This week, Social Security trustees issued their annual report on the program’s financial health. The news was expected: Social Security will be able to pay full benefits to Americans currently receiving benefits and those new to the system for the next 21 years—until 2033. After that, if there are no new revenues added (an unlikely proposition), recipients will still receive three-quarters of their benefits. Previous trustee reports had indicated that the system would have paid full benefits until 2036, but the recession and slower wage growth led to the revised projections.
In discussing this year’s numbers with the press, Social Security Commissioner Michael Astrue warned reporters:
Please remember that ‘exhaustion’ is an actuarial term of art and it does not mean there will be no money left to pay any benefits. After 2033, even if Congress does nothing there will still be sufficient assets to pay about 75 percent of the current level of benefits. That’s not acceptable, but it’s still a fact that there will still be sufficient assets there.
With a few exceptions like USNews.com, the ABCNews blog, and Mark Miller, who noted on his Reuters blog “Astrue went out of his way to emphasize that the program is far from broke,” Astrue’s warning went unheeded.. Most press coverage ignored Astrue’s cautions and left the impression with the public that Social Security will not be there for them. “There won’t be much money left for you” after 2033, declared a reporter on WBEZ in Chicago.
The public got plenty of doomsday headlines: “Social Security (is) heading for insolvency even faster,” as The State Journal, a weekly newspaper in Charleston, West Virginia, proclaimed; and “Social Security is slipping closer to insolvency,” as the Chicago Tribune told all of Chicagoland; and “Social Security fund cash (will be) gone in 2033,” according to The Christian Science Monitor; and that Social Security’s trust funds “will run dry in 2033,” as the New York Daily News shouted to New Yorkers.
Other outlets added to the journalistic drama. Bloomberg.com reported “Social Security Fund to Run Out in 2035,” noting “the giant retirement programs are straining the U.S. government’s finances.” Bloomberg TV’s Inside Track with Scarlet Fu was outside reality. A government report “confirmed what we all suspected. Social Security is a train wreck just waiting to happen,” Fu practically screamed. “The Social Security trust is now expected to run out of money in 2035, three years earlier than projected.” How’s that for accurate reporting?
Instead of noting Astrue’s warning, most reporters chose to feature the more alarmist messages of Social Security trustees Treasury Secretary Timothy Geithner and Charles Blahous. The Washington Post, no fan of Social Security in its present form, reported what Blahous had to say: “Never since the 1983 reforms have we come as close to the point of trust fund depletion as we are right now. Our window for dealing with [the shortfall] without substantially disruptive consequences is closing fairly rapidly.” Geither conveyed the same sense of urgency, telling the media that while Social Security and Medicare have the resources they need to fulfill their commitments for years to come, “these reports also reinforce that we must take steps to keep these programs whole for the future.”
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Actually, the "Trust Fund" may be a myth. See SCOTUS Helvering decision 1937(?) In which all revenues collected were to be considered part of the general treasury and not to be earmarked for any specific purpose.
#1 Posted by Ben Rush MD, CJR on Mon 30 Apr 2012 at 03:53 PM
Trudy
somewhat hate to post here, but in the hope you see this, Drums criticism of you was not well informed. On the other hand Eskows criticism of Drum is worse.
Drum calls for a combination of benefit cuts and payroll tax increases. The benefit cuts are bad but can be fixed later.
Eskow calls for raising the cap. This is a FUNDAMENTAL change in Social Security, essentially turning it into welfare by having the rich pay for it. FDR understood the importance of having the workers pay for their own benefits.
What none of you point out is that raising the payroll tax one half of one tenth of one percent per year will fix Social Security entirely, without benefit cuts, taxing the rich, raising the retirement age, means testing or any other "fix" that would destroy Social Security as meaningful retirement insurance.
#2 Posted by dale coberly, CJR on Wed 2 May 2012 at 10:24 PM
Not to go all ytmnd on you but Link the links for god's sake.
#3 Posted by Thimbles, CJR on Thu 3 May 2012 at 12:24 AM
PS. I'm not sure about your solution. If I'm getting the social security problems right, you have 4 problems:
1. in order to provide a stable level of benefits, expenditures are required to rise with inflation
2. improvements in healthcare provisioning will increase the duration of expenditures due to the extended lifespans of beneficiaries
3. these rising expenditures are funded by stagnant salaries.
4. these stagnant salaries are being paid to a shrinking working demographic as family sizes shrink.
Unless you attack the stagnant wages issue, you are going to have a hell of a time dealing the prolonged aged demographic issue.
#4 Posted by Thimbles, CJR on Thu 3 May 2012 at 12:38 AM
Recents link to wage data here:
http://blogs.reuters.com/great-debate/2012/01/13/a-shrinking-middle-class-means-a-shrinking-economy/
http://tpmdc.talkingpointsmemo.com/2012/05/40-years-of-workers-left-behind-chart.php
#5 Posted by Thimbles, CJR on Thu 3 May 2012 at 09:49 PM
Then you've got this polished graph from Robert Reich:
http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html
What we're dealing with is a collapse in wage to productivity and that collapse will continue while we're talking in trade and labor policies which benefit America INC and leave out American WORK.
This is an interesting story of what we're competing with:
http://www.mcclatchydc.com/2012/04/24/147345/how-to-live-easy-in-china-on-475.html
"Xie, an affable 25-year-old, invited McClatchy in for a look at the couple’s modest, sixth-floor apartment crammed with their belongings in a mixed-use neighborhood. The chain-smoking Xie makes about 3,800 yuan a month, about $600. His wife earns about $875 a month. Their rent, $254, including electricity and water, consumes about a fifth of their income.
Xie toils long, difficult hours, working 24 hours straight, then resting for 48 hours before going right back at it for another 24. His job involves checking legal paperwork for cargo coming up the Huangpu River into Shanghai. It never lets up – just like the non-stop freighters that traverse the river day and night, supplying China’s largest city with the raw components needed to drive its breakneck economy. Xie, who earned his bachelor’s degree last year and has worked the job for nine months, never gets a week off for vacation and his schedule never changes. It amounts to working 54 hours a week, on average."
These are people who are living in a society where prices are about 40+ years behind the west so that families with a dual income of $17700 a year can live comfortably.
While cost pressures like that are driving our wages down, where is government going to tax the money required to support current retirement benefits?
#6 Posted by Thimbles, CJR on Thu 3 May 2012 at 10:29 PM
I can think of a place:
http://www.epi.org/blog/ceo-pay-finance-sector-income-inequality/
Raise the payroll tax cap, stick a capital gains tax on top. These guys have been eating pensions in the private sector for their bonuses.
Tax that money back for public pension benefit. (It really doesn't have to be much.)
#7 Posted by Thimbles, CJR on Thu 3 May 2012 at 10:33 PM
Vocabulary:
http://moneyland.time.com/2012/05/02/the-beginning-of-the-end-of-the-unpaid-internship-as-we-know-it/
"The real intern boom didn’t occur until the 1970s and 1980s. That’s when two big shifts occurred, says Perlin. The first was a move from the traditional norm of holding on to one job and working there your entire life to multiple forms of “contingent labor.” It’s what sociologist Andrew Ross has called the “casualization” of the U.S. labor force. Employers soon realized the benefits of part-time employees, independent contractors and temporary workers. By hiring contingent workers, employers could pay less in benefits, prevent workers’ attempts to unionize and initiate layoffs much more easily. That was coupled with the proliferation of Human Resource departments, which are now often solely responsible for hiring and bringing in new employees, many of whom often begin as interns through a company’s internship program.
Even before the financial collapse around 2007 and 2008, internships – both paid and unpaid – were increasing. The National Association of Colleges and Employers reported that 50% of college grads in 2008 had held an internship, compared with 17% in 1992. But the Great Recession accelerated that boom. Today, an estimated one-third to one-half of the 1.5 million internships in the U.S. are unpaid.
“More and more people after they graduate are feeling they have no choice but to take on unpaid internships,” says Perlin. “It’s something that you have to do three, four, five times potentially to break into an industry or to get any kind of paying work. It may even be something you do in your 30s or 40s.”"
And when you don't have wages or job security because of casual labor friday, what do you have?
Well, in the 1980's:
"we became a credit-driven economy. What the evidence in the U.S. shows is that the rise in inequality is associated with credit booms, which are often periods of great prosperity. We had one in the late 1990s with information technology and one in the 2000s with housing, before everything fell apart. But this is also a sign of instability — the crash that follows is very ugly business. If we’re going to go forward with growth on a more sustainable basis, then controlling inequality and controlling instability are the same issue. One is an expression of the other."
You have to tax the rich, it's where the (disposable) money is.
#8 Posted by Thimbles, CJR on Fri 4 May 2012 at 04:01 PM
It may seem a bit weird when I type comments about demand, wages, and jobs in articles about social security, but there are reasons why I've done this - and here is one of them:
http://www.motherjones.com/kevin-drum/2012/05/generational-armageddon-possibly-set-2042
There are economists who argue social security's mandated savings caused a decrease in national savings because if young workers believe that they can rely on social security during retirement, they won't save. And if they aren't savers, then they definitely aren't investors which means social security has robbed markets of investments which results in wage stagnation.
Everything IS ALL SOCIAL SECURITY'S FAULT.
Now this would be funny if it was Stossel or Cavuto making this argument, but it isn't. The people who make this argument are supposed scholars - economists who talk to democrat and republican policy makers, show up as experts on NPR, and take positions at respectable think tanks.
And they put their argument like this (from the paper referenced):
"In the lifecycle model, the young, because they have longer remaining lifespans than the old, have much lower propensities to consume out of their remaining lifetime resources. This prediction is strongly confirmed for the US by Gokhale et al (1996).
Hence, in taking from young savers and giving to old spenders, which Uncle Sam has spent six decades doing on a massive scale, the lifecycle model predicts a major decline in US net national saving associated with a major rise in the absolute and relative consumption of the elderly. This is precisely what the data show.
In 1965, the US net national saving was 15.6% of net national income. Last year, it was just 0.9%. And, according to Gokhale et al (1996) and Lee and Mason (2012), the secular demise in US saving has coincided with a spectacular rise in the consumption of older Americans relative to that of younger Americans.
As Feldstein and Horioka (1980) document, US net domestic saving tracks US net national saving. Hence, postwar intergenerational redistribution has not only lowered net national saving; it has also reduced net domestic investment, from 14.0% of national income in 1965 to just 3.6% in 2011. This decline in the rate of net domestic investment is, no doubt, playing a major role in the slow growth in US wages. Indeed, the level of private-sector average real earnings per hour, exclusive of fringe benefits, is lower today than it was 40 years ago.
We call this America’s “fiscal child abuse”."
And anyone who's read the information on the casualization of the US labor force, the stagnation and reduction of wages during the 70's (leading to a reduction of savings and a reliance on credit for basic staples such as healthcare and education), and is familiar with what happened with the conversion of employee pension plans into 401k's calls these ideas of "fiscal child abuse" utter madness.
But unless you know the concepts from the big picture, these types of nasty economists can make a believable argument for social security being the root of all evil.
Sorry for my digressions at any rate. I hope my post meets the approval of the blog owner.
#9 Posted by Thimbles, CJR on Sun 6 May 2012 at 02:46 AM
Wow. From Dale Coberly's home at Angry Bear:
http://www.angrybearblog.com/2012/05/corporate-profits-and-corporate-taxes.html
Compare the graph of "corporate tax receipts to corporate profits" to the graphs posted above of "worker wages to worker productivity".
The divergence of both is near a mirror image. Profits go up, productivity goes up, wages and tax receipts stagnate.
I don't know about you, but I blame social security.
#10 Posted by Thimbles, CJR on Sun 6 May 2012 at 03:13 AM
A worthy read here:
http://www.thomaspalley.com/?p=232
"Broadly speaking, there exist three different perspectives. Perspective # 1 is the hardcore neoliberal position, which.. [i]n the U.S. it is identified with the Republican Party and the Chicago school of economics. Perspective # 2 is the softcore neoliberal position, which.. [i]s identified with the Obama administration, half of the Democratic Party, and the MIT economics departments.. Perspective # 3 is the progressive position which can be labeled the “destruction of shared prosperity hypothesis”. It is identified with the other half of the Democratic Party and the labor movement, but it has no standing within major economics departments owing to their suppression of alternatives to orthodox theory...
The neoliberal economic paradigm was adopted in the late 1970s and early 1980s. For the period 1945 - 1975 the U.S. economy was characterized by a “virtuous circle” Keynesian model built on full employment and wage growth tied to productivity growth. Productivity growth drove wage growth, which in turn fuelled demand growth and created full employment. That provided an incentive for investment, which drove further productivity growth and supported higher wages..
After 1980 the virtuous circle Keynesian model was replaced by a neoliberal growth model that severed the link between wages and productivity growth and created a new economic dynamic. Before 1980, wages were the engine of U.S. demand growth. After 1980, debt and asset price inflation became the engine.
The new model was rooted in neoliberal economics and can be described as a neoliberal policy box that fences workers in and pressures them from all sides. Corporate globalization put workers in international competition via global production networks supported by free trade agreements and capital mobility. The “small” government agenda attacked the legitimacy of government and pushed for deregulation regardless of dangers. The labor market flexibility agenda attacked unions and labor market supports such as the minimum wage, unemployment benefits, and employment protections. Finally, the abandonment of full employment created employment insecurity and weakened worker bargaining power...
The challenge is to overthrow the neoliberal paradigm and replace it with a “structural Keynesian” paradigm that repacks the policy box and restores the link between wage and productivity growth. The goal is to take workers out of the box and put corporations and financial markets in so that they are made to serve the broader public interest. That requires replacing corporate globalization with managed globalization; restoring commitment to full employment; replacing the neoliberal anti-government agenda with a social democratic government agenda; and replacing the neoliberal labor market flexibility with a solidarity based labor market agenda.
Managed globalization means a world with labor standards, coordinated exchange rates, and managed capital flows. A social democratic agenda means government ensuring adequate provision of social safety nets, fundamental needs such as healthcare and education, and secure retirement incomes. A solidarity based labor market means balanced bargaining power between workers and corporations which involves union representation, adequate minimum wages and unemployment insurance, and appropriate employee rights and protections. Lastly, since the neoliberal model was adopted globally, there is need to recalibrate the global economy...
As of now, the economics profession is split between the hardcore and softcore neoliberal positions... [P]owerful elites and orthodox economists have an interest in preserving the dominance of the existing paradigm by ensuring their explanation of events prevails."
#11 Posted by Thimbles, CJR on Thu 10 May 2012 at 03:56 PM
watch out! any benefit cut that disregards the money owed to the social security trust fund is equivalent to a retroactive tax increase, which would fall most heavily on middle and working class earners, who, because their income was below the payroll cap, paid the greater percentage of their wages to create the fund. this is theft! this is the rich stealing from the middle and working classes! this is an outrage!
if you don't believe the rightwing wants this, read it for yourself by googling "heritage savamerdream pdf."
here is a telling quote from this heritage foundation publication:
"Social Security does have a $2.5 trillion trust fund from
the surpluses that it collected between 1983 and 2009 but that money isn’t
there. Rather than build up real assets in a real trust fund, Congress actually spent that money on everything from roads to corporate welfare. That trust fund is filled with special-issue Treasury bonds that the U.S. Treasury is required to finance when they are needed to fund Social Security’s deficits. As they are bonds not backed by any real assets, the government will have to either borrow or raise taxes to pay for them." the heritage foundation in this publication goes on to advocate draconian cuts to benefits, cuts which are totally unnecessary if they honored the money owed to the trust fund. we cannot let these fiscal conservatives steal our money to protect the rich from paying the taxes they now owe!
#12 Posted by tiresias, CJR on Fri 2 Nov 2012 at 12:37 PM