Krugman: Inventing a Crisis (Soc Security Privatization Scam)

[RamboLiberal]

http://www.nytimes.com/2004/12/07/opinion/07krugman.html?hp=&pagewanted=print&position=

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse. Nonetheless, the politics of privatization depend crucially on convincing the public that the system is in imminent danger of collapse, that we must destroy Social Security in order to save it.

I'll have a lot to say about all this when I return to my regular schedule in January. But right now it seems important to take a break from my break, and debunk the hype about a Social Security crisis.

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

Right now the revenues from the payroll tax exceed the amount paid out in benefits. This is deliberate, the result of a payroll tax increase - recommended by none other than Alan Greenspan - two decades ago. His justification at the time for raising a tax that falls mainly on lower- and middle-income families, even though Ronald Reagan had just cut the taxes that fall mainly on the very well-off, was that the extra revenue was needed to build up a trust fund. This could be drawn on to pay benefits once the baby boomers began to retire.

[NEOBuckeye]

1. Krugman is dead on

"...the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it."

[Poppyseedman]

26. Krugman forgot to tell us something

The Trust Fund he talks about is full of IOU's (bonds). There is no real money in it.

At the point in time the Trust Fund surplus will be needed to fulfill it's obligations, the government will have the redeem the bonds the Trust Fund sold to the Treasury. To buy those bonds the Treasury will need to find the money somewhere.

The government has only one source of income.

You and me.

Krugman is right that privatization may not be the answer, but the problem is real.

[Ruffhowse]

2. I'm not optimistic, but I hope the media will do it's responsibility this

time (unlike during the buildup to the Iraq war or the election) and actually, maybe, possibly cover this issue objectively and thoroughly. If it does that, we might actually get true information (like what is in Krugman's editorial) out to the people. An objective look at this scam is really easy and doesn't take any background or education. Once the people see this scam, hopefully they will slam their congressmen to deep six it right away.

[izzie]

3. The Republicans also keep forgetting this is an ins. for families---

when the husband dies early. I am sure Bush will get this turned over to his friends on Wall Street, after all his family is there, so what can we do? I am also sure Bush will make a mess of it as every thing he gets into he makes a big mess of.Hard to understand his voters do not see this, or do, and do not care. Are we singing as the ship goes down or what?

[indepat]

4. Was it not Greenspan who proffered future social security benefits need to

be lowered to pay for the tax cuts he supported, all this just before his renomination as Fed Chairman? The joke is on we the people.

[papau]

5. Yes - and the media did not get outraged - because they do no analysis -

they just "report", meaning reprint GOP PR handouts.

[winston61]

6. THERE IS NO SS CRISIS

This is a huge pack of lies, SS is not insolvent. The goal is not privatization of SS, it is the destruction of SS. Do a little homework, go to the Cato Institute web site and then go to Grover Norquists web site. The plan is to accelerate the bankruptcy of the Fed. And if Bush can siphon a few trillion to the financial industry in the process, all the better. According to Norquist the Federal government has only two functions. Re-distribute wealth from top to bottom and fight wars. And guess who gets to fight the wars? Everything out of the Bush admin. has been a pack of lies, why would anyone think they are telling the truth now? Bush and Cato have got their hair on fire to get this done within the next 24 months. And the trillion dollar estimate of the 'transition' fee will pale in comparison to the reality. Has any government body ever estimated costs accurately? Call or write your Congressman soon.

[KoKo]

7. I thought Krugman was on a Sabbatical! It's a great read. My own House

Rep said there's no crisis with SS...He told us it was a Repug scam that could easily be fixed. But, he's a liberal Democrat and I wonder if the rest of our "hand wringing" Dems won't in the end join Bush in his scam to keep our Stock Market propped with false profits..

[mistertrickster]

8. This is great! It needs to be sent far and wide.

More lies from the right wing so they can destroy the most popular gov't program ever created.

[marew]

9. Krugman is great...

I saw Klugman get in a confrontation with that liar O'Reilly once (not on O'Reilly's show)and Klugman made mincemeat out of the jerk. O'Reilly, of course, got flustered and started screaming and and yelling at Klugman, who never lost his cool. Made O'Reilly look like the real a--hole he is. I loved it!

[tngledwebb]

10. Krugman is great

but NYT keeps him on a close rein, imo. Usually economics.

[homerjaysimpson]

11. Not entirely accurate

Not to rock the boat too much here but some things need more clarification.

"they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless."

Actually, this is verifiable, the "surplus" in SS isn't actually a monetary surplus. Its government bonds placed into the SS reserve account when the government spent the actual money throughout the years. In order to start using the 'surplus' money the government actually has to come up with cash that isn't there. The only way to get cash to put back into the bonds they would have to cash is through taxation or spending cuts across the board. This is not simply attached to this presidential term (although our huge defecit which further hinders any cash gathering operations is).

"But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own."

--My previous statement is the reason it will be a problem when we have to go into our 'cash' 'surplus'.

2) Social Security benefits of today are little more than a stopgap to being completely poor. Woe to anyone that actually relies on this as their sole retirement fund. That's not to say it isnt a help. But the simple math of the matter is that we are coming to a time soon when we will have to tap that 'surplus' and we are in for a rude awakening when we see that we will have to pay a) to repay the surplus and to b) also pay additionally to make up for the lost workforce due to the baby boom retirement.

I'm not making an argument for privatization but to paint this rosy picture of SS is as misleading as the rights claim that it'll be bankrupt in a few years.

[Overseas]

12. No one is thinking Social Security is fabulous

We know it is a mere pittance to stave off dire poverty, but Krugman is pointing out that it isn't broken enough to justify allowing the cruel and wealthy Republicans to try to fix it with their magic wand -- Privatization-- oops, the PC term is now "Reform."

[homerjaysimpson]

14. Clearly

As I said i don't say that privatization is the ultimate answer either, but according to the editorial its as if there is nothing to worry about. As a side note, it's getting pretty hard to remain a Democrat without having to accept giving up all of my personal choice to a large government entity.

[progressivejazz]

16. It would be pretty hard to remain a Republican, too,...

wouldn't it? I'm referring to the many attempts of Republicans to limit our personal choices in matters like, say, abortion.

Which are you?

On the Social Security issue, the middle class has been overtaxed for 20 years and will continue to be so until the FICA expenditures equal the FICA income from taxes. At that time, it would be logical to raise taxes on some other class, say the rich, so they can start carrying their share of the load. I assume you're against this but haven't been against the middle class's overburden for the last 20 years. Am I wrong?

[homerjaysimpson]

19. Thats

why I didnt vote for George Bush or for any other Republican since I've been voting (last 4 elections) It in no way means that if I don't feel comfortable with government having control over other things too that I'm not voting 'correct' Democrat. I'm not naiive enough to believe that everything our Party speaks is the complete unbiased truth either. All I'm saying is that there are financial and mathematical realities that are going to be needed to be tended to. We apparently come from 2 different ends of the liberal spectrum when it comes down to it. I'm new on the site and based on what i've seen so far I'm not sure I am exactly what most of you would call a Democrat.

[Poppyseedman]

25. I hope people read your post

Krugman is making this issue far too simple. He is doing a disservice to his readers. I am surprised as an economist he would write an article without really doing his homework.

Daniel Patrick Moynihan says we have a problem.

I'll take the opinion of Senator Moynihan over Mr.Krugman any day.

http://www.csss.gov/reports/Final_report.pdf

"As a result of these trends, beginning in 2016, Social Security will collect less in tax revenues than needed to pay full promised benefits. Between 2016 and 2038, Social Security will redeem bonds held in its Trust Fund make up the difference, requiring that the U.S. Treasury find the resources to redeem these bonds. These resources must come from higher taxes, public borrowing, or reductions in other
spending programs. Social Security’s deficits start small but grow rapidly, reaching $318 billion in 2035 (in 2001 dollars). The cost of paying benefits will rise from 10.5 percent of taxable earnings
today to almost 18 percent in 2035."

The dirty little secret is: there is no actual money in the Trust Fund. The bonds held by the Trust Fund are owed by Treasury. By 2016 Congress (the people) will have a serious problem.

[Maguzzi]

13. NOcial Security

See ya. Tis gone. Blame Greenspan, Bush, Rove and Cheney. WIll
pipe out trillions to the corp. boys to structure pvt plans. ANd
guess what, When they say they need that, they will take that from you too, or raise your taxes to sixty percent and garnish them like
they do with soc. Keep voting republican, you morons. Keep your
moral values and hawkish ways. Morons..... and then, Rove will find
a way to blame democrats for the defunt ss system. And people will
buy it because they are morons. They are laughing at you wake up.

[homerjaysimpson]

15. I didnt

I didn't vote for Bush but that doesn't mean I have to toe the Democratic party line. There's something to be said for stepping outside of politics for a moment to examine the FACTS surrounding something. SS is , sooner than later, going to run into a simple MATHEMATICAL problem that won't allow it to continue on in it's current state. Once the babyboomers retire and we find that the government cant really pay back the 'surplus' without running up taxes on everyone (poor included) its going to be like 3 or 4 users of the system for every 1 contributer. The simple math of it won't work out. It's not going to affect the rich, they have their money anyway they can afford any tax increases we throw at them to shore up SS. Its not really going to affect the truly poor (they don't have money to put into the system) What it will do is crush the remaining middle class workers who will have to bear added burden of the math not working out. Without privatization another method that could be looked at is going back to the ORIGINAL INTENTION of SS which is you get out what you put into it.
Its a broken problem that can't be fixed simply along party lines.

[shrike]

17. No offense, but I'll take Krugman's word over yours

His batting average is good and his credentials are impeccable.

[happyslug]

18. I think you missed Krugman's point

Krugman did NOT say Social Security is safe, Krugman admits there are problems with Social Security. Krugman's position is the problems are manageable, with just minor changes in the law. For example raising the Social Security age to 70 (Which was also part of the "reforms" of the 1980s) reduces the number of people on Social Security while increasing the number of people working. The Four workers to one person on Social Security you cite is based on the premise that people will stop working at 65 (as opposed the age 70 that will be effective at that time period) AND that the population of the US would only increase at the rate it was increasing in the early 1980s (The population shot up like a rock in the 1990s do mostly to immigration).

Thus the 4-1 ratio was the worse case scenario and the closer we come to that time period the less likely it appears to be happening. Furthermore if you looked at the "Historical" way to handle the problem of the aged you will find out it often was a four to one ratio (Adult children taking care of their elderly parents). Thus the 4-1 ratio is NOT that outrageous.

The real problem for Bush and Company is Social Security is a program that not only works, but a program where most of the money goes to the people instead of to the accounts of Bush and his lobbyist friends. Furthermore when FDR set it up FDR knew that the GOP will get around to trying to kill SS, so FDR came up with the idea of the "Trust Fund". The "Trust Fund" was to give people the idea that this was THEIR money being kept for THEIR old age. FDR knew how much support there was in the Country for "Welfare" (At the time of FDR none, the same as today). Given that there was no support for "Welfare" but support of your own "Retirement Account", FDR set up Social Security as it is set up. This was to give the middle class a feeling that it was a program to BENEFIT them, and as such has always has massive support.

And let us NOT forget why Social Security is a "Tax". Under the concept of Federalism that existed in the 1930s, it was feared that if the US Government set up Social Security the US Supreme Court would strike the law down as violating the Rights of the States. FDR solved this problem by setting up Social Security Tax as a tax on income, something clearly permitted by the Constitution. FDR than gave each state the option to join in with his Social Security Plan. Thus Social Security is NOT a Federal Program, but a State program administrated by the Federal Government as an Agent of each state. Please note, while each state had (and continue to have) the option of dropping out of Social Security, the duty to pay the tax remains. Thus a state may opt out of Social Security but if a State does opt out, its Residents still pay the Social Security Tax (Thus all states passed laws authorizing the Federal Government to run the Social Security System in their state).

FDR knew what he was fighting, the same radical GOP we face today. The above is the main reason the GOP hated FDR. FDR knew how their operated and planned accordingly. Social Security has worked for FDR knew it would only work if the vast majority of Americans received some benefit from it. The GOP hates SS for the Vast majority of American get a benefit of it. The GOP tried to use its policy of divide and Rule when attacking SS under FDR but FDR made sure support for FDR was overwhelming.

Today the GOP is again trying to use Divide and Rule, this time by telling people you be better off investing your SS money yourself than leaving the US Government invest the money. This is a lie, for every financial person out there will tell you to diversify your holdings and to invest what you need to live on in the safest investment you can (US Treasury Bonds). Social Security invests in US Treasury bonds, thus Social Security is already part of your "fall back" money. Could you do better than T-bonds, yes, but at greater risk. When you retire what you get from Social Security should be your "fall back" money. If you would take your money of of Social Security and invest it, you should treat it again as "fall back money" and invest it in the safest investment possible, T-Bonds. Given that SS is already in T-Bonds why change SS?

[homerjaysimpson]

21. No i see what he's saying.

I just dont agree with a lot of it.

First off don't you see anything wrong with witholding benefits until your 70? Yeah I know that people are living longer but it doesn't mean they should have to work all of those extra years they live out in old age. And if it's 70 then....what is it going to be when I retire? The average life expectancy is 77!

As far as FDR I'm not sure i follow you. Either you're saying that FDR created SS not as a retirement account but as social welfare but just FOOLED the middle class into thinking it was for them, in which case, it doesn't matter to me what the party is, I'm not much on politicians telling lies.....look where its gotten us. Or you're saying that it is truly a retirement account , but then you ignore that it has been expanded well beyond its original design.

I know that it's not a 'federal' program but who are we kidding? What state would really give up the right to benefit from any program but still be responsible for paying for it? That would be political suicide for any politician who tried that.

As far as investing goes....there are many equally safe investments that can give you a better return that your T-bond would. I'm speaking from the middle class and as such, I'm not so sure that having fall back money by, when i qualify at what 73, 75 years old is even going to make any difference.

[stevebreeze]

20. Some basic FACTS on SS

SS is a separate system from income taxes. SS can pay every dime in benefits it owes from now until 2042 with no changes. After 2042 it can pay 80% of promised benefits with no changes, this dollar amount in inflation adjusted dollars, is more then retiree's receive now. The SS trust fund is t-bills. The United States of America had never defaulted on it's Treasury bills in the history of the nation. The only risk is that the US refuses to pay this debt. We taxpayers have been OVERPAYING SS since 1982. If we don't get paid back Greenspan and the GOP will have a hellofalot of explaining to do. The Bush tax cuts are 3 times as large as the SS projected shortfall, so relatively small changes are needed to fix SS. Changes like raising the age at which benefits are paid are highly regressive as the wealthy live longer then the poor. Personally I not had one single elder direct relative live long enough to receive a dime of SS.


lots more (& better organized) info is available here.
http://www.cepr.net/publications/facts_social_security.htm

[homerjaysimpson]

22. Go Pack

LOL

But seriously, isnt it a problems of SS that you haven't seen any of your relatives claim it? Its because its set unrealistically high, is it sheer coincedence that it cuts costs when you dont ever pay a person?
The age keeps getting changed because its one way to say that SS is working like usual. I nkow the government probably would default on those T-bills but when it comes time to start cashing them in it's going to be a huge hit on expenditures (since the government has to pony up cash for the T-bill) Say it happened in an economic time such as this one right now. Do you think it wouldn't further harm the economy if we had to start paying for cashed in T-Bills too?

[progressivedancer]

23. good

post Happyslug and that was a nice link Stevebreeze.

HomerJSimpson (great name)I don't understand yet what you think would be good solutions for today's SS problems. Are you for privatization? SS i think, is a great system that is there to ENSURE stability and serve as a social safety net. If SS is privatized I don't think our market can offer the same perks, as SS will become another victim of its profit taking, scandal ridden roller coaster. SS would no longer be SOCIAL SECURITY.

As i gather more facts and information about SS and privatization I will make a decision on what is most fair and efficient. For now privatization seems to be losing out in the argument.

[stevebreeze]

24. my relatives have all had a nasty habit of dieing before 60

I am 51. If the government has trouble paying back the t-bills it is not the fault of the SS structure it is the fiscal insane policies of tax cuts for the rich while rapidly expanding spending. It is keeping interest rates ridiculously low while the dollar tanks. These have nothing to do with SS.

[Bozita]

27. Krugman will visit Bob McChesney on Sun 12/12 at 2pm EST -- link to stream

http://www.will.uiuc.edu/am/mediamatters/

Welcome to another edition of the WILL-AM Media Matters email
update!


THIS WEEK'S GUEST

-------------------------------

This week's guest on Media Matters is Paul Krugman, professor of
economics at Princeton University, and an Op-Ed columnist for the New
York Times. The Economist magazine has named him one of the top
international economists. Krugman is the author of numerous books,
including "The Return of Depression Economics"; "Peddling
Prosperity"; and "The Age of Diminished Returns." Last year he
authored the best-selling book, "The Great Unraveling: Losing our Way
in the New Century." With Robin Wells, he has come out with a new
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--------------

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LAST WEEK'S GUEST

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