And let guess who you guys would exclude: the dark skinned, females, union members, I presume??? In one sense, we could means test it to rule out the wealthy, but you really think they would pay their share for no benefit? For those of you who think SSA is broken or bankrupt, the VERY easy fix is to raise the cap on contributions. Hell, there should be no cap: if you earn income, you pay SSA deductions. It would instantly be a VERY, VERY wealthy program running surpluses that no one could ever spend on benefits. OR, more importantly, could be used to take a massive bite out of the deficit.
By yo on August 15th, 2010 at 2:09 pm