File Under 'Why Are We Still Talking About This?'
'Cause I really don't know. Anyway, in case there's a compelling reason to go on considering the administration's plan to destroy Social Security, here is the Center on Budget and Policy Priorities has a detailed analysis. Kevin Drum, writing for the Washington Monthly, boils this detailed report down to a simple chart. Meanwhile, Joshua Holland dissects the LA Time's right-wing mouthpiece's take on the matter, and Billmon reminds us why it's all irrelevent anyway. Enjoy.
...low income earners ($16K/year) currently get about 49% of their income replaced by Social Security. Under the Pozen plan, this would stay the same. Medium income workers ($36K/year), however, would see their replacement rate fall from 36% to 23% by the year 2100. The replacement rate for higher income workers ($58K/year) would fall to 14% and for maximum income workers ($90K/year) to 9%.
That's a pretty substantial cut in benefits...
...Pozen's plan cuts benefits for anyone making over $20,000 per year. This is Bush's definition of "people who are better off." Needless to say, this is a slightly different definition than he used when he was selling his tax cuts.
...low income earners ($16K/year) currently get about 49% of their income replaced by Social Security. Under the Pozen plan, this would stay the same. Medium income workers ($36K/year), however, would see their replacement rate fall from 36% to 23% by the year 2100. The replacement rate for higher income workers ($58K/year) would fall to 14% and for maximum income workers ($90K/year) to 9%.
That's a pretty substantial cut in benefits...
...Pozen's plan cuts benefits for anyone making over $20,000 per year. This is Bush's definition of "people who are better off." Needless to say, this is a slightly different definition than he used when he was selling his tax cuts.
posted by Management at 1:05 AM
4 Comments:
AN ANALYSIS OF USING "PROGRESSIVE PRICE INDEXING" TO SET SOCIAL SECURITY BENEFITS
By Jason Furman
Robert Pozen, a former vice chairman of Fidelity Investments and member of President Bush’s Social Security Commission, has proposed a change in the Social Security benefit structure that he refers to as “progressive indexing.” Senators Lindsey Graham and Robert Bennett, among others, have indicated they are considering including this proposal in Social Security plans they are developing. In addition, President Bush praised the proposal at a March 16 press conference, and White House press secretary Scott McClellan subsequently called the proposal “very useful and constructive.”[1]
Under the proposal, low-earners would continue to receive the Social Security benefits promised under current law, which are based on a formula that uses “wage indexing,” while high-earners would have their benefits calculated under a formula that uses “price indexing” instead, with the result that their benefits would be reduced. (The benefit reductions would be phased in and would grow over time.) For average workers, benefits would be calculated by using a mix of wage indexing and price indexing; their benefits would be reduced but by a smaller percentage than benefits for higher earners.
This paper analyzes “progressive price indexing.” It contains five significant findings:
* Progressive price indexing would impose substantial benefit reductions on average workers. Progressive price indexing would reduce annual benefits for an average wage-earner who is 25 today and retires in 2045 by 16 percent or $3,523 (in inflation-adjusted 2005 dollars), relative to the benefits that the worker would receive under the current benefit structure. For an average-earner who retires in 2075, the benefit reduction would be 28 percent or $7,629 in today’s dollars. These are much larger benefit reductions than those included in alternative plans that achieve sustainable Social Security solvency through a mix of revenue increases and benefit reductions (as the 1983 Social Security legislation did).
*
Progressive price indexing would use benefit reductions to close about 70 percent of the 75-year shortfall. The Social Security Trustees projected in March 2004 that the Social Security system has a deficit of 1.89 percent of taxable payroll over the next 75 years.[1] According to an analysis of the Pozen proposal recently conducted by the Social Security actuaries, progressive price indexing would reduce the deficit by 1.36 percent of taxable payroll and thus close 72 percent of the shortfall. (The remaining deficit would have to be closed by additional benefit reductions, tax increases or general revenue transfers.)
* Progressive price indexing would transform Social Security over time from a retirement program to more of a welfare system that provides a modest retirement benefit largely unrelated to income. Because progressive price indexing produces very large reductions in benefits over time for high earners, substantial benefit reductions for average earners, and no reductions for low earners, it eventually eliminates most differences in benefit levels. Ultimately, most beneficiaries would get the same monthly benefit, despite having paid in very different amounts in payroll taxes.
Under current law, “high earners” (those whose earnings are 60 percent above the earnings of the average earner) receive Social Security benefits that are 33 percent higher than the benefits that average earners get. Under progressive price indexing, this difference would shrink to only 7 percent for workers retiring in 2075, and the difference would be eliminated entirely by 2100. This raises the question of whether broad political support for Social Security can be sustained if workers pay very different amounts of payroll taxes but most workers receive the same level of benefits.
* Combining progressive price indexing with private accounts carved out of Social Security would make the system unattractive to high-earners. Making Social Security’s benefit formula this progressive could risk undermining some of the broad-based political support that Social Security enjoys. If progressive price indexing is combined with “carve-out” private accounts, and Social Security benefits are reduced further for those who elect the accounts, the problem could become severe. Low earners would rely primarily on traditional Social Security benefits, while higher earners would receive only a tiny Social Security benefit or no Social Security benefit at all and would rely mainly on their private accounts.
* Progressive price indexing is poorly designed to respond to contingencies; the benefit reductions it engenders would grow deeper if the economy performed well, even though the Social Security shortfall would have narrowed on its own, and would grow smaller if the economy performed poorly and the Social Security deficit widened. The stronger that economic growth and real wage growth were, the bigger the benefit reductions would become under progressive price indexing. This would be a perverse effect; stronger growth would lessen Social Security’s financing problems and lower the amount of benefit cuts needed. Conversely, if economic growth slowed, the benefit reductions that progressive price indexing delivered would decrease in size even as the Social Security shortfall widened.
How Progressive Price Indexing Would Work
Under current law, initial Social Security benefits for each generation of retirees grow in tandem with average wages in the economy. This ensures that each generation receives Social Security benefits that reflect the living standards of its times. Full “price indexing” would make a change in the Social Security benefit formula so that initial Social Security benefits would keep pace only with prices, rather than wages, from one generation to the next. Because prices increase more slowly than wages, this would result in progressively larger benefit reductions over time.[3] The latest estimates by the Social Security actuaries show that full price indexing would cut benefits by 29 percent for people retiring in 2045, growing to a 49 percent cut for people retiring in 2075, relative to the benefits scheduled under the current Social Security system.
The Pozen proposal would use price indexing to determine the benefits for “maximum earners,” people who currently make $90,000 or more annually. Lower-earners — specifically the bottom 30 percent of earners, or those who make less than about $20,000 currently — would continue to have their benefits calculated under the current formula. Anyone whose annual earnings over his or her career averaged between $20,000 and $90,000 would get a benefit somewhere between the currently promised benefit and the benefit that would be provided under price indexing. For example, a worker making about $35,000 annually would be subject to about half of the price-indexing benefit reduction, while a worker making about $55,000 annually would be subject to more than 80 percent of the price-indexing benefit reduction.
Benefit Reductions for Average Workers
Estimates of Mr. Pozen’s plan made by the Social Security actuaries show that the plan’s benefit reductions (relative to the benefits scheduled under current law) would grow sharply over time.[4] These benefit cuts would grow from six percent for an average wage worker born in 1960 who retires in 2025, to 28 percent for an average-wage earner born in 2010 who retires in 2075. (See Figure.)
An average worker aged 25 today who retires in 2045 would receive a reduction in Social Security benefits of $3,253 per year (in inflation-adjusted 2005 dollars). For an average worker retiring in 2075, the benefit reduction would be $7,629 per year. (See Table 1.) The Social Security benefit would replace 26 percent of pre-retirement income for the average wage-earner retiring in 2075, down from 36 percent under the current-law formula. These benefit reductions are nearly twice the size of the benefit reductions proposed in more balanced plans to achieve sustainable solvency, such as a plan proposed by MIT economist Peter Diamond and Brookings economist Peter Orszag.[5]
For a high-wage worker (someone making about $58,000 in 2005, or about 60 percent more than the average wage of $36,500 this year), the benefit reductions would grow from $6,444 for someone retiring in 2045 to $15,154 for someone retiring in 2075. For a maximum earner (someone who makes $90,000 or more in 2005), the benefit reductions would grow from $9,324 for an individual retiring in 2045 to $21,808 for someone retiring in 2075. The benefit reductions would be the same for workers whose annual earnings average $90,000 as for individuals who make many times that.
Progressive Price Indexing Would Close About 70 percent of the 75-year Shortfall through Benefit Reductions
The Social Security Trustees project that the Social Security system has a deficit of 1.89 percent of taxable payroll over the next 75 years.[6] According to the Social Security actuaries, progressive price indexing would reduce the actuarial deficit by 1.36 percent of taxable payroll. This equals 72 percent of the shortfall. The remaining shortfall would have to be closed through additional benefit cuts, revenue increases, or borrowing.
Robert Pozen’s progressive price indexing proposal is part of an overall Social Security plan that Pozen has developed. In addition to including progressive price indexing, the Pozen plan specifies that the general fund of the U.S. Treasury shall automatically transfer money to Social Security in any year when the trust fund had a shortfall. (This provision, by itself, would guarantee sustainable solvency without any benefit cuts, tax increases, or private accounts.) The Social Security actuaries have estimated that this component of the Pozen plan would result in $1.9 trillion in general revenue transfers to Social Security over the next 75 years.[7] For his part, Senator Lindsey Graham is reportedly considering a plan that combines progressive price indexing with some form of increase in the payroll tax cap and possibly some borrowing as well.
Table 1
Social Security Benefits Under Progressive Price Indexing
For Workers Retiring at Age 65 In Various Years
(inflation-adjusted 2005 dollars)
Current-law Formula
Proposal
Change
Benefit
Replacement Rate
Benefit
Replacement Rate
Reduction
%Age Reduction
Scaled Low Earner (45 percent of the average wage, or $16,428 in 2005)
2025
$9,718
49%
$9,718
49%
$0
0%
2045
12,041
49%
12,041
49%
0
0%
2075
16,599
49%
16,599
49%
0
0%
2100
21,820
49%
21,820
49%
0
0%
Scaled Medium Earner (average wage, or $36,507 in 2005)
2025
16,009
36%
14,984
34%
-1,025
-6%
2045
19,837
36%
16,584
30%
-3,253
-16%
2075
27,344
36%
19,715
26%
-7,629
-28%
2100
35,945
36%
22,428
23%
-13,518
-38%
Scaled High Earner (160 percent of the average wage, or $58,411 in 2005)
2025
21,228
30%
19,190
27%
-2,038
-10%
2045
26,302
30%
19,858
23%
-6,444
-25%
2075
36,254
30%
21,100
18%
-15,154
-42%
2100
47,658
30%
22,428
14%
-25,230
-53%
Steady Maximum Earner (taxable maximum, or $90,000 in 2005)
2025
25,929
24%
22,999
21%
-2,930
-11%
2045
32,153
24%
22,829
17%
-9,324
-29%
2075
44,236
24%
22,428
12%
-21,808
-49%
2100
58,150
24%
22,428
9%
-35,723
-61%
Source: Authors calculations based on Social Security Administration, Office of the Chief Actuary, “Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing -- INFORMATION,” February 10, 2005 and Social Security Trustees, 2004 Annual Report. Note that all percentage reductions in benefits for 2025-2075 are taken directly from the actuaries’ memo.
Under both such approaches, progressive price indexing would result in the bulk of the adjustments made to restore solvency coming through benefit reductions, rather than through a balanced mix of benefit reductions and revenue increases. A more balanced approach would not require benefit reductions of these magnitudes.
For example, the Diamond-Orszag plan would gradually raise the payroll tax cap from $90,000 to $105,000, impose a 3 percent “legacy charge” on income above the payroll tax cap, and modestly raise the payroll tax rate. It also includes several significant benefit reduction measures. A plan proposed by former Social Security Commissioner Robert Ball and introduced last fall by Rep. David Obey would raise the payroll tax cap gradually from $90,000 to $150,000 and preserve a scaled-back version of the estate tax, with the revenues from the estate tax dedicated to Social Security. The Ball plan includes benefit trims, as well. Such approaches would result in considerably smaller benefit reductions for average workers than the benefit cuts such workers would face under progressive price indexing. These approaches ask for somewhat larger sacrifices from higher-income households that have benefited handsomely from the generous tax cuts of recent years.
Progressive Price Indexing Would Transform Social Security from a Retirement Program to a Welfare System with a Modest Retirement Benefit Largely Unrelated to Income
Progressive price indexing would result, over time, in a profound transformation of the Social Security system. By 2100, most Social Security beneficiaries would get exactly the same Social Security benefit, regardless of how much they earned or contributed to Social Security. (The top 70 percent of workers — those making about $20,000 in 2005 — all would receive an identical benefit; workers making less than about $20,000 would receive somewhat smaller benefits.) Progressive price indexing would lead to this result because it would reduce benefits the most for the top earners, reduce benefits less (but still substantially) for average earners, and maintain benefits for low earners.
The current Social Security benefit structure uses a complex formula to translate a worker’s earnings into the worker’s Social Security benefit. The more that a worker earns (up to the payroll tax cap) the higher the worker’s benefit is. The fact that there is a link between what a worker contributes in payroll taxes and the level of the benefit the worker ultimately receives has contributed to the widespread public support that Social Security enjoys.
The current-law benefit formula also is progressive. A high-wage worker makes 60 percent more than the average worker but receives a benefit 33 percent higher than what the average worker gets.
Under progressive price indexing, benefits for low-wage workers would continue to grow (in relation to inflation), while benefits for the top wage workers would be frozen in inflation-adjusted terms. The result would be a large compression in benefits.
* In 2045, a high-wage worker (a worker with earnings 60 percent above the earnings of average workers) would receive a benefit that was only 20 percent higher than the benefit the average worker received.
* In 2075, the high earner’s benefit would be just 7 percent higher.
* By 2100, if progressive price indexing continued, the majority of workers would get an identical Social Security benefit, $22,500 per year, regardless of the level of their earnings and payroll tax contributions.[8]
The graph below illustrates this trend. It shows the relative levels of Social Security benefits for average, high, and maximum earners under current law and compares them to the levels of Social Security benefits for these three types of earners in 2045, 2075, and 2100 under progressive price indexing.
In making this shift to a flatter benefit, Social Security would be transformed from a retirement benefit to more of a welfare benefit. Under the current benefit formula, Social Security benefits replace a sizeable fraction of pre-retirement income that ranges from 49 percent of pre-retirement income for low-wage workers to 24 percent for maximum earners. Under progressive price indexing, by 2100, the majority of workers would get $22,500 per year — replacing only 9 percent of pre-retirement income for a maximum earner.
Combining Progressive Price Indexing with Private Accounts Carved out of Social Security Would Make Social Security Less Attractive To High Earners
Any reform that makes Social Security more progressive must balance the benefits of a more progressive system against the risk of undermining the broad-based political support that helps sustain the nation’s most effective anti-poverty program. This tension would be exacerbated if progressive benefit reductions were combined with “carve-out” private accounts.
Private accounts carved out of Social Security would be financed by additional benefit reductions in Social Security for those electing the private accounts. These additional Social Security benefit reductions would make Social Security appear much less attractive than the private accounts. If progressive price indexing were included in a Social Security plan alongside carve-out private accounts, Social Security would become distinctly unattractive to higher-income families.
Table 2 shows the level of Social Security benefits under the current benefit structure, under progressive price indexing, and under progressive price indexing combined with carve-out private accounts. (The private accounts are assumed to include the Social Security benefit offset that President Bush and Robert Pozen have both proposed — namely, for each $1,000 in payroll tax contributions that a worker shifted from Social Security to a private account, the worker’s Social Security benefits would be reduced by $1,000, plus an interest rate equal to 3 percent above inflation.)
Table 2
Annual Social Security Benefit For Workers Retiring in 2075
(Benefits in 2005 dollars, does not include the value of private accounts)
Current-law Formula
With Progressive Price Indexing
With Progressive Price Indexing and Benefit Offsets for 2% Accounts
With Progressive Price Indexing and Benefit Offsets for 4% Accounts
Low earner
$16,599
$16,599
$13,811
$11,022
Medium earner
27,344
19,715
13,508
7,301
High earner
36,254
21,100
11,166
1,233
Maximum earner
44,236
22,428
7,078
0
Source: Calculations based on Social Security Administration, Office of the Chief Actuary, “Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing -- INFORMATION,” February 10, 2005.
The table shows that with progressive price indexing and carve-out accounts, traditional Social Security benefits would decrease with income. Lower-income workers would be heavily reliant upon their Social Security benefits, while higher-income workers would get most or all of their retirement benefits from their private accounts.
With 4 percent accounts, as proposed by the President, the problem would become extreme. Maximum earners would not get any Social Security benefits by 2075. Moreover, with the private accounts being financed through offsetting reductions in Social Security benefits, this approach would make it appear as through maximum earners were contributing 8.4 percent of their wages to Social Security without getting any Social Security benefits.
Similarly, high earners would appear to be contributing 8.4 percent of their wages to Social Security and getting only a miniscule benefit in return. It is unlikely that such a system would be politically sustainable. (Paying for the private accounts through a “clawback” that came directly out of the private accounts rather than out of Social Security benefits could alleviate some of these concerns, but that is not how the President’s plan would operate.)
Progressive Price Indexing Is Not Well Designed; Benefit Reductions Would Become Larger If Social Security’s Finances Improved and Smaller If Social Security’s Finances Deteriorated
The magnitude of the benefit cuts that progressive price indexing would generate would depend on the rate of real wage growth. The faster that real wage growth was, the larger the benefit reductions would be.
For example, the Social Security actuaries project that real wage growth will average 1.1 percent annually. If real wage growth turns out to average 1.6 percent annually, the benefit cuts under progressive price indexing would be considerably larger than the benefit reductions described above. For example, under the Trustees’ assumptions of 1.1 percent real wage growth, an average-wage earner retiring in 2075 would get a 28 percent benefit reduction under progressive price indexing (relative to the benefits that would be provided under the current benefit structure). If real wage growth were 1.6 percent, this worker would be subject to a 35 percent benefit reduction.
Yet stronger real wage growth would reduce Social Security’s imbalance (by increasing payroll tax revenues upfront and increasing benefit payments only with a considerable lag in time). The Social Security Trustees estimate that increasing real wage growth to 1.6 percent annually would eliminate nearly one-third of the 75-year shortfall. This means that if real wage growth were stronger in future decades than the Trustees currently project, progressive price indexing would result in deeper benefit cuts, even as the Social Security shortfall was getting smaller on its own.
Similarly, if real wage growth fell short of the 1.1 percent annual rate projected by the Trustees, the benefit reductions that progressive price indexing would generate would be smaller. But if real wage growth is lower, the Social Security shortfall will have increased in size.
As a result, even if one favors closing the Social Security shortfall primarily or entirely through benefit reductions, progressive price indexing would be a poor way to achieve robust, sustainable long-term balance. Changes in the benefit or tax structure under which benefits, payroll taxes or the normal retirement age are indexed to longevity would be much better at directly tying the size of the benefit or tax changes to the program’s solvency needs. Under such proposals, if average life expectancy proved to be longer than currently predicted (which would worsen solvency), benefit reductions or tax increases would kick automatically in to help alleviate the worsening of Social Security’s financial condition.
Conclusion
Progressive price indexing would represent a profound shift in Social Security. Ultimately, it would lead to most workers receiving the same Social Security benefit level, regardless of how much they had paid in payroll taxes.
If private accounts are added to the equation and are paid for by additional benefit reductions, the results become even more extreme. If progressive price indexing were combined with the President’s private accounts proposal, workers with average incomes of $90,000 or more would eventually receive no Social Security benefits at all. It is unlikely that a Social Security system structured in this manner would remain politically sustainable over time.
Progressive price indexing also would require substantially larger benefit reductions for middle-class workers than several alternative approaches to restoring solvency. This would be the case because with progressive price indexing, the onus of restoring sustainable solvency is placed primarily on benefit cuts, rather than on a more balanced mix of benefit reductions and progressive revenue-raising measures.
Even if one supports making benefit cuts the primary means of restoring solvency, progressive price indexing is not well designed to achieve that goal, since it would produce excessively large benefit reductions if the economy and real wage growth perform better than expected and insufficient savings if the economy performs more poorly than expected.
End Notes:
[1] See George W. Bush, "President's Press Conference," March 16, 2005, available at http://www.whitehouse.gov/news/releases/ 2005/03/20050316-3.html. Also, Scott McClellan, "White House News Briefing Aboard Air Force One En Route to Florida," FDCH Political Transcripts, March 18, 2005.
[2] This is the standard measure of the Social Security shortfall. It implies that an immediate 1.89 percentage point increase in the payroll tax rate would close the 75-year Social Security shortfall.
[3] See Robert Greenstein, “So-called “Price Indexing” Proposal Would Result in Deep Reductions Over Time In Social Security Benefits,” January 28, 2005.
[4] Social Security Administration, Office of the Chief Actuary, “Estimated Financial Effects of a Comprehensive Social Security Reform Proposal Including Progressive Price Indexing -- INFORMATION,” February 10, 2005.
[5] Peter Diamond and Peter Orszag, Saving Social Security, Brookings Institution Press, 2003.
[6] Social Security Trustees, 2004 Annual Report.
[7] This figure is expressed in net present value, the equivalent the amount today that, with interest, would exactly cover these future costs.
[8] The Pozen plan is not clear about whether progressive indexing would continue after 2078. According to the description of the proposal by the Social Security actuaries, “The reductions under this provision [i.e., progressive price indexing] would continue through at least 2078 (the end of the current 75-year valuation period.) Reductions would be less in size thereafter if program financing is sufficient to fully pay scheduled benefits without further transfers of General Fund Revenue.”
BUSH'S SOCIAL SECURITY PLAN....So it turns out that the Social Security plan George Bush talked about last night was based on a proposal called the "Pozen Plan," named after Bob Pozen, who first suggested it. CBPP has a detailed breakdown of the plan, but for those of you with short attention spans I've cut it down to a single chart.
Basically, low income earners ($16K/year) currently get about 49% of their income replaced by Social Security. Under the Pozen plan, this would stay the same. Medium income workers ($36K/year), however, would see their replacement rate fall from 36% to 23% by the year 2100. The replacement rate for higher income workers ($58K/year) would fall to 14% and for maximum income workers ($90K/year) to 9%.
That's a pretty substantial cut in benefits. I think you can decide for yourself whether you like this plan or not.
UPDATE: As Judd Legum points out, Pozen's plan cuts benefits for anyone making over $20,000 per year. This is Bush's definition of "people who are better off." Needless to say, this is a slightly different definition than he used when he was selling his tax cuts.
A few weeks ago, I wrote about the LA Times' new right-wing bootlick, David Gelernter. Today, he has an absolute doozy--I think he's going to be on par with David Horowitz. Here's his plenty-plaint:
…The whole basis of Democratic philosophy (I use the term loosely) [is] we'll take care of you. Leave the thinking to us. Nancy Pelosi and Harry Reid, minority leaders of the House and Senate, respectively, -- kindly Mom and Pop to a nation of intellectually limited youngsters. (But thank goodness, they love us anyway.)
[…]
Advanced Democrats are now revving up to make sure you eat your vegetables and steer clear of those nasty French fries. Why is it their business? Because Democrats are professors in disguise. Scratch a Democrat, find a professor.
It all goes back to central planning, socialism, Marxism -- let the experts run the economy; free markets are too democratic and messy. Many professors believed in Marxism right up to the point where Communist China itself bailed out in disgust.
Professors see the world in terms of experts and students: "We are smart; you are dumb." That's the Infantile American Principle in a nutshell. Now go play with your toys and don't bother me.
OK, so it's one of those absolutely silly columns about how liberals treat Americans like morons. But in the middle of the piece, Gelernter let's loose with this bit of idiocy:
How could anyone be opposed in principle to private investment accounts within Social Security? I could understand Democrats arguing that "private accounts are a wonderful idea but the country can't afford the transition costs right now." But mostly I hear Democrats saying they're a lousy idea, and that President Bush wants to wreck Social Security -- because, after all, he wants to let you keep a great big whopping 4% of your payroll taxes in a private account instead of handing over every cent to the government. How on Earth could anyone be opposed in principle to letting taxpayers manage a minuscule fraction of their own money (their own money, dammit!) if they want to? Because private accounts violate the Infantile American Principle, so dear to Democratic hearts. Little kids should turn over their cash to the Big Smart Government for safekeeping.
No, David, Mr. Yale Professor. Six and a quarter percent of our salaries go to payroll taxes. Four of those six and a quarter percentage points would be diverted to private accounts under the President's rumored plan. That's two-thirds of our Social Security contributions (dammit!), and even most Yalies know that two-thirds isn't a "miniscule amount." His column is titled 'The 'We're Smart, You're Dumb' Principle.' Obviously, Liberals don't see it that way, but if we did, who could blame us with guys like Gelernter out there?
As an aside, a sharp reader pointed out that Gelernter was a victim of the Unabomber, and it led to his anger at the mainstream press with its confounded 'moral relativism.'
Social Surrealism
For weeks I’ve been shying away from writing about Shrub’s Social Security reform obsession – not because I don’t think it’s important or haven’t been following it, but because the whole thing seems so damned unreal.
Surreal might be the better word. I mean, the discussion is rational as long as it’s kept within the framework of the arcane details of federal entitlement policy. But when you pull back and put it in the context of the global financial situation – and the economic train wreck that I think lies just a little further down the tracks – the whole debate starts to seem about as pointless as a bunch of Austro-Hungarian politicians arguing about the future of the Hapsburg monarchy – circa June of 1914.
In other words, once America finally maxes out on its Asian Express Card, and can no longer borrow 80-90% of the world’s available capital flows on concessionary terms, eliminating the Social Security deficit in the year 2041 is going to go from ranking 4th on Brad DeLong’s list of big macroeconomic problems to about 40th. Whether we will even have a Social Security system could be on the table then – a few decades ahead of the GOP schedule.
Reform could easily make the coming crash worse if it turns into yet another entrée on the supply-side free lunch menu. But it’s hard to see how it can make it much better, unless Shrub and the Rovians really are going to try to steal all the IOUs locked inside that filing cabinet in West Virginia. (It may have looked like just another a bamboozapalooza photo op, but I think the gang was casing the joint.)
Leaving financial Armageddon aside, I also covered enough of these Washington cluster fucks as a reporter to know better than to try to analyze every clause in every actuarial proposal that comes down the pike. In the end, they’ll all get tossed in the legislative sausage grinder, leaving it to the GOP hacks on the Senate Finance and the House Ways and Means committees (and their frantically overworked aides) to cobble together half-assed compromises. But then those plans will also be scrapped, leaving it to the conference committee to produce a one-quarter assed compromise about three weeks after the absolute drop deadline for reaching a deal.
Or, the whole effort could collapse of its own dead weight, to be filed away in the National Archives right next to the cabinets marked “Hillarycare.”
If had to guess, I’d say the latter outcome is still the most likely – even though Shrub appears determined to keep his beloved child on life support no matter what the Godless neurologists try to tell him.
Bush: She blinked! She’s trying to say my name!
Social Security Reform: aaawwwaaaauuh . . . gug.
Josh Marshall points to this story in the Boston Globe, in which some close family members try to help Papa Bush work through the denial stage:
The Weekly Standard, an influential conservative magazine, this week published an ''exit strategy" for the president's Social Security plan. Conservative commentator Charles Krauthammer says the White House plan for private accounts, the heart of his reforms, is on life support. Free-market activist Stephen Moore, who in January felt ''the stars were aligned" for Congress to adopt private accounts, now says the ''window has slammed shut."
Now when even Stephen Moore (one of the supply-side Jacobins behind the fratricidal GOP “Club for Growth”) is resigned to reality, you KNOW it’s time to rip the feeding tube out. And yet, according to this story, at least some ranking officers in the congressional Light Brigade are dutifully lining up to charge the Valley of Death:
House leaders vowed to press on with a Social Security bill, starting with hearings that will begin May 12 and culminating with legislation, "probably in early June," said Rep. Bill Thomas (R-Calif.), the Ways and Means chairman, who is likely to be instrumental in crafting the legislation.
I’m not close enough to the action to tell whether this is a case of humoring the presidential mental patient until he’s distracted by some other delusional fantasy, or whether the House leadership actually expects to produce a bill. I suspect it’s a little bit of both. Either way, it’s not going to make for a very happy GOP summer. In fact, if I were Denny Hastert, the prospect of having to spend the next few months either promoting big cuts in Social Security benefits or defending Tom DeLay’s golf junkets would probably have me thinking seriously about retiring – before the AARP mob sets the place on fire.
The alternative is to embrace the free-lunch philosophy of supply siders such as Rep. Paul Ryan (R-Ponies for All) who seems worried that Shrub’s infatuation with “progressive” price indexing might herald the second coming of Karl Marx:
"That's an idea that comes from the left typically -- means testing," said Rep. Paul Ryan (R-Wis.), who has co-written Social Security legislation that creates large private accounts and guarantees that investment returns will be lucrative enough to beat currently scheduled benefits.
OK. See if you can follow the logic: Means testing = the road to serfdom. Promising to have Uncle Sam underwrite everyone’s private investment accounts = capitalist utopia.
This is bad, because either Ryan is completely crazy or I am – and it doesn’t matter if I’m crazy because I’m not the one who could be in a position to destroy what’s left of the full faith and credit of the U.S. government. Which you can’t say about Rep. Ryan.
I’ve always worried that at the end of the day the Republicans would resort to Laffer Curve logic to try to escape the political hole Shrub has dug for them. If you’ve been following the Social Security debate, you probably know that Ryan and fellow fiscal moonbat Rep. John Sununu (R-Daddy’s Boy) have a plan that would require the Treasury to shell out as much general revenue as would be needed to guarantee that defined benefits + private account earnings for future retirees are higher than the benefits provided under current law – the same current law that is supposedly under funded by almost $4 trillion over the next 65 75 years.
This makes Kemp-Roth look like something Uncle Scrooge might have dreamed up before he had his group encounter therapy with the Christmas ghosts. Ryan and Sununu essentially are talking about extending the federal deposit insurance concept to the stock market. It would turn the Social Security system into an even bigger version of the Fannie Mae/Freddie Mac mortgage consortium, in which the gains are all privatized while the risks are socialized.
If, as August Bebel said, anti-Semitism is the socialism of idiots, then this is the capitalism of idiots – which means it’s tailor made to win hearts and minds in the House Republican Caucus. Unless the leadership uses maximum force to hold the line (or deep sixes Social Security reform all together) I could easily see a stampede of stupidity developing that would carry Ryan-Sununu or something like it to a floor vote.
This would raise some interesting questions, like: Would Democrats generally vote against it, on principle? Or for it – on the grounds that the Senate is going to kill it anyway, and who wants to be on record opposing free ponies for everybody?
I don’t know; it’s all pretty hypothetical at this point. But it should be obvious to everybody but the media meatheads that “progressive” indexing (i.e. drastically slashing the defined benefits of middle and upper-class Americans) is a complete non-starter. I’m half inclined to accept the cynical interpretation, which is that the Rovians know the battle is lost and are simply doing a little populist grandstanding to try to keep the Democrats off balance and cover the retreat. (The fact that a Wall Street “Democrat” provided the plan in question only feeds this suspicion.)
But Bush really does seem as obsessed with this issue as Hitler was with not leaving the banks of the Volga. So I’m not so sure it’s a ploy. Maybe the White House figures deep benefit cuts will give the plan an aura of “fiscal responsibility,” making it easier to sell to the Senate moderates. The Rovians may assume the Senate is the real bottleneck, while the party automatons in the House ultimately will vote as they are told to vote.
That may be true, but it’s still hard to believe that anyone – again, leaving aside the pompous windbags in the corporate press – believes Bush’s “Robin Hood” pose will go over big with the volk back home. If means-testing benefit cuts is such a big political winner, why did the administration and Congress exempt Medicare (the universal entitlement program) from budget reductions this year, while swinging the axe at Medicaid (the welfare program for the poor)? Why does the GOP House keep trying to scale back the earned income tax credit, while spending megabillions on estate tax relief?
It should be obvious by now that Bush and the Rovians don’t give a rat’s ass about the poor – except when they can be used as decoys to funnel federal money into their religious patronage machine or provide the appropriate background for a few quick photo ops. As Matt Yglesias and others have already pointed out, their Social Security plan only “aids” low-income retirees if you ignore the trillions in general revenues that still would have to be poured into the trust fund to subsidize Shrub’s precious private accounts. Yet redirecting those same revenues into the existing system (without the private accounts) would leave all retirees better off than what Bush is proposing. If Robin Hood had tried pulling a bait and switch scam like that, I think Friar Tuck would have excommunicated him.
Oh well, it gave the administration's media shills something to work with – which was probably the point all along. But the whole story of Social Security reform so far has been the public’s unwillingness to swallow the administration’s horse shit, even when the corporate media offers to feed it to them on a silver spoon. It may have worked with WMDs, torture, tax cuts and just about every other atrocity the Rovians have set their hands to, but when it comes to their Social Security benefits, Americans apparently are still flinty-eyed skeptics.
Which means that while the grand strategy – undermining political support for Social Security by turning it into a welfare program – may be politically sound, getting from here to there clearly isn’t as easy as the Rovians had hoped it would be. Or more accurately, as Bush hoped it would be, because this is one debacle I don’t think you can pin on Karl Rove.
It’s a shame things are turning out this way. Social Security does need to be fixed one of these days. And believe it or not, I’ve been tempted to give Bush at least some credit for trying to tackle the issue. In his book Collapse, Jared Diamond argues that the willingness of leaders to deal with long-range problems is one of the characteristics that distinguishes societies that survive from those that don’t. But every time I start to give Shrub the benefit of the doubt, something comes along that reveals the underlying cynicism and plutocratic motives of the whole exercise. Meanwhile, the big long-range problems -- the ones that could turn America (or the planet) into Easter Island writ large, get nothing but feeble lip service, or worse.
Which is why I’m about as likely to write a post about the Austro-Hungarian empire as I am to write another one about Social Security “reform” – at least until after the last rites on Shrub’s baby have been said.
Posted by billmon at April 30, 2005 11:25 PM
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