NYT Lowenstein Super great article on Social Security

[papau]

http://www.nytimes.com/2005/01/16/magazine/16SOCIAL.html?adxnnl=1&oref=login&adxnnlx=1105906703-q3vXLPFXujICqd0RcVRZAw&pagewanted=all&position=
January 16, 2005
A Question of Numbers
By ROGER LOWENSTEIN

THE CONSERVATIVE NEW DEAL

In 1938, the Social Security Act was only three years old, but its
future was already very much in doubt. Conservatives claimed it would
bankrupt the nation, and independent critics argued that the way it was financed amounted to 'financial hocus-pocus,' as one editorial in The New York Times put it. President Franklin D. Roosevelt defended the program, said by a cabinet member to be his favorite, with some of his trademark oratory. 'Because it has become increasingly difficult for individuals to build their own security,' the president told a national radio audience, 'government must now step in and help them lay the foundation stones.'

Social Security did become the cornerstone -- not only the biggest
government entitlement plan but also the most universal, the most
popular and the most enduring. But the debate over Social Security never ended. Barry Goldwater wanted to repeal it; Milton Friedman wrote in 1962 that it was an unjustifiable incursion on personal liberty; and David Stockman, the budget director who personified Ronald Reagan's efforts to shrink the federal government, tried to take a hatchet to Social Security, which he called a 'monster.'

But in this 70-year struggle, no other conservative has ever come as
close to transforming the program as George W. Bush. He is making Social Security reform, including a partial privatization, a centerpiece of his second term. If the most ardent ideologues have their way, such a reform would be a first step toward a wholly new approach to retirement security -- one that would set aside the notion of collective insurance and guaranteed minimums for that of personal investing and responsibility. <snip>

But is it? After Bush's re-election, I carefully read the 225-page
annual report of the Social Security trustees. I also talked to
actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is. <snip>


Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, 'The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. 'The only thing we are sure of is that it won't happen precisely as we project,' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its
''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but
David Langer, an independent actuary who made a study of Social
Security's previous projections compared with the actual results in
2003, thinks the 'optimistic' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimisticcase -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.<snip>

[Pegleg Thd]

1. By 2042 I would be

104 and dead for about 20+ years.
The bush-lickers just want to steal from the elderly and poor to fatten their own pockets now. For those of you not as old as I am. They are wanting to steal your future!!!!!!!!

[StephanieMarie]

2. We're not going to live longer, because we're too fat.

[Skink]

3. Get over it we took the money...

There is no trust fund. Freeper response.:freak:

[papau]

6. He answers that very well-go tell Japan their US Bond holding is worthless

because we spent the money.

[Warpy]

4. They're not telling you what the real crisis is.

Congressmen from both parties have been using that 40% of your FICA which represents what should have gone into the trust fund for pet pork projects and military expansion. They've also used it to mask the effect of lowering taxes on big corporate donors and the fat cat rich men who control them.

As the baby boomers begin to retire, that gravy train will end, and they are going to have some unpleasant decisions to make. It will no longer be possible to hide the giveaway to the rich by robbing money from the poor. Either they will have to put the Pentagon on a strict diet, or they will have to tax the sainted rich. Failing that, they will have to sacrifice votes by starving old people, something I doubt they're quite ready to do.

It's going to be fascinating to see which option they choose.

[papau]

5. Other great points that are made mirror DU threads of the past year!

The chart on DU re prior deficit years is in this "Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss."

The liars and lies about numbers is in this "John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.)

The past history of the start of Soc Sec and the GOP screaming "Socialism by the bacl door" is in this: "In 1934, when Franklin Roosevelt formed the Committee on Economic Security to design what was in effect the first federal safety net, the committee hired three actuaries to stargaze into the future. The
actuaries predicted that the proportion of Americans over 65 -- then
only 5.4 percent -- would rise to 12.65 percent in 1990, meaning that
retiree costs would soar. They were just a tad high; the actual figure would be 12.49 percent. The committee was sharply divided on how to prepare for this demographic onslaught. Harry Hopkins, who oversaw the New Deal's relief program, thought the U.S. should simply pay retirement benefits from general funds; the more fiscally minded Henry Morgenthau Jr., the treasury secretary, wanted a self-financed system. F.D.R. sided with Morgenthau; above all, he said the system should be simple -'nothing elaborate or alarming about it.'But the opposition wouldn't die. The issue that sparked the loudest protest was one that still burns today: the trust fund. Deductions from pay envelopes began in 1937, but benefits weren't scheduled to start until 1942, and there was a great deal of mistrust about where the money was going. Government actuaries sheepishly explained that Social Security was building a reserve eventually expected to reach $47 billion. This was an awesome sum -- eight times the total then in circulation. Alfred Landon, the Republican who ran against Roosevelt in 1936, called it 'a cruel hoax' on the American people. His platform, sounding uncannily that like that of Republicans today, stated, 'The so-called reserve fund . . . is no reserve at all, because the fund will contain nothing but the government's promise to pay.' Arthur Altmeyer, head of the Social Security board, came under heavy fire at a Congressional hearing. Looking for a way to safeguard the reserve, he made an intriguing suggestion: why not let the government invest in sound private securities, and thus insulate the surplus from Congress's eager hands? As Altmeyer recounted in his memoir, Arthur Vandenberg, a Republican senator from Michigan, threw up his hands and snickered,'That would be socialism!' To quell the furor, Roosevelt turned to that standby device for embattled politicians -- an advisory council. The council arrived at an expedient solution, though one with troubling longer-term implications. It suggested increasing benefits for the first generation of retirees, even though that group had paid little in payroll taxes. An amendment in 1939 raised their benefits and also created new classes of beneficiaries -- wives, widows and survivors. This was a departure from the principle that all workers would be treated equally (couples would get more than single workers) and added an element of 'need' -- a point that would rankle conservatives and later fuel the privatization movement. But in the political climate of 1939, it had the advantage of soaking up surplus taxes and greatly reducing the rate at which reserves would accumulate in the trust fund. F.D.R., anxious to have the controversy settled, went along, even though the changes paved the way for theeventual deficits he had feared." <snip>

The DU future folks will live longer fear being overblown is here: "Social Security's key long-range projection is that, over 75 years, it will come up short by an average of 1.89 percent of payroll. Though deficits would still loom beyond 2080, the problem could be fixed until then by an immediate tax increase of 1.89 percent, or a benefit cut of roughly 13 percent. (Democrats tend to favor a combination.) But this all assumes that the middle projection is right. And several underlying assumptions of that middle projection tend to exaggerate the potential deficit. The first concerns longevity. A 65-year-old man today can expect to live to nearly 82. According to the most likely projection, in 2080 he should expect to live to 86. Goss says that the agency is assuming that medical technology will deliver more 'miracles.' Most demographers agree with him, and some even think the agency is not being optimistic enough. The only trouble is, as Goss notes, that over the past 20 years 'they have been wrong at every turn. There has been less improvement than we were expecting.' Indeed, the improvement in mortality has slowed significantly. And no one is sure why it has slowed. Nonetheless, the agency expects a sharp rebound over ensuing decades. Its fiscal gloominess thus depends on a speculative uptick in medical miracles. <snip>

And the conclusion of no problem except for folks that like to make assumption changesthat, while appearing small changes, would have a drastic change from what is most likely - namely no tax increase needed - ever - is here: 'The basic point here is that tiny swings in any of these or otherfactors could improve -- or worsen -- the program's balances. If a few of them lean in the direction of the optimistic forecast, the trust fund will cover benefits through 2080, or close to it. Would such a program, which appears to be solvent or near solvent until the limit of what is humanly forecastable, be improved upon by the various schemes for privatization? <snip>

The equity return is better captured - if that is the goal - by the Trust investing in equities is here "in any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck. ...Even though state pension funds and some U.S. agencies, including theFederal Reserve, put some pension money in stock-index funds,conservatives still react as if such a solution for Social Security were akin to turning it over to the Kremlin. Peter Ferrara, a former White House staff member under Reagan and now senior fellow at the Institutefor Policy Innovation, who has been proposing Social Security privatization plans since the late 1970's, told me that economics 'was not my primary motivation. It was ideological. We don't want the government controlling that much investment.' <snip>

The 2 workers per retiree not being a problem idea is here: "And though future generations of workers will have to support more
retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total 'dependency' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. 'In a grand social sense,' says Thompson, the former Social Security commissioner, 'we can support more seniors where there are fewer people in day care.' <snip>


Easy fix - if we must do a fix - is suggested here:"Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast.

<snip>Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

In my opinion, Roger Lowenstein (the author of 'Origins of the Crash) has created a reference piece for all of DU, all Dems, and for all media not under paycheck control by right wing editors or the folks at the RNC or WhiteHouse who are writing them checks.