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January 08, 2005

Why Peter Wehner Is Wrongedy-Wrong-Wrong

As I just said, Bush lackey Peter Wehner wrote an email this week to "opinion leaders" about Social Security. One thing he said was this:

Here's a startling fact: under current law, an average retiree in 2050 would be scheduled to receive close to 40 percent more (in real terms) in benefits than an average retiree today -- and yet there are no mechanisms in place to produce the revenue to pay out those benefits. No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real terms) compared to what a person retiring today receives.

This is preposterously false, and so I mocked Wehner for saying it. But I left out why it's false. Here's why:

1. What did Wehner mean?

By "in real terms," Wehner means "after you take into account inflation." In other words, it's not that a 25 year-old will receive 40% more because of inflation. Today's 25 year-olds are promised benefits genuinely worth 40% more than the benefits retirees receive today.

Here are the actual numbers. (I'll eventually put the sources for all my numbers at the bottom of this post. For now you just trust me. If any figures seem egregiously wrong, please contact me at tinyrevolution(at)yahoo*dot*com. I've made mistakes before.)

An average retiree receives $14,900 per year in Social Security.

An average retiree in 2050 will receive $20,500 per year (measured in 2004 dollars).

$20,500 is 37.6% higher than $14,900 -- or, as Wehner put it, "close to 40 percent more."

Again: this is after inflation. If prices in 2050 are twice as high as today, average retirees will be getting $41,000 per year, because $41,000 in 2050 will be worth the same as $20,500 in 2004. ($20,500 X 2 = $41,000.)

2. So, why should 2050 retirees get more than retirees today?

It's very simple: the US will be a much richer country in 2050. And it will be much richer BECAUSE of 2050's retirees. Hence, they deserve to share in the wealth they created.

If you divided the 2004 US economy so that everyone got an equal share, every man, woman and child would get $38,234. By 2050, that number is predicted to be $66,580 -- about 75% more. This means that if you make $40,000 a year today, someone like you in 2050 will make (speaking very roughly) $70,000.

That 2050 person will not be 75% smarter or nicer than you. They will have that extra money because of the work Americans are all going to do between now and 2050. Between now and then, you and I and other Americans are going to invent many new things, and more efficient ways to make current things. We're going to give birth to, raise and educate the workers of 2050. And we're going to keep the country secure. For that, you and I and other Americans deserve to share in the wealth we've created when we retire.

Think of where we are today. As I say, current per capita GDP is $38,230. In 1960 (the same distance from today as 2050), per capita GDP was $12,990.

Why are we so much richer? I can only speak for myself, but I'm not smarter or nicer than people who were my age in 1960 and are now retired. The reason I'm so well off is because of lots of things they did. I didn't invent the transistor, or the mainframe computer (leading to the laptop I'm typing on right this second). I didn't give birth to, raise and educate myself. And I didn't fight and win World War II.

BUT -- what Peter Wehner is saying is that I should disregard all that. After all, if there's no reason for 2050's retirees to get higher benefits than today... well, why should today's retirees get higher benefits than retirees 45 years ago? The logic is exactly the same.

And today's average retiree gets $14,900 in Social Security. There are many ways to calculate this... but from Wehner's perspective, it would be completely fair to cut those benefits to $5,000.

After all, what did today's old geezers ever do for me? I mean, besides creating everything good about the world I live in?

3. Here's another way to look at this.

By paying payroll taxes to provide for today's retirees, today's workers can be said to be "investing in America."

Another way to "invest in America" is to buy savings bonds. That is, you're giving money to the US government now, hoping for a real, after-inflation return when you cash the bond in. The government sells something called Series I savings bonds. These bonds are "inflation-indexed," meaning that they will always return a certain set amount above inflation. Right now that set amount is 1.0%. Using the handy Money Chimp calculator, we find that over 45 years, Series I savings bonds provide a 56.55% return. (This is more than 45% because interest compounds.) Why is this possible? Because the economy will be more productive in the future.

And yet, by Peter Wehner's logic, no one on this planet can tell you why Series I savings bonds do this. Perhaps the entire Treasury Department is located in the huge building next to my house on Mars.

Likewise, by Wehner's logic, no one can explain why workers in the present make so much more money than in the past. What a terribly confusing planet this is. Nobody can explain anything!

4. Why Wehner said this irritating and preposterous thing.

We can never truly know the heart of another person. We can only make fun of them in hopes they'll wise up. But there is a clue to Wehner's perspective in the savings bond example above.

I'm sure it's fine with Wehner for people to buy bonds as individuals and get a return on them. Likewise, he thinks it's fine for people to have individual bank accounts and own stocks. However, he hates the idea of Americans sharing in America's increasing wealth without investing privately. He believes only private investors should get the money. Of course, they already get lots of it. And that's fine. But Wehner thinks they should get all of it.

Here's why they shouldn't: imagine a teacher starting out now who works for 45 years. She awakens a love for knowledge among hundreds of young people. In 2030 one of her former students invents an extremely effective medicine for heart attacks. In 2035, another starts a company making cars that get 400 mpg. Yet because she works at a low-paying Catholic school and never marries, she never makes enough money to save much herself.

Or imagine a soldier who fought in Operation Iraqi Freedom. He was shot in the leg and it had to be amputated. For the rest of his life, he works as a janitor. Perhaps he could have made more of himself, but his amputation made him uncomfortable around people, and he never tries. He never saves much either.

Do this teacher, do this veteran, deserve a modest share of America's increased wealth when they retire in 2050?

Peter Wehner says: NO WAY.

But most Americans say: YOU BET THEY DO.

That's why Social Security is so popular. It's fair, relatively painless, and it works. And that's why the Bush administration's only way to undermine it is to tell ridiculous lies.

5. Peter Wehner is a complete joke, but not a funny one.

It's a matter of faith among privatizers that the "return" on Social Security is too low. They talk about this constantly. And yet... Wehner is telling us the return on Social Security is too high.

Huh. It's almost like they'll say anything at all, no matter how contradictory, to make their case. This seems to remind me of something, but I just can't remember what it is.

* * *

Well, I could go on talking about this for the rest of my life. Indeed, I probably will. But not in this specific post.

Posted at January 8, 2005 07:56 AM | TrackBack

So, some of you want to bet on the American stock market in the hope you'll be richer later on. If I could go back 5 years, get back the money I invested in supposedly safe companies and mutual funds - no dot coms or anything risky for me - I would have about $400,000 if I had put it in a hole. As things are now, thanks to the corruption that our govt. won't do a damned thing about, I have less than $100,000. You are betting the Chinese won't call in their chips, the American stock market will improve, there will be no more terrorist attacks. On a personal note, you're betting you'll stay healthy and your employer will want you to keep working until 65. As things are now, just about everyone can depend on at least $12,000 each year from SS; many get more. If you want to invest for yourself, go ahead. But the system must stay as it is and must provide a safety net for all.

Posted by: P.Larkin at March 9, 2005 12:59 PM