Krasting, Biggs, AEI

In the previous installment I all but accused Bruce Krasting for being a sock-puppet for Andrew Biggs and Kevin Hassett of the American Enterprise Institute something Krasting denies. Well okay perhaps they came upon what I see as the same fallacious argument on their own. Andrew Biggs and I have jousted quite a bit in times past maybe with me punching a little above my own weight. Biggs along with his day job at AEI maintains a blog called Notes on Social Security Reform. Andrew is a heavy hitter, and in many ways maybe THE heavy hitter among the opposition to traditional Social Security. From 'Notes'

Andrew G. Biggs I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.

Biggs doesn't do full justice to his role at Cato. He was instead deputy director of Cato's Project on Social Security Choice previously known under a more open name of Project on Social Security Privatization

Biggs is a paid career advocate for eliminating Social Security as it currently exists in favor of a private system based on something based on an IRA model. And there is nothing fundamentally wrong with that, its a free country and anyone is free to push market based solutions in preference to government ones. But equally I am free to point out the policy bias, Andrew is not a neutral analyst here, by training, inclinaton and paycheck he is pushing a specific argumentative line. I think of Biggs as a particularly skilled lawyer one who is not going to throw up his hands and say "Your Honor, my client is guilty as hell. You know it , I know it, the jury knows it. lets send him to jail and go out for a drink". Nope Biggs will argue his case to the very end. Admirable enough but meaning don't drop your guard, this is not neutral ground, not a level playing field, the other team is out to win.

"What a tangled weave": Social Security in a time of crisis

Well this is going to take some time to unpack. We have a disturbance in the force. Up unto a couple of days ago we had two bloggers blissfully unaware of each other, one named Bruce Krasting and one named Bruce Webb. Krasting mostly being a finance guy who started out as a bond seller and Webb being a historian turned civil servant each of whom latched onto Social Security policy essentially as a hobby only to come into collission. Webb thinks Social Security is on the whole sound enough that a policy of doing "Nothing" is better than almost all proposals out there, while Krasting is convinced that we need to move on Social Security RIGHT NOW because the current recession has done unalterable harm to it. And bridging the gap between "Nothing" and "Something" is going to take some doing. So call this part one.

Let's set the stage. On January 13th Krasting published this piece as Zero Hedge: I'm no Chicken Little striking back by name at my and Dale Coberly's attacks in comments on his previous piece at his own blog SS Trust Fund-2009 Full Year Results-Ugh! where Krasting comes to a particular conclusion:

I think that the recession of 08 and 09 and the anticipated high unemployment (low employment) in 2010 has crippled the Fund. Nothing short of a major overhaul can turn it around at this point. The damage has been too great.

Well I believe this conclusion is offbase and itself based on a total misunderstanding of Social Security finance, and enough so that I accussed Mr. Krasting of essentially being a sock puppet for Andrew Biggs and Keven Hassett of the American Enterprise who argued the same case last March. This argument more or less started with this article by Hassett in Bloomberg Recession Bites Into Social Security’s Surplus: Kevin Hassett which got picked up in this article by Lori Montgomery in the WaPo a day latter Recession Puts a Major Strain On Social Security Trust Fund: As Payroll Tax Revenue Falls, So Does Surplus which sparked the following post at Angry Bear Vanishing Surpluses-Yet Again. If you really want to follow the story you would need to read the pieces in order and work back from there with the sequence being: Hassett, Montgomery, Vanishing Surplus, 2009 Full Results, Chicken Little.

Or perhaps you could cut to the chase and read the following article from some real experts Paul Van de Water and Kathy Ruffing: Social Security Does Not Face a Near-Term “Reckoning” Alarmists’ Claims Are Unjustified, But Action Is Needed to Restore Long-Term Solvency. Paul and Kathy's views remain their own and need no endorsement from me and what follows in the next few posts is entirely my own opinion, but for those who don't want to track down this particular dispute between the Bruce's could by-pass the whole thing and read Van de Water and Ruffing.

2009 Trigger: OASDI Combined

The Plan Boss! The SS Plan!: Where they are and what they do.

by Bruce Webb

In comments VtCodger remarked that he had never seen the actual Bush plan for Social Security. And indeed when Bush raised the subject after the 2004 election he was careful not to push a specific plan of how own. Instead he attempted to get a consensus around 'Crisis' and get buy-in from everyone that 'Something was better than Nothing'. He did allow the Posen Plan to get floated, largely it seems because Posen was a Democrat and so allowed him some bi-partisan cover, but never explicitly endorsed it. Which was a good thing because when exposed to light it got roasted largely on the basis of 'clawback' and 'annuitization'. On which maybe more in comments.

But there was a Plan or at least a Report of the President's Commission to Strengthen Social Security (12MB) which presented three Models each meticulously scored by the Office of the Chief Actuary in fifty pages of detailed projections. And it is worth discussion. But before doing that I want to lay out some links to other plans out there. If readers know of links to others please put them in comments.

The plan I am most familiar with is Liebman-MacGuineas-Samwick Non-Partisan Social Security Reform Plan (aka LMS). It is interesting for all kinds of reasons, not least because it reveals how 'serious' 'reformers' define 'crisis'. Which turns out to not have much to do with the gap between the scheduled benefit in 2041 and projected income.

Another important plan out there is the Diamond-Orszag Plan, which gets some extra clout due to Peter Orszag now being OMB Director.

As I run across more I will add them in.

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 'Reform': the Undead Return

They won't give it a rest.

Dean Baker in his post The Post's Jihad against Social Security points to this article Obama Predicts Years of Deficits over $1 trillion and notes that they don't hesitate to single out the usual suspect. Is it the cost of the war? The cost of the bailout? The cost of the stimulus package? Nope apparently those are just short term problems. Instead as always the first stop for deficit reform is Social Security.

WaPo: The mounting debt has raised an alarm on Capitol Hill, where some Republicans and moderate Democrats are pressing Obama to tackle the looming challenge of skyrocketing Medicare and Social Security spending, and to adopt tough new budget rules to prevent future deficits from ballooning.

Which leads Dean to reply with some exasperation:

The article includes a comment about "the looming challenge of skyrocketing Medicare and Social Security spending. " Of course Social Security spending is not projected to skyrocket. It is projected to increase gradually, and its costs are fully covered by its own tax stream until 2048, according to the Congressional Budget Office's latest projections.

In a related note Paul Krugman poses the question in a Jan 5 post A Bullet Dodged

What would have happened if George W. Bush had actually succeeded in his plan to privatize Social Security?

and suggests an answer 'Ask the Italians' Bloomberg News: Italian Pensions Sapped by Private Funds Bush Backed

In my view it is practically criminal for policy makers to be wasting a second talking about Social Security given the very real possiblity we are headed for a new Great Depression. And so equally criminal for opinion makers to be twisting current events to pursue this old vendetta. It is a shame that people like Baker and Krugman still have to keep a vigilant eye out for the zombies intent on eating the flesh of Social Security. Maybe we can make a deal. If the Right will simply stop taking every possible opportunity to take a bite at Social Security then I promise to shut up. And then maybe we can let Krugman and Baker continue the really important discussion.

"Social Security 'reformers'! Report back to your graves!"

Trust Fund Monthly Reports: Oct update

OAS::Opening balance//Projected year end balance-Intermediate Cost//Y-O-Y Increase//Year end balance-Low Cost//Y-O-Y increase-Low Cost
$2.023 trillion // $2.216 trillion //$193 billion// $2.221 trillion// $198 billion

DI::Opening balance//Projected year end balance-Intermediate Cost//Y-O-Y Increase//Year end balance-Low Cost//Y-O-Y increase-Low Cost
$214.9 billion//$218.7 billion//$3.8 billion//$221.3 billion// $6.4 billion.
Per IV.A2 the opening balance for DI was $214 billion, projected year end under IC $218.7 billion, under LC $221.3 billion

June 30th/Mid-year: OAS $2.140 trillion// DI $220 billion

Aug 31st/Two-thirds: OAS $2.164 trillion// DI $219 billion

Sept 30th/Q3: OAS $2.177 trillion// DI $219 billion

Oct 30th/Five-sixths: OAS $2.187 trillion// DI $218 billion

Social Security: Hard Solvency vs Soft Solvency vs Sustainable Solvency

'Sustainable solvency' is a new buzz phrase floating around with 'intergenerational equity' and 'unfunded liability'. But before exposing how the term blurs the real issue we need to examine the concepts of what I call 'hard solvency' vs 'soft solvency'.

'Hard solvency' is used here to describe a Social Security system that can pay 100% of all scheduled benefits over the seventy-five year actuarial window with no changes to current law in the form of tax increases or increases in retirement age. If and when we ever achieve it supporters of Social Security can clearly call 'game over, and we won'. But we are not there, instead the most recent Report would have us being able to pay out full benefits until 2041 and 78% after that. These numbers are subject to change and on balance have been improving (the 2007 Report had a 75% payout at Trust Fund depletion). Still as long as the numbers continue to improve supporters have a good case for pushing a plan consisting of 'Nothing'.

Now 'soft solvency' is conceptually a little more difficult. The current schedule of benefits is set up so that future generations of retirees get a fair share of real wage increases over their working lives, that is it provides improvements in standard of living equivalent to those of people still in the work force. Per Prof. Rosser of JMU this improvement means a benefit in real terms of 160% of what similarly situated retirees get today. And if we use what I call Rosser's Equation we see that 78% of 160% = 125%. Which is to say that after TF depletion future retirees will be able to buy a basket of goods 25% better on average than my mom can today. Now it might be that the future basket will pale somewhat when compared to people still in the workforce or to the basket that retiree was collecting in 2040 but it can hardly be described as some huge crisis. By this standard any time Rosser's equation delivers a result of 100% or better we can say that the overall system is in 'soft solvency'. Another way of describing this would be in terms of 'intergenerational equity'. If the Gen-X retiree of 2041 is still getting a real benefit as good or better than his grandmother did in 2008 there can hardly be any equity issues to resolve.

If we establish soft solvency as a floor and hard solvency as a goal we can say that currently we are 40% of our way home. Whether we really need to take positive steps in the short run to boost the result of Rosser's Equation is a question of policy preference and a balance between current utility of dollars for workers today against future utility for retirees thirty years down the road. And by the way not forgetting that these two populations largely overlap. That is it may be more efficient to hope to close the gap between 125% and 160% by mechanisms outside of Social Security itself.

But in any event both hard and soft solvency look at the outlook from the standpoint of the beneficiary for whom results closer to hard are on balance better than results closer to soft, but not necessarily so much so as to simply accept higher payroll taxes to achieve 'hard', 'soft-plus' might be perfectly acceptable if need be.

When critics of Social Security use language like 'dead broke' and 'bankrupt' all they are really saying is that Social Security is not currently passing the test of hard solvency. Which is fair enough, but it also suggests that any fixes should move the needle away from current levels of soft solvency towards hard, that is getting that 78% number up. Instead they pivot and invoke the concept of 'sustainable solvency'.

'Sustainable solvency' in practice means eliminating 'unfunded liability' which in our terms is the difference between the current projections of soft solvency (78% of 160% = 125%) and hard solvency (100% of 160%), that is it is a gap in benefits. But in their terms 'unfunded liability' is a pure burden on future taxpayers and so seen as a gap in future income vs cost. From that perspective it doesn't matter whether you address the gap on the income side or the cost side, instead the focus is on eliminating it one way or another. What this implicitly does is to kick hard solvency to the curb. Even though in a real sense 'crisis' starts out as a failure to achieve hard solvency, the solutions simply accept that some version of soft solvency is in fact good enough, if that is if it can be used to introduce a system based on Personal Retirement Accounts (PRAs).

So the task for supporters of Social Security as currently configured is to put the privatizers' feet to the fire. Does their solution give a better result then the current level of soft solvency projected? If not why should current workers and near retirees buy in? The system as currently configured is projected to deliver a minimum of soft solvency plus and is trending more and more towards hard solvency. Why should we accept a result that doesn't deliver more solvency at equivalent cost?

Rounding out the Angry Bear Series on Social Security

My last two front page Social Security Posts on Angry Bear were:
CBO: Updated Long Term Projections for Social Security
Social Security 2027: A date for Action?

Over that same span we saw Social Security posts by Jack, coberly and pgl, so clearly the topic itself is in good hands. On the other hand for a variety of reasons I became sort of a lightning rod in a way that made the comment threads on my posts unattractive for non-trollish commenters. Additionally there was some concern about the ways I felt I needed to push back on the trolls who did comment.

So basically I am declaring victory over there and bringing it back here and eventually to my new blog (supposedly) under development. I still expect to be commenting extensively at AB but maybe without the restraints that come with being a front pager.

Anyway I hope to boost the content level here. Because while the economic argument over Social Security solvency is by and large over the politics resulting from that are just beginning to unfold. Fully expect a regular opening by me of a can of FDR WhoopAss on the privatizers.

2007 Report

Entry page
Table of Contents
List of Tables
List of Figures

Economic Assumptions under the Three Alternatives
Trust Fund Ratio under the Three Alternatives