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February 08, 2009

Oh Good

This is from a Time Magazine article about Larry Summers and how incredibly brilliant he is:

[P]erhaps as early as March, they'll launch their biggest lift with the beginnings of a plan to reform Social Security and Medicare, the two entitlement programs that, even before the economy collapsed, were threatening the Treasury with bankruptcy. By any standard, it is a massive three-month agenda fraught with political risk. The key to getting it all done, Summers says, is entering into a "compact" with the country "that this isn't just government as usual throwing money at things." When Obama unveils his annual budget in late February or March, Summers promises that the President "is going to describe the kinds of approaches he wants to take to the entitlement problems that have been ignored for a long time." Some options might include delaying retirement, stretching benefits and lifting the cap on taxable earnings. Could one of these prevail? "Remains to be seen," Summers says...

On that front, Republicans could come to Obama's rescue. Senate minority leader Mitch McConnell has told Obama in person that his party favors entitlement reform and would work for passage if both parties shared the risk.

It really required a Democratic president full of hope and change to cut Social Security.

—Jonathan Schwarz

Posted at February 8, 2009 10:09 AM

Far be it from me to defend Summers (or even Obama) but lifting the cap on taxable earnings is a good idea. Someone who makes a million dollars a year should pay Social Security taxes on all of it, instead of just the first hundred thousand or so, which is the case now.

But yeah, Summers should be in jail rather than making economic policy.

Posted by: SteveB at February 8, 2009 10:50 AM

Lifting the cap won't help that much since the tax (if I am not mistaken) only applies to the earned income, and the high incomes are mostly unearned (capital gains, dividends, interest). This is a red herring, for the most part.

Posted by: abb1 at February 8, 2009 11:11 AM

Two of the three alternatives--reducing benefits, postponing retirement--affect the poor and m iddle class.

One requires spreading the "pain" to Obama's most powerful supporters and richest beneificiaries.

lessee, which group do YOU think will get away clean?

Posted by: woody at February 8, 2009 11:33 AM

PS: I wanna see that prissy mug of McConnell's contorted in agony from the kick in the stones he deserves for his posturing...

Posted by: woody at February 8, 2009 11:36 AM

I've come to believe that everybody in this government thinks they're Jesse James. (Voter Initiative On The BUDGET And TAXES, Folks)

Posted by: Mike Meyer at February 8, 2009 11:59 AM

At this point the cap really is absurdly low-lifting it would definitely increase revenue.

Does anyone know if this noise about social security going bust is true or not? I read Chomsky somewhere saying that Social Security is solvent-it's the health care system that is in need of massive reform.

Posted by: Seth at February 8, 2009 01:52 PM

If this isn't the absolute limit! MOST infuriating is that word, "entitlement." It suggests a horde of greedy senior citizens intent on lolling around and sneering at younger working folk. Funny, the ones I know worked hard most of their lives and are now worried about making ends meet. As for "entitlement,' what does Summers think about the ten million a year and over parasites who have bankrupted the country? Oh, I forgot, they're untouchable--they 're friends of his.

Posted by: Rosemary Molloy at February 8, 2009 01:58 PM

there's almost nothing substantial in the quote from summers himself. they'd have to be crazy to talk about cutting benefits now. maybe they will, maybe that will be the seed of real rebellion.

Posted by: hapa at February 8, 2009 03:15 PM

It's so great that the Republicans are going to help Obama, even sharing the risk of taking on the greedy geezers! Wow -- who said bipartisanship wouldn't work? (Sarcasm alert for the irony impaired: the preceding paragraph is not to be taken literally.)

Seth, Social Security is nowhere near going bust; it isn't only Chomsky who knows better. The forecasts which claimed that benefits would have to be cut by 2042 were based on absurdly low projections of economic growth. Of course, the Republicans and their Democratic helpers fixed that, by making sure that the economy tanked in the past year, but that just makes Social Security and other social programs more necessary, not less. And Social Security can be fixed relatively cheaply, by raising the cap and other simple means. The trouble is that Obama wants to increase other expensive and destructive programs like military spending, so he's going to have to make some hard choices. It's important that citizens make sure he knows he'll be in trouble if he is too helpful to his rich confederates and not helpful enough to the rest of us.

Posted by: Duncan at February 8, 2009 03:25 PM
As an economist, Summers has more credibility with Republicans than many other Obama officials do.

yeah, they're not real big on real science.

Posted by: hapa at February 8, 2009 03:34 PM

Well, strictly speaking saying that Social Security is "threatening the Treasury with bankruptcy" is not incorrect. That's because the Treasury has been borrowing heavily from the Social Security trust fund for 25 years and soon the Social Security will (unless 'reformed') start cashing the IOUs it has accumulated. So the Treasury might very well go bankrupt indeed, unless it finds a way to raise funds or to avoid having to pay up.

Posted by: abb1 at February 8, 2009 04:20 PM

Please tell me if I'm wrong, but I thought that not only did the wage slaves produce their share of Social Security, but didn't Greenspan or someone of those elites require a *doubling* of the SS tax in the '80s, and since the '80s?

Posted by: woodyeofalb at February 8, 2009 06:29 PM

Larry Summers is a disgrace.

Posted by: bobbyp at February 8, 2009 11:39 PM

seth, abb1: Google Dean Baker and get some serious educating about the numbers. The idea that Social Security is "going broke" or would "bankrupt the country" are pernicious falsehoods.

Some guy named Bush brought this crap up 4 years ago.

Posted by: bobbyp at February 8, 2009 11:44 PM

Woody...yes. See Tom Frank's "The Trillion Dollar Hustle" (available on-line).

Posted by: bobbyp at February 8, 2009 11:48 PM

As others have pointed out, there is no reason to assume in advance that proposals will involve cuts in SS. Lifting the ceiling on income subject to SS taxes is something I've advocated for a long time and would produce no cuts in benefits.

We'll have to be watchful, obviously, because the fact that there need be no cuts in SS benefits doesn't mean the proposals won't call for them.

Posted by: LarryE at February 9, 2009 12:15 AM

Bobbyp, but the piece (or at least the quote in the post) doesn't say that Social Security is going broke; it says that the Treasury is going broke. And indeed it is.

Of course the Treasury could be fixed by raising the income taxes, and/or by gutting the Pentagon, but these solutions, of course, lie far outside of the realm of sanctioned discourse.

Imagine a $5K/month heroin addict and his desperate struggle to reform his $2k/month child support obligations that are threatening him with bankruptcy...

Posted by: abb1 at February 9, 2009 03:29 AM

Not sure I get the connection between heroin and child support.

Posted by: dapajoe at February 9, 2009 07:17 AM

bobbyp: Larry Summers is a disgrace.

And who appointed him? No, don't tell me... it'll come to me ... let me think ... it's on the tip of my tongue ... something to do with Hope and Change...

I recall back when Obama was announcing all these disgraceful appointments, his partisans were telling us that it was okay because he was going to be boss, they were just going to be the team of rivals that would do his bidding. And I believe that. So let's not put all the blame on Summers, scum though he is; just remember where the buck stops.

Posted by: Duncan at February 9, 2009 10:23 AM

What does it mean to say "the Treasury is going broke"?

Posted by: Klaus at February 9, 2009 11:31 AM

Why, very large deficits with no end in sight, I suppose.

Posted by: abb1 at February 9, 2009 12:13 PM

If they lift the cap on earnings, could they they set a certain amount that one earns before they start taking out any tax?

What are they taking now? Is it 6.75% from the first dollar of a paycheck up to $72,000? Could they start taking taking from the first dollar earned after one has earned $5,000, $8,000, $10,000? Should I be asking Dean Baker this question?

Posted by: cemmcs at February 9, 2009 12:52 PM

"Why, very large deficits with no end in sight, I suppose."

Then the Treasury is broke as we speak?

Posted by: Klaus at February 9, 2009 04:18 PM

Well, you see, a few years from now the Social Security trust fund is supposed to start redeeming over $2 trillion worth of bonds it will have accumulated. It'll be doing on for about 30 years or so.

Before the trillion dollar wars, trillion dollar bailouts, and trillion dollar stimulus plans that was considered a serious problem. Now, of course, it could be viewed as just one of those 2 trillion dollar things.

Still, while wars and bailouts are sorta like (one would hope) short-term emergencies, this one is a totally foreseeable long-term phenomenon.

Posted by: abb1 at February 9, 2009 05:06 PM

"Still, while wars and bailouts are sorta like (one would hope) short-term emergencies, this one is a totally foreseeable long-term phenomenon."

....that is fully financed until nearly mid century. Conclusion: This is a non-problem.

Posted by: bobbyp at February 10, 2009 11:35 PM

"Why, very large deficits with no end in sight, I suppose."

A very large and growing economy can sustain large and growing deficits. What it cannot sustain is a structural deficit that grows faster than the economy....for that see tax cuts, George Bush's.

Posted by: bobbyp at February 10, 2009 11:40 PM

"If they lift the cap on earnings, could they they set a certain amount that one earns before they start taking out any tax?"

As a political decision, they could, but it would imperil the social insurance compact that lies at the very heart of Social Security. Google "social security + means testing".

Posted by: bobbyp at February 10, 2009 11:44 PM

You don't understand, bobbyp. The Social Security is is fully financed until nearly mid century. The US Treasury is a different entity.

Imagine that you are the Treasury and I am the Social Security. Imagine that you have been borrowing substantial sums of money from me for the last 25 years and now you owe me 2 trillion dollars.

This $2 trillion is my asset and your liability. I have $2 trillion in assets and yes, I am fully financed for many decades, and am planning to start collecting soon - but for you it's a different story; you have $2 trillion liability that you'll have to start paying off soon, and for you it might be a bit of a problem.

Does it make sense now?

Posted by: abb1 at February 11, 2009 04:19 AM


Yes. I am the Treasury. I can roll over the debt. I can tax. I can print money.

What? Me worry? With liabilites like those, who needs assets?

Of all the long term scenarios folks like to throw around about this alleged problem, default is not a realistic one, unless of course, you are one who believes those bonds in the Trust Fund are some kind of fictional bookkeeping entry. Bush and his merry band of thieves tried to promote that in order to gut the program.

Default implies a much bigger set of crises than some 2% of GDP taken to the "infinite time horizon", and all bets would be off.

Posted by: bobbyp at February 12, 2009 01:34 AM

Oh, I agree that as the Treasury you, generally speaking, can raise money: tax, enforce the existing tax laws that the rich doesn't seem to obey, cut military spending, borrow.

Still, these solutions are taboo in this political culture, and so it is an issue; and while the mantra that Social Security is "fully financed" is technically correct, I think the affect on the Treasury needs to be acknowledged.

Posted by: abb1 at February 12, 2009 04:17 AM

TREASURY ASSETS= 1. NO gold. 2. Shrapmiers' Perpetual Motion Money Printing Machine. 3. World's Largest American Express Card (WE don't leave home without it). 5. What's in YOUR wallet.
No.2 & no.5 sez NO PROBLEM.

Posted by: Mike Meyer at February 12, 2009 01:06 PM

Well, they don't like the printing machine because it's bad for the creditors.

As far as "your wallet" goes - that's exactly how they subsidized the treasury in the last 30 years - by borrowing from the paperboys' and janitors' payroll taxes. But now when they have to pay it back - that's a big problem, because now it would have to be the wallets of people who matter, and that's politically unacceptable.

Posted by: abb1 at February 12, 2009 05:04 PM

abb1: your 05:04 post. Precisely. However, the rich cannot afford to take this country into default on its sovereign debt. They hold a big chunk of it. Such a problem they have! Still trying to get something for nothing.

As far as the "affect on the treasury" goes that is a chimera blown out of all proportion by artificially discounting 'infinite time horizon' of the SS deficit into the present. You can do the same analysis with the pentagon's budget and get much bigger 'deficit' numbers. Why is THAT not a problem?

Get off soc. security and find a REAL problem that needs to be addressed right now. I hear there are actual living human beings in this country who are ill housed, ill clothed, and ill fed like RIGHT NOW.

Apologies for the caps! :)

Posted by: bobbyp at February 12, 2009 11:36 PM


Teh effect on the Treasury? Get real. Other treasury bonds are paid back. Is paying back those bonds any different than the bonds held by the Trust Fund? If I put all these bonds in that famous room that Bush visited and shuffled them around, could you pick out the Trust Fund bonds from those held by the Chinese or by insurance companies, or by retirees living off the interest? Do they smell different, or what? These bonds will be redeemed over a period of approximately 40 years. For cryin' out loud. Get a grip.

The alleged need to "address" this problem is nothing less than a political issue--an attempt at a heist on a scale heretofore unimagined. It is not a fiscal problem. It is a political issue of those who got trying to keep what they have, pure and simple.

Posted by: bobbyp at February 12, 2009 11:47 PM

I PERSONALLY approve of caps.

Posted by: Mike Meyer at February 12, 2009 11:51 PM

Other treasury bonds are held by them, by the rich, rich individuals and banks; they must be paid back. But the social security bonds belong to a program that can be modified, rules changed in such a way that these bonds will never be redeemed. There is a group of people who are supposed to represent the interests of the beneficiaries - the trustees, but thy are, of course, picked by the same people who control the treasury.

The pentagon is different in that theoretically it's not an 'entitlement', not a definite liability; in practice, of course, it is an entitlement, but theoretically the amount of money given to the pentagon is something they decide every year.

Posted by: abb1 at February 13, 2009 04:04 AM

The fact that the program "can be modified" is irrelevant. The bonds have to be "paid back". To default on these particular bonds raises the specter that any of our bonds can be reneged on....say all those ending in odd numbers, or whatever politicians dream up.

Theoretically, social security benefits can be 'decided' every year also. As you endlessly point out.

Posted by: bobbyp at February 13, 2009 10:34 PM

No, the fact that the program can be modified is very much relevant. They could, for example, cut the benefits or raise the payroll taxes and then the bonds don't need to be paid off; they'll just sit in the trust fund for the next 100 years.

Ordinary bonds are not like that, they have fixed maturity date and after that the investor receives the cash. The social security can be modified to never take the cash.

Yes, the benefits could be decided every year, but that's not how this program works. The benefits are decided once, and to change them the program has to be reformed. With the Pentagon, it's simply decided every year.

Posted by: abb1 at February 14, 2009 06:55 AM

Those bonds are an asset to Social Security, and the law mandates they be cashed in and the funds spent. Locking them away "for 100 years" is a default on a lawful obligation, and the implications for other bondholders would be, nobody in their right mind would ever want to own a Treasury bond whose promised payment of principal and interest depends upon some political whim.

Arguing that the Trust Fund bonds are somehow "different" than other Treasuries is essentially buying into the privateer's (i.e., looters) meme that the Trust Fund is a "ficticious" accounting entity. It most definitely is not.

Posted by: bobbyp at February 14, 2009 11:09 AM

Government sells a bond. They get cash. They have to spend it on stuff, otherwise what's the point of issuing the bond? To issue a bond and never redeem it is known as default. Claiming that since the government "owes it to itself" and can wave a magic wand and make the obligation simply "go away" is default. I prefer to call it for what it would really be--theft.

The privateers implicitly acknowledge this. They wanted to get their hands on those bonds to finance the privatization of the system...i.e., spend them.

Furthermore, the idea that benefits could be cut and the bonds "just left there" is ludicrous. The political demand to lower SSN taxes and draw down the Trust Fund would be unstoppable. Rest assured, the Trust Fund will be drawn down one way or another.

Posted by: bobbyp at February 14, 2009 11:27 AM

No, I think an analogy here would be an investor who buys a bond, puts it in a safe, and then, after the maturity, never attempts to redeem it. He prefers to lower his standard of living rather than getting his money and spending it.

Of course you can't expect a sane person to do this, but in the case of social security the owners of the bonds gave congress the power to make this decision, and the congress, of course, has a clear conflict of interest here, as it controls and is responsible for both social security and the treasury.

Congress has a strong incentive to keep the taxes to low, to finance the pentagon, etc. This is in contradiction with its much weaker incentive to provide higher social security benefits.

How this will work out in the end god only knows.

Posted by: abb1 at February 14, 2009 01:22 PM