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Soothe Bond Market by Challenging Powerful, Not Gutting Social Security
Instead of beating up on retirees by cutting social security, we can reduce deficits by standing up to powerful interest groups
The deficit hawks have been pushing the line in recent months that we have to make cuts in social security, along with some revenue increases, in order to reassure the bond markets about the creditworthiness of the US government. According to this argument, by taking tough steps (ie cutting social security benefits) we will have shown the bond markets that we are prepared to do what is necessary to keep our budget deficits within manageable levels.
There is some reason to question the merits of this argument. First off, the deficit hawks don't have an especially good track record in the insight category. Not one person among the leading crusaders was able to see the $8tn housing bubble that wrecked the economy. If they couldn't see something so huge that was right in front of their face, we might wonder about their ability to ascertain anything as amorphous as the sentiment of actors in bond markets.
Furthermore, the fixation on social security is peculiar. The Congressional Budget Office shows the programme can pay all future benefits through the year 2044 with no changes whatsoever. Even after that date the shortfalls are relatively minor. If we instituted a fix in 2030 that is comparable to the one put in place in 1983 it would leave the programme fully solvent out to the 22nd century.
Furthermore, cutting benefits for near-retirees (workers in their late 40s and 50s) seems cruel and unwarranted. These people paid for their benefits through decades of work. Also, this cohort has seen most of the wealth that they did manage to accumulate destroyed with the collapse of the housing bubble and the plunge in the stock market. The bulk of this cohort will therefore be relying on social security for the overwhelming majority of their retirement income.
For these reasons, the determination to cut social security has the feeling of the class bullies telling the rest of us that we have beat up the weakest kid in the class in order to be admitted to the club. That may be the way things work in Washington, but this doesn't mean it is right.
If the issue is assuaging the bond markets by convincing them that we are prepared to take tough choices to limit long-term deficits, let's put a few other items on the table. For item number 1: how about a financial speculation tax? Wouldn't the bond markets be impressed by seeing Congress crack down on the Wall Street hot shots whose recklessness helped fuelled the housing bubble? That one would show real courage given the power of Goldman Sachs-Citigroup gang.
As a second item, Congress could go after the pharmaceutical industry. By 2020 we are projected to be spending almost $500bn a year on prescription drugs. We pay close to twice as much for our drugs as people in other wealthy countries and about 10 times as much as the drugs would cost if they could be sold in competitive market without government patent monopolies.
Suppose Congress decided to pay for the clinical testing of drugs directly and then allowed all new drugs to be sold as generics. This could save taxpayers hundreds of billions of dollars a year. Wouldn't the bond markets be impressed by seeing Congress stand up to the pharmaceutical industry?
As a third item, suppose Congress revisited plans for a public insurance option. The Congressional Budget Office projected that this would save over $100bn by 2020 and certainly much more in future decades. Wouldn't the bond markets be impressed if Congress stood up to the insurance industry?
These are three clear ways in which Congress can take big steps towards reducing long-term budget deficits by standing up to powerful interest groups. In each case Congress would be reducing the deficit in ways that would likely make most people better off, not worse off. If bringing the long-term deficit into line is the issue, all three of these measures should be at the top of everyone's list.
Remarkably, the leading budget hawks never discuss these measures when they push their deficit-cutting agenda. Somehow we are supposed to believe that cutting social security will do the trick with the markets, even though this will hurt tens of millions of people who actually need the money.
If the budget hawks had a track record of knowing about the economy or financial markets then perhaps we should take them seriously, but they don't. Therefore we should just view them as people who want to cut social security and are putting out some nonsense to rationalise beating up on retirees.
36 Comments so far
Show AllWouldn't recinding the Bush tax cuts help? I realize its the middle of a recession.
Cutting social security will hurt Americans of all ages, not just retirees.
If social security is diluted, many of those Americans in their 40s and 50s (whom the author mentions) will delay or cancel retirement from their family wage jobs, exacerbating the dearth of job opportunities available to young Americans.
Of all the 2009 and 2010 college grads with whom I am acquainted (through a mentoring program I volunteer in)fewer than 10% have landed jobs (that number increases to 20% if you count the ROTC students who all have jobs in Ir-Af-Pak).
College students should be protesting social security cuts as vigorously as they recently protested tuition increases...social security cuts will impact their lives far more than tuition increases.
Amen to everything in this piece. It's a tragedy that opponents of Social Security have not accepted it since the establishment in 1935. Those opponents want to use the trust fund for other purposes, as though it was just a regressive tax on the little people for the benefit of thier socio-economic betters. The haves want to keep the have nots "in their place". Who do they think they are!
"They" know who they are.
"They" are the crooks who have for years been taking money out of the social security trust fund and inserting IOUs. This scheme allows them to claim that social security isn't sustainable, when the only thing not sustainable is more borrowing that will be required to pay back the IOUs that "they" poisoned the system with.
raydelcamino
Calling the Treasury securities "IOUs" instead of Treasury Bills, Notes, and Bonds is a rightwing ploy to ridicule Social Security. We should not emulate the rightwing that way.
The Chinese have been gobbling up those "IOUs" for many years now. Our government couldn't wage war or do much of anything else without that Chinese money. Where else could the Social Security Trust Fund money be placed that is any safer while earning interest too?
It seems that Common Dreams readers are an affluent bunch who have a sizable nest egg for retirment.
It is late afternoon and only one comment on this important topic.
Very puzzling??!!
Sometimes some articles get posted late in the day. The comments should pick up. Give it till tomorrow.
Yes, most of us CD posters don't clock out of the salt mines until late afternoon or early evening on Monday.
My fear is that many lefties skip economics articles altogether and consider Baker an evil centrist.
Wow, no mention of the $1+ trillion dollars spent on completely unnecessary wars and extralegal shenanigans. Funny how economists have these incredibly large blind spots when it comes to in-your-face obvious.
The attacks on Social Security are just class warfare, pure and simple.
The entire governmental/corporate industrial complex is completely and utterly beyond all hope of reform. Mr Baker is as naive as he is delusional of the prospects for change.
How about stripping the fat cats who are retired politicians on the committee of their generous retirement and healthcare benefits they enjoy? How about abolishing this largesse for everyone serving in elected positions within the Washington, D.C. monstrosity? Let them live on Social Security like the rest of us. If they run short, they can always tap into what they stole while in office.
How about having Obama tell the truth once and stop making deals in secret with those who are our sworn adversaries? He needs to be reminded of who put him in office vs. those he serves at our collective expense.
Lastly, those in government need to be reminded that Social Security is a sacred trust, not a slush fund for every do-good president that happens to feel sorry for those who haven't paid their dues.
Congress is Kabuki. They're like preachers trying to look righteous while actually shagging the lobbyists behind the seedy motel.
Baker's suggestions are useful. They make sense. Utility and sensibility are not in surplus at this time. Only a collapse in money and support will wake a politician up.
Otherwise they have a herd mentality following the directives of their money masters.
Thank goodness people like Baker and Krugman expose the right-wing bs. Sure, a lot of folks don't hear or comprehend, but if we here all understand, we can make a more convincing argument with acquaintances who are incompletely educated.
I agree. The discussion seems to be divided amongst the radical right and the radical left. Where is the voice of the moderate middle? Baker and Krugman are just the few, and they are roundly hated by both radicals.
History tells us that both the radical left and the radical right act to destroy the moderate middle, which I think is largely about predation, although their excuse would be 'perfection' (for history, consider Iran, Nicaragua, Vietnam, etc). A person of 'a certain age', with an interest in economics, I don't hear saner voices, in these difficult times, than Krugmans or Bakers. If that is so, then why are these voices almost universally disparaged? Not just by the right, but by the radical left as well?
The moderate middle as you call it hasn't got a clue, evidenced by the fact that they run to the right, than to the middle, then back to the right each time thinking that things are going to change. Do you really believe that the Republicans or the corporate Democrats are going to do anything to make your life any better? Here is a hint, they are in it only for the ultra wealthy and themselves, and you guys keep putting them back in power. What a bunch of Maroons! But go ahead and blame us progressives for your continual screw ups, two terms of George W. Bush, Gore in 2000, wouldn't even fight for the Presidency he won, or Kerry in 2004, by the way, how is that Kerry/Lieberman energy bill working out for you? More taxpayer welfare for the oil, nuclear and coal industries. But I'm sure you can afford all of that and the wars in Iraq, Afghanistan and Pakistan too. All the while taking up collections in the neighbourhood so that the local school district doesn't lay off half of the districts teachers and put the kids on a four day schedule. This is what the two wings of the Corporate Party have done for America, and still the moderate middle keeps cutting their own throats by continually putting the same corporate schills into power. Ya, but it's always the progressives fault. Like I said, what a bunch of Maroons!
Whether the Democrats are pulled to the left or a third party is grown is a tactical debate and one worth having but one thing's for sure- the left has to become more economically literate. No one trusts the left with the economy and that's why Baker, Stiglitz and especially Michael Hudson are invaluable. They provide debate ammo as mentioned above. I dream of protesters with Tobin tax or Glass/Steagal banners with a clear and united reform agenda.
.....The discussion seems to be divided amongst the radical right and the radical left.....
***
Crux of the matter.
After watching this crap for 40 years I say to Hell with both extremes.
Go around them.
Presently Social Security is capped at $106,800. Anyone earning wages of $106.800 or below will pay a FICA tax of 6.20% on those wages. The employer matches the tax.
However, because of the cap, the person earning 5 million in wages only pays one tenth of one percent in the way of FICA taxes. The wealthy only pay 6.20% taxes on $106,800 instead of 5 million.
Steve Goss, Chief Actuary, Soc Sec Admin was asked in an interview several years ago what would happen if Congress removed the cap and he basically answered that the solvency problem would be corrected. He mentioned that the pay-out formula could easily be tweaked.
It is time to lift the cap and make the wealthy pay their fair share instead of extending the age to 70 yrs or cutting recipients money.
h8ll yeah. But try getting the rightwing minions of Sarah Palin to understand that. To those blighters, any extra tax on the wealthy is unfair (they are silent about taxes on the unborn... ie debt, which they apparently find fair).
That is why so many tea partiers are anti-choice. They believe that American women must produce more taxpayers.
It'll be interesting to see what Obama's "commission" has to say about this ...
Of course we won't hear from him until after Nov., so, in the meantime we can make it clear that no rep who will not COMMIT to preserving benefits for this and future generations will get our vote. None of this " there are no proposals yet, so I can't say what my position is, let's wait and see what the 'experts' recommend"
My guys do this ALL the time ...
I regret having voted for Barack Obama. I will not make the same mistake twice. I believe the fix is in for cutting Social Security because of the makeup of the commission and that a lame duck Congress must vote to veto the commission's recommendations or they will automatically become law. What a way to weasel out for Obama. He can claim the decision is out of his hands. If one dime is cut or one day is added to the retirement age, every Democrat should abandon this accursed party. If this results in President Palin, so be it. Let the revolution begin.
Good grief! When are the dunderheads in the Beltway going to get it through their thick heads that an end to the wasteful "defense" spending will help reduce the deficit more quickly than anything else? We are not only wasting more of our money and resources on satisfying the military industrial complex's greed than we can ever recover at the rate we're (they're) going, we are also WASTING good young American lives (more importantly), plus whatever remaining resources we have!
Naomi Klein's THE SHOCK DOCTRINE. It's being applied heavy-handedly right here now in the U.S. of A.
Private accounts instead of Social Security; getting rid of government pensions ... all of it was the economic "HELP" Milton Friedman's Chicago boys brought to Argentina, South Africa, Russia and other countries, including now, our own. Wherever The Shock Doctrine is applied, the middle class and some of the upper class go belly-up and join the ranks of the really poor.
It's a theory that Milton Friedman believed in that brought these countries down, including almost our own. It became a program for particular rich idiots and the very money-ambitious who love to fool around and speculate and make their money in any which way they can.
Read the book. It's good to know what you're/we're up against. And Naomi Klein does a hellava' job.
The socialism of Social Security is the best program this country ever has had. I'm not sleeping in an alley somewhere, as some are, because I get a monthly check based on my own work record, which had a lot of lower-than-men's wages/salaries for the same and even more work I put it than the men did, but it's something and it's on time every month.
Plus I raised a family and took care of the household, and helped my husband(s) with their careers by editing and typing many days at a time, and then as a single mom, but women don't get paid for any of those house-keeping/house-repairing or child-raising "things."
I bless FDR all the time. We eldering women are the largest and "growingest" poverty class there is. But we manage our little checks and manage to get along because we're of a generation that learned to get along on a little bit, including rationing, and think it was normal.
And grown children who live in various locations do not necessarily take care of their parents anymore. Extended families who are tight with each other are fewer and that's a loss for the strength of families and the strength of a nation.
And those who are now in their 50's and '60's, and younger people too who have their money already going into Social Security, fight to keep it. One small check a month ... and some of course are healthier ... may one day be the one thing that will save your life and help you keep your dignity.
The greedy RATZ that are in charge just can't keep their hands off money sitting there growing to pay others at a later time, including corporate or government pension funds. They are rotten, heartless, morally and spiritually bankrupt beings. Craven addicts, that's all they are.
Pay attention and fight for the most important social(istic) program this country has ever had for the long term. It works, and it's run more efficiently than any other government program that's out there.
From the horse's mouth, in this instance an old gray [well almost] mare who knows ...
Pay attention and fight for what belongs to you, that which was set up to help you be secure in your elder times by a man who cared and had learned to care because of his own painful physical troubles and his own sudden vulnerability. That's why so many of the "common folk" cried when he died ... because he knew, and they knew that he knew because of what he did for them.
/cm
Excellent post! Couldn't have said it better!
I myself am convinced that those that want to privatize S.S. know as well as anyone who has studied this problem that the remedies suggested above will all work to solve the problem. The privatizers are not interested in best solution. Their ideology demands that they lie (to alleviate guilt for themselves and create a plausible counter opinion for the media) and say that our money should be controlled by them and not a socialist department of the USG.
Yes, if the privatizers aren't allowed a chance to steal our money through one form of Madoff machination or another then they'll have no choice but to call us socialists in hopes that people will second guess their own judgement.
And our Pres decides once again to hand the ball off to a bipartisan commission so that he doesn't get any slime on him. ?And he wants to be Pres again? He is more cowardly, when it comes to standing up for those who elected him, than any president since WWII.
Yeah, but if you write to him for immigration help, you can get arrested! Please see New York Times story at http://www.nytimes.com/2010/06/19/nyregion/19immig.html
Certainly there seems to be no impediment to action, when that action can be arresting and detaining innocents with no criminal records, who write to you hoping to get help with an issue! This is so disgusting I have been feeling ill all morning....
the problem is not "deficits" or the bond market... it is actual, increasing, worldwide operational scarcity. Whatever the "economic reasoning", the winners are locking in their winnings, and the losers are bit by bit, being left to die...
If they cut Social Security benefits, you will see the most serious uprising of us seniors that the country has ever seen.
We all still vote and have a massive block of voters.
This is a warning to anyone in Congress who is considering voting to cut our Social Security: YOU WILL BE VOTED RIGHT OUT OF CONGRESS!!!!!
Yes, as several have said and alluded to, SS is one of our national treasures, and a great many of us older folks will fight tooth and nail for it. You do have to admire the devilish talking points of the greedy right, however. "Common sense" tells us that when our nation is in debt we must quit spending. Yeah, that kinda sounds right, but they leave out the fact that the economy will stumble even worse, with less revenue coming in to the government. They leave out the fate of millions who fall into the horror of no money in a capitalist society. Krugman, Baker and a few others have been howling into the ill wind of Republican talking points for quite some time. For most of the general public, their howls echo like mimes in traffic.
I haven't read all of these, so pardon the redundancy, if any. Cut SS? I don't think so, not until bloated money pit military spending is cut back to something that even remotely makes sense for the post-Soviet world (maybe 1/2 of what it is now). Then, roll back all of the Bush tax cuts on the predatory & otherwise essentially useless speculator classes. There would be enough cash to fund SS forever, & also to set up a real single payer insurance system for everyone else in this country!
raydelcamino
Calling the Treasury securities "IOUs" instead of Treasury Bills, Notes, and Bonds is a rightwing ploy to ridicule Social Security. We should not emulate the rightwing that way.
The Chinese have been gobbling up those "IOUs" for many years now. Our government couldn't wage war or do much of anything else without that Chinese money. Where else could the Social Security Trust Fund money be placed that is any safer while earning interest too?
good comment
Social Security also gives the economy the biggest 'bang for the buck' in returns as well. That money is immediately circulated since most recipients are already having trouble making ends meet. And let's not forget that a lot of their money goes to drug dealers (the 'legal' ones) and insurance companies... any help to the poorest people in the society inevitably helps everyone else a lot more than the individual who gets a few bucks and struggles with poverty. That's REAL economic sense - instead of the lying propaganda spewed by the RightWingNuts and their blind followers that cut their own throats. Raising social security would HELP the economy immediately - any idiot should see that.
*RAISE TAXES ON THE RICH (90% under FDR)
*TAX HEDGE FUNDS
*TAX FINANCIAL TRANSACTIONS LIKE BRITAN
*CUT CORPORATE ENTITLEMENT/SUBSIDIES
*CUT FARM SUBSIDIES
*REVIEW ALL CORPORATE TAX CUTS & REDUCE/ELIMINATE
*ELIMINATE CORPORATE TAX INCENTIVES TO MOVE JOBS OVERSEES
*INCREASE REVENUE FROM NATIONAL OIL WELLS-LOWEST IN THE WORLD!
*AUDIT EVERY DEPARTMENT TO DETERMINE CUTS AND NEW WAYS TO INCREASE REVENUES
*BRAKES ON SHORTING OUR COUNTRY, BETTING AGAINST U.S.
*OVERSEER ON CEO SALARIES TO DETERMINE WHY 900% HIGHER THAN WORKERS WHICH IS STUCK AT 1972 RATE
*MANDATE 30% TAX ON ALL COMPANIES RESIDING IN THE U.S. REGARDLESS OF OFFSHORE STATUS TO STOP 1 PERCENT TAX FOR GOLDMAN WHO THEN TOOK OUR TAX $!
*TAX BREAKS FOR KEEPING COMPANY IN U.S., EMPLOYING U.S. WORKERS ONLY
THE PLAN THEY ARE CONSIDERING IS LIKE 1930 GERMANY--AN AUSTERITY PROGRAM THAT CUTS SOCIAL PROGRAMS, JOBS, WAGES WHICH HAS LITTLE TO DO WITH THE DEFICIT.
IT DESTROYED THE POLITICAL SYSTEM AND THE NAZIS GAINED 100 MORE SEATS IN THE NEXT ELECTION AFTER 1-1/2 YRS. OF PAIN THRU AUSTERITY, THEN HITLER!
REASON--ELITE LIKE IT SO THEY CAN BUY EVERYTHING UP IN THE NATION AND STEAL THE SOCIAL SECURITY AND MEDICARE FUNDS, ALSO BRING IN NEW COMMUNIST/TOTALITARIAN WORLD GOVERNMENT. WE MUST STOP THIS!!!! WE DIDN'T ELECT ALAN SIMPSON AND THAT PETER PETERSON WHO HAS BEEN TRYING FOR 30 YEARS TO DESTROY THE MIDDLE CLASS--ENOUGH ALREADY PP!
*RAISE TAXES ON THE RICH (90% under FDR)
*TAX HEDGE FUNDS
*TAX FINANCIAL TRANSACTIONS LIKE BRITAN
*CUT CORPORATE ENTITLEMENT/SUBSIDIES
*CUT FARM SUBSIDIES
*REVIEW ALL CORPORATE TAX CUTS & REDUCE/ELIMINATE
*ELIMINATE CORPORATE TAX INCENTIVES TO MOVE JOBS OVERSEES
*INCREASE REVENUE FROM NATIONAL OIL WELLS-LOWEST IN THE WORLD!
*AUDIT EVERY DEPARTMENT TO DETERMINE CUTS AND NEW WAYS TO INCREASE REVENUES
*BRAKES ON SHORTING OUR COUNTRY, BETTING AGAINST U.S.
*OVERSEER ON CEO SALARIES TO DETERMINE WHY 900% HIGHER THAN WORKERS WHICH IS STUCK AT 1972 RATE
*MANDATE 30% TAX ON ALL COMPANIES RESIDING IN THE U.S. REGARDLESS OF OFFSHORE STATUS TO STOP 1 PERCENT TAX FOR GOLDMAN WHO THEN TOOK OUR TAX $!
*TAX BREAKS FOR KEEPING COMPANY IN U.S., EMPLOYING U.S. WORKERS ONLY
THE PLAN THEY ARE CONSIDERING IS LIKE 1930 GERMANY--AN AUSTERITY PROGRAM THAT CUTS SOCIAL PROGRAMS, JOBS, WAGES WHICH HAS LITTLE TO DO WITH THE DEFICIT.
IT DESTROYED THE POLITICAL SYSTEM AND THE NAZIS GAINED 100 MORE SEATS IN THE NEXT ELECTION AFTER 1-1/2 YRS. OF PAIN THRU AUSTERITY, THEN HITLER!
REASON--ELITE LIKE IT SO THEY CAN BUY EVERYTHING UP IN THE NATION AND STEAL THE SOCIAL SECURITY AND MEDICARE FUNDS, ALSO BRING IN NEW COMMUNIST/TOTALITARIAN WORLD GOVERNMENT. WE MUST STOP THIS!!!! WE DIDN'T ELECT ALAN SIMPSON AND THAT PETER PETERSON WHO HAS BEEN TRYING FOR 30 YEARS TO DESTROY THE MIDDLE CLASS--ENOUGH ALREADY PP!