Defeat From the Jaws of Victory

As you may recall, back when George W. Bush was freshly re-elected and fairly popular, backed by Republican majorities in the House and Senate, he wanted to partially privatize Social Security. Well, it didn't work, and his effort to do so contributed to his current massive unpopularity. In the meantime, the GOP lost control of the House of Representatives and lost control of the US Senate. This, via Brad DeLong, is said by The Economist to lay the groundwork for a "grand bargain" on Social Security since though "Stonewalling is a plausible political tactic when you are in opposition" "It doesn't work so well if you are actually in charge on Capitol Hill."

Well, there's sort of no telling what sort of foolish things the Democrats will agree to, but I say no, no, no to this. For one thing, while stonewalling on administration priorities may work out okay if you're in opposition, it actually works way better if you're actually in charge on the Hill. In the minority, you don't need to agree with administration proposals, but you do need to deal with them on some level. In opposition, administration proposals can simply be dismissed out of hand. And, indeed, any proposal that involves "carve out" private accounts should be rejected out of hand. Such accounts are poor public policy (increasing the riskiness of retirement at a time of generally growing riskiness, increasing inequality at a time of generally growing inequality) and the political proof is in the pudding -- opposing them wins elections, proposing them loses elections.

The starting point for a responsible approach to the federal budget is, in the short term, brining the ruinously costly Iraq War to as speedy a conclusion as possible. Next is rescinding the bulk of Bush's tax cuts. Next would be looking toward some increase in taxes on gasoline or carbon emissions. Reform of the country's wildly inadequate health care system (implicating, among other things, Medicare and Medicaid) should always be a priority. Minor adjustments to the Social Security tax and payout formula could prove necessary in the future depending on what happens to immigration and productivity, but needn't be a high-level priority. Carving private accounts out of the system should remain off the table and certainly Democrats have no business collaborating in any such endeavor.

Comments

Nice summary of the issues. And thanks for calling BS on the absurd media proposition that the Dems somehow have to do what GWB wants them to do (ROFL).

Posted by STS | November 26, 2006 3:39 PM

I can't prove it, but I am inclined to the view that the not insignificant contribution of the left blogosphere to the defeat of Bush's Social Security initiative - helping whip the Dems on the Hill, helping to rally the left part of the public, pushing back against the standard way of framing the debate, and, not least, winning the damn intellectual and political debate hands down - is its greatest accomplishment so far. So I guess I should have savored future prospects when I read the Post article on the White House's approach to the topic the other day. But I was completely stupefied by what Paulson had to say:

So far, "it's too early in the aftermath of the election to know whether we're going to get traction," Paulson said, adding that he is "going to make a huge effort to persuade people to engage in a bipartisan discussion where we don't precondition our discussion."

"No preconditions," Paulson said, means both sides get a chance to put their ideas on the table. In regard to Social Security, administration officials said that means President Bush will continue to advocate that younger workers be allowed to divert a portion of their Social Security taxes into private retirement accounts, a proposal Congress roundly rejected last year.

It also means that the White House is willing to listen to other ideas, administration officials said, including personal savings accounts that do not involve diverting Social Security taxes, as well higher payroll taxes to help cover a projected explosion in Social Security costs after members of the baby boom generation begin to retire in 2008.

How considerate! The White House is willing to listen to other ideas! It's not like they just lost an election after getting their asses handed to them in the Social Security debate. And I like that, no preconditions this time, now that the Democrats are in power on the Hill - who cares that they won the debate last time going away by refusing to budge on taking privatization off the table as a precondition for a meaningful reform effort. That White House really learns, doesn't it? I'm sure they've come up with some great incentives to get the Democrats to change their opening position now. And persuasive arguments like the idea that now that they're in power they can't actually oppose Bush's proposals anymore.

Posted by Jeff | November 26, 2006 3:49 PM

As usual, I screwed up the formatting: three paragraphs are from this Post article, not just the one I managed to italicize.

Posted by Jeff | November 26, 2006 3:50 PM

You can't responsibly fix the federal budget without doing something to rein in 'Defense' spending. And I don't mean just Iraq. More than half our budgedeted 'discretionary' federal spending goes to DOD these days, which is to say, not much less than is currently spent on Social Security.

Posted by faux facsimile | November 26, 2006 4:49 PM

faux facsimile, you can't responsibly fix the federal budget without increasing revenues. As a percentage of gdp, the overall level of federal expenditure is perfectly fine: what is a problem is the distribution of that spending. but i'd reign in certain kinds of defense spending in order to increase other kinds of defense and non-defense spending, not to actually reduce the overall level of government spending.

the american public wants a government to deliver goods and services that "cost" 20-22% of gdp; we need a tax system that raises that much in revenue, not 17.5%.

meanwhile, back to the topic: while i suppose nothing is impossible, i can't believe that the dems will feel any obligation to do a damn thing about social security. there is simply no there there for the dems (just like there is no problem pressing enough about social security, insofar as there may conceivably be a future problem, that justifies elevating it in importance over the problems of health care costs and revenue shortfalls).

Posted by howard | November 26, 2006 5:01 PM

Matt notes what seemingly should be obvious:

[W]hile stonewalling on administration priorities may work out okay if you're in opposition, it actually works way better if you're actually in charge on the Hill

But to The Economist, opposing bad policy is easier when a party lacks a majority of votes, and control over which issues get to the floor:

"Stonewalling is a plausible political tactic when you are in opposition" "It doesn't work so well if you are actually in charge on Capitol Hill."

If anybody ever tells you that they go to smart sources like The Economist for their news analysis, there's your retort right there.

Posted by dj moonbat | November 26, 2006 6:04 PM

Well put, Matt.

Posted by Barry | November 26, 2006 7:07 PM

Thank you. Back in the 90s, Democratic policy elites cooperated in the rhetoric of a "social security crisis". This nonsense has had disastrous consequences, including the ability of the Bush administration to camouflage the long-term fiscal problems with rhetoric about an entitlements problem. It's extremely important that Dems hold the line on Social Security. The Bush administration stole the trust fund surplus for their constituencies (mostly military contractors and incredibly rich people), make their constituencies pay it back.

Posted by MQ | November 27, 2006 1:30 AM

Also, it's interesting that now that the Dems have won in Congress some policy types who seem to believe it's still the 90s are starting to re-emerge and push what might be called the Corporatist Democratic Consensus. Even folks like Brad Delong, who was able to see through the Bush administration, seem sympathetic to their agenda. But it's a different world now, and we need a party that recognizes that.

Posted by MQ | November 27, 2006 1:32 AM

Well, that’s one heckuva straw man you’ve set up there: if you can’t argue Social Security policy, then attack the federal budget.

The Social Security Administration is a separate, off-budget, entity that is currently holding $2 trillion in U.S. Treasury bonds. When payments start outstripping payroll tax receipts, the SSA will start cashing in these bonds which *will* be paid. The ability of the federal budget to pay the bonds, most likely through a tax increase, is a separate issue. The problem that needs addressing is the demographic reality that the Social Security Trust Fund will be bankrupt around 2040, leaving every American who has paid into the system for 40 years with a 27% slashed benefit. Unless retirees live well into their 90s, this means younger workers won’t get back what they put into the system. Needless to say, it’s way less than if they had just put the payroll tax into a passbook savings account.

But, according to you: not to worry! With a wave of your hand we could make “minor adjustments” to the tax if they “prove necessary” along with tweaks (meaningless!) to the payout system – not a high priority, pish-posh. I’d wager this position would flip dramatically if your benefits were slashed by a quarter at the moment you reached 67.

Posted by Eric Lindholm | November 27, 2006 8:43 AM

Eric Lindholm:

The problem that needs addressing is the demographic reality that the Social Security Trust Fund will be bankrupt around 2040, leaving every American who has paid into the system for 40 years with a 27% slashed benefit.

I'm going to go out on a limb here and guess Eric thought invading Iraq was a fantastic idea.

Posted by Jon | November 27, 2006 9:33 AM

This is an area where Professor Delong's academic sensibilities overwhelm his political savvy.

Sure, it's nice to sit around in a seminar room and dream about how you and your enlightened buddies would tweak this and tailor that in order to perfect the system. There are no lobbyists, no attack ads, no politicians to mess up the purity of the debate.

But once you lend your weight to this debate, Brad, you are handing it over to the political arena, where the best outcome is guaranteed not to occur.

Posted by kid bitzer | November 27, 2006 9:52 AM

Sorry, Brad, but you are making the same mistake that Tom Friedman made over Iraq.

You think Bush is going to fight your war, the war of your idealistic dreams. Bush isn't going to fight your war, and he is going to piss all over your idealistic dreams.

There might have been lots of scope for philanthropic dreaming about how to improve the Middle East, but by confusing Tom's War with Bush's War, Friedman gave his support to an incredibly bad and destructive idea.

Whenever you give support to SS reform, so long as Bush or any of his crime-syndicate affiliates are in office, you are supporting the worst, most destructive version of SS destruction imaginable. You think your plan will get turned into law? The eventual legislation will look like the actuarial analogue of Sadr City.

Do you really want to be the Tom Friedman of the Social Security debate?

Posted by kid bitzer | November 27, 2006 10:04 AM

jon: awesome!

eric, you actually don't understand the issues whatsoever. i suggest you read the actual reports of the trustees, wherein you will learn: a.) that there are 3 different projections for the future, not 1; b.) the projections for the future rely upon a number of underlying assumptions - productivity, immigration, birth rate, etc. - that are, of course, easy to get wrong over 40 year spans; c.) the 27% cut you reference is from the benefit levels 40 years out, which will be considerably higher than today's benefit levels.

the simple fact is, social security is a very cleverly designed program, and insofar as we may conclude, decades out, that there is a problem, we can address it quite readily then.

Posted by howard | November 27, 2006 10:14 AM

Wow, Jon, that was a compelling rejoinder. It combined both ad hominem attack with a straw man. How very typical.

Posted by Eric Lindholm | November 27, 2006 10:15 AM

Posted by: kid bitzer: "This is an area where Professor Delong's academic sensibilities overwhelm his political savvy.

Sure, it's nice to sit around in a seminar room and dream about how you and your enlightened buddies would tweak this and tailor that in order to perfect the system. There are no lobbyists, no attack ads, no politicians to mess up the purity of the debate.

But once you lend your weight to this debate, Brad, you are handing it over to the political arena, where the best outcome is guaranteed not to occur."

That post of Brad's was possibly the stupidest thing he ever wrote, including the odd undergraduate term paper written after midnight, fueled by too much coffee and bleak desperation.

His commenters are giving him h*ll for it; I'd join in, but I think that Brad is getting enough.

Not only does it reflect Brad's technocratic bias, but three things. First, it shows that Brad doesn't emotionally understand that the old technocratic system is dead. The GOP has spend 26 years now, trashing technocracy whenever it felt like, and has reaped considerable political rewards. Any honest GOP technocrat has no influence whatsoever, now and in the forseeable future.

Second, it shows that Brad Still Doesn't Get Reaganomics, even after Voodoo II. The GOP figured out that they can loot with impunity. Giving them access to anything is asking for it to be looted. The difference between the GOP and a crackhead is that the crackhead can't rip you off as much. It is dumb to sit down to negotiate the fate of a program with highly dishonest people who want to destroy that program, and have repeatedly gotten away with being extremely irresponsible.

Third, it illustrates Ezra Klein's (?)theory that much national politics is decided by elites, with elections only deciding things about which the elites are divided. Social Security reform is unneccessay, and would be a low priority if it were. Brad has pointed out that the deficit is much larger, and will cause problems much sooner. But, as somebody who feels connections with the elite, he can be trusted to reflexively support the destruction of Social Security, because of an alleged need to reform it.

Posted by Barry | November 27, 2006 10:38 AM

I'd more or less disagree with you here, Matt. I certainly agree that any GOP type proposal involving carving out private accounts should be laughed out of the room. However, I think there is a really good chance here to get a practical and political win here by addressing Social Security.

As another commentator mentioned above thread, the hype about the imminent demise of Social Security has been overheated for quite a while now. SO what this means is that there's a perception of crisis when in fact, the problems are much smaller and more manageable. Heck, I know quite a few people in their 20's and 30's who are convinced that they'lll never see a dime of Social Security money, since the program will be bankrupt (they think) by the time they retire.

So this means that, if you play your cards right, you can get political credit for averting a serious crisis, when in fact the necessary steps are relatively small and painless.

Furthermore, while it's no guarantee the GOP won't come back and attakc it again, getting a bill to address the potential funding shortfalls now, with Bush singing off on it, will help innoculate th eprogram for at least a while against further attack, which in itself is a valuable outcome. Alternatively, Bush vetoes it and you can milk his opposition to Social Security for all its worth.

So you've got a great issue here, from both a political and a practical point of view. In addition, I think it's an area where the Dems are relatively united, so crafting a solid bill that can easily be passed shouldn't be that hard. And for the same reason that it will be hard for Bush to veto, it will also be tough for the GOP in Congress to oppose. They bought into the SS crisis rhetoric for their privatization push. How can they oppose this relatively painless proposal to "save" it?

Posted by Doug T | November 27, 2006 11:05 AM

Eric Lindholm:

Wow, Jon, that was a compelling rejoinder. It combined both ad hominem attack with a straw man. How very typical.

I assume this indicates that, as I assumed, Eric thought invading Iraq was a fantastic idea.

Posted by Jon | November 27, 2006 11:35 AM

At the very least, any agreement to consider Social Security should come with a guarantee to comply with any and all subpoenas. Then send some Cheney's way.

Then I would probably give ground on raising the payroll tax ceiling, and agreeing that any shortfalls WILL be paid out of the general fund. Perhaps also agreeing to automatic increases if reality turns out better than projections, in return for a small automatic decreases for individuals born after 2008 if projections turn out too rosy.

Posted by theCoach | November 27, 2006 11:38 AM

Eric: the problem is that by your post you demonstrate that you don't understand the program details at all, and it is difficult to correct so much lack of understanding in one response. Even assuming productivity growth drops from its current levels for several decades, the SS budget gap is something like 2% of GDP in the 2040s. Policy decisions are made all the time that shift that amount of spending around. For example, annual "defense" spending increases since 2000 have amounted to something like 2.5% of GDP. (Much of it pure waste, I might add). Have you noticed the collapse of the United States as a result of funding that extra spending? Didn't think so. There are all kinds of budget issues that involve the need to pay 2%+ of U.S. GDP, literally decades sooner than 2045, without the potential problem depending so much on uncertain economic projections. Social Security is just not a serious issue today, and no amount of alarmist rhetoric will change the underlying logic. You can, however, potentially convince your fellow citizens to give up on an important and well-functioning program by sufficient alarmism. Lots of people want to do that, in order to serve a variety of hidden agendas. They've conned some well-meaning suckers into banging the drum for them.

Posted by MQ | November 27, 2006 11:42 AM

Doug T makes a good point, but the problem is that cracking the program open at all makes it possible to raid the future surpluses in all sorts of ways, default on the bonds (see the rhetoric that they are "just paper"), etc. Certainly any carved-out private accounts need to be absolutely ruled off the table. I'm really not sure it's time to switch from defense to offense on this issue. The Democrats haven't shown they can play effective offense on *anything*, why start with the centerpiece of the safety net?

On the other hand, if "reform" could involve some kind of enforceable way to insulate the SS trust fund from political raids for use in general fund tax cuts, discretionary spending, etc. that might be cool. But the horse may have already left the barn on that.

Also, great comments by Barry and Kid Bitzer above re Brad Delong. The Democratic technocrats are coming out of academia and breathing a big sigh of relief now that Congress has switched. But how much have they really learned from getting their collective heads handed to them politically by the Repubs in the 90s-00s?

Posted by MQ | November 27, 2006 11:49 AM

MQ: Once again, as with Yglesias, you conflate the Social Security fund with the general federal budget. When the SS Trust Fund runs dry, it's not a matter of simply shifting a pile of money from defense spending over to SS. How will the 2% GDP - some $250 billion - annual gap be closed? Taxes? Benefit cuts? Pixie dust?

When the trust fund is depleted, Social Security - BY LAW - can only pay out as much as it takes in. That means an automatic benefit cut of 27% followed by wider cuts as the program ages. This data is taken from that right wing source: the Social Security Administration.

If I'm being alarmist it's because gradual changes made right now will soften the impact of Social Security's (and Medicare's) demographic shift. Instead, everybody seems content to pass the train wreck onto future Congresses and Administrations. If you really cared about Social Security, you would cast aside your boundless conservative vilification and embrace reform. Because a couple decades from now, instead of receiving a SS check, millions of Americans are going to get a letter saying: "Sorry, we spent it all." Watch how popular your "well-functioning program" is then.

And since you all want to make this personal: don't worry about old Eric. He has a fat 401(k) thanks to years of saving. It's the people who *really* need Social Security that are going to suffer the most. Suckers!

Posted by Eric Lindholm | November 27, 2006 12:13 PM

Eric,
So, if we change the law to say promised benefits MUST be paid out of the general fund, problem solved, right?

Posted by theCoach | November 27, 2006 12:20 PM

Eric Lindholm, November 27, 2006:

How will the 2% GDP - some $250 billion - annual gap be closed? Taxes? Benefit cuts? Pixie dust?

Eric Lindholm, November 27, 2002:

How do YOU suggest dealing with the terrifying threat posed by Saddam's gigantic WMD arsenal? Pixie dust?

Posted by Jon | November 27, 2006 12:36 PM

Eric, are you being deliberately obtuse? Just because you capitalize "BY LAW", that still doesn't mean it's impossible to shift money around within Federal spending or from one tax to another, or from borrowed funds. Last I heard Congress has the power to change laws.

Also, changes made right now will not necessarily "soften" the impact of the demographic shift. The ONLY thing that matters is whether the economy as a whole has enough money in 2040 or whenever to pay decent retirement benefits to retirees while maintaining reasonable tax levels. Current retirement benefits are ALWAYS paid out of current economic production. That goes for your 401(K) just as much as SS.

If we pay down the debt now, that will increase our borrowing capacity then, so that helps. But there are many ways to run a surplus and pay down the debt besides cutting SS benefits. If we invest in raising productivity now, we will be able to produce more then. But once again, there are many ways to invest in increasing productivity besides cutting SS benefits.

Posted by MQ | November 27, 2006 12:50 PM

I really have to just switch to outright mockery in dealing with these trolls. You guys do it much better than I do.

Posted by MQ | November 27, 2006 12:52 PM

I really have to just switch to outright mockery in dealing with these trolls.

It took me years to learn this. I really wish the world were different, and it was possible to engage in reasoned discussion with these people. But we're stuck here in this branch of reality.

Posted by Jon | November 27, 2006 1:00 PM

Facts and numbers make head hurt.

Me call person troll. Feel better.

Posted by Jon MQ | November 27, 2006 3:00 PM

Hey, look what those trolls at the Washington Post wrote in an editorial today:

http://www.washingtonpost.com/wp-dyn/content/article/2006/11/26/AR2006112600709_pf.html

"Some Democrats dispute the urgency of the problem, arguing that the notional assets in the Social Security trust fund are sufficient to pay all the benefits promised to retirees for the next 40 years. But a retirement system needs to make credible promises that last longer than that: A worker who is 30 can't entrust her retirement to a program that will run short of money as she turns 70. Moreover, a solvency fix for Social Security requires a long lead time. Cuts in benefits must be signaled years ahead so that workers have time to plan for them. Any increase in the payroll tax needs to be implemented soon in order to keep the size of the increase to an acceptable level."

Pawns of the Bush-Cheney criminal enterprise, I say! Fie on them!

Posted by Eric Lindholm | November 27, 2006 3:02 PM

eric, let's say it again, since you ignored it the first time: there are 3 projections performed annually by the trustees, not one. the projections are rooted in a variety of assumptions, none of which is knowable with perfect certainty decades in advance. even so, the "best case" scenario - which merely happens to be the one with the actual best track record of reality - does not see a problem in 40 years. or 400 years. even if we have to cut benefits in 40 years time, that will be a cut from a much higher level than they are at today.

and yes, the wapo editorial page is utterly dishonest on the matter of social security, which in their case is a matter of choice. i'm not yet sure in your case if you are merely ill informed and would emerge a better person for actually gaining the knowledge you would by, like, reading the social security trustees reports or whether you are, on the matter of social security, utterly dishonest too.

Posted by howard | November 27, 2006 3:24 PM

Eric Lindholm:

Hey, look what those trolls at the Washington Post wrote in an editorial today:

Hey, look at the dozens of editorials the Washington Post wrote about what a great idea it would be to invade Iraq!

Yes, look at them! Hey, look at them and see if you can manage to learn something about the planet you live on!

Hey!

Posted by Jon | November 27, 2006 4:27 PM

Dude, we're the ones with the facts and numbers here. You just keep repeating that BY LAW, THE WORLD WILL END IN 2045! While utterly ignoring the points we make about how actually insignificant the threat of a social security shortfall is when compared to, like, every other major budget issue facing your country.

I really wonder how so many conservative bloggers keep their smug tone as defenders of reason, given what we've seen over the last six years. Of course, I wonder that about the Washington Post too.

Posted by MQ | November 27, 2006 5:10 PM