I was asked to contribute to the Daily Kos Social Security blogathon today to draw attention to the neoliberal attack on it. I hope you visit and like my contribution.
I have referenced this before, but there hasn't really been enough of a movement on the this issue, and it's an important one. It's specifically important right now when Washington DC is completely stuck on stupid in a self created crisis. This crisis started in 2010 when the debt ceiling was not secured in the Bush tax cut deal with Republicans by President Obama and Senate Majority Leader Harry Reid. Many of us predicted it would lead to the debt ceiling debacle in 2011 which in turn led to the fiscal cliff negotiations and the sequester that is now a reality.
However, it could end anytime with House Democratic Representative John Conyer's bill to just repeal the sequester; that is, if he got proper support. I think that needs to be a goal along with forever protecting Social Security from neoliberal economics and the politicians that support it. After all, this sequester was a conscious bipartisan decision on their part to put Social Security in danger now that a 130 billion net cut within the chained(superlative) CPI is now on the White House's website in its proposal to stand in place of the sequester.
What we are hearing to justify it are not only exaggerations and lies about Social Security being unsustainable, those lies are based on inaccurate accounting standards that have pervaded our entire government; the CBO, and yes, even the Social Security Trustees Board itself at times over the years. Let's face it; the Social Security Trustees Board has a broad history of being overly pessimistic.
That pessimism doesn't politically help the program or protect it from its bipartisan attackers regardless of the 3 alternative scenarios in their latest report; one assuming the worst which has the trust fund being wiped out in about 14 years or so which is the high cost scenario; one in the middle called the intermediate scenario where the trust fund lasts 20 more years which they favor; and the most optimistic low cost scenario that doesn't have the fund being wiped out at all in this 75 year projection. Even assuming the worst projection of the trust fund being exhausted thus leading to funding by current payroll taxes leading to only 75% of current benefits paid out, it's important to know that in real dollar terms (purchasing power) those benefits are likely to become equal to or greater than what is being paid out now, even in that unlikely scenario.
Though I am glad there are multiple scenarios, they shouldn't play favorites, and this is still a really pessimistic report. Even the low cost scenario is pessimistic and flawed. It doesn't make up for the many errors found in stochastic models over the years and the neoclassical economics in general which they are based on; this methodology has multiple flaws with regards to Social Security, Medicare, and deficit economics in general.
It doesn't take into account how our fiscal and monetary system really works. Intergenerational accounting is pretty much inaccurate by design. This was exposed in 2009 by economists James K. Galbraith, L. Randall Wray, and Warren Mosler in this paper now revised and updated with a preface from the President of The Levy Economics Institute of Bard College.
In recent years we have been subjected to a rising cacophony of nonsense about a looming financial crisis. No, we are not referring to the current, very real, meltdown of private financial markets. Rather, we are told, future unfunded entitlements will bankrupt our government as the baby boomers retire. Social Security and Medicare are the main source of what former Comptroller General David Walker has called the “super subprime crisis.”
Social Security and Medicare have always had enemies, closely allied to private insurance companies who would like the business, and to fund managers and others who would profit from privatization of the associated revenue streams. But recently, these enemies have been given a boost, and a claim to respectability, by the creation of “intergenerational accounting,” an economic method that purports to calculate the debt burden our generation will leave for future generations. This Policy Note assesses intergenerational accounting and related aspects of what we call “the accounting campaign against Social Security and Medicare.”
These enemies of Social Security now have more of a say than you or I now that their sequester is a reality. I have a bad feeling there will be more austerity to come, coming up in the latest episode of the continuing debt ceiling debacle continued from 2011. I and others here did predict it would happen, but not enough people listened to us. This is what happens when "New Democrats" accept memes on Social Security and Medicare from Peter Peterson as we see the President and many Democrats in Congress are doing.
This is true even with the caveat Democrats use stating, “Yeah, deficits are terrible, but don't cut them now!” Intergenerational accounting propaganda pervades not only most of academia as we know it among other myths like efficient market hypothesis seen in the documentary Inside Job, but intergenerational accounting propaganda has also, sadly, perverted accounting standards in general.
It’s important to understand that intergenerational accounting relies on budgetary myths and fables like any Democrat who uses it or refers to it as legitimate, well meaning or not. For them to reference it condescendingly while denying how we got into this political mess they created, is really a sad state of affairs. This is especially true when it comes to actual accounting reality and reality in general which real living standards rely on.
In intergenerational accounting, federal government revenue and expenditure streams are compared over very long periods—even over infinite time. “Deficit gaps” are then used to measure the financial burden of these commitments, and therefore the alleged solvency or insolvency of the government. Discounting the sum of the differences back to the present permits infinite sums to be translated into very large, but finite numbers. The results, amounting to tens of trillions of dollars, are headline-grabbing and scary-looking. Evidently this combination makes them irresistible. Even the Board of Trustees of the Social Security Administration began ago to dabble in such arithmetic several years ago.
Now the Federal Accounting Standards Board (FASAB)1is proposing to subject the entire federal budget to such accounting.
This paper outlines rather well what I’ve written about numerous times. It is all based on misunderstanding how Social Security and our economy works, which we are all learning more about this week, as in treating Social Security as something else besides the transfer program it is from the production of the young to the old through wages and work. These bipartisan deficit fear mongering economic myths are being spread by Democrats as well as Republicans; they are both putting Social Security in danger now more than ever.
It also puts Social Security in danger when we as Democrats make excuses for what they are doing, in my view. Even the well meaning, but misguided, calls to hurry up and raise the cap support the myth that Social Security needs to be financed by payroll revenue and is in financial trouble. The latest Trustees report warns in dire terms about this being the largest actuarial deficit reported since prior to the 1983 Social Security amendments, and the largest single-year deterioration in the actuarial deficit since the 1994 Trustees Report. However, productivity has been rising for 35 years even though it has been stolen from retirees by the Greenspan Commission deal in 1983 pushing full retirement to 67. What does that tell you?
It should tell all of us that we need to read the words, "We must raise wages!" more than just a few times and with the same urgency as the so called "tough decisions" we need to make stated in these reports. As a start, raising the minimum wage to $12 an hour as James K. Galbraith proposes($9 doesn't cut it and not even in line with inflation from 1968) would begin to eliminate the shortfalls in Social Security and provide an economic boon to all. Any price increases from such a move would likely be small and worth it, demand wise. That is the one size fits all solution worth pursuing, because the truth is that we need to do it anyway.
Workers are not getting their fair share for what they produce which would make the minimum wage close to $21.72 an hour if they did. Democratic Senator Elizabeth Warren recently stated as such when she asked where the production went over the years since it didn't go to the workers. That being said, the trust fund is not really relevant in the grand scheme of things when it comes to funding Social Security. It would be refreshing to read a Trustees report that says as much.
The funny thing is that even Alan Greenspan himself admitted in 2005 that the pay-as-you-go-system and its shortfalls leading up to his commission's Social Security reforms were not really good enough reasons to implement those reforms. That's right; because nothing stops the government from creating money to pay out as benefits and funding Social Security, there was essentially no real justification to build up the Social Security trust fund through higher FICA taxes on workers or raise their full retirement age to 67.
One has to wonder if politicians really believe in the lie that Social Security needs to get its finances in line like a family budget in a private household or if they think going after our safety net will somehow secure a Clintonian type of legacy that history will remember kindly. No. Especially not when the mid terms come up in 2014. Democrats will take a thumping assuming Social Security gets cut like Democratic Senator Dick Durbin wants in the guise of "saving it."
No, we must raise hell to protect Social Security from its "saviors" for good. To do so, I recommend reading the entire paper for the full info on all of these intergenerational budgetary myths prevalent everywhere and to spread the word. Sadly, these myths are seen in even a lot of CBO projections that are heavily relied on even though they can be continually wrong a lot of the time, because laws affecting the economy, and in turn the program, change all the time in ways not measurable by the baselines.
Do the FASAB Exposure Drafts Recognize the General Principles of Federal Budget Accounting? The reporting proposed by the two exposure drafts does not appear to recognize the fundamental differences between public and private budgets. There are numerous problems in the drafts. Some of the most basic principles of accounting are neglected. Key terms are left ill-defined or undefined. Projections are misused. Unjustified policy prescriptions are slipped into the drafts in the guise of accounting standards. And revenues are matched to spending for parts of the federal budget, notably Social Security and Medicare, in ways that have no economic justification.
A Basic Principle: Liabilities and Assets.
The FASAB drafts are intended to be "statements of financial condition" for “the government” and for "the nation." These two concepts – government and nation -- are not interchangeable. To use them interchangeably, as the exposure drafts do, is a source of confusion.
In our understanding, a statement of "financial condition" is, in general, a balance sheet. These are constructed with two columns: one for liabilities, and the other for assets. This very basic principle is no different for the public sector, and for the nation as a whole, than it is for private sector accounting.
The "nation's financial condition” – a term used repeatedly in the exposure drafts -- is a combination of the financial condition of the government and that of its citizens. Yet the proposed "federal financial reporting" contains no mention of the assets that correspond to the liabilities that would be reported when accounting for “the nation.” For example, it would treat the obligations of the Social Security system as a liability. That same Social Security benefit liability is, of course, an asset to the public. The Social Security wealth of the current population is just as real as the liabilities that support it. Yet nowhere is this Social Security wealth reported or even remarked on. Put another way, a transfer program, from one group of citizens to another, via the government or otherwise, merely transfers resources. It does not increase or diminish them. This is an economic reality, and a financial statement for “the nation” should reflect it.
No, I’m afraid giving into these scary future projections based on these general accounting flaws in that these aforementioned liabilities and assets not accounted for with Social Security benefits (and that SS is a transfer program) or Medicare, is not “just common sense” as we are told dismissively by the "saviors" who will all certainly be financially rewarded for cutting it in the FIRE sector once they leave office. It actually makes no sense at all to give any real credibility to any of this if one understands real accounting standards and the federal budget like all federal programs transfer or not.
One cannot speak of finance, economics, or the ability to speak of solvency at all without reading into assets and liabilities and accepting a budgetary framework that identifies both of them. Here’s another fact in this paper many might not know, but must learn regarding the economic and budgetary history of this nation:
Ill-defined Terms: What is a “Budgetary Resource”?
The proposed reporting speaks of “budgetary resources.” The apparent concern is that the federal government operate within the “budgetary resources” available to it. Specifically the drafts are concerned that budgetary resources be sufficient to “sustain public services and meet obligations as they come due.” But there is no clear definition of what “budgetary resources” means.
If what is meant is “tax revenue,” the definition is totally inappropriate. As we have stated and demonstrated above, the government does not need tax revenue sufficient to match spending in order to “sustain public services and meet obligations as they come due.” This is obvious: the government almost never has sufficient tax revenue for that purpose. (It has run significant surpluses for only seven very brief periods in the history of the nation, each of them producing a depression or a recession.) This is why we have a national debt to begin with. Yet the US federal government has never, in 233 years of operation, lacked for “budgetary resources” sufficient to “sustain public services and meet obligations as they come due.” This is also obvious, insofar as the federal government has never defaulted on its obligations, including making all interest payments on its debt.
Spending is not revenue constrained. Historically when we’ve had a balanced budget(only 7 periods in our history), it led to a depression or recession or it generated the factors that led to one soon after. And yet, we still hear all sorts of deficit fetishist nonsense from this administration and a lot of other people in their defense, whether well meaning or not. They just don’t understand the federal budget or economic history and that is taking a human toll with the sequester as we speak.
So personally it’s a little hard to take such condescension on Social Security from Democrats claiming to want to save these programs(they only need saving from the saviors) who don’t understand this.
Here our point is a matter of accounting: the asset of payroll tax revenues to the government is just a liability to the working population, just as the liability of future benefits is an asset to the public. In both cases, the books balance, between the public and the private sector – taken together, “the nation.” And if the public's books taken alone don't balance, it merely means that the private sector's books, taken alone, don't balance either: the deficit of the one is the surplus of the other. There is nothing alarming about this. Just as the public debt can be eternal, and need never be paid off, a net debt position for Social Security and Medicare can likewise be eternal as well, since the government’s net deficit is balanced by the nongovernment sector’s net surplus. Spelling out the balance sheet in full for “the nation” would be good financial reporting practice. And in this case, it would usefully reduce the scare-content of claims that focus on liabilities without acknowledging the corresponding assets.
Third way Democrats can get mad at accounting reality if they want to. After all, I know accounting fantasies can look good in a speech whether from former President Bill Clinton or President Barack Obama who idolizes him instead of FDR, but only this truly counts as actual accounting reality. Scare monger Social Security and Medicare claims of any type, especially the type I laid out for you above via 20 TRILLION are nothing to take seriously. These fantasy liabilities without assets, real accounting standards do not make and across the board too.
Arbitrary, Capricious and Misleading Time Horizons
The FASAB’s proposed time horizons are also problematic. They are so long, that they will involve making assumptions that are, in the nature of things, impossible. An example is the assumption of current Medicare forecasts that health care costs will continue to rise indefinitely more rapidly than nominal GDP, so that the share of health care in GDP rises without limit. While the focus of the exposure drafts is on implications for the federal budget, the effect on the private sector would be worse. In the limit, there would be few or no resources left to produce food, shelter, industrial goods or education, and the health care burden on households and firms would become intolerable. This cannot happen, therefore it will not happen. Stein’s Law applies: when a trend cannot continue, it will stop.
No understanding of the issues is gained by a procedure that necessarily incorporates unrealistic assumptions of this type. Since the time horizons are arbitrary, the present value of future “liabilities” can be blown up to any size, simply by changing time horizons and discount rates. Most readers of the proposed budgetary documents are unlikely to be aware that the exercise is purely arithmetic in this sense.
For Social Security and other permanent programs, what matters for long-range projections are demographics, technology and economic growth.7 Financing is virtually irrelevant. If by 2083 everyone is over age 67, no financing scheme will allow us to meet our commitment to let people retire at a decent living standard at age 67. This, however, is most unlikely. Indeed, all plausible projections of demographic trends show only gradual and moderately rising real burdens on those of normal working age in terms of numbers of dependents (aged plus young) per worker. The OASDI part of Social Security currently moves less than 4.5 % of GDP to beneficiaries and that rises to about 6.5% over the next 75 years. On one hand, this is a significant increase, but on the other, similar shifts have occurred in the past without generating economic crisis or intolerable burdens. And it still leaves over 93% of GDP outside OASDI.
Basically this sums it all up, though you should all read the entire paper yourself as it is well worth it, even though it will take some time.
In short, it serves no useful purpose to project financial shortfalls for Social Security and Medicare into a far distant future, and no purpose whatever to revise those programs today on the basis of such projections.
The notion that there is some “unfunded liability” amounting to tens of trillions of dollars is hogwash. There cannot be any “underfunding”. The US government always has the operational ability to make all payments as they come due, and, we note, could do so even if through some strange accounting mistake or trick one concluded that government liabilities exceed private assets.
This is where all the scary predictions regarding Medicare are coming from and they are all built on a shaky foundation of deficit fear mongering and budgetary ignorance involving intergenerational fantasies. Let's refuse to play that game. Let's call for this administration and Congress to just end the sequester and support the Conyers bill to do so.
No chained CPI period. No Superlative CPI with chained CPI either, because it lacks of any real world data(No real non experimental elderly or female index) showing it would take care of the most vulnerable in our society as claimed. The CPI-U and CPI-W does not overstate inflation as we now know from the work of CEPR economist Dean Baker; we will hear from him later this week. Therefore any promises built on a foundation of lies about the CPI and Social Security cuts are unacceptable. They are a betrayal!
Social Security benefits need to be raised and so do wages across the board. The full retirement age needs to be lowered to at least 55 as well. If any third way Democrats or Republicans go after our safety net, unleash Hell!