Mike the Mad Biologist

Besides, we got Bernie Sanders:

Nothing you haven’t heard around these parts, but it’s a nice summary.

Rock on, Bernie.

Comments

  1. #1 Microbe26
    June 26, 2011

    Sounds very similar to the Nazi philosophy – Repeat a lie thousand times, it becomes the truth. Wonder if such a principle works in biological systems.

  2. #2 JasonTD
    June 26, 2011

    The most recent annual report from the Social Security Trustees goes through all of the issues with the program’s long term financial health.

    You’ve claimed in the past that the Trustees’ reports are overly pessimistic with regards to future economic growth. Fair enough. But Figure II.D3 shows the reason why I don’t see claims of Social Securities troubled future as so far fetched.

    That figure shows that the number of workers for every OASDI beneficiary drops from just over 3 (which has been steady for the past 30 years) down to around 2 by 2035. This is obviously due to the retirement of the Baby Boomers. That is a huge demographic shift. I’m skeptical that things can simply continue as they are and that everything will just be fine given that reality.

  3. #3 JasonTD
    June 26, 2011

    Also, it was back in February that FactCheck.org put to bed the lie that Social Security isn’t a deficit issue.

    The OASDI trust funds are real, legal obligations and not just an ‘accounting gimmick’ as some claim. However, Social Security has now reached the point to where the payroll tax won’t, by itself, pay for benefits, and there is no reason to think that situation will reverse itself. (The 2% payroll tax holiday for this year made that situation worse.) The difference is being made up from money from the Treasury, which is money collected by other taxes or borrowed from the public. That’s really what the Trust funds are: a claim on general revenue, which is already grossly insufficient to meet government needs.

  4. #4 Troublesome Frog
    June 26, 2011

    JasonTD:

    Also, it was back in February that FactCheck.org put to bed the lie that Social Security isn’t a deficit issue.

    I’m usually a fan of FactCheck, but this is just lame. What is meant by “a deficit issue” in this context? That it has something to do with money and we have a deficit? The claim they purport to rebut is that Social Security “does not contribute” to the deficit. They “rebut” by pointing out that Social Security is redeeming the bonds in the trust fund. WTF?

    Let’s say you bought a government bond last year and you’re redeeming it this year. Is “JasonTD contributes to our deficit” an accurate statement because of that? I would say no. The implication is that we somehow would have less of a deficit if JasonTD had not bought a bond last year is silly and makes no sense from a policy perspective.

    Let’s say I can’t pay my rent because I bought too much stuff. I go to my neighbor and borrow cash from him. Next month, he says, “My rent is due. Do you have the $1000 you borrowed from me?” It would be pretty strange if I said, “Look what you’re doing to me, asshole! You’re not able to pay your rent and you want me to give you the money I owe you so you can make your payments? Why can’t you just pay your damn rent yourself? Don’t you know you’re contributing to my deficit this month?”

    Social Security as it’s currently set up isn’t self-funding forever. But the point at which it truly reaches that point is far in the future just as you pointed out. Over that timeline, very small changes make a big difference in the outcome, so it’s trivial to make it solvent for the long run. That doesn’t have anything to do with whether it deserves any of the blame for our current deficit. It doesn’t.

  5. #5 JasonTD
    June 27, 2011

    Social Security as it’s currently set up isn’t self-funding forever. But the point at which it truly reaches that point is far in the future just as you pointed out. Over that timeline, very small changes make a big difference in the outcome, so it’s trivial to make it solvent for the long run. That doesn’t have anything to do with whether it deserves any of the blame for our current deficit. It doesn’t.

    I’m not putting any blame on Social Security for its involvement in our deficit, but it is a denial of “factual reality” to ignore the fact that Social Security is already putting out more than it takes in from payroll taxes, and that the difference is coming from general revenues and new borrowing as the OASDI trust funds are credited with interest on the previously borrowed funds.

    To make things clear, Social Security was mostly pay-as-you-go until late ’70s. At that point, it was clear that the income from payroll taxes was insufficient due to high unemployment, high inflation, and wage stagnation. A commission headed by Alan Greenspan recommended changes in 1983 that resulted in the surpluses of the following 25 years. The purpose was to build up the Trust to handle the retirement of the Baby Boomers without having to shock the system at the last minute with dramatically increased taxes, reduced benefits, or both. And that is the real question – Is the OASDI Trust sufficient to handle the retirement of the Boomers without any other changes to Social Security or not?

    Defenders of Social Security, like Mike, claim that the projections of the exhaustion of the Trust rely on assumptions of future economic growth that are severely pessimistic compared to history. But I wouldn’t take the U.S. economy performing as well as it did in the past for granted. The recession and weak recovery, the demographic shift of retiring Boomers, and ever increasing globalization just change the game too much to simply have faith that we will get back to real GDP growth like we had before. It only makes sense to prepare for the worst and hope for the best.

    Let’s say I can’t pay my rent because I bought too much stuff. I go to my neighbor and borrow cash from him. Next month, he says, “My rent is due. Do you have the $1000 you borrowed from me?” It would be pretty strange if I said, “Look what you’re doing to me, asshole! You’re not able to pay your rent and you want me to give you the money I owe you so you can make your payments? Why can’t you just pay your damn rent yourself? Don’t you know you’re contributing to my deficit this month?”

    It would be considerably worse than “strange” to be angry at your neighbor in such a situation. But you also couldn’t deny that having to meet that obligation of paying him back would be part of why you’d have a deficit for the current month.

    The real issue with the Trust and its role in the current deficit is how the money borrowed from Social Security was used. If it was money that was going to be spent anyway, then I’d say that it is not fair at all to argue that we need to reform Social Security now just because benefits are exceeding payroll taxes now. In that situation, Congress would have just had the Treasury borrow from someone else if not from Social Security, and the current debt and deficit would be no different (assuming the same interest rates and other terms of the borrowing). The story is different, though, if having that surplus revenue led Congress to spend more than it otherwise would have.

    Think about it using your analogy. If you overspent on frivolous things specifically because you knew that your neighbor would come through with some cash, then I would say that he was a fool to lend you his money instead of saving it or using it for something he needed. If you spent more than you had because of some emergency or other needed expense, then he looks like a good samaritan for lending you the money because maybe you couldn’t have borrowed it elsewhere.

  6. #6 Troublesome Frog
    June 27, 2011

    I’m not putting any blame on Social Security for its involvement in our deficit, but it is a denial of “factual reality” to ignore the fact that Social Security is already putting out more than it takes in from payroll taxes, and that the difference is coming from general revenues and new borrowing as the OASDI trust funds are credited with interest on the previously borrowed funds.

    I guess I’m just at total loss as to why this needs to be brought up, then. What you described is exactly what any holder of US bonds does. Do we also want to explicitly mention that the Chinese play a major role in our deficit, since we also pay them principal and interest on money we borrowed in the past? What are the present day policy implications of repeatedly calling out one particular lender when wringing our hands about our deficit?

    What we’re seeing is an old ploy: Find something that bothers people and use it to do something you wanted to do anyway, even if it’s unrelated. People are hot and bothered about the deficit right now. Some people want to eliminate Social Security. The best way to succeed politically is to tie Social Security to the deficit as if it’s a cause. Start roundtable discussions on CNN. Shake your head and frown. Look worried.

    The reality is that Social Security is currently completely solvent and we owe it a bunch of money because we’ve been borrowing from it for years. If you can create the perception that it’s a handout-taking resource drain rather than a perfectly respectable creditor, you can kill it off. So you put serious sounding people on the news and have them spread gloom and doom about a minor actuarial problem that’s decades away.

    That’s why when somebody says, “It’s a deficit issue,” I try hard to nail them down on exactly what they mean.

    And that is the real question – Is the OASDI Trust sufficient to handle the retirement of the Boomers without any other changes to Social Security or not?

    If that’s the real question, that’s great. It’s an interesting question that can be discussed in a data-driven way, and it’s a problem that we have decades to solve. Anything over that time horizon should be trivial to balance out. So why the talk about today’s deficit as though something we could do with Social Security could have any effect on it? Surely people aren’t trying to reframe “stiffing our creditors” as “making hard decisions about the deficit” are they?

    But you also couldn’t deny that having to meet that obligation of paying him back would be part of why you’d have a deficit for the current month.

    More carefully phrased, the reason I have a deficit for the month is because I borrowed money in the past. The source of the debt is of no consequence in that analysis. Given that, bringing up my neighbors name and grumbling every time the budget subject comes up might be taken to have unfair implications. It’s something I might do if I were trying to recast myself as a victim to make paying him back look like an unfair burden.

    If it was money that was going to be spent anyway, then I’d say that it is not fair at all to argue that we need to reform Social Security now just because benefits are exceeding payroll taxes now.

    Are you implying that we might have borrowed significantly less if the Trust Fund hadn’t been buying our debt? The mechanism for that would have been an increase in interest rates, right? Without getting into how large the increase would have been, the implication is that the size of our deficit is highly interest rate elastic. As far as I can tell, it’s not.

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