Let's have that political fight that Bannon wants: within each political party

Let's have that political fight that Bannon wants:

within each political party

Economics Without The B.S.**: 

[**  Double entendre intended.]

Steve Bannon wants Republicans to have a fight.  
https://www.usatoday.com/story/news/politics/2017/09/29/steve-bannons-breitbart-going-war-against-gop-incumbents/717724001/

Matt Schlapp, American Conservative Union, says Republicans need to have that fight over direction of Republican Party.  Yes, and Liberals and Old Style Democrats (like myself) need to have that fight: the role of Government in Society and the role of America in the World.

Role of America in the World -- We just had a Vietnam series on PBS, showing a mis-reading by Greatest Generation of conflict of ideology vs dis-establishing colonial empires after WWII. But, it is still America's role in World to set an example and help people toward self-government (a democratic process) and peaceful resolution of conflicts. That secures the blessings of liberty.

When you hear someone, of the political Left or Right, talk about America's role in the World using pejorative terms like 'nation-building' or 'policeman of the world', put these into the greater context of the previous paragraph to determine what interests are being served.  In a less than perfect world, what is the ultimate outcome trying to be achieved?  And can less than optimum solutions, while not perfect, put us in the right direction and keep us on the right side of an issue?

Role of Government in Society -- use 1960s as example, it is the best economic performing period in American history with nothing close to it (within 40% of economic growth of this 10 year period):  so, get Federal Government spending and revenues within 15% to 17% of GDP (has been over 20% since 2008) and real GDP (inflation adjusted ) sustained broad-based economic growth up to 3% to 4% (has been no better than 2% since 2001).  Get the national (public held) debt-to-GDP down to 40% (currently over 100%). With that our society can afford to have a social-welfare function of Government and support programs like Social Security and Healthcare for all.  And it can also support an activist international function (both economic and diplomatic) supplemented with strong military involvement.

Simply speaking about the nation's debt without taking into account the level of debt in relation to the overall economy or the rate of growth of the debt in relation to the rate of growth of the economy becomes a meaningless discussion unless its purpose is to stir up political pointers.  The same can be said for proposing new spending programs, however beneficial, without taking into consideration what they will do with the performance of the overall economy.  And the same can be said with cutting taxes and what effect that will have on revenues.

A nation's priorities are determined by people and their leaders as to what role they want to play in the quest for human progress.  America has always looked upon itself, since very early in our history, as a leader in that quest.

Social Security: Critique by Heritage Foundation

Economics Without The B.S.**: Social Security: Critique by Heritage Foundation

[**  Double entendre intended.]

Social Security: Critique by Heritage Foundation

The Heritage Foundation cited a report which criticizes the actuaries at the Social Security Administration:  the link to their article,

http://dailysignal.com/2015/05/12/how-government-is-manipulating-data-to-make-social-security-look-more-secure-than-it-is/?utm_source=facebook&utm_medium=social&utm_campaign=thffacebook

My reply:

          Your report and analysis of the Social Security System is disguised as “Reform” but is just the usual misinformation of a system that has been functioning quite well in our democratic political process among both Republicans and Democrats (as well as independents and others) for over 70 years now – a system that has required only modest modifications over those decades to keep it on-going as it was initially designed under the New Deal of Franklin Delano Roosevelt.  And I might add, a system that does not contribute one penny to the National Debt and currently has a surplus account of almost $3 trillion,   (That is not a typo, TRILLION with a ‘T’.)

          Now you want to attack the actuaries of the Social Security System, government employees who are apolitical and serve Democrat and Republican administrations as well as all congressional representatives of the House and Senate, who are responsible for providing guidance for the sound management of the Program.  You cite academic research from Kashin, King, and Soneji with back-fitted data and analysis to contradict and discredit the work done by the actuaries of the Social Security System who were projecting information for the future solvency of the program.  You have a one-time academic citation while the actuaries of the Social Security System have given Congressional testimony each year over the many, many decades of the existence of the program.  Over these decades, Mr. Stephen Goss, the Chief Actuary at the Social Security Administration for over twenty-five years, and other actuaries have given public presentations and have written papers explaining the Social Security System, have held themselves up for the scrutiny of the many professional actuarial organizations that are out there, and have responded to critics – being so effective that once during Bush’s second term when he attempted to “privatize” Social Security some Congressional Republicans wanted to prevent Goss from speaking in public because he was so effective a speaker and was opposed to privatization.

          The academic research you cite from Kashin, King, and Soneji that criticizes the work of the Social Security Administration’s actuaries slings one canard after another.  Their assertions of the Social Security Administration’s actuaries are just plain false – (1)  that the Actuary Reports do not publish systematic and comprehensive forecasts; (2)  that the actuaries withhold data; (3) questioning the academic standards of the actuaries; and, (4) their assertions of the Social-Psychological pressures along with the Internal and External pressures is pure bunk and psycho babble .  First, the actuaries report to the public and to Congress where it has been subject to public scrutiny over many, many decades.  Their models are stochastic models along with sensitivity analysis of the assumptions that they have made.  Other professional and academic organizations have compared these models to their own.  Second, there are downloadable data sets right on the web site of the Actuary Section of the Social Security Administration as well as citations of the data in their many, many reports.  And third, you question the academic standards of the actuaries, but their work has met the professional standards required of actuaries and has withheld the scrutiny of the many professional actuarial organizations that have reviewed their work plus the scrutiny and review and critique of other academic institutions, just to name Yale and Northwestern as two examples that immediately come to mind.  And, Stephen Goss and his actuaries have stood up to Congressional reviews time and time again.  When the next Congressional review takes place, let Kashin, King, and Soneji testify.  It is their bona fides of being apolitical that will be questioned with the likely outcome that they will discredit themselves under cross-questioning and where the views of others and the Social Security actuaries can respond.

          Over the decades, the opponents to Social Security have lobbed one canard after another on the soundness of the Social Security System:

          (1)  The Social Security Program has been called “Socialism” even though the concept of social insurance was initiated by the bulwark of German conservatism, Otto von Bismarck, way back in the 19^th Century.

          (2)  You use “unfunded liability” and “pay-as-you-go” as pejoratives.  You fail to mention (or enlighten your readers) that this $13.4 trillion unfunded liability is the present value of a 75 year sum, a cash flow that will take place over 75 years.  Yes, it is huge, but it is manageable.  The key to managing it is how well the economy does over that period.  If we could get back to an economy like we had in the ‘60s – near full-employment, a better educated work force, and pay (not subsidized incomes) for all workers who contribute to the economic growth having some share of that growth – then we should see healthy receipts in Social Security.  “Unfunded liabilities” is how most folks live, especially when their children are born.  After all, who has all the money needed to raise children at the time you first give birth to them?

                   (a)  Your mention of an additional $400 billion to that $13.4 trillion is hardly “massive” – an increase of less than 3% for that debt incurred over that 75 years of cash flow.

          (3)  And the red herring that Social Security is redistribution – another pejorative?  Yea!  You bet it is.  Just as intended back in the New Deal – upper income folks who depend less on Social Security for retirement income get less of a return on their Social Security contributions than lower income folks who usually rely more almost exclusively on Social Security for their retirement income.  Redistribution – that’s how the westward expansion of the U.S. got financed.  Name any major society in the history of humankind that has not had redistribution?

          (4)  And the canard that Social Security discourages work???  That has more to do with the present state of our economy, which has just been fumbling along at about an annual growth rate of 2% far below what we had in the ‘60s.  Place the blame where it belongs, not on Social Security.  Social Security did not discourage work in the 1960s, our most productive decade (by GDP) since WWII, or during the 1990s when we eventually got near to full employment.

          (5)  The red herring that Social Security adds to the National Debt.  The Social Security Trust Fund cannot use debt unless they get a special authorization from Congress – which they have not had to do since their last crisis in the early ‘80s.  And that debt was paid off in a few quick years.

          (6)  The red herring that the IOUs in the Social Security Trust Fund are worthless.  The IOUs are better than bonds or cash.  Whereas bonds can go up or down in value over time, the IOUs in the Trust Fund are redeemed at face value – they cannot lose value.  And where cash earns little interest on deposit, the IOUs earn a dividend (or coupon payment) like bonds, currently paying around 3% annually.  Trying earning that on a guaranteed bond in today’s market.

          (7)  And finally the canard that the “full faith and credit of the United States of America” doesn’t stand for something and that is why the IOUs are worthless.  I mean, REALLY???  The U.S.A. has never, NEVER, defaulted on its debts.  The “technical defaults” that you conservatives/libertarians come up with have been handled by a variety of measures that have always, ALWAYS, resulted in creditors to the U.S.A. of being paid one way or the other with a recognized legal tender.  A legal tender that has been acceptable to the great majority of U.S. citizens (if not those who question the legitimacy of the currency) and a legal tender that was held by foreign countries who buy U.S. debt and hold that debt in U.S. currency and not gold or some other currency.  Take a graduate level finance course and you will find out what the “full faith and credit of the United States of America” means.  For a risk-free rate students use U.S. treasuries because foreigners as well as Americans know the U.S. A. has never defaulted on its debt.

Mr. Stephen Goss, the Chief Actuary of the Program, actuaries who are responsible for providing guidance for the sound management of the Program, has plenty of statistical studies to show that the type of modifications that were made in the past – raising the income cap, raising the payroll tax, adjusting the retirement age, re-computing the benefit formula, etc. – and were gradually phase in so as not to shock people can restore the system as is to long-term sustainability.  The biggest obstacle to this has been political inaction because politicians would be labeled as tax increasers. 

          Here is a C-SPAN link of Congressional hearings held in 1989 on those very issues with all views present from liberal, conservative, and libertarian viewpoints:

http://www.c-span.org/video/?10978-1/social-security-solvency-protection-part-2

In this 1989 piece they talk about what the Program will look like in 2000, 2010, and the rest of the 21^st Century with and without modifications if nothing is done, using estimates from the Social Security actuaries, and they are right on target for where we are today.  They discussed how gradual changes over twenty years would bring the Trust Fund into sound financial standing.  They discussed it in the late 1980s, the 1990s, the ‘00s, and since.  They discuss; but, they did nothing – in the 1990s, the ‘00s, and since.  Clinton talked about it (even in a State of the Union address) but did nothing.  Bush wanted to privatize Social Security in his second term.  Right after his re-election and at the start of his second term in January of 2005 he made it his number one priority and had over half the American people believing that Social Security needed to be “saved”.  He followed this by going on the road to sell his program of private accounts in Social Security as part of the Ownership Society.  The more he talked about it as he went around the country, the more support he lost; so, that by mid-April of 2005 the Gallup Poll (hardly a liberal organization) showed 2-to-1 disapproval of his recommendations and all efforts to change or modify Social Security were dropped like a dead weight and the political agenda moved to other topics.  Obama has talked only a little bit about the Program and has done nothing, even mentioning that it will be done some time by a future administration.

          This critique and analysis by the Heritage Foundation only shows you to be the political hack organization you have become in recent years disguising yourselves in the respectable previous prestige you enjoyed as an alternative political research organization and now using this disguise to impute the integrity of apolitical professionals who work in the Federal Government and serve the public interest.  What is troubling is not as you state the actuarial assumptions by the Social Security Administration but your use of academic research to undermine the soundness of the Social Security system.  Although the Social Security system needs modifications once again – the last time being with the Greenspan Commission in the mid-1980s – to keep it sustainable, economically and financially sound, and socially responsible, it is not financial problems but rather a politically driven agenda by long-time opponents of the Social Security program that are the problem.

          What is it about modern-day Republicans – not Ike, not Nixon, not even Reagan (who initiated a bi-partisan effort to modify Social Security) – what is it about modern-day Republicans and Right-Wingers that they can’t put their arms around and embrace the Social Security System (with almost $3 Trillion in surplus) that has been functioning for over 70 years as it was originally designed during the New Deal?

          Social Security does not exist in some abstract world of academia.  It exists in a society with a political realm and your views about a democratic representative government are out of favor.  Leadership is needed, similar to that displayed by President Reagan, to forge a bi-partisan consensus to make the modifications that are necessary to sustain the program.  Even if no changes were made to Social Security it would still have enough money to pay $.75 for each dollar of benefits by sometime in the 2030s when you critics claim it will be broke.  But is there some politician who thinks they can get re-elected after they tell Granny that she is only going to get $.75 for each dollar of benefits?

          Since the inception of the Social Security Program over 70 years ago critics have used hyperbolic language to describe any problem that came up along the way and predicted calamitous events for the outcome.  The critics have used the democratic process to undermine a well-functioning program and prevent the necessary modifications from being made and their political opposites (who say they champion the Social Security Program) have used this tactic to their political advantage.  The longer the Social Security Program goes without the needed modifications the more likely any future shortfalls will be bailed out by dipping into the General Fund (just like what has happened to the Highway Trust Fund); and, that will be regrettable.  The present system can be fixed with the modifications; and, that will keep the program sustainable, economically sound, and socially responsible.

We live in a democratic system.  It is up to each generation that participates in the Social Security System to either renew that support or find a different approach.  Political will is not just a test for politicians, but also a test for the people they serve.

Social Security: A Financial Problem or a Political Problem?

Economics Without The B.S.**:  Social Security:  A Financial Problem or a Political Problem?

[**  Double entendre intended.]

Social Security:  A Financial Problem or a Political Problem?

Another annual report on the financial condition of the Social Security Trust Fund has just been released by the Trustees and critics of Social Security would have you believe there is a financial problem.

The political leadership needed to manage the long-term sustainability of the Social Security Program has been lacking since the Reagan Administration last faced a similar crisis and made the necessary modifications after forging bi-partisan support.

Since the inception of Social Security from the New Deal of the 1930s, there have been critics of the program, mainly Republicans, calling it ‘Socialism’ even though the concept of social insurance was initiated by the bulwark of German conservatism, Otto von Bismarck, in the 19^th Century.  However, regardless of who was president or in control of Congress, no one has been able to undo the Social Security Program as it was initially designed as the American version of a social insurance program.  Among the ‘Greatest Generation’ that was alive when Social Security was instituted, this program was considered the third rail for politicians who would not support the program – if you criticized the program, you got burned at the next election.  But as this generation passes and younger generations inherit the program, the aspect of it being a third rail has diminished.  But the administration of the program remains in the political realm.

As social insurance policy, and not just a retirement program, the Social Security Program was designed to have all Americans participate in the Program but would primarily benefit low-to-middle-income Americans who are often in a negative net-worth status or have difficulty putting enough savings aside for life’s contingencies.  Social Security addresses this by being a forced savings program, not voluntary; and, by being a guaranteed benefit, not one that is subject to the risks of the marketplace borne by the individual participant.  By having all persons participate, but by being more generous to low and low-middle-class beneficiaries, Social Security has always been re-distributive in nature and progressive in allotting benefits, the sine qua non of social insurance.

The data that has been collected by the Social Security Administration, and other organizations like the Pew Research Center, have shown, over the years, that higher income households of seniors have a greater mix of assets and income sources and are less dependent on Social Security; and, as you go from higher income seniors to middle income and lower income senior households, the asset base becomes less to non-existent and the income streams become more dependent, almost totally dependent, on Social Security benefits.  While the three-legged stool of retirement planning has been used as an analogy – one leg (Social Security) as forced savings, guaranteed benefit; a second leg (company pensions in the form of Defined Contribution or Defined Benefit Plans) consisting of professional management; and, a third leg of personal savings and investments (e.g., an IRA, a second home, etc.) – higher income senior households have all three legs, middle income senior households tend to have two legs (although the adequacy of their company pensions have been questioned), and  low income senior households tend to rely almost exclusively on Social Security.

With this data at hand and the lessons of the third rail of politics, we now have old time critics disguising themselves as the modern day “Reformers” bringing to our attention one inadequacy after another concerning the viability of Social Security and how to rescue the Program before the Great Collapse.  The vicissitudes of their reforms are reminiscent of the bumps and grinds of a tease joint obliquely situated in a side alley from the main thoroughfare.  The actuaries of the Social Security Administration, who are responsible for providing guidance for the sound management of the Program, have often stated, through the decades, that the Program with modifications that have been historically made – raising the income cap, raising the payroll tax, adjusting the retirement age, recomputing the benefit formula, etc. – and, gradually phasing these in to avoid shocks to the people affected – can restore the system to long-term sustainability, make it economically and financially sound, and keep it socially responsible.

If actuaries can make that statement then why the constant outbursts from the “Reformers” and the “Progressives”?  Could it be because the administration of the Social Security Program is entwined in the political process?  And it is the bedrock of the progressive agenda instituted during the New Deal of the 1930s and still ever present today?  And because it is identified with the progressive era of the New Deal, in other words Democrats and a Liberal agenda, it gets stuck in the craw of political opponents to this agenda and its programs?  Stephen Goss, the Chief Actuary, has said repeatedly over the decades that it is the political inaction in making the necessary modifications that has been the main obstacle and primary reason for the present state of affairs regarding the outlook for Social Security.  You can go to the C-SPAN web site and search on congressional discussions on the modifications recommended for Social Security since the late 1980s when they know (and they actually mention it) what the Program would look like in the year 2000, 2010, 2020, etc.  They discussed how gradual changes over twenty years would bring the Trust Fund into sound financial standing.  They discussed it in the late 1980s, the 1990s, the ‘00s, and since.  They discuss; but, they did nothing – in the 1990s, the ‘00s, and since.

The Social Security Program is one of the few federal programs that has always had broad support among the people who label themselves as Democrats, Independents, and even Republicans.  Even among the different generations it receives broad support – even the young generations even though they don’t think Social Security will be around when they reach their retirement age.  This was true in the past during the 1980s.  Well now for those youngsters from the 1980s it is thirty years later and as they approach eligibility for Social Security retirement, surprise/surprise, they are among the biggest advocates for keeping the Program as it was intended.

If there are no changes to Social Security it will only have enough money to pay $.75 for each dollar of benefits by sometime in the 2030s.  Is there some politician who thinks they can get re-elected after they tell Granny that she is only going to get $.75 for each dollar of benefits?

We live in a society governed by a democratic process.  Social Security is a part of that democratic process.  It is up to each generation that participates in the Social Security System to either renew that support or find a different approach.  Political will is not just a test for politicians, but also a test for the people they serve.  Lead, and they will follow.

Fixing Social Security

Economics Without The B.S.**: Fixing Social Security

 [**  Double entendre intended.]

Fixing Social Security

In response to Star Parker's recent column on fixing Social Security:

http://townhall.com/columnists/starparker/2014/07/28/give-low-income-americans-exit-option-from-social-security-n1865841/page/full

The present Social Security Program, if fixed with the modifications that have been historically made, is sustainable over the long-term, economically sound, and socially responsible – so say the actuaries (namely Stephen Goss) who work on the program and are responsible for providing guidance for the sound upkeep of the program.

  

Star Parker’s recommendation to fix Social Security was to turn it into a retirement savings program; but, Social Security was designed from its start over seventy years ago as a social insurance program to primarily benefit low-to-middle-income Americans.  Her 30/30 Plan is inadequate to address the realities of someone who earns $30,000 or less.  To talk about savings at this income level is a non sequitur, often they are in a negative net worth status and so they are unable to build any kind of real savings.  Social Security addresses this by being a forced savings program, not voluntary; and, by being a guaranteed benefit, not one that is subject to the risks of the marketplace borne by the individual participant.

She talks about building on the first principles of our free society but ignores one of the basic ones, promoting the general welfare, which Social Security does by being redistributive in nature and progressive in dispensing benefits to the lower incomes in our society – the sine qua non of social insurance.

She talks about an ownership society and implies that Social Security is part of our welfare state, not recognizing that we all pay into Social Security and that it is not financed by tax payer dollars from the General Fund but from the Social Security Trust Fund, currently with a $2.7 trillion surplus, that we (and our employers on our behalf) paid into.  We earned it; and, that is why it is an entitlement program – not welfare.

The Social Security Program is not hopelessly broken.  Mr. Goss, the Chief Actuary, has plenty of statistical studies to show that the type of modifications that were made in the past – raising the income cap, raising the payroll tax, adjusting the retirement age, re-computing the benefit formula, etc. – and were gradually phased in so as not to shock people can restore the system as is to long-term sustainability.  The biggest obstacle to this has been political inaction because politicians would be labeled as tax increasers.  But President Reagan was able to gather a bi-partisan group to fix Social Security the last time it faced a similar crisis in 1983.  Is there any politician who expects to get re-elected after telling Granny that she is only going to get 75 cents on the dollar for benefits?

We live in a democratic system.  It is up to each generation that participates in the Social Security System to either renew that support or find a different approach.  Political will is not just a test for politicians, but also a test for the people they serve.

Killing Social Security

Economics Without The B.S.**: Killing Social Security

[**  Double entendre intended.]

Will Right Wing Tactics Kill Social Security?

            Social Security, the safety net for seniors established during the New Deal, is in a vulnerable position right now.  It has been under-funded since the 1990’s.  While there has been plenty of money in the Social Security Account to pay for present obligations – right now a surplus of approximately $2.7 Trillion – this surplus needs to grow a lot more to meet the needs of the generation of Baby Boomers that are starting to retire now with even more retiring in the next decades.

            President Clinton established a commission to study the funding that was needed.  The Commission made recommendations.  Nothing was done.  President Bush (W) established a commission to study the problem.  The recommendation was to privatize Social Security.  Right after the start of Bush’s second term (January 2005), President Bush went on a campaign visiting several states to sell his idea of privatizing Social Security.  His effort was so unsuccessful that by April he gave up.  And once again, nothing was done to fund Social Security.  President Obama has done nothing to shore up funding Social Security for future obligations; and, worst yet, barely brings the subject up.

            Social Security makes an interesting political football for both political parties.  Republicans have criticized Social Security right from its start in the 1930’s.  Their tactics have been to scare people that Social Security will not be there when they retire.  They have been doing this for decades.  They usually talk about an “unfunded liability” – the figure varies today, $126 Trillion if you lump Social Security with MediCare and every other government program, or $23 Trillion for just Social Security alone if you run the program out forever, or $10 Trillion if you run it out over the next 75 years.  What is an “unfunded liability”?  Well, when you had your kids you probably took on an unfunded liability – to pay for their future medical costs, clothing (for girls), food (for boys), education, etc., etc.  But you paid for these things.  You paid as you go.  Social Security is paid the same way – a pay-as-you-go system.  To meet the unfunded liability of Social Security will require only a couple of percentage points of future payrolls – the future payrolls will grow with a growing economy and growing wages in that economy.  Now Democrats play the scare game as well as the Republicans.  They like to use the Republicans as whipping boys to hold up against working folks when the funding of Social Security is shown in a shortfall.

            Right now there is political gridlock in Washington.  Nothing is getting done.  We had a Great Recession in 2008-2009.  Monetary action by Ben Bernanke’s Fed was the primary fix while the fiscal action from the President and Congress was inadequate and hampered because of the gridlock.  Could this gridlock be by design for those Libertarians and Right Wing adherents who want to downsize the Federal Government?  They have been echoing this posture for many decades but have never won enough elections to have control of Congress and the Presidency.  But there are enough of them in Congress to prevent Government action at the Federal level.  So, is this inaction at the Federal level just a consequence of the split between Red States and Blue States; or, is it by design, a strategy?

            This past weekend Nicholas Confessore had an article in the January 11, 2014 New York Times which addresses this strategy from a different perspective at the state and local level.

http://www.nytimes.com/2014/01/12/us/politics/a-national-strategy-funds-state-political-monopolies.html?_r=0

Although it is a different perspective the results can feed into the aims of the Right Wing and Libertarians like the Koch Brothers (David and Charles): make the Federal Government ineffective and get your programs through at the state and local level.

So, what is the future for Social Security if gridlock and inaction at the Federal level are the rule for the day?

The Bush Tax Cuts

Economics Without The B.S.**:

[**  Double entendre intended.]

How soon we forget.  Where did the Bush tax cuts come from and who did they go to?

Do you remember the tax give-aways in 2001 by the Bush Administration?  They were being handed out from our supposed budget surplus.  In the year 2001 the tax reductions totaled over $1 trillion (over an eleven year period from 2001 to 2011)and came not from a surplus in the operational budget (which was in deficit) but from the surpluses in the Social Security contributions.  And who got most of that tax give-away from the Social Security contributions?  People with incomes over $100,000 – incomes over $90,000 are not subject to the Social Security Withholding Tax.  And if you can excuse my impertinence I might remind you that the younger generation, with professtations for an Ownership Society, was in that same line with the elders, awaiting their share of the entitlement handouts.

My! My! And now we want to balance the budget by cutting Social Security?

Sources of information:

1.The actual figure cited is $1.35 trillion.  Transcript of news release from PBS News Hour, ‘President Bush Signs Tax Cut’, June 7, 2001.  www.pbs.org/newshour/updates/june01/tax_6-7.html.

2.  I have only cited a couple of sources here; but, at the time this was widely mentioned in the print press and radio and television broadcasts.  You should note in reading (or listening) to the Bush Administration advocates spinning the positives of the tax cut that these conversations took place just before the tragic events of 9-11, where upon followed a modest recession that decreased government revenues and a military build-up which increased government spending resulting in operational budget deficits which we have not seen the end of yet.

a.  Transcript from PBS News Hour, ‘Shrinking Surplus’, August 21, 2001.  www.pbs.org/newshour/bb/economy/july-dec01/surplus_8-21.html.  In this conversation Rep. John Spratt, the senior Democrat on the House Budget Committee, mentions the operational budget surpluses/deficits and the effect of Social Security surpluses in the trust fund.

b.  Transcript from PBS News Hour, ‘Dwindling Dollars’, August 28, 2001.  www.pbs.org/newshour/bb/budget/july-dec01/dollars_8-28.html.  In this conversation Alice Rivlin, former Director of the Congressional Budget Office and former member of the Federal Reserve Board, also mentions the surpluses in the Social Security trust fund.

3.  I have cited several sources here because this point gets obfuscated in the discussion between Bush Administration advocates of the tax cut and critics of the tax cut.  The advocates will discuss the tax rebates handed out during 2001 as being distributed primarily to lower income people while the critics will point to this amount being only a small portion of the $1.35 trillion to be distributed over the eleven year period as a result of tax bracket reductions and other tax reforms like the repeal of the inheritance tax and corporate tax breaks distributed to individuals (e.g., dividends, etc.), and other items.  A good look at the sources will reveal that incomes over $147,000 (the top five percent of income groups) will get over 47 percent of the $1.35 trillion.  During the first Gore-Bush Debate in 2000, then candidate Bush wanted to pass the surplus in the budget back to the people saying, “…why don’t we pass $1.3 trillion of that back to the people who pay the bills? …I think it’s the hard-working people of America’s money…”  By the year 2000 (under President Clinton) we were just starting to slip into an economic slow-down and revenues were falling off to put the operational federal budget in deficit, but the Social Security surpluses in the trust fund made the unified budget look like a surplus.

a.  Refer to:  Transcript from PBS News Hour, ‘Booster Shot?’, July 27, 2001.  www.pbs.org/newshour/bb/economy/july-dec01/booster_7-27.html.  See comments by Eileen Appelbaum, research director of the Economic Policy Institute.

b.  Transcript from PBS News Hour, ‘Feeling The Tax Cut’, May 28, 2001.  www.pbs.org/newshour/bb/economy/jan-june01/taxcutfx_05-28.html.  See comments by Senator Kent Conrad, “The top 20% get 71% of the benefits.” 

c.Policy Brief # 101-2002, ‘The Bush Tax Cut: One Year Later’, by William G. Gale and Samara R. Potter, The Brookings Institution, 2002. [see chart page 2] 

d.  Debate Transcript ‘The First Gore-Bush Presidential Debate’, Commission On Presidential Debates, October 3, 2000. 

Satire: They're back: Saving Social Security?

It's that time again when the folks who always wanted to do away with Social Security are at it again to "save it" or "fix it".  A little satire from 2005 when they last were going to save it.

IT’S TIME FOR ANOTHER SWIFT MODEST PROPOSAL

A modest digestion for solving the “urgent” Social Security Problem and curing other enigmas that ail our Greater Society; thereby relieving grandparents the burden they place upon their progeny and thus transforming them from being a liability to their Society to one of benefit for the Public Good

by

Victor Volpe

After sixty-five years¹ of beneficial existence under a self-funded social welfare retirement insurance system for our elderly in the most prosperous society ever in history, we are now being told that we have a Social Security Problem.   It seems that the money is finally running out of the system and that we will be flat broke in several more decades and that we need to fix this critical problem now.  Presently there is much discussion and debate over how to solve this problem.  Even Republicans, Conservative Republicans at that, profess a newly found eagerness to save the Social Security System after decades of trying to undo it.  The Administration’s statements addressing this situation as a “crisis” or “problem” are as vaporous as the Administration’s reasons for going to war in Iraq; and, talking points on the issue are adjusted with the rapidity of the ever changing polling numbers reverberating in the hallowed halls of representative governance.  The circuitous nature of this modern day call-and-response makes it difficult to determine just who is leading whom.  As one whom has a personal ownership stake in this debate and its outcome let me do my part by taking personal responsibility and offer the following humble proposal.

            Approximately three hundred years ago Mr. Jonathan Swift, when faced with a similar crisis in his own British Society, this one dealing with a famine in Ireland while in the midst of overpopulation and the existence of many underprivileged out and about in public view, offered a modest proposal for the benefit of the Greater Good.  In that spirit I also am so inspired and have the following argument to present for your consideration.  My intention shall not solely be addressed to remedy the pressing and immediate problem at hand but also to administering to the general good of our Society and the Republic.  As to my own part, having turned my thoughts to this very important subject as my years have advanced and my maturity having blessed me with the objective wisdom of the illuminati, I make this humble proposal for the public consumption which should obviate any need for even the slightest objection.

            First, how did we get into this problem?  We are told by our leaders that this is a problem for the younger generation – that they will not be able to collect on the savings that they have and will be contributing to over many decades to come.  Personally I am perplexed as to how it is that if someone has 12.4 percent taken out of their pay (half by them and half by their employer or the whole 12.4 percent if self-employed) and that this amount if surplus in the retirement account is to offset the Federal deficit so that the Federal Government does not have to go out in the financial markets and sell treasury bond obligations (currently at over a 4-½ percent interest rate) and that this goes on during the working life of someone which may be for as long as forty years or more and then when it comes time to collect and the payout is restricted to a monthly sum that yields only an annual return of less than two percent² for most workers, that this arrangement with the public trust is going broke.  How do we figure this?

            Perhaps it is the chicanery of our elected representatives in the slight-of-hand shell game of managing the public trust by borrowing from one account to spend in another and forgetting to pay the first account when several decades go by.  Or is it our collective inability to grasp mathematical concepts (mathematical concepts like present value, future value, and rates of return), a failure that has been rooted in our educational development since adolescence.  Could that possibly account for  the  duplicitous relationship between us, the governed, who require our insatiable appetites for consumption over thrift to be satisfied, and our elected representatives who are forever ingratiating our conspicuous desires for their own longevity in public service?  A very comforting, if not incestuous, relationship to say the least.

            This is all to say that if there ever was a surplus in the retirement account it has long since been spent and in all likelihood the IOUs (i.e., non-negotiable treasury certificates) have long since been forgotten or critics of the system would like us to think of them as “worthless”.  Was not our deposits into the Social Security Fund supposed to be in a lock box?  Apparently someone has picked the lock.  Quite a comment to make for a generation seeking security in the twilight of life while a younger generation is preaching personal responsibility by way of the Ownership Society.  And what do our elders have to say about this?  Were they not the ones who when younger said, “Don’t trust anyone over thirty.”?  Well now it is forty years later.

            So the question becomes what shall we do with this elderly generation which has placed a burden upon our Great Society by all accounts from their own poor foresight?  I drew upon my reverence for historical texts and wisdom to inquire about the plight of our elders and the great strain that is placed upon our nation’s resources which may be better utilized for future growth, that I found solace in Mr. Swift’s article some three hundred years ago.  As Mr. Swift found himself in a society blind to the less fortunate in his times, we find ourselves in a society with a voracious appetite for capacious consumption that has no bounds and knows no end in a global economy of so-called limited resources.  It is with great reluctance that I would attempt to implement Mr. Swift’s plan of attack here; but, it is with the anticipated enlightenment of the consequences that I make the following case.

            What do the elderly do?  They populate the crowded golf courses and fishing holes and shopping centers and cause congestion in waiting lines while everyone else is in a rush contributing to the productive wealth of our Great Society.  The elderly being primarily consumers, not producers, of our Society’s resources provide little or no benefit to our Society.

Now I live in the Southern California area and I can tell you that when this elder generation was younger they dismantled one of the best urban mass transit systems in the nation when they undid the trolley/train system in the LA metro area – a system even greater than that found in New York City – so that we could be blessed with a car culture.  And now these same elders are screaming at the younger generation who want the elders to take another driver’s test in old age as a requirement for renewal of a driver’s license after a few of these elders have plowed into innocent people in clear driving situations.  The elders have retorted that if they fail their driver’s exam there is no other transportation available to them.  Hmmm!

            And were not the elders one of the first in line when tax give-aways were being handed out from our supposed budget surplus.  In the year 2001 the tax reductions totaled over $1 trillion (over an eleven year period from 2001 to 2011) ³ and came not from a surplus in the operational budget (which was in deficit) but from the surpluses in the Social Security contributions⁴.  And who got most of that tax give-away from the Social Security contributions?  People with incomes over $100,000⁵ – incomes over $90,000 are not subject to the Social Security Withholding Tax.  And if you can excuse my impertinence I might remind you that the younger generation was in that same line with the elders.

With professtations for an Ownership Society the younger generation may declare an act of forbearance over their elders; thus, freeing themselves of the burden of others.  This would also ease the Medi-Care burden, which I am told is even greater than that of Social Security.  The Medi-Care burden has twice the indebtedness of Social Security, an unfunded liability of almost $28 trillion versus $11.5 trillion which is due next decade whereas Social Security is several decades away due in 2042⁶, a circumstance that hardly gets a mention.

Now whereas the British Mr. Swift, after being assured by a knowledgeable American, that a young healthy child made a delicate treat whether “stewed, roasted, or boiled…served in a fricassee or ragout,” I wonder if we could not do something more or  less the same with our elders.  I would not be so crass as to offer them up for human consumption as I am well informed by the conosciuti that an old person would not be as delectable as a young child and in all likelihood would be unpalatable for the digestion like aged beef or week old fish.  However, I think we can whet the appetite so to speak if we might consider what some might think is a dystopian plan for feeding our livestock, an issue which is gaining attention in another crisis mode by some in our society.

With the safety of our food supply coming into question with the outbreak and spread of bovine spongiform encephalopathy (BSE aka mad cow disease) due to the vicious cycle of same animal parts being fed back to similar animals, adding the elderly to the food chain of livestock would increase the diversification of the protein supply.  [We are prohibited from feeding cattle to cattle, but can feed cattle parts to pigs, chicken, and fish.  We cannot feed pigs to pigs or chickens to chickens, but can feed them to another species – pigs to chickens or cattle, or chickens to pigs or cattle.  But eventually, one animal could get fed back to a similar species; and, thus the danger of BSE.]  I propose we continue this cycle of madness by including our elderly in this food chain for further diversification.  Why we may even be able to procure a good price for the carcass that an elder may fetch.  This may be regarded as hardly a sacrifice but rather an emolumentary exercise and is much preferable to Mr. Swift’s solution of devouring our progeny for a prosperous future.  While the present generation ingratiates itself with abundance by living in debt and passing that burden to future generations, metaphorically speaking by feeding off its young, I suppose that future generations may be righteously inclined to relieve that burden of its forebearers.

Getting rid of our elderly would help ease our Medi-Care burden.  It would cut down the drug industry which has been overcharging anyway.  We wouldn’t have to take bus trips to Canada which waste precious fuel and would also stop funding the Canadians which would ease our balance of payments which, need I remind you, is also in deficit.  I don’t have the time or space to go off on the Canadians.  Since they are only our neighbor, not citizens, commiserating for their regard is not of the immediate concern.  Whereas this savings in societal costs for medical care for our elders may be passed on to those younger who are truly in need due to infirmities and disease or perhaps we may include them also in the food chain for livestock for even a greater savings to our great Commonwealth.

            Other benefits would accrue.  This would ease areas of our country that are over-populated with a higher concentration of retirees, usually looking for bargains from states and municipalities that ease the tax burden on such.  Whereas the depopulation of the elderly will make more room for newly arriving immigrants who may have bypassed appropriate measures for registration but are usually younger and thus producers and tax payers in our country thus relieving this burden somewhat.  And because they are of an illegal status but pay into Social Security with phony Social Security cards, Social Security taxes that they never collect on, we have a further benefit to our problem.  The Social Security Administration usually adjusts/reduces the Social Security accounts that have benefited from these illegal contributions.  I suppose this means we have another source of excess contributions to the Social Security System.

            Of course we could remedy this Social Security Problem by changing it from a pay-as-you-go to a pay-for-your-own system and making participation in the system directly tied to future improvement in our economic enterprise by way of capital investment and improvement of our citizenry responsibilities by way of educational development.  Your contributions to your Social Security account would be handled by a commission similar to the federal employees Thrift Savings Plan whereby contributions would be invested in something like a fund of 60 percent stocks and 40 percent bonds, which have typically yielded eight percent per annum.  Your payback on retirement could be an annual yield of approximately seven percent (nominal rate, i.e. allowing for inflation, so the real rate (not including inflation) would be approximately four percent) and so the Federal Government would still have a profit on the spread to continue financing its own operations as it does today.  If you continued the current 12.4 percent contribution tax rate, the maximum monthly payment might be something like $3,000 per month for the average worker instead of the less than $2,000 per month they currently max out on.  But since the 12.4 percent tax is considered by some as an onerous payroll tax and gets a lot of complaints from employees looking at their pay stubs and noticing that the Social Security withholding tax is usually the highest item for deductions, and also employers who are paying half of that 12.4 percent; maybe we could cut the withholding tax in half and keep the seven percent return but just reduce the maximum monthly payments to around the $2,000 per month figure.  Either way the monthly sum could be paid with cost-of-living increases each year in perpetuity.  And I don’t want to even bother to go into the subject of what happened to all of the money which was paid into the Social Security account over all these decades and the people who may have passed on to a better place before they could collect in the here and now or for the people who finally died and their money remained in the account rather than being passed to their heirs.  Is that too much math for one bite?

            And to keep the Ownership Society going strong, why don’t we do more to encourage contributions to IRAs (Individual Retirement Accounts) and 401ks instead of trying to encourage private (or personal) accounts in Social Security?  We may think that it is our God given right to be rich and so dump it in the stock market for thirty years and see what you get; but, the market goes up and the market goes down.  We are all financial wizards when the market is going up; but, when the market takes a tumble we are all looking for someone to hang.  And how many among us has the financial acumen to be appointed to the board of directors of a failing oil company – right after our own company failed and never made a profit – and be given company stock and secure personal loans and know to sell out at a high price (obtaining over $1 million) just before the company goes under?

            There are those who would fix the Social Security Problem by taxing the wealthy and then means testing them before paying them in retirement; but, they paid their own money into it just like the working class folks.  It’s their money, not the taxpayers.  Just like it is your money that sits in your account and not the taxpayers.  Just because the Federal Government sits as a custodian on the money for decades and uses it to offset the operational budget deficit, does not mean when you finally get paid in retirement that it came from taxpayers.

This modest proposal is humbly submitted for consideration with the hope that if found acceptable execution of that herewithin will take place with the mercy of our youngers and hopefully with the exclusion of present company for originality, if I may be the first to petition as such.  I suppose, perhaps, that we could keep a few of the old folks on-board as a way of preserving continuity; maybe, by way of awarding the Blue Ribbon for life’s accomplishments.  It is only with the utmost of pleasure that I endeavor to preserve the well-being of the well-off and responsibly independent and thus continue the noble experiment in self governance and self improvement as an exemplary example for others in our Global Village.

Sarcasm aside, this is not a system that is going broke or in “crisis”.  It is only up against a demographic shift in the population and our own unwillingness to deal with the increases caused by our “entitlement syndrome” for both individuals and businesses and anyone else in the world who can find cause.  This demographic bubble will work its way through till the shift comes back into balance and ends up with another shift toward a younger generation.  And if you are in wonder if our society can support the bulge in the dependent baby boom generation when they retire?  Well their parents sure did in the 1950's and 1960's when the dependent baby boom generation was younger and not wage earners.   The question then would be will the government cut payroll taxes to meet the new trend?  The shortfall we have now can be made up by increasing taxes (raise the $90,000 limit to $120,000 or $150,000) or a variety of other measures even to include borrowing and adding to the national debt.  The Social Security contributions have generated trillions of dollars in surplus in the past, all spent to offset operational budget deficits or payoff the deficit in the few years when the unified budget was in surplus.  When we had Social Security deficits in the past they were all made up by increasing taxes and making other adjustments to the system.  The deficits were erased by cashing in the so-called "worthless" non-negotiable bond certificates.  Social Security is expected to generate at least $6.6 trillion in surpluses through the next decade when it is projected to go into deficit again⁷.  I find it interesting that so many in our society have the ability to project seventy-five years into the future with impeccable precision when we have so much difficulty dealing with the hear-and-now.  But perhaps it has always been easier and more convenient to deal with the future rather than face present day circumstances.

As elders we find ourselves smitten by a young generation that proclaim the virtues of thrift, frugality, and personal responsibility as if it were their manifest destiny to be financially independent.  Never mind that you were made to work and will probably work till you drop dead.  That’s why the Good Lord gave you two arms and two legs and a brain.  “Retirement”???...”Leisure”???...merely another concept devised by twentieth century marketers for whatever purpose.  The true test here is one in the noble experiment of self-governance and whether any of us has the capacity and willingness to engage the process.  Should we continue with a representative democracy and the duplicitous relationship between us, the governed, and our elected representatives; or, in the newly emerging information age, can we find the time to spare in our preoccupation with leisure and 24/7 work habits and spend more of it with direct participation in the process?  The test for any form of governance is the discipline required to keep one’s hands out of the communal pot of gold for personal gain, whether it be in the hallowed halls of government dispensing the public trust or in the gilded corporate suites providing for societal needs.  Human kind values and praises individuality, but out of necessity we find comfort (i.e., security) in associating with others.

©  Copyright/Victor Volpe/2005/All rights reserved.

SOURCES

1        I have cited sixty-five years (since 1940) of existence starting with the issuance of the first recurring monthly Social Security payment rather than the implementation of the program in 1935.  Miss Ida May Fuller of Vermont was the first to receive a monthly check, issued January 31, 1940 for $22.54 when she was sixty-five years of age and continued receiving checks until 1975 when she passed at the age of one-hundred while living with her niece, never having married and without any children for support.

Reference:  www.socialsecurity.gov/history/imf.html.

2        Federal Reserve Bank of San Francisco (FRBSF) Economic Letter 99-34, ‘Rates Of Return From Social Security’, November 12, 1999.  The article cites that only the bottom 20 percent of the income distribution can expect returns greater than two percent.  The remaining 80 percent of the distribution, composed of middle and upper income workers, can expect real rates of return below two percent and even below one percent for upper income workers.  [page 2]  www.frbsf.org/econrsrch/wklyltr/wklyltr99/el99-34.html.

3        The actual figure cited is $1.35 trillion.  Transcript of news release from PBS NewsHour, ‘President Bush Signs Tax Cut’, June 7, 2001.  www.pbs.org/newshour/updates/june01/tax_6-7.html.

4        I have only cited a couple of sources here; but, at the time this was widely mentioned in the print press and radio and television broadcasts.  You should note in reading (or listening) to the Bush Administration advocates spinning the positives of the tax cut that these conversations took place just before the tragic events of 9-11, where upon followed a modest recession that decreased government revenues and a military build-up which increased government spending resulting in operational budget deficits which we have not seen the end of yet.  Transcript from PBS NewsHour, ‘Shrinking Surplus’, August 21, 2001.  www.pbs.org/newshour/bb/economy/july-dec01/surplus_8-21.html.  In this conversation Rep. John Spratt, the senior Democrat on the House Budget Committee, mentions the operational budget surpluses/deficits and the effect of Social Security surpluses in the trust fund.  Transcript from PBS NewsHour, ‘Dwindling Dollars’, August 28, 2001.  www.pbs.org/newshour/bb/budget/july-dec01/dollars_8-28.html.  In this conversation Alice Rivlin, former Director of the Congressional Budget Office and former member of the Federal Reserve Board, also mentions the surpluses in the Social Security trust fund.

5        I have cited several sources here because this point gets obfuscated in the discussion between Bush Administration advocates of the tax cut and critics of the tax cut.  The advocates will discuss the tax rebates handed out during 2001 as being distributed primarily to lower income people while the critics will point to this amount being only a small portion of the $1.35 trillion to be distributed over the eleven year period as a result of tax bracket reductions and other tax reforms like the repeal of the inheritance tax and corporate tax breaks distributed to individuals (e.g., dividends, etc.), and other items.  A good look at the sources will reveal that incomes over $147,000 (the top five percent of income groups) will get over 47 percent of the $1.35 trillion.  During the first Gore-Bush Debate in 2000, then candidate Bush wanted to pass the surplus in the budget back to the people saying, “…why don’t we pass $1.3 trillion of that back to the people who pay the bills? …I think it’s the hard-working people of America’s money…”  By the year 2000 (under President Clinton) we were just starting to slip into an economic slow-down and revenues were falling off to put the operational federal budget in deficit, but the Social Security surpluses in the trust fund made the unified budget look like a surplus.  Refer to:  Transcript from PBS NewsHour, ‘Booster Shot?’, July 27, 2001.  www.pbs.org/newshour/bb/economy/july-dec01/booster_7-27.html.  See comments by Eileen Appelbaum, research director of the Economic Policy Institute.  Transcript from PBS NewsHour, ‘Feeling The Tax Cut’, May 28, 2001.  www.pbs.org/newshour/bb/economy/jan-june01/taxcutfx_05-28.html.  See comments by Senator Kent Conrad, “The top 20% get 71% of the benefits.”  Policy Brief # 101-2002, ‘The Bush Tax Cut: One Year Later’, by William G. Gale and Samara R. Potter, The Brookings Institution, 2002. www.brookings.edu/printme.wbs?page=/comm/policybriefs/pb101.htm. [see chart page 2]  Debate Transcript ‘The First Gore-Bush Presidential Debate’, Commission On Presidential Debates, October 3, 2000.  www.debates.org/pages/trans2000a_p.html.

6        Issue Brief No. 278, ‘Controlling Health Costs And Improving Health Care Quality For Retirees’, by Jim Jaffe and Paul Fronstin, Employee Benefit Research Institute (EBRI), February 2005.  www.ebri.org.  Policy Brief # 126, ‘Reforming Social Security: A Balanced Plan’, by Peter A. Diamond and Peter R. Orszag, The Brookings Institution, December 2003.  www.brookings.edu/comm/policybriefs/pb126.htm.   [page 3]  CRS Issue Brief for Congress, ‘Social Security Reform’, by Dawn Nuschler, Congressional Research Service (The Library of Congress), March 3, 2005.  [Summary paragraph and page 2]   www.ncseonline.org/nle/crsreports/economics/econ-100.cfm?&CFID=493675&CFTOKEN=65603432   [This is the basic report.  The March 3, 2005 update to the basic report was not on the web site at the time of this writing.]

7        CRS Issue Brief for Congress, ‘Social Security Reform’, by Dawn Nuschler, Congressional Research Service (The Library of Congress), March 3, 2005.   [page 2]   www.ncseonline.org/nle/crsreports/economics/econ-100.cfm?&CFID=493675&CFTOKEN=65603432   [This is the basic report.  The March 3, 2005 update to the basic report was not on the web site at the time of this writing.]