Saturday, January 29, 2005

This Takes Real Brass... 

Paul Krugman's latest column takes on the racist argument the President used this week in a closed-door meeting to persuade African Americans that Social Security doesn't do enough for people of color.

Why not enough? Because, the President argues, African Americans don't live long enough to fully enjoy the benefits Social Security has to offer.

So the answer isn't to address the discrepancy in lifespan and to demand to know what injustice American society has done, no, no, no. Instead, let's just cynically see if African Americans can be peeled away from traditional supporters of Social Security to establish privatization, oh, sorry, PRIVATE ACCOUNTS.

'The Coma Guy' 

I have a special feeling for a guy named Steven Manganello. He’s known in Red Sox Nation as ‘The Coma Guy,’ since he managed to find the hardest possible way to miss the incredible comeback the Sox pulled off last fall to break ‘The Curse.’ He fell into a coma.

Steve is a die-hard Sox fan from Maine, whose grandfather passed away in 2003, without having seen the Sox return to the championship since 1918. Steve planned for his 2004 vacation in Japan to end before the baseball playoffs, but was hit by a speeding taxi in Tokyo and hospitalized before he could return. He spent up until Thanksgiving in a coma and semi-coma state, returning to the world and two thoughts:

1- "Holy crap, I almost died!"

2- "Holy crap, the Red Sox won the World Series!"

As a die hard Sox fan who spent the World Series working in Florence, Italy, where the curse of the Bambino meant that someone had been blackballed by a supernaturally capable child, I volunteer to watch World Series games 1-3 with Steven.

Game 4, I caught on a one-day delay via the “North American Sports Network” in a Florentine Irish pub, with several RS Nation expats and some fascinated Irish soccer fans. But I’d watch it again with this guy.

(A tip of the cap to The Joy of Sox for pointing to Bill Simmons' ESPN Magazine article)

Let's Remember Paul Wellstone's Advice 

As we approach the Iraqi elections in the midst of a US/British occupation of that country, beset by continued violence and uncertainty about an exit strategy, we can only hope for a renewed effort to internationalize the post-election effort through the United Nations-- and that the United States will step down from its preeminent position as the primary military force in Iraq, whatever the outcome (or lack of outcome) in this weekend’s balloting.

I’m just re-screening selections from the Senate debate in October 2002 about whether to allow the President to go it alone in Iraq. The most precient comments come back through videotape in the ghostly voice of the late Senator Paul Wellstone:

".… Of greatest, and of gravest concern, obviously have been the questions raised about the possible loss of life that could result from our actions. The United States could post tens of thousands of troops in Iraq and in so doing, we risk countless lives of United States soldiers and innocent Iraqis. There are other questions about the impact of an attack in relation to our economy. The United States could face soaring oil prices and could spend billions both on a war and a years—long effort to stabilize Iraq after an invasion…. I believe an international approach is essential."

—Senator Paul Wellstone (D-MN),
before the US Senate opposing resolution authorizing President Bush to invade Iraq
—October 3, 2002

Let's pray he can still be heard in Washington.

Bush's Turn 

Josh Marshall is still a great resource for anyone following the Social Security battle as it hits the road. Next week it will be the President's turn at bat, as Josh points out— and we'll see how much spin he can put on privatization, er, 'PRIVATE ACCOUNTS', to make them look attractive.

Plan on hair-raising testimonials about Social Security going broke being brought forth. Maybe Saddam will be trotted out to back the Democrats?

More Shills Outed 

The news that two more columnists are on the Administration payroll comes as no surprise, considering that this crowd seems to believe anything they support is being channeled from God. Why wouldn’t they pay their buddies in the press to toe the line? It’s just the right thing to do. At least until you get caught, anyway.

The President, as usual, is shocked, shocked to find that this activity is going on. Upon hearing that columnists Mike McManus and Maggie Gallagher have joined Armstrong Williams on the list of outed shills for Administration initiatives, the President laid down the line. "All our Cabinet secretaries must realize that we will not be paying commentators to advance our agenda," Mr. Bush said. "Our agenda ought to be able to stand on its own two feet."

I’m sure this kind of cynical misuse of taxpayer dollars, paying Gallagher and McManus for their services promoting the Administration’s marriage initiatives, will be punished by the President. Just like the torture scandal. Or the WMD scandal. People will be fired— right?

Friday, January 28, 2005

Two Countries, Two Elections 

In the mid-1990’s, I had the privilege of witnessing the first postwar election in the tiny Central American country of El Salvador. The Salvadoran postwar transition period was monitored by the U.N. and the election campaign included the rebel parties that had been fighting the government throughout the 1980’s.

There were lots of problems, lots of unfulfilled promises and many unresolved issues leading up to the elections. There was, however, a sense of hope that the campaign might lead to a more workable democracy in the future. The ultra-right Arena party won the first election, based on a campaign of fear, but had to recognize the strength of the various rebel parties, which won local races in some of the larger cities. Arena disavowed the death squads of their wartime heritage, moved further to the center, and agreed to some basic land reforms that the opposition FMLN had fought for.

People wanted peace in El Salvador more than they wanted anything else, including perfect democracy. The government broke a promise to garrison the army on Election Day, there were instances of voter intimidation and intentional disenfranchisement, but overall, the result was considered a reflection of the people’s voice being expressed. The rebel parties, having been formed in war, had much to learn about appealing to voters, forming coalitions, and making a common platform. The ARENA Party brought in technocrats to its leadership, who appealed to a broad desire for a better economy and more jobs in a nation starved for work.

In short, the baseline for a recognizably democratic result was achieved and accepted by most concerned.

These criteria are almost entirely missing from dispatches from Iraq this week as we look at its upcoming elections. The U.N. has a miniscule amount of influence over the conduct of the vote. An occupying army from the United States is currently promoting participation at the barrel of a gun, while Islamist radicals threaten to kill anyone who does participate. Indigenous rebels of various stripes oppose the election and the occupation as well. Many parties representing the second largest ethnic group in the country are boycotting the election and their supporters are presumably doing the same. Only a quarter of all eligible voters are even registered.

It’s hard to expect peace to break out as a result of this farce. We can hope, but when the polling places that seem to have the most festive atmosphere are located not in Iraq, but in the United States, you have to be skeptical about the potential outcome.

Dis' Me Once, Shame on You... 

I thought it might help to offer a little context around the President's Wednesday press conference joke at the expense of older Americans.

The question he's being asked is about the biggest disaster of his term as Governor in Texas, a failed push to change the funding for the state's schools, which he's suggesting would have helped senior citizens (had it not gone down in flames) with property taxes. As if senior citizens are the only ones paying property taxes...or can't figure out they're being patronized by the comment.

Yet in the same breath, he manages to imply that calling the failure of the plan to pass indicates a mental lapse...and that makes the reporter a 'senior.' (ha-ha) ...and he's trying now to help older Americans? ....anyone buying this?....in such a short moment, the President is insulting to older people on several levels almost simultaneously--it's quite remarkable.

THE PRESIDENT: Yes, Ken, follow-up. This is a home boy follow-up.

Q I seem to remember a time in Texas on another problem, taxes, where you tried to get out in front and tell people it's not a crisis now, it's going to be a crisis down the line -- you went down in flames on that one. Why --

THE PRESIDENT: Actually, I -- if I might. (Laughter.) I don't think a billion-dollar tax relief that permanently reduced property taxes on senior citizens was "flames," but since you weren't a senior citizen, perhaps that's your definition of "flames."

Q I never got my billion --

THE PRESIDENT: Yes. Because you're not a senior citizen yet. Acting like one, however. Go ahead. (Laughter.)

Q What is there about government that makes it hard --

THE PRESIDENT: Faulty memory. (Laughter.)

Q -- to address things in advance, before it's a crisis?

THE PRESIDENT: Do we have a crisis in Texas now on school property taxes?

Q Yes, we do.


Q Are you going to put forward your own plan on Social Security, or not?

Q Mr. President --

THE PRESIDENT: Let's get some order here, please.

Privatization is Proving a Harder Sell... 

I'm wondering what AARP will do to make Florida hot during this cold winter.... as President Bush begins his campaign-style swing next week through the Sunshine State, plugging his Social Security privatization plan. Will representatives of groups supporting Social Security as we know it travel the route as opponents?

Florida Republican legislators will have to face a difficult choice in this state, knowing the huge percentage of their constituents who depend on Social Security will be watching intently to know what stand they'll make on privatization legislation. Will many of them find other places to be when President Bush stands and delivers on a plan that now seems to offer defined benefit cutbacks and less security?

Even Karl Rove is running into difficulty with the congressional Republican rank and file this week, as he and Andy Card plug the President's plan at the GOP's Greenbrier retreat, according to Mike Allen in today's Washington Post. It's getting tougher for legislators who must face the voters again in two years to line up behind a President who won't have to.

Thursday, January 27, 2005

Will Ohio Address Election Reform? 

Will Ohio Gov. Bob Taft (R) mention election reform in his State of the State address, scheduled to be delivered on February 8? If you think he should, you can write his office at:

Governor Bob Taft
30th Floor
77 South High Street
Columbus, Ohio 43215-6117

Or phone him at:

614-466-3555 or 614-644-HELP

If you have less time, drop him an e-mail from his Governor's Contact Website Page.

Chile's Privatization Woes 

So, I'm sure your neocon colleagues at the office (those who still speak to you) all say, "Yeah, yeah...I know pension privatization, er, oops, I mean PERSONAL ACCOUNTS have had a chequered history in Britain and Argentina, but you know Chile has had them for years now."

Well, I suggest that in addition to pointing out that Chile got privatization at the barrel of their former military dictatorship's gun, you suggest they read the article in today's NY Times by Larry Rohter. It's an eye opener about the shortfalls being confronted there today by pensioners.

Monday, January 24, 2005

Social Security Reading 

The Center for Economic and Policy Research has sent out a good summary of recent reading on Social Security.

Outstanding Stories of the Week

Social Security Enlisted To Push Its Own Revision

Robert Pear

New York Times, January 16, 2005, Page A1

This article reports on the administration’s efforts to use the resources of the Social Security Administration to help convey the idea that the program is facing a crisis and need to be changed.

Critics See Social Security Warnings as Scare Tactics

Warren Vieth

Los Angeles Times, January 16, 2005

This article reports on the administrations efforts to use the resources of the Social Security Administration to help convey the idea that the program is facing a crisis and need to be changed.

Bush Proposal May Reduce Benefits for Disabled

Leigh Strope

Miami Herald, January 19, 2005, Section A; Page 6

This article reports on the likelihood that disability benefits will be subject to large benefit cuts under the President’s proposal to change Social Security. Disability payments support about 16 percent of current Social Security recipients, and disability payments are determined by the same formula as retirement benefits.

Social Security, Solvency, and Political Spin: How Credible are President Bush’s Dire Predictions?

Martin Wolk

MSNBC.com, January 14, 2005

Is There Really a Crisis?

Karen Tumulty, Eric Roston, Massimo Calabresi, Matthew Cooper, and Daren Fonda

Time Magazine, January 24, 2005, Page 22

These articles report on the political environment surrounding Social Security as well as the factual questions regarding the financial condition of the program. They both point to factual errors the President has been making while arguing for the creation of private accounts.

The Time Magazine article points out to readers that the program does not face bankruptcy and that, even if it did, private accounts would do “nothing to slow that process.”

Both articles rightly point out that, as Time put it, the “projected shortfall is not a new situation, or even the worst that Social Security has faced.” In the early 1980s, the problem was much more urgent and was fixed by Congress, which at the same time began the build up of the trust fund to prepare for the retirement of the baby boomers.

Back to Top of Page

Other Stories on Social Security

Social Security Discussion

Jack Cafferty, Andy Serwer

CNN In the Money, January 15, 2005

This segment presents the views of a proponent of President Bush’s Social Security privatization proposal. At one point host Jack Cafferty asserts that there is currently no real surplus in the Social Security trust fund. He stated that the trust fund is “an unfunded IOU from the federal government. …There is no box of money sitting anyplace.”

The "IOU"s Cafferty refers to are U.S. Treasury obligations, which have never had a default in the history of the United States. The money taxed by Social Security has been set aside and will be repaid, with interest, to the Social Security Trust Fund.

Bush: Program's Heading 'to Bankruptcy'

David Willman

Los Angeles Times, January 16, 2005, NEWS; National Desk; Part A; Pg. 32

Some House Republicans Urge the White House to Consider Tax Increases for Social Security

Edmund L. Andrews

New York Times, January 20, 2005, Section A; Column 1; National Desk; Pg. 19

These articles detail the debate among policymakers on Social Security and proposed reforms to the system by the Bush administration. Both reports mention that there will be a $3.7 trillion gap in Social Security financing over the next 75 years.

It would be useful to put this number in context. The Social Security trustees estimate that the Social Security deficit is equal to 0.7 percent of GDP over the 75 year planning period.

A Question of Numbers

Roger Lowenstein

New York Times, January 16, 2005, Magazine, Page 40

This article examines the history and prospects of the Social Security system. At one point it notes that the trustees report is “based on the actuaries’ analysis.” While this is true, it is important to note that the trustees report consists of projections made by the trustees, not the actuaries. Four of the six trustees are political appointees of the president (the secretaries of Labor, Health and Human Services, Treasury, and the Social Security Commissioner). The trustees receive recommendations from the actuaries at the Social Security Administration, but there is no way of knowing the extent to which they follow these recommendations, since they are not made public.

The article also asserts that the government has run larger deficits because it has been able to borrow the Social Security surplus. This is not clear. The nation’s largest peace-time deficit was 6.0 percent of GDP, a year in which Social Security was not running a surplus. There is no clear relationship between the size of the deficit on the general budget and the size of the Social Security surplus. In other words, it is not clear that the government has borrowed more than would have been the case if it did not have access to the Social Security trust fund.

The article also attributes part of Social Security’s financial problems in the late seventies to inflation. Actually, inflation improves the solvency of the program, since it lowers to some extent the real value of benefits. (Benefits are adjusted to inflation, but only at the end of the year.) According to the trustees' sensitivity analysis, if the annual inflation rate is 1.0 percentage point higher than projected (and wages and interest rates adjust accordingly), then the projected shortfall will fall by 0.22 percentage points of payroll (table VI.D5).

In noting the pessimism of the trustees' projections, the article points out that the trustees assume a much lower rate of immigration in 2020, when the retirement of the baby boomers is creating a labor shortage, than in the nineties. It is worth noting that the rate of immigration is a policy variable. If the public believes that the economy is suffering from a lack of labor, it will be able to have virtually an unlimited supply of immigrants by reducing barriers to immigration.

The article notes that the 1.1 percent projected average wage growth is approximately equal to the average wage growth of the last 40 years. For a seventy-five year projection, it would be reasonable to include the whole post-war period where we have reliable data. Since wages grew by more than 2.0 percent annually from 1945 to 1965, average growth over this longer period would be approximately 1.5 percent.

It is also important to note that the employer side of the payroll tax was increased by approximately 6.0 percentage points over the last forty years. These tax increases lowered average wage growth by 0.16 percentage points. Since the trustees' baseline projections are supposed to assume no changes in future tax rates, a pure extrapolation from the past forty years should show wage growth that is 0.16 percentage points higher than the actual wage growth over the prior forty years, since the projection should assume no increase in future tax rates.

The article includes a discussion of investing Social Security funds in the stock market. It refers to projections that the stock market will provide annual returns of 7.0 percentage points above the rate of inflation, the same rate of return the market has averaged over the past 70 years. Actually, this rate of return is impossible given current price to earnings ratios and the profit growth projections of the trustees. If the trustees are correct in their relatively pessimistic projections of economic growth, then the rate of return on stocks will average approximately 4.5 percentage points above the rate of inflation (see the see the "No Economist/Policy Analyst Left Behind Test").

Bush to Return to ‘Ownership Society’ Theme in Push for Social Security Changes

David E. Rosenbaum

New York Times, January 16, 2005, Page A17

This article discusses the themes that President Bush is expected to emphasize in his inaugural address. It repeatedly attributes his drive for Social Security privatization and other goals, such as reducing taxes on investment income and the promotion of health savings accounts, as a philosophical belief in promoting individual efforts rather than encouraging people to rely on the government.

It is important to note that President Bush is a politician, not a political philosopher. Politicians get elected by courting powerful interest groups. All of the proposals cited in this article provide substantial economic benefits to the constituencies that backed President Bush in his campaigns.

For example, the financial industry is likely to earn tens of billions in fees and commissions if it can gain access to the private accounts created by President Bush’s Social Security plan. Higher-income taxpayers will save themselves several thousand dollars a year, if more of the tax burden is shifted away from investment income and onto wage income. And the health insurance industry may gain a bonanza by offering the high-deductible insurance policies encouraged by Bush’s medical savings accounts. (These accounts would also allow wealthier and healthier people to get into a more favorable risk pool, thereby saving themselves money on insurance.)

While it is possible that President Bush is partially motivated by ideology in his proposals, it is not clear that his ideology really makes much difference in determining these policies. Politicians will almost always claim that they are motivated by their beliefs, rather than a desire to serve powerful political backers, but that does not mean that their claims are true, as this article appears to assume.

At one point the article asserts that investing $1000 annually in an individual account will lead to an accumulation of $140,000 after a 44 year working career. Actually, using stock return projections derived from the Social Security trustees' profit growth projections, the account would grow to just over $100,000 after 44 years.

Political Divisions Persist After Election

Richard Morin and Dan Balz

Washington Post, January 18, 2005, Page A1

This article reports on the results of a Washington Post-ABC News poll examining political attitudes in the country following the election. At one point the article comments that “Democratic leaders may be out of step with their rank and file on the severity of the problems facing Social Security.” It then reports “two-thirds of all Democrats worry that there is not enough money to keep Social Security funded until they retire.”

This is not a case of leadership being out of step with rank and file – this is evidence that the public is poorly informed about the financial state of Social Security. The trustees' projections show that the fund can pay all scheduled benefits through the year 2042, while the Congressional Budget Office projects that the program can pay all scheduled benefits through 2052. Both years are long past the retirement date of the vast majority of current voters. Even after these dates, both sets of projections show the program can always pay a higher benefit than the price-indexed one that President Bush has suggested, and that the poll claims most voters find acceptable.

The projected depletion date of Social Security is a factual matter, like the shape of the earth. If voters believe that the program will not be able to pay benefits at any earlier date than the standard projections, then it must be due to the fact that they have been misinformed. It does not reflect a differing political view.

Is the Social Security really in crisis?

David Gregory

NBC Nightly News, January 18, 2005

This segment explores the terms of the debate on Social Security. At one point correspondent David Gregory notes that the system’s “financial gap runs into trillions of dollars” over the next 75 years. It would have been helpful to pinpoint the exact number of the shortfall; 3.7 trillion. The Social Security trustees estimate that this Social Security deficit is equal to 0.7 percent of GDP over the 75 year planning period.

Report on Social Security Debate

Major Garrett

Fox Special Report with Brit Hume, January 18, 2005, 6 pm

This television segment reports that President Bush appears to be backing away from his earlier assertion that Social Security currently faces a “crisis.” At one point, the segment tells viewers, “Democrats continue to argue that Social Security benefits won’t decline for decades, and then when they do, only slightly.”

While Democrats do point this out, it is misleading to attribute the assertion only to President Bush’s critics. In fact, the Social Security trustees, the majority of whom are appointed by President Bush, are the ones who project that the program will first not be able to pay full scheduled benefits in 2042. Even at that point, benefits are not actually projected to decline from current levels. Because the projected benefit for 2042 is nearly 47 percent higher than current benefits (adjusted for inflation), the payable benefit projected for 2042 is still more than 7 percent higher (adjusted for inflation) than the average benefit today. The trustees project that the payable benefit will continue to rise by about 1 percent annually, in the years after 2042, although it is not projected to keep pace with the scheduled benefit for these years.

The nonpartisan Congressional Budget Office (CBO) is even more optimistic, projecting that the program will make full scheduled benefits until the year 2052. At that point, the payable benefit will be approximately 50 percent higher (adjusted for inflation) than the average benefit received by current retirees.

It is also worth noting that, under either the trustees projections or the CBO projections, the payable benefit under the current system would always be larger than the benefit that would be provided by Plan 2 from President Bush’s Social Security commission. The CBO projections imply that the average payable benefit in 2080 would be approximately twice as large (adjusted for inflation) as the benefit provided by Plan 2 from President Bush’s commission. In other words, the fact that the program may not be able to pay full scheduled benefits without changes would not appear to be an argument for adopting President Bush’s reform proposals.

Chile Offers Preview of Privatization

Kevin G. Hall

Miami Herald, January 20, 2005, Section A; Page 1

This article examines the record of Chile’s privatized Social Security system, put in place under the dictatorship of Augusto Pinochet. It claims at one point that “privatized pension funds can bring retirees higher returns than they would get from the government.”

One important lesson from Chile’s system, which should have been noted in this article, is that the administrative costs have been very high. Between 15 and 20 percent of the money flowing into the system was siphoned away by the financial industry in fees and commissions. By comparison, the administrative cost of the Social Security system is less than 0.5 percent of the annual flow of revenue into the system. The high administrative costs of the Chilean system was one of the major criticisms raised in the World Bank’s recent review of Social Security privatization in Latin America (Keeping the Promise of Social Security in Latin America, 2004, lead author Indermit Gill).

In assessing rates of return, the relevant measure is not past performance of stocks and bonds, but future performance. (Chile’ system originally offered a high rate of return, because its primary asset, Chilean government bonds were viewed as very risky and therefore paid high interest rates.) The article does not specify the rate of return that is assumed for the stock and bond markets. However, there is no rate of return, consistent with the Social Security trustees’ projections and current stock valuations, that would compensate for President Bush’s proposed benefit cuts, even if all Social Security taxes were invested in a private account (see the "No Economist/Policy Analyst Left Behind Test").

Additionally, at one point, the article states that Social Security’s shortfalls are “at least 13 years away.” This is inconsistent with the projections of the Social Security trustees, who project that the shortfalls are 37 years away. In 13 years, Social Security will begin benefiting from the interest on the trust fund that has been building since the 1980s. Those reserves will be enough to prevent shortfalls, according to the trustees, until 2042.

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