Wednesday, February 25, 2009

Angry Bear Social Security Blogging: Spring 2009

Looting Social Security: (the Basics Revisited)

Social Security in a Time of Recession

Why the 'Prefunding Boomer Retirement Myth' is Dangerous

Late to the Seminar: (Guide to the series)

Social Security: Simple Story vs. Myth Busting

Social Security has no Unfunded Liability

Social Security and the Debt Clock

Social Security 101: Arming for Battle

The Fierce Urgency of "Nothing"

Who gets to define Social Security 'crisis'

Low Cost and the 100/100 Plan Revisited

Half of workers would opt out of Social Security if they could

Bipartisanship and "Temporary" Payroll Tax Holidays

Lady Liberty Douses Her Torch: Social Security and Immigration Policy

Diagnosing the Dynamics of Social Security

Bestest Day of the Year: SSRR Day

New Tactics in an Old War: Vanishing the Social Security Surplus

World Economic Meltdown: Crisis for Social Security? or Opportunity to Kill it?

Tables Tell Tales: Did the Social Security Surplus Vanish in February?

Trust Fund Operations and Assets: Why 2017 Doesn't Matter

Political Calender Calculus: How Social Security Reformers Got Hemmed In

Vanishing Surplus-Revealed

DI: Sick Man of Social Security

'Headline' Surplus/Deficit and 'Headline' Debt

Vanishing Surplus-Yet Again

1981-1983 Social Security Commission: Myths and Realities

CBO Presentation to the Social Security Advisory Board

Social Security Report Release; plus the Gathering Storm

Figures for AB 'Social Security has no unfunded liability' post

Wednesday, February 18, 2009

Coberly on Social Security at Angry Bear

Jan 16, 2008 Coberly on Social Security

July 15, 2008 Money and Childhood Understandings

Sept 9, 2008 Op Ed on what Social Security is for

Oct 8, 2008 Social Security: unpacking the lies

Oct 12, 2008 Here it comes

Nov 16, 2008 Dancing around on one nail not Social Security

Nov 24, 2008 Why Bill Gates gets Social Security

Jan 16, 2009 Retirement is not a game...The Choice

Feb 19, 2009 No Crisis in Sight

Feb 22, 2009 Will you still feed me in 2041

Mar 27, 2009 Social Security: Return on Investment

May 13, 2009 Misdirection: How They Keep You from Seeing the Good News

May 13, 2009 One of the Less Noticed Passages

Social Security: 2009 myth busting edition

The BruceWeb started out in Nov 2004 in response to then President Bush's call to 'reform' Social Security in response to 'crisis'. I put the two terms in scare quotes because on examination we see that 'reformers' use 'reform' and 'crisis' in quite different ways that regular people do, and indeed much of there argument comes down to a bait and switch. To understand this we have to lay out the standard narrative and then set it in actual numeric context.

The standard narrative is simple and well understood. It holds that the pending wave of Baby Boomer retirements will inevitably overwhelm Social Security and ultimately drive it to bankruptcy. Moreover promoters insist that we can't just tax our way out, nope we need to take action as soon as possible even if that means accepting painful cuts in benefits. In fact they insist that the whole system is so flawed that we need to transition it to a new sustainable form based on a system of PRAs (Personal Retirement Acounts).

What is missing from this picture? Numbers and dates. This is actually pretty typical of the debate, dollar figures are rarely used and when they are tend to be stated in mysterious ways like 'unfunded liability over the infinite future horizon", and when dates are deployed they are rarely put in real context. Does crisis start in 2017? or 2023? or 2041? or 2049? or has it started already? Well it depends on who you ask and how they define crisis.

So lets put some dates and numbers in. The Social Security Act of 1935 established two different programs, one under Title 1 and the other under Title 2. Title 1 was a straight out government pension funded directly from the General Fund and meant to replace a hodge podge of inadequate state plans. It was designed to phase out over time and be replaced by a new worker funded Title 2 insurance plan. Which is the source of MYTH 1 that FDR envisioned Social Security as being temporary and that PRAs are just what had been planned all along. Instead the replacement is precisely what we know as Social Security today, i.e. Title 2 insurance. Title 2 was set up on a Pay-Go basis, while your benefit was determined by your worklife contributions, the actual funding would mostly come from current working people making contributions to the Social Security Trust Fund via payroll reductions. Which leads to MYTH 2 that the Trust Fund is just a product of the 1983 Reform. Instead it has always served its function as common pool and reserve and allowed to grow and shrink as needed to meet projected needs. The first benefit checks under Title 2 did not go out until 1941 with people retiring before that point relying on Title 1 while waiting for the Trust Fund to grow to a size to support Pay-Go. Just as banks have to be capitalized and have specific reserves so too did Social Security.

Which leads us to MYTH 3 that early retirees got much better rates of return than later ones do. These calculations never seem to measure the taxes being paid to support Title 1 benefits which continued to make up a larger share of overall Social Security benefits right up to 1951. This seems also the source of MYTH 4 that FDR promised that payroll taxes would never exceed some low percentage of your first X dollars in income. Instead there was the recognition that over time as Title 1 retirees died then payroll taxes could be raised to offset income taxes no longer needed. In any event any legacy costs were met by 1980 (assuming a typical entry into the work force by 21 year olds in 1936).

Giving us MYTH 5 that current problems in Social Security were caused by over-generosity to people in the past. This where it is not just driven by confusion over the terminology is shown to be strained argumentation. Take the following numbers which show total benefit payouts under Title 2 since program inception.
OAS 1941-1956 $25.6 billion
OASDI 1957-1968 $181 billion
OASDI 1969-1980 $793.1 billion
OASDI 1981-1992 $2.476.5 trillion
OASDI 1993-2000 $2.829.3 trillion
OASDI 2001-2007 $6.330,9 trillion

For a grand total of $12.636.4 trillion. Total benefits paid out by 1980 totaled $999.7 billion dollars. All of it paid out under a Pay-Go system. All legacy costs associated with people not being covered under Title 2 their entire working lives have now been liquidated. There are still certainly a handful of people collecting benefits who entered the work force before 1936 but the youngest would be 93 years old. To suggest as some people do that the $1 trillion in benefits paid out by 1980 somehow leapfrogs over the current $2.4 trillion surplus to create a $17 trillion dollar gap over the infinite future is absurd. Yet some people solemnly point to Table IV.B7 as if it were proof of what they call 'Backwards Transfer', when instead it is a failure to understand what the Trustees mean by 'past and current participants'.

And lastly MYTH 6 that Social Security should be viewed as an investment fund and Myth 7 should be measured against a theoretical standalone retirement plan set up in 1936. Myth 7 blows away when you realize it takes into no account the transition costs stemming from the need to pay for Title 1, all of which was paid by the same people who are blamed for getting over generous returns under Title 2. In any event a transition to PRAs has to include some way to cover people too close to retirement to benefit, which fact tends to sink all such privatization plans. Fundamentally they face the same problem getting rid of Social Security that the crafters of the original system did, what do you do about people who are already old? MYTH 6 largely blows away on the same grounds but also ignores the fact that the Trust Funds never served as an investment fund to begin with. Certainly the balance in the Trust Fund has always drawn interest and that interest was drawn down during years when the system ran overall deficits as for example in the 1959-1965 span and in the 1971-1981 Table VI.A4.—Historical Operations of the Combined OASI and DI Trust Funds, Calendar Years 1957-2007 [Amounts in billions]. But at no time were those interest earnings really important, indeed I see no year before 1983 where interest was more than 5% of all income. People can do all the calculations they want but Social Security remains what it always has been since Title 1 phased out, a worker funded Pay-Go insurance plan.

Having hopefully disposed, or at least cast doubt on, the prevailing myths we can proceed to talk about what Social Security is rather than what is is not

Monday, February 09, 2009

Freedom vs. Four Freedoms

(Ouch. This post was designed to go up on Angry Bear but went some other directions. I stand by it but want to rework it in more economic terms.)

My last post (ed. at Angry Bear) led to some confusion. I was trying to suggest that much of the current debate over the stimulus package boiled down to world view. Well lets take it to the basics. What does freedom mean? For Democrats it boils down to this taken from the State of the Union in 1941:
In the future days, which we seek to make secure, we look forward to a world founded upon four essential human freedoms.

The first is freedom of speech and expression -- everywhere in the world.

The second is freedom of every person to worship God in his own way -- everywhere in the world.

The third is freedom from want, which, translated into world terms, means economic understandings which will secure to every nation a healthy peacetime life for its inhabitants -- everywhere in the world.

The fourth is freedom from fear, which, translated into world terms, means a world-wide reduction of armaments to such a point and in such a thorough fashion that no nation will be in a position to commit an act of physical aggression against any neighbor -- anywhere in the world.
Now some of us believe this is just an attempt to fill out the plain reading of the Preamble to the Constitution
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
Whereas the right wants to reduce everything to Friedman's Capitalism and Freedom
The citizen of the United States who is compelled by law to devote something like io per cent of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom. How strongly this deprivation may be felt and its closeness to the deprivation of religious freedom, which all would regard as "civil" or "political" rather than "economic", were dramatized by an episode involving a group of farmers of the Amish sect. On grounds of principle, this group regarded compulsory federal old age programs as an infringement of their personal individual freedom and refused to pay taxes or accept benefits. As a result, some of their livestock were sold by auction in order to satisfy claims for social security levies. True, the number of citizens who regard compulsory old age insurance as a deprivation of freedom may be few, but the believer in freedom has never counted noses.
My obligation to free this group from any social responsibility to provide for retirement security for others somehow doesn't equate to a right to ask them to get the hell off the public road because they were interfering with the Commerce Clause in that same Constitution. For some people freedom only flows one way.

To put it another way the right has reduced 'freedom' to 'personal autonomy

Thursday, February 05, 2009