Sunday, April 30, 2006

Social Security Meta-Archive: May 2005

[Part of the Social Security Meta-Archive: 2005]

Social Security Meta-Archive: April 2005

Former Social Security Commissioner Robert Ball writing for the Century Foundation.
The Regressive Impact of the Progressive Indexation of Social Security Benefits [PDF]
Dean Baker of the Center for Economic and Policy Research

Warren Buffett and Charles Munger on Social Security
DeLong links to coverage of Buffett's opposition to privatization.
In Praise of Bush's Honesty (Honest)
Michael Kinsley.
Max Sawicky responds.
Universalism and Social Security
Mark Schmitt at the Decembrist:

One fascinating aspect of the Bush campaign to privatize Social Security has been the desperate attempt to find some constituency, somewhere, for whom Social Security is a manifestly bad deal. And it's amazing how hard it has been for them to do it:

First there was the claim that it's a bad deal for African-Americans. That was one that you didn't know whether to laugh at or be offended by. (My colleague Marcellus Andrews probably did the best job of combining the two emotions.) Then there was the claim that it's a bad deal for younger workers, but that depends entirely on the premise that the government will chose to default on the Treasury bonds.

Finally, as you could see in Bush's press conference Thursday night they've identified a constituency that supposedly doesn't get a good deal from Social Security: It's a widow or widower whose spouse dies shortly before retirement. The surviving spouse would get either his/her own benefits, or the spouse's, whichever is higher, "but not both," as Bush points out. And that's true. Of course, if the spouse dies and leaves children under 18, survivor benefits under Social Security will be a lifesaver for the family. (As Hans Riemer of Rock the Vote points out, young people are familiar with Social Security and like it, because they think of it as the program that helped Johnny's family when his dad died.) And if the widow didn't put in at least ten years in the workforce herself, or didn't earn as much money, the benefits through her husband's Social Security are much more than she would get on her own. So, to summarize Bush, the person for whom Social Security is a raw deal would be a widow or widower whose spouse dies at, say, 60, after the kids are grown but before retirement, and in a household where both spouses worked for much of their adult lives at relatively comparable incomes. The system is "unfair" to that widow or widower, according to Bush, because she only gets Social Security benefits for one person, not two.

It's a pretty cool social program that's a good deal for everyone except a person in that particular situation. And what's so bad about one person's getting benefits for one person anyway?

(Of course, as was finally pointed out in the Senate Finance Committee hearing last week, the forced annuitization feature of private accounts means that they're not really inheritable either, at least not after the annuitization has occurred.)
A Gut Punch to the Middle
Paul Krugman on the effects of Bush's version of progressive indexing.
Krugman Clarifies Liberalism
A response at the blog JustOneMinute, triggering an extended comment thread.
Social Security's Progressive Paradox
Julian Sanchez of the libertarian magazine Reason disputes the insurance aspect of Social Security.
Talking Points Memo
Matthew Yglesias responds.
My Socks are Cold Feet Insurance!
Will Wilkinson, another libertarian, responds to Yglesias at The Fly Bottle:
Now, yes, it turns out that we don't know exactly how long we're going to live, and so there's some chance we might outlive our savings. Or we might face some kind of financial catastrophe that guts our retirement nest egg. You don't know how long you'll be able to be a productive contributor to the economy, etc. But the point that Matt fails to address is that insofar as Social Security "insures" against these contingencies, so does means-tested welfare, and to a very great extent, so do personal accounts. Means-tested benefits are much MORE like insurance in the sense they kick in only upon the occurrence of some kind of loss or hardship. An annuity from a personal retirement account is exactly like a stream of Social Security checks, except that you actually own something. If Social Security is insurance, then so is a personal account annuity. The reason why Feldstein, in his presidential address to the APA, "Rethinking Social Insurance" discusses the current system, personal accounts, and means-tested benefits as alternative forms of "insurance" is simply that if the current system counts as social insurance, then so do the alternatives.

Regular commercial insurance works by subsidies across the risk pool. (And is by its very nature "social.") Premiums are actuarially determined on the basis of bunch of variables like the probability of the occurrence of loss and the likely cost of reimbursing it. It's a kind of bet. The premiums of people who get lucky, and don't experience the relevant kinds of losses, reimburse people who get unlucky and do experience them.

Social Security isn't like this at all. It "reimburses" everyone who turns 65 (or 62 or 67). Like I said, this event isn't a loss; it is in fact correlated with being rich. A system that pays everyone--Warren Buffet, Tom Cruise, etc.-- is conspicuously un-insurance-like. It's sort of like a system of home-owners insurance where everybody's house burns down ten years after you move in. There's nobody who gets lucky, so no way to transfer risk across the pool. Rather than being structured at all like regular insurance, Social Security is a system of chained intergenerational transfers -- a chain letter, a Ponzi scheme -- which is not what insurance is.

If you insist on calling non-insurance insurance, then Social Security is like insurance in the way that any stream of income is like insurance. It makes it possible to pay for stuff that you wouldn't otherwise be able to pay for. But that's not what insurance is, except in the loosest possible sense. You don't think that you have insurance because you have a salary. You don't think you have disability insurance because you walk around with a helmet on. Most people who receive Social Security are perfectly able to "self-insure." And Social Security improves their ability to self-insure largely because it's replacing income that the government took away in the first place.

The point is: A system that pays everyone benefits upon the occurrence of a near-universal, non-loss event by means of a system of intergenerational wealth transfer just isn't insurance in the paradigmatic sense. If "insurance" just means "making sure that people don't suffer when they don't have enough money," then ANY system that makes sure that people have enough money is insurance. Inter-family transfers, churches, charities, clubs, etc. count as insurance in this sense. And so do means-tested old age benefits and personal retirement accounts.
In comment "Gareth" responds:
Libertarian: It's not an insurance system because people want to live to be old. That's not a risk.

Socrates: But outliving your savings is a risk. And an actuarially predictible one. So it makes sense to pool that risk. Which is what insurance is.

Libertarian: OK. I can imagine a private company providing that kind of service. But they would have to fund their future liabilities.

Socrates: Dude, Social Security funds its liabilities for years and could do so in perpetuity using slightly more optimistic assumptions. Anyway, if that's your problem, we can tinker a bit and solve it.

Libertarian: But Social Security can't have real assets...

Socrates: US Government Bonds aren't real assets? Would it bother you if the insurance company was 100% invested in US Government Bonds?

Former Libertarina, now anarcho-capitalist crazy: Beer funds! Repudiate the debt and give bondholders a share of Yellowstone!
...Expanded upon by R.J. Lehmann:
"Socrates: US Government Bonds aren't real assets? Would it bother you if the insurance company was 100% invested in US Government Bonds?"

In fact, most insurers are invested overwhelmingly in government bonds, and many invested solely in them.

I find the entire line of argument somewhat strange. Like most traditional pension systems, Social Security takes the form of an annuity, which is itself a form of insurance. Risk (in this case, the risk of outliving one's retirement savings) is transferred to a pool, and like most annuities, payouts then proceed from a given starting date until death.

In terms of long-term solvency, Social Security is not a particularly well-structured annuity plan, since the price is not rated according to the size of risk. If it were, then smokers would pay less than non-smokers, men pay less than women, etc. Although arguably, since payout adjustments are progressive with respect to income even without indexing, and the rich tend to live longer than the poor, that's at least one risk factor that is partially accounted for.

But that Social Security is a poorly structured annuity program doesn't mean it is NOT one. Most insurers, including life insurers who offer annuities, hedge against the risk of insolvency by way of reinsurance. The Social Security program's reinsurance is the American taxpayer...

Mad Max contrasts "liberal" and "social democratic" approaches to Social Security.
Pozen Pill
Brad DeLong, in Slate, on Pozen's ideas and what the Bush Administration may do with them.
Screwing the Very People Who Gave Him the "Mandate"
The Decembrist on the combined fiscal impact of Bush's SS and tax cut plans on the middle class.
Stanford Institute for Economic Policy Research
Audio and video of presentation by Peter Orszag and John Shoven.
Slashing Social Security: Bush Plan Cuts Benefits
Moving Ideas' page on the Bush Plan.
Let's Not Save Social Security
Mickey Kaus, writing in Slate, says keeping the option to slash Social Security deeper later this century is the top priority.
The Personal 'Lockbox'
John Fund of The Wall Street Journal proposes Treasury bill accounts.
Bush May Destroy Social Security, Not Fix It: John M. Berry
Bloomburg columnist on the ultimate political ramifications for Social Security implied by the rate of returns of progressive indexing.
The White House Mounts a Feeble Defense of Its Social Security Plans
Brad DeLong.
Give Us the Real Thing on Social Security
Will Wilkinson of the CATO Institute says Social Security is risky to its beneficiaries.

Jason Furman of The Center on Budget and Policy Priorities.
Index Fun
Matthew Yglesias in The American Prospect.
Progressive Price Indexing is Not Means-Testing -- It's Arbitrary
Peter Ferrara: Too Busy Being a Hack
The Decembrist.
Dems’ Plan
Stanley Kurtz of the National Review constructs a critique of Diamond-Orszag and Democratic stewardship thereof singularly lacking in, um, productivity.
Statement of C. Eugene Steuerle, Senior Fellow, Urban Institute, Codirector, Tax Policy Center, and Columnist, Tax Notes Magazine Testimony Before the House Committee on Ways and Means
Radio host Michael Medved's privatization meltdown
Media Matters coverage.
Statement on Social Security Reform
Brad DeLong testifies before the Democratic Policy Committee, followed by subsequent comment on the implications of assumptions of the distribution of returns from productivity for privatization in DeLong's blog by Bruce Webb:

From Michael Cain
"Is there a chance that, deep down, the Trustees realize that the portion of national income that goes to the capped wages and salary base for the SS taxes will be a shrinking one in the future? And that the "productivity" growth that they assume is actually that portion of the overall growth rate that will show up in that tax base?"

Well sure, but that is not the number they report in "productivity". The effect you mention would show up in other columns like Real Wage Differential. Productivity is the overall pie, the size of the slices depends on other factors. Lowballing the size of the pie because you know the people cutting the slices are rogues is to make a mockery out of the whole model.

We are talking about a spreadsheet. Intermediate Cost and Low Cost are nothing more than an Excel table. You change your initial assumptions and the changes ripple right through to the end. Productivity is just one assumption, though the driver, there are others and anyone if free to challenge them and show how they might offset productivity. But these tables are math and not psychology, they don't measure the evil that is in the hearts of men, they are not a scorecard on the Masters of Capitalism. They simply show that if you input a set of economic and demographic assumptions we can label A you get outcome X. If you input a different set of assumptions we label B you get outcome Y.

What you suggest here is that initial numbers are being distorted in an effort to hide the thuggery needed for Capital to extract all the gains of likely productivity over the next 75 years at the total expense of Workers. (Which was the outcome of the "No Economist Left Behind" challenge. You can save 6.5% stock returns with 1.6% productivity by putting 90% of America into perma-poverty). Well no thanks.

I assume that workers will extract some share (not necessarily a fair share) of the gains in productivity over the next years. Because despite the flaws both exhibit on a daily basis we still have some capital letter players called Democracy and Markets. And you can only game the latter so much before the former bites you in the ass.

Social Security insolvency requires one) that some future US government openly proclaim themselves to be thieves and liars and two) that corporate America will simply feel free to grind down American wages into the dirt. There are plenty of people who believe that, read any comment thread at dKos. But it is an uncomfortable starting position for privatizers. "Sure we will default on the bonds, and no you will never get a raise ever, but trust me with that 4% of your check"

You can only get to Social Security "crisis" by trashtalking the American economy and the whole concept of market wages. Ask the next privatizer you meet why he hates America so much.

Senate Democratic Policy Committee Hearing:"An Oversight Hearing on President Bush's Social Security Privatization Plan: Will You and Your Family Be Worse Off?"
"I Want My Safety Net"
"Why so many Americans aren't buying into Bush's Ownership Society" BusinessWeek cover story.

Pozen Blasts Bush Privatization Plans
The Center for American Progress reports on Pozen's opposition to "carved-out" accounts accompanying progressive indexing.
Team Bush propaganda methods dissected at the blog BE-THINK.
No Old-Age Security in the Private Sector Either
Joseph Stiglitz on dismantling public pensions and subsidizing private ones.
What Is the Social Security Trust Fund, Anyway?
Economist Andrew Samwick:

Think of the Trust Fund as a line of credit that the Social Security system extends to the rest of the government. The balance in the Trust Fund is simply the current value--principal plus interest credited at the Treasury bond rate--of all the withdrawals that the rest of the government has made historically on that line of credit to pay for things other than Social Security. Its projected balance at the end of the year is $1.85 trillion. Under current law, that balance is projected to peak at $3.61 trillion in 2022 before declining to zero in 2041. During those 20 years, the Social Security system will be calling in the loans that it has made to the rest of the government.

Keeping track of the total amount outstanding on these loans is the accounting purpose of the Trust Fund balance. It also has a legal purpose. Specifically, as long as the the Trust Fund balance is positive, then the system can pay the benefits implied by current law. It would require the Congress and the President to execute a new law to interrupt this process. When the Trust Fund hits zero, then it would take a new law to get full benefits paid on time--they would be paid only as tax revenues flow into the system.
Options for Social Security: Budgetary and Distributional Impacts[PDF]
CBO testimony before the Senate Finance Committee.
Retirement Income: The Crucial Role of Social Security
"An EPI news conference
Wednesday, May 25, 2005, 10 AM (ET)
National Press Club, Washington, D.C.

Co-authors Christian Weller and Edward N. Wolff discuss their new book, Retirement Income: The Crucial Role of Social Security
Dean Baker responds to a Washington Post editorial.
Privatization's Unintelligent Design
Greg Anrig, Jr. of TPMCafe on the "dynamic scoring" projections of Feldstein and Samwick.

Social Security Meta-Archive: 2005

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