Friday, January 15, 2010

Krasting at Zero Hedge: Taking it personal

What a Tangled Web we Weave. In the linked post I give some links and background. A blogger named Bruce Krasting posted a piece arguing that the current recession had dealt a very serious blow to Social Security and one that required an immediate response. I am currently working with some policy people in DC to ward off the Conrad-Gregg proposal for a Commission that among other things would address the perceived Social Security 'crisis'. The key vote on this is scheduled for next week and I think it important to push back on any suggestion that Social Security actually needs a short-term fix, at least when that fix is pre-defined as benefit cutbacks. I have also been engaged in a policy dispute over the last year with some scholars at American Enterprise Institute about whether the current recession has really dealt that aforementioned serious blow or whether they are misinterpreting certain monthly reporting. So when I got pointed to a blogger who in the week prior to this critical vote was making the same argument based on the same monthly reporting and getting his math wrong in the same way I assumed that he might be following the lead of perhaps the foremost and most formidable of Social Security 'reform' advocates, former Deputy Commissioner of Social Security and proprietor of Social Security blog Notes on Social Security Dr. Andrew Biggs.

Well I may have been wrong on that, Mr. Krasting claims he came up with all this on his own. And while I stand behind the substance of the substantively hostile but mostly light in tone comments I left on his web-site to SS Trust Fund-2009 Full Year Results-Ugh! I might even have advanced an apology based on the fact that not everyone admires my mockery, especially when directed at them. Instead Mr. Krasting decided to elevate this to a pissing match by posting the following on Zero Hedge in I'm No Chicken Little
I wrote a piece on the 2009 results that were published by the SSTF. Some of my assumption and many of my conclusions have come under criticism. Mr. Bruce Webb, a well-respected fellow, suggested that I was “peddling crap”. He went on to suggest that I was in collusion with two leading economists, Mr. Briggs and Mr. Hassett of the American Enterprise Institute (AEI). There is no truth to that. Right or wrong I have come to my observations on the Fund on my own. I have written a total of 11 pieces (out of 180) on the SSTF in the past year. They have all been published outside of my blog. I am not that new to this debate.
Well I don't know about "well-respected", but I like to think that I myself "am not that new" and am perfectly prepared to fricassee this Chicken.
BK: FICA and SECA taxes were less than benefits paid for the first time in history in 2009. That is a significant milestone
Apparently Mr. Krasting defines 'history' as 'starting in 1983'. If we examine the historical results as reported in the 2009 Trustees Report we come across Table VI.A4.— Operations of the Combined OASI and DI Trust Funds, Calendar Years 1957-2008 [Dollar amounts in billions] and can see that FICA trailed benefit payments in many years from 1958 to 1971 as the TF ratio shrunk form 298 (three years of reserve) to 95 up to 103 and then in all years from 1975 to the low point a low point of 14 in 1983. While you can argue that both 1966 and 1971 represent 'milestones' in that the TFs fell out of actuarial balance in those years, in point of act the General Fund honored its obligations all the way down and indeed until now, that the TF goes cash fund negative not being important in itself.

BK: Yes, if you divide 2.5 trillion by 5 billion you get 500. But we both know that is an irrelevant calculation. You think that math adds to this debate?
Words fail. What after all could math add to a debate over solvency of the Trust Fund? Moving on.

BK: But we have 10% unemployment and few prospects for job creation. If we started getting increases in NFP of 700k per month, I might back off. But we are still losing jobs. I think that net of census hiring we will lose jobs for the full year. I am not alone in that view of employment. What is your outlook for jobs creation? Are you looking for 10mm net new hires this year? If not, you might want to consider the implications to the Fund.
Well I have looked at implications for continuing 10% unemployment and they are not pretty. On the other hand the numbers show that Mr. Krasting's numbers are off by a minimum of half a trillion dollars over five years. If that is you add math to the debate.

BK on COLA: “The December to January benefits number fell by $475mm ($6b annualized). The first time ever absence of a COLA adjust may have contributed to this unusual phenomenon. In the past decade there has not been any years where this has occurred. The percentage change in the past few years were 06/07 = + 2%, 07/08 = + 1%, 08/09 = + 5% and 09/10 = -1%. A big swing in direction for 2010."
Wow, I guess math does matter. In any event the lack of a COLA for 2010 is because the 5.8% COLA adjustment for 2009 was set too high based on an estimate of energy prices that most more than actually occurred. But there was no actual drop in benefit checks per recipient in January any more than there was an actual drop in May, July, Aug, October or November which saw similar drops month to month. Krasting put too much weight on a single data point that from his own table just can't substantiate his argument.

BK on career advice: "Coberly and Webb have unique knowledge of the workings/numbers of the Fund. They could turn that into an opportunity to make a buck. They should try it. It is rewarding in many ways. But I doubt that they see the forest for the trees."
Dale is retired. On the other hand I am open for an opportunity, if someone wants to pay me for this stuff I'll do my best to extract myself from the forest. But what this has to do with an argument on the substance kind of escapes me.

BK: That was not a little rain shower we just went through. That was the storm of the century. Yes we have eaten into the surplus. In 2010 we may start to ‘live off the interest’. And this ship is far from being turned around.
Wow and I thought I was the king of overwrought metaphors, but even I would not thought of eating the seed corn during a hurricane. But that aside the century is still young. I am old enough and suspect Krasting is too to remember 1975-1980 a period that the Trustees report averaged 0.9% productivity, 8.9% CPI, 6.8% unemployment, and 8.5% interest rates. Now that was a storm. And if we take 'century' to mean 'in the last hundred years', this is a little hyperbolic, we having al long way to go between 10% unemployment and Great Depression 24% levels.

BK: You have me right on this point. I am alarmed. While I agree that this is not an issue for the SSTF, it most certainly is an issue for the entire fixed income market. In prior years the SSTF acquired Treasury IOU’s for as much as 50% of the total deficit. In a few years the Fund will be a seller versus a buyer. Do you really think that is not a significant development?
This is a little incoherent. The Special Treasuries in the TF were not acquired in the fixed income market and won't be liquidated into it by 'selling'. About half of the balances in the TF are the result of accrued interest that were not financed at all even as they were counted as part of Unified Budget Surplus/Deficits and these Treasuries will be redeemed (not sold, they are not marketable) at a predictable rate. This will require either allocation of tax revenues or offsetting borrowing but the impact on the fixed income market will be proportionate to the percentage of that market these would represent. When I look at the numbers by year I see a moderate strain in the late 2030s but in constant dollars don't see anything like the challenges Bush budgeting presented or the current stimulus/war spending, elevating Social Security finance to an existential threat just doesn't hold up to the numbers. Table VI:F7: Constant Dollars

The fund has proposed either a 2% increase in payroll taxes or a 13% cut in benefits (or some combination). The 2% solution proposed by the Fund would increase payroll taxes by $115 billion annually. That number would rise each year thereafter. Please point me to the economist, Senator or Congressperson who would sign up for that. I think the voters in the States that they are from would be anxious to hear about that. You have my email. Send me the list and I will publish it.

The Trustees said that ‘creative thinking’ would be required. I don’t see you two putting anything new on this table.

Well that is because you have never checked. Coberly and I along with a guy named Arne Larsen have developed a plan we call The Northwest Plan for a Real Social Security Fix The supporting spreadsheet is here: and it shows that a 0.3% increase in FICA devoted to the currently in the red DI component of OASDI fixes combined Social Security until 2026. If you would have done a little background work, maybe like Googling 'Bruce Webb Social Security' you might have run across it PRIOR to making a fool of yourself at Zero Hedge. The NW Plan hits the median household's take home at $1.50 a week initially with equivalent increases needed starting in 2026.

And I don't even want to get into the Gates argument. At what point would you actually start means testing and how much savings would you actually yield? Their just are not that many billionaires that stripping some $30k apiece in SS checks would make any difference, in order to get real money you have to dip down far into the middle class and so fatally undercut political support for Social Security. Which of course is the point.

Krasting if you come by know that you didn't have to take it to the level you did, but near as I can tell all you did was ended up pissing up a rope.


Anonymous said...

You can't help but suspect that for some people the "crisis" is the fact that payroll taxes can no longer be used to fund* taxcuts for the rich.

*through the mechanism of reducing the necessity of borrowing the funds required by our structural deficit.

--Jim A.

Anonymous said...

You seem to have the better case, but I would say that your claim that the Treasury debt held by the SSTF isn't marketable and can't be sold kind of misses the main point, which is somewhere in the Treasury there is an office were up until now the nice man from the SSTF came to deliver excess cash and now he stops by to pick up a check. Yes, there is a whole continuum of balance of payments out there, but with everything else going on in the Treasury these days this cannot be a welcome change.

Bruce Webb said...

Jim A

The idea that Social Security surpluses financed tax cuts prior to Bush II are just fanciful. Under Reagan and Bush I the dollars in question were tiny (denominated in billions but in context tiny). By the time Bush II came along the numbers were bigger but everyone knew the situation was close ended.

The problem is not so much that the dollars helped finance tax cuts, the problem is that they are trying to redefine 'solvency' in a way the privileges the bond market over American workers so as not to have to pay the money back.

Bruce Webb said...

Anon interestingly that man at the SSTF has been doing both for quite some time. The DI Trust Fund went cash flow negative in 2006 and now is dipping into principal and so has been picking up a check ever since. On the other hand the OAS TF is still dropping off cash.

Which actually opens a political opportunity. If Congress went to the people and asked them to accept an increase in FICA of 0.3% and said that it would entirely be used to shore up the Disability Trust Fund and not go to Boomers at all, could that be a sell?

Because that is all we need to put combined OASDI in actuarial balance for the next 17 years, all of the current weakness being on the DI side.

Rdan said...


This is the sort of outreach needed.

Anonymous said...

Bruce -

I've talked to you before & posted your stuff at DU, as I have again here:

I'd thought the commission was a done deal when I read the WaPo story but it sounds like it's not quite - do you have some suggestions as to what people can do to help head off this thing? If so could you post at DU or at least respond in your comments section?

Thanks, hb

Anonymous said...

Another question:

One of the "there is no crisis" arguments was that some of the assumptions of the mid-range forecast were unrealistic, i.e. the assumption of something like 1.5% growth for 75 straight years (not the exact numbers, but hope you can recognize what I'm referring to).

However, not to get too tin-foil hat about it, ten years with no job or wage growth, the 2008 crash, extended recession & current "recovery" with continuing foreclosures & job loss put those forecasts in a different light.

Why did the Trustees plug in those numbers?

(Half joking, but half serious): Do you think they knew something?

Thanks, hb

Anonymous said...


Anonymous said...

Bruce, thanks for the DU post.


araon said...
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