Greenspan's Social Security Scam





Mr. Baker, an economist, is co-director of the Center for Economic and Policy Research.

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Federal Reserve Chairman Alan Greenspan yesterday called on Congress to restrain the growth of the federal budget deficit by adopting budget controls that would apply to new taxes as well as new spending. ... Greenspan offered several ways to curtail federal spending growth, including reducing Social Security and Medicare benefits. The Fed chairman again recommended raising the age at which retirees become eligible, to keep pace with the population's rising longevity. And he reminded lawmakers that they could link cost-of-living increases in benefits levels to a measure of inflation other than the consumer price index, a widely followed measure that some economists believe overstates the rise in overall prices. A measure that showed less inflation would cause benefit levels to rise more slowly. --Washington Post (Feb. 13, 2004)

Two weeks ago Federal Reserve Board Chairman Alan Greenspan testified before the Senate Budget Committee about the state of the economy. He expressed concern about the budget deficit and suggested that cuttng Social Security might be a good way to reduce the size of the deficit.

It is worth noting that Social Security is currently running a large surplus and is projected to continue to run annual surpluses for more than two decades into the future. The Social Security trustees projections show that the fund's trust will be able to support all scheduled benefit payments for nearly forty years into the future. If Social Security benefits are cut, without any corresponding reduction in the tax rate (which is exactly Mr. Greenspan's recommendation), then this would mean that Social Security taxes are being used to finance the general budget, not Social Security.

This point is especially important in this context since Mr. Greenspan had chaired the 1982 Commission that proposed a set of Social Security tax increases that were designed to build up a large surplus to help defray the costs of the baby boomers' retirement in later years. In other words, Mr. Greenspan's argument was that it was desirable to raise Social Security taxes above the levels needed to support the program in the eighties, nineties, and zeros, so that the tax rate would be somewhat lower than would otherwise be necessary in the twenties and thirties. If benefits are now cut below the levels that had been scheduled, then it breaks the link between Social Security taxes and Social Security benefits. Social Security taxes were simply used to finance the general budget.

The Social Security tax is highly regressive because it only applies to wage income and it is capped at approximately $85,000, so that wage income above this level is not subject to the tax. It is extremely unlikely Congress ever would have approved such a regressive tax to support the general budget. It would have been appropriate to note, in describing Mr. Greenspan's proposal, that the cumulative surplus in the trust fund is now approaching $2 trillion. This should give readers an idea of the extraordinary deception involved in proposing to cut Social Security benefits as a way of reducing the federal budget deficit.

 


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Austin K. Williams - 7/19/2004

Mr. Moshe,

I see you've never run into "crazy checks". Suggest you do a little digging and get up to speed on the "most effective and most popular social program in American history". While you're at it, you may as well check out the -ve returns to African Americans and the single digit long-term return to the average beneficiary. Whatever you do, don't tell the students about what's in store for them - you might get trampled in the rush to hang the guilty party.

It's a ponzi scheme that Charles Schwab could, should and will be running in short order. Why do you think all the tax-advantaged accounts are multiplying like rabbits? The feds want out from this loser in the worst way possible. Lessee, a zero return annuity versus ownership of an appreciating asset. FDR - yes, yes.


Andrew D. Todd - 2/29/2004

The division of the federal government's finances into several legal persons, viz: Treasury, Social Security Trust Fund, Federal Reserve Bank, etc., is in the last analysis a political fiction. In a crisis, they are jointly and severally liable for each other's obligations. However, in such a case, these obligations are not met mechanically, but with an eye to expediency and justice. For example, a billionaire who disperses his funds among all of the five thousand or so FDIC/FSLIC insured banks is not going to receive five thousand time the insurance coverage of an ordinary depositor in a major crash. It would not be expedient.

That said, the surplus or deficit of the Social Security Trust Fund is not really very meaningful. The ability of the Social Security System to meet its obligations does not rest upon holdings of government paper, but upon the power to tax, to conscript, and to eminent-domain. The nature and distribution of retirement benefits is a political decision. This decision will ultimately be made on such grounds as whether there is a labor shortage or a labor surplus; or whether there are shortages or surpluses of various goods and services.

Now, let us think about the issue in terms of shortages and surpluses. At present, we have an uncomfortably high unemployment rate, and most of the consumer goods industries have slack capacity and glutted markets. The Salvation Army stores are full of serviceable housewares at about ten cents on the dollar. Mass-production industry has foundered on the fact that it is difficult to drive two automobiles simultaneously. Industries are automating and outsourcing to East Asia, in the hope of getting their costs down far enough to become profitable in a stagnant market. This can be expected to drive unemployment rates still higher, in the absence of countervailing demand. Cutbacks in old-age programs would only increase the size of the labor pool, and increase unemployment.

A very large number of jobs can be automated in principle. We now have somewhere between two and five million computer programmers (depending on whether one counts engineers and accountants who program). Given their sheer numbers, they are pretty well bound to unleash a drastic wave of automation on the country. This automation wave will of course be concentrated on precisely those activities which have already been brought under some degree of industrial practice, meaning manufacturing, warehousing, shipping, and large scale (supermarket fashion) retailing. In short, the most corporate portion of the private sector. True small retail/service businesses (25 employees or less) will be less affected, as will government services. Both have chosen to specialize in the tasks the machine cannot do. Small businesses specialize in things the machine cannot do, and which someone is prepared to pay for. However, small businesses' small size means that they are likely to be in a highly competitive market, and are unlikely to pay more than twenty percent or so over the minimum wage. Government services specialize in things the machine cannot do, which no private party is prepared to pay for at an economic rate. Of course the government has its private-sector appendages, in the shape of defense contractors, pharmaceutical firms, etc., and many of these will be shielded from effective competition in tacit exchange for treating their employees like civil servants. The effect of massive automation is going to be to destroy the illusion that the private sector per se can generate large numbers of good jobs.


Andrew D. Todd


Marc "Adam Moshe" Bacharach - 2/27/2004

It will take more than corruption (endemic in ALL monetary programs) and inequity (a problem, to be sure) to spin the success of social security.

When it was first enacted in 1935, more than 50% of all older Americans lived in poverty. Today the poverty rate has decreased to little more than 12% in large part due to Social Security. The system now services over 45 million Americans at $32 billion a year, with two-thirds of recipients collecting disability and survivor’s benefits. The program also provides needed cash assistance to more than 3.2 million children. More than 60% of all retirees depend on Social security for at least half of their retirement income.

Social security may not be perfect, and it may need reform, but the polls have always shown it to be extremely popular and it has, on the whole, been very successful.

http://www.eoionline.org/SS-PolicyBrief2001.htm
http://www.vcdh.virginia.edu/HIUS316/mbase/layout/unit05/unit05.elderlypoverty.html


Austin K. Williams - 2/27/2004

Mr. Moshe,

I see you've never run into "crazy checks". Suggest you do a little digging and get up to speed on the "most effective and most popular social program in American history". While you're at it, you may as well check out the -ve returns to African Americans and the single digit long-term return to the average beneficiary. Whatever you do, don't tell the students about what's in store for them - you might get trampled in the rush to hang the guilty party.

It's a ponzi scheme that Charles Schwab could, should and will be running in short order. Why do you think all the tax-advantaged accounts are multiplying like rabbits? The feds want out from this loser in the worst way possible. Lessee, a zero return annuity versus ownership of an appreciating asset. FDR - yes, yes.


Marc "Adam Moshe" Bacharach - 2/27/2004

Mr. Williams,

"The only effective control on government's propensity for uncontrolled growth is restriction on the resources it claims... The future will be all about reallocation of remaining government resources away from "antiquated social programs" and into ones that are generally regarded as essential by the population at large."

Assuming that I agree with everything in your post (which I don't, but I would rather not dwell), it changes nothing about my argument. The idea that Social Security, arguably the most effective and most popular social program in American history, should be cut sooner than farm subsidies, corporate welfare, foreign aid, etc, etc, etc. simply makes no sense to me.

Surely, even the most conservative Republican (unless they are libertarian- which is fine) would favor making this the LAST thing to be cut from the federal budget before national defense. My argument, in other words, is not that social security is untouchable (although I think it should be). It is that given the gross waste in the federal budget, gutting social security and throwing our elderly to the dogs in order to give tax cuts to the rich seems beyond cruel to me... it seems un-American.


Austin K. Williams - 2/26/2004

Mr. Calli,

I've already had my usual allotment of bait for the day but I guess another tidbit wouldn't hurt.

The feds are not yet under sufficient pressure to begin rebalancing income and expenditure. It is unlikely in the extreme that this task can or will be taken on during an election year or, should Bush lose, in the first term of a new president. You will remember that Clinton just squeaked through his tax increase in 1993. He was suprisingly well-supported in his second term by both parties in Congress in other reallocation intiatives. Bush, should he win, can reasonably be expected to expend whatever remains of his political capital in taking on the federal reallocation challenge. I believe Bush has indicated his willingness to address SS issues and I expect he will deliver on his promise.

The states (and cities) are quite effectively constrained by balanced budget requirements that are not present at the federal level. While certainly not bullet-proof (Arnold's bond issue in CA), these statutes tend to keep state expenditures roughly in line with their incomes with some minor fudging due to timing and projection discrepancies. The point is that evidence abounds of states finally getting serious about targeting their (now) scarce resources to where they are (politically) needed the most.

Education and other middle class support systems are holding their own in most instances while support for low-income and non-working state dependents is being reduced. Most all "outreach" operations that serve to attract the next generation of "clients" to the largesse of the state have mercifully been hacked to the point of harmlessness. "Donor" states want their money back from the feds and unfunded mandates like NCLB are being left to die on the vine. Promising developments all.

So, no, I don't worry too much about Halliburton or any of the other thousands (millions?) of ways the Feds waste my money. With $600 Billion deficits on the horizon, things are sure to take care of themselves. I'd say Halliburton better get theirs while the getting's good.


Charlie M. Calli - 2/26/2004

Mr. Williams:

I find it interesting that you mention "no-bid city contracts". What are your thoughts on no-bid federal contracts? i.e... Halliburton


Austin K. Williams - 2/26/2004

Mr. Moshe,

Not at all a farce - deadly serious business, in fact. The only effective control on government's propensity for uncontrolled growth is restriction on the resources it claims. President Bush has does a very effective job in this regard. The future will be all about reallocation of remaining government resources away from "antiquated social programs" and into ones that are generally regarded as essential by the population at large.

Furthermore, the programs that are retained will undergo serious reform and every dollar of waste will be wrung from the system. "Save to survive" will become the new rule by which government operates. Something like how business manages in the face of an income shortfall - reduce costs and increase sales/service. Not a bad model, I'd say.

You can get a very good look at what's in store by examining budget reallocations in the states over the last few years. One absurd program after another has been eliminated and the remaining essential programs have been cleaned up, many for the first time in years.

Look at local newspapers anywhere in the country. Do you recall reading so many stories about waste, fraud and abuse at any time in recent memory? School district administrators going to Las Vegas, no-bid city contracts, pension fund advisors travelling to Hawaii? It's all there every day right in front of your eyes. Open them.


Stephen Milton Stohs - 2/25/2004

I just finished submitting a letter to the editor of the SF Chroncle, which drew on Dean Baker's posted article entitled "Greenspan's Social Security Scam." Thanks for the information and viewpoint provided.


Stephen Milton Stohs - 2/25/2004


Stephen Milton Stohs - 2/25/2004


John H. Lederer - 2/24/2004

Social Security has a two trillion surplus?

In the real world what is compared is assets versus obligations. Under this measurement, social security is profoundly underfunded.


If a company used Mr. Baker's definitions in their books, the executives would find themselves with a tasteful cream green decor in rooms next to Enron's executives.


Marc "Adam Moshe" Bacharach - 2/24/2004

What a farce! What an absolute outrage that Social Security would be cut in order to finance outrageous tax cuts to the rich (shame on you Republicans) and antiquated social programs that never die (shame on you Democrats).

For God sakes, these are our most vulnerable citizens, many of whom rely on social security to live and eat. And yet we would sooner raise the age people can receive them?!? Has it occurred to anyone that forcing an elderly person to remain in the workforce does nothing but deprive that job to a younger, and presumably more efficient worker?

OR we could lower the amount of befits?!? Has it occurred to anyone that lowering the benefits could propel many elderly into the general welfare system, placing a far greater burden on government than social security?

Of course the greatest argument against these things is that they are entirely unnecessary! It is an easy target since the money is concentrated into one program, but given the amount of wasted federal spending on pork barrel items, social programs that effect a small minority of the population, or corporate welfare, we could just as easily get the needed money from any number of other programs.

So much for the greatest generation!

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