Friday, February 20, 2009

What's up with that anti-Social-Security "fiscal responsibility" summit on Monday?

Jane Hamsher at FireDogLake has been actively pursuing the anti-Social-Security jihad being bankrolled by reactionary billionaire McCain-Palin supporter Peter Peterson. See If Ezra Klein Really Wants to End the “Entitlement Scare,” He Should Do It 02/19/09.

Isaiah Poole at the Campaign for America's Future has an recording up of Jamie Galbraith, Nancy Altman and Dean Baker talking about this thing: Economists, Hickey Discuss Fiscal Responsibility Summit 02/19/09.

The Democrats have to give up their obsession with balanced budgets. The Republicans don't worry about the deficits at all when a Republican administration is making deficits balloon with wars and huge tax cuts for the wealthiest.

William Greider provides an useful explanation of the anti-Social-Security scam in Looting Social Security The Nation 03/02/09 issue; accessed 02/13/09. I say he explains the scam well. But I have some reservations about how he explains the financial mechanics involved.

But the goal of the scamsters is ideological: to cut Social Security as part of a campaign to phase it out. It would be a boost to those mega-bonuses on Wall Street if they could do what Bush wanted to do, which is to start channeling some of the tax money now going out of the social insurance program that Social Security has always been and into IRA-like investment accounts.

Their goal is to wipe out Social Security, which is a social insurance program that provides a minimum pension payment to retired people.

But when Greider tries to explain the Peterson scam's pitch, he fails to make a clear distinction between what's the anti-Social-Security scam and what's real about how the program works:

Actually, the government has already spent their money. Every year the Treasury has borrowed the surplus revenue collected by Social Security and spent the money on other purposes--whatever presidents and Congress decide, including more tax cuts for monied interests. The Social Security surplus thus makes the federal deficits seem smaller than they are--around $200 billion a year smaller. Each time the government dipped into the Social Security trust fund this way, it issued a legal obligation to pay back the money with interest whenever Social Security needed it to pay benefits.
That bit about how "the government has already spent their money" plays right into the anti-Social-Security con artists' pitch. This is basic stuff about how borrowing works, really basic. A depositor puts $100,000 in a bank. The bank doesn't put that money in a safe-deposit box in the vault and keep it for when the depositor wants to take some out. The bank keeps sufficient reserves to manage normal case demands and puts that money to work by lending it out. If a business gets a $100,000 loan from the bank, they can't get away with saying, "Sorry, I can't pay you back, I've already spent the money on the equipment I borrowed it for." That's just a silly way to look at it. (The Democrats' fiscal-responsibility pitch during the Clinton years about the "Social Security lockbox" unfortunately helped promote this kind of muddled thinking about the program.)

He also furthers this impression by calling the Trust Fund surplus "the money pot the establishment wants to grab". I'm sure they would love to. The polemical value sounds good on the surface. But that's not a good description of what's happening. What the Peterson crowd wants to do is cut the benefits of that program and eliminate the program itself as soon as feasible, i.e., make that money pot go away.

Yes, the federal General Fund borrows money from the Social Security Fund which is currently in surplus. And, as Greider writes, the General Fund "legal obligation to pay back the money with interest". But it's mystification to describe this as the federal government having "dipped into the Social Security trust fund". And also to say, "The Social Security surplus thus makes the federal deficits seem smaller than they are." Uh, no. The FICA (Social Security) tax is a federal tax collected by the federal government. In terms of measuring the overall federal deficit, the net amount contributed by the FICA tax has to be considered. This confuses the accounting for the General Fund with the real deficit of the whole government. (The way the federal deficit is accounted for is different than the way state deficits are accounting for, and that causes problems of its own. But that's a whole other story.)

That moment of reckoning is approaching. Uncle Sam owes these trillions to Social Security retirees and has to pay it back or look like just another deadbeat. That risk is the only "crisis" facing Social Security. It is the real reason powerful interests are so anxious to cut benefits. Social Security is not broke--not even close. It can sustain its obligations for roughly forty years, according to the Congressional Budget Office, even if nothing is changed. Even reports by the system's conservative trustees say it has no problem until 2041 (that report is signed by former Treasury Secretary Henry Paulson, the guy who bailed out the bankers). During the coming decade, however, the system will need to start drawing on its reserve surpluses to pay for benefits as boomers retire in greater numbers.
"Uncle Sam owes these trillions to Social Security retirees and has to pay it back or look like just another deadbeat"?!? Simplifying for the purposes of explanation is one thing. Dumbing down to the point of incoherence is something else. When Bush made the absurd claim in 2005 that the money is gone from Social Security, that's it's all been replaced with worthless IOUs, he was counting on virtually everyone in the world except for American voters knowing that he was blatantly lying. If the US government declared the General Fund unable to pay its debt obligations to the Social Security Trust Fund, China and everyone else would stop buying our bonds, the euro would become the world's reserve currency overnight, and the economic hit we are taking now would pale in comparison to the results of that. The framework Greider uses there is absurd.

But if the government cuts the benefits first, it can push off repayment far into the future, and possibly forever. Otherwise, government has to borrow the money by selling government bonds or extend the Social Security tax to cover incomes above the current $107,000 ceiling. Obama endorses the latter option.
This is getting closer to reality but could be much better. The General Fund has to pay back the money it borrowed from the Social Security Trust Fund. Period. How it finances the meeting of that obligation is another question. As the economists and accountants like to say, money is fungible. It can be used to buy a computer or to pay for a vacation or pay off a debt. The federal government gets money from taxes and fees and interest and other sources. It spends the money on lots of stuff. The General Fund doesn't have to get the money to repay the Social Security borrowing or any other general federal borrowing from the two particular methods Greider names.

Follow the bouncing ball: Washington first cuts taxes on the well-to-do, then offsets the revenue loss by raising taxes on the working class and tells folks it is saving their money for future retirement. But Washington spends the money on other stuff, so when workers need it for their retirement, they are told, Sorry, we can't afford it.
Here he gets to describing the scamsters' pitch, and he does a decent job with that.

In fairness, he may have also meant the preceding paragraphs more as a description of the scamsters' pitch, as well. But it doesn't come off clearly in the article.

Having said all that, it's a piece well worth reading to get an understanding of how the billionaires' anti-Social-Security pitch is being framed.

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