Righties Are Stupid, Episode 3,047

Bush Administration

This rightie blogger thinks he already has a “personal” Social Security account. And even though he believes he already has a “personal account,” he agrees with President Bush that establishing “personal accounts” will fix the system.

Surber usually isn’t one of the dumbest wingnuts — just average, I’d say — but he dropped off the IQ scale entirely this time.

It’s possible that he does know how the system works and is just playing some kind of semantic game to snark at Atrios. But it ought to be obvious even to an idiot that Atrios is talking about the private investment accounts President Bush wants, so if Surber is just playing with semantics that would make him not only stupid, but a stupid asshole.

That said, Atrios’s post does beg some questions between “carve outs” and “add ons” and whether the Dems ought to make any moves whatsoever in the direction of personal Social Security accounts. The discussion started with a post on The Economist advocating a “grand bargain.” Brad DeLong explains:

Back in 1998, 1999, and 2000 there was a deal to be struck: bring the existing Social Security system back into balance with a combination of (small) tax increases and (moderate) future benefit cuts, and supercharge it with add-on private but regulated and insured personal accounts. But neither Gingrich, Hastert, Armey, Delay, or Lott were interested in such a deal–it would give another substantive public-policy victory to Bill Clinton, you see. After 2000 Bush was interested in–well, it was never clear what Bush was interested in, for different advisors said very different things, and Bush never proposed a plan.

But the deal that was there to be struck in 1998, 1999, and 2000 is still there to be struck, if program design and decision-making can be moved out of the White House to locations with credibility.

In this case, as I understand it, the add-on private accounts were not expected to solve the Social Security program’s anticipated shortfalls, but would just provide an additional source of income for seniors without changing the nature of the system itself. The system itself would still require some other kind of revenue increase to keep it going. Carve-out accounts would be something else. The idea behind carve-outs is that redirecting money coming into the system into private investment accounts would somehow magically solve the system’s solvency problem. But even if these private accounts did well, redirecting the money would require the government to borrow trillions of dollars from somewhere else to pay the Social Security benefits already committed to. Paul Krugman explains:

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.

The add-on accounts advocated by The Economist are, I think, just supposed to be a good-will gesture in the spirit of bipartisanship. Matt Yglesias writes:

…there’s sort of no telling what sort of foolish things the Democrats will agree to, but I say no, no, no to this. For one thing, while stonewalling on administration priorities may work out okay if you’re in opposition, it actually works way better if you’re actually in charge on the Hill. In the minority, you don’t need to agree with administration proposals, but you do need to deal with them on some level. In opposition, administration proposals can simply be dismissed out of hand. And, indeed, any proposal that involves “carve out” private accounts should be rejected out of hand. Such accounts are poor public policy (increasing the riskiness of retirement at a time of generally growing riskiness, increasing inequality at a time of generally growing inequality) and the political proof is in the pudding — opposing them wins elections, proposing them loses elections.

The starting point for a responsible approach to the federal budget is, in the short term, bringing the ruinously costly Iraq War to as speedy a conclusion as possible. Next is rescinding the bulk of Bush’s tax cuts. Next would be looking toward some increase in taxes on gasoline or carbon emissions. Reform of the country’s wildly inadequate health care system (implicating, among other things, Medicare and Medicaid) should always be a priority. Minor adjustments to the Social Security tax and payout formula could prove necessary in the future depending on what happens to immigration and productivity, but needn’t be a high-level priority. Carving private accounts out of the system should remain off the table and certainly Democrats have no business collaborating in any such endeavor.

Atrios was talking about the carve-out program President Bush tried to sell. Brad DeLong responds here. As I see it, the question is whether there is any reason for Democrats to consider an add-on program, and DeLong thinks there might be.

However, I doubt an add-on program would appease the righties. Richard Stevenson wrote in the New York Times (March 7, 2005):

On the other side, supporters of Mr. Bush’s approach said there was no chance that add-on accounts could be the basis for a deal.

“There is no support whatsoever among conservatives in the House and the Senate for add-on accounts,” said Michael Tanner, director of health and welfare studies at the Cato Institute, a libertarian research group that has promoted private investment accounts for two decades. “The whole point is transforming the Social Security system from a system where people are dependent on the government to one where people can save for themselves and accumulate wealth on their own, and add-on accounts don’t do anything to transform Social Security.”

On top of that, many Democrats fear that add-on accounts would open a door over the long run to accounts drawn from payroll taxes.

“It’s a dangerous concept for those who say they support Social Security,” said Roger Hickey, co-director of Campaign for America’s Future, a liberal research and advocacy group that opposes Mr. Bush’s approach. “Private accounts, whether financed out of the Social Security system or financed out of general revenues, are still a bad substitute for guaranteed Social Security benefits. So anyone who thinks add-ons are a solution should think twice because they really are a Trojan horse.”

But it is exactly that possibility – that add-on accounts might pave the way for accounts carved out of Social Security – that might make the concept politically viable as a compromise, Professor Patashnik of the University of Virginia said.

“If you ideologically want to transform Social Security and thereby begin changing F.D.R.’s legacy and the welfare state, the question is whether add-on accounts will help you or hurt you,” he said. “Would it be a failure because the existing Social Security system remains in place and you haven’t carved anything out of it? Or will add-on accounts become popular and develop a constituency, so that young people who have less trust in the government than in the marketplace ultimately pressure Congress to increase the size of the accounts relative to Social Security?”

So I’m with Atrios — no private accounts attached to Social Security. If the government wants to initiate some kind of forced savings/investment accounts — and I’m not saying it should — these accounts should be in an entirely separate program.

For more than you ever wanted to know about Social Security, see eRipost. See also the Century Foundation and Paul Krugman.

Sabastian Mallaby weighs in.

Judging from the hints flying around Washington, the administration sees how to bridge this divide. Democrats may be allergic to personal Social Security accounts, but they are enthusiastic about other ideas for personal retirement accounts that just don’t have “Social Security” in the title. …

… while Republicans have been pushing personal retirement accounts as part of an entitlement fix, Democrats have been pushing personal retirement accounts because they worry about worker insecurity. By enlarging the debate so that it’s about savings in the era of globalization rather than just Social Security, negotiators can conjure up the common ground that was missing during the 2005 train wreck. Personal accounts need not be merely the alternative to the traditional Social Security benefit. They can simultaneously be the alternative to the nation’s outrageously regressive system of tax breaks for saving and a way to help ordinary people build nest eggs. When personal accounts become both of these things, perhaps Republicans and Democrats alike will back them.

Mallaby ignores the fact that the wingnuts really, truly want to destroy Social Security. They’ve desired this since the FDR Administration. This has nothing to do with the flaws or merits of the program; they just want to get rid of it on principle. They’re not going to stop. The Dems could offer up a wonderful personal retirement account program separate from the Social Security System, and the wingnuts will still want to destroy Social Security.

An if the Democrats offer a progressive personal retirement account program that mostly benefits working and middle-class Americans, not the wealthy, the wingnuts will hate that, too.

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  1. Donna  •  Nov 27, 2006 @10:05 am

    If, in the future, we discuss the Iraq fiasco in the same way we discuss the Social Security issue, we will never speak of ‘why’ or ‘how’ we got into the mess in the first place. To speak of such would be to recognize the mismanagement and outright thieving going on within government at the expense of the working classes.
    In 1983, Social Security’s future baby-boomer needs were directly and successfully addressed by an increase in FICA taxes. Those increases were designed to financially charge the system over the years with enough surplus monies to handle the boomers’ retirement needs, and remove the worries about future solvency.
    Between 1983 and the present, the federal government has borrowed and used those surplus Social Security monies for non-social security matters [tax cuts, Iraq war, etc] and DOES NOT WANT TO HAVE TO PAY THE FUNDS BACK INTO SOCIAL SECURITY.

  2. Mike  •  Nov 27, 2006 @10:24 am

    We already have the add-on accounts, in forms that real conservatives love: IRA, 401K, etc. Those are very good programs, and they address the issue pretty well.

    We need to get away from the whole idea of a Social Security account as an investment. It isn’t one.

  3. maha  •  Nov 27, 2006 @11:12 am

    Donna — I don’t believe that’s accurate. The trust fund is in treasury bonds, not cash, so what you’re saying is that the feds are going to default on treasury bonds. That would be a violation of the 14th Amendment, according to this. The feds can’t choose to default on treasury bonds. And if the situation is so dire the government can’t make good on treasury bonds, then Social Security will be the least of our problems.

  4. terry  •  Nov 27, 2006 @11:18 am

    Both Donna and Mike have accurate comments concerning social security so maybe there is hope. Plainly social security is not going “broke” and will not go “broke” in the 2040’s either. Equally clear the baby boomers are not responsible for any reduction in benefits in the 2040’s because almost all will be dead by then. The crisis as Donna points out is that the government has borrowed from social security and because of the baby boomers looming retirements will have to pay back the borrowings–just as it would any other creditor. Obviously given the sort of deficits we have been running the money to pay back the borrowings will have to come from increased taxes–ie the Republicans “free lunch” policies must end. Similarly, Mike is absolutely right that there are a plethora of ways to save for retirement that have tax advantages built into them. I would like to see some changes to social security. Specifically, I would like to eliminate the employers contribution on the first $25 to $30K in wages and pay for it by having the employer pay social security on all wages above that threshold including stock options, certain kinds of deferred comp etc. By dealing only with the employer’s share we do not tamper with the “moral underpinnings” of the program, but the above changes would make us more competitive with “cheap foreign labor” and would add a real cost to companies paying executives and sports stars wages which are simply obscene.

  5. Donna  •  Nov 27, 2006 @12:11 pm

    Maha, you are right that the excess funds of the Social Security system are put into treasury bonds……those funds start out as cash paid into the system by workers and their employers, then this hard cash is converted into treasury bonds [for future redemption after earning compounded interest] which bonds are subsequently converted* back into cash-in-hand by their use for other government expenditures.
    *Conversion into cash-in-hand, just like with treasury bonds held by foreign countries, allows the government to act as though it has a better balance sheet than it really does, AS LONG AS no one names actual amounts of interest and principle that must be repaid into Social Security.
    I question why we often hear of our indebtedness to other countries, but never hear about our government’s indebtedness to the Social Security system, now some trillions of dollars. Because I never hear of this [except for Bush going to West Virginia and famously pulling out the bonds to announce, “See, no cash here, just paper”], it does cause me to believe that the powers that be would prefer to quietly default on those trillions by some sleight of mouth refocus of attention.

  6. merciless  •  Nov 27, 2006 @2:05 pm

    Lots of people will debate this from lots of perspectives, and I have no background in any area that allows me to discuss merits one way or another.

    My belief is that Bush wants to privatize Social Security so that he can give all the money to his pals on Wall Street, who will soak it up like sponges. Ten years and a few bear markets later, it will be redistributed elsewhere, and they’ll tell us poor folk it’s our fault for not investing it properly.

    I used to think I was paranoid. No more. They want to suck us dry and keep us like serfs.

    I believe all the technical talk is just a smokescreen.

  7. felicity smith  •  Nov 27, 2006 @6:04 pm

    Do I dare to ask this question of all you obviously erudite money-types? What if there is another baby boom between now and 2010 so that by 2030 they’re part of the work force. If SS is going to go belly up in 2041, is it possible that with another baby boom to support the past baby boom, SS wouldn’t go belly up? Am I missing something?

    Off the top of my head, the Repub SS spin-speak really is no more than yet another deep-sixing of any program that has even a remote possibility of depriving them of realizing the American dream of I’ve got mine and I don’t give a damn about anybody else.

  8. terry  •  Nov 28, 2006 @8:29 am

    Felicity, I certainly do not qualify as erudite about money–as you put it if I was why would I be wasting my time worrying about social security? You make the demographic point that the models which call for benefit reductions in the 2040’s are based on certain assumptions concerning the size of the work force compared to the size of the retired population. To some extent this analysis is based on the outdated “pay as you go” model for social security which prevailed until the 1980’s when there was a large increase in contributions–signed into law by Reagan, I might add-which served to build up a huge surplus in contributions for precisely the purpose of funding the boomers retirement when there would be less workers for each retired person. Unfortunately the government spent that surplus rather than put it in Al Gore’s “lock box” hiding the size of the annual deficits in the process. The real problem is where the government finds the money to repay those borrowings. There was a movie years ago called “Rollover” I believe, which hypothesized what would happen if all the foreign governments holding U.S. debt instruments demanded their payment rather than simply rolling them over when they matured. Basically that is what is going to start happening in about 5 years. Your point looks to the actuarial assumptions behind the accounting notion that simply looks at social security’s ability to pay full benefits when the surplus has been exhausted sometime in the 2040’s. You are correct that a new baby boom would boost the labor force in the 2040’s thereby extending the accounting date when benefits would have to be reduced unless contributions were increased. Personally, I think the idea of a new baby boom is highly unlikely, but immigration could have the same effect. Productivity gains will also serve to push back the date when a shortfall appears and one of the games that Dumbya’s administration has played is to use very low productivity gains in its projection in an effort to make social security look less secure . Indeed if the Democrats increase the minimum wage that is likely to push back the shortfall date all by itself assuming it does not result in a fall off in employment as the Republicans continually predict without empirical support. You and everyone else should also be aware that even with the current, conservative actuarial projections being used to argue that there is a crisis looming in the 2040’s that social security will not go broke but rather will only be able to pay 76% of expected benefits. Because the expected benefits are indexed to inflation even after the 2040’s social security recipients will recieve more money then they do now. In short social security is not in crisis and given the prolifigate ways of the government, I am not in favor of any “fix” before about 2030. If we increase contributions now to extend the surplus the government will just spend it.

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