Samuelson's Commissars

Robert Samuelson has a column about -- shocking, I know -- the need to cut entitlement spending in which he finally just decides to throw up his hands at the public's unwillingness to adopt his policy preferences and decides to go for the last refuge of the damned: The bipartisan commission. Even Samuelson knows his schtick is boring:

Let's review the problem (again). From 2000 to 2030, the 65-and-over population will roughly double, from 35 million to 72 million, or from about 12 percent of the population to nearly 20 percent. Spending on Social Security, Medicare and Medicaid -- three big programs that serve the elderly -- already represents more than 40 percent of the federal budget. In 2006, these three programs cost $1.1 trillion, more than twice defense spending. Left on automatic pilot, these programs are plausibly projected to grow to about 75 percent of the present budget by 2030.

The response to this, too, is boring. But as usual, Samuelson is getting the scope of his analysis all wrong. The vast majority of the growth in spending on "Social Security, Medicare and Medicaid" comes from Medicare and Medicaid. And that growth is mostly driven by rising health care costs rather than by aging.

Population aging, meanwhile, insofar as it's a problem isn't merely a challenge for federal entitlement spending. Insofar as a lower ratio of productive workers to retired consumers is a problem for Social Security, it's also a problem for everything else since the basic shape of the issue is that society can only consume as much as gets produced.

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Population aging, meanwhile, insofar as it's a problem isn't merely a challenge for federal entitlement spending. Insofar as a lower ratio of productive workers to retired consumers is a problem for Social Security, it's also a problem for everything else since the basic shape of the issue is that society can only consume as much as gets produced.

Matt, this is shoddy, ridiculous analysis. The problem is that Social Security has made promises to people about what they can expect when they retire. Many people, consequently, have saved less or not at all based on those promises. That means that they overconsumed and undersaved over the past 30 years.

What's more, as one would expect with government, it spends the revenue it has. So current receipts went to pay current benefits and cover current government spending. So government owes money that it didn't squirrel away.

So, government overconsumed as well.

Social Security hasn't presented a problem that's just like everything else in society. I presents a problem that's a consequence of its own structure and the fact that government is what it is.

Posted by Joe Strummer | October 3, 2007 10:45 AM

Which is why imminent retirees might want to rig the economy now so its ready to deliver the goods and services we'll want in retirement. Train more doctors and fewer Nintendo engineers, for example.

Posted by ferd | October 3, 2007 10:50 AM

Joe will the government not honor SSA bonds? Do you really believe that the Social Security Trsut Fund really encouraged borrowing instead of the huge Regan Tax Cuts? Do you realize that Social Security is fine for at least 40 years?

Posted by Rob | October 3, 2007 10:50 AM

'it's' not 'its'

Posted by ferd | October 3, 2007 10:51 AM

So, because, as usual, Samuelson is getting the scope of his analysis all wrong, I guess there isn't any problem, right? I mean, dealing with rising health care costs won't be a big deal, because no one objects to cutting costs, do they? They didn't object back in the '90s when HMOs tried to limit spending, did they?

And it's good to know that the real problem with the increase in retirees won't be finding the money to pay their benefits. The real problem will be a scarcity of goods! Hey, pops, you don't need money, because there's nothing to buy! The joke's on you, grandpa!

Posted by Alan Vanneman | October 3, 2007 10:55 AM

Joe Strummer- No Matt's pretty much right here. A growing dependenet population is a problem no matter how much the dependents have 'saved,' because some one still has to produce what they spend their savings on. If they start spending savings and stop producing we have too much money chasing too few goods, which is, of course the definition of inflation.

We should probably remove barriers and lower disincentives to working longer. But, we're not really projected to get anywhere near where this is a crisis though. That's why Samuelsen and the 'serious' people need to lump Medicare in there to create the appearance of a crisis.

Posted by AJ | October 3, 2007 10:56 AM

joe, really, it's too boring to deal with uninformed comments such as yours, but we'll just note, in passing, that if we didn't have social security, everyone would have to save sufficiently for their own retirement, which would lead to a massive oversavings in society.

among many other problems with your comments.

meanwhile, what i really wanted to note here was that i blame warren buffett: robert samuelson works for fred hiatt, who works for idiot son donald graham, whose nepotistic ascension to the throne buffett didn't talk katherine graham out of.

if the post had a real publisher, samuelson would be among those fired for being overpaid, underproductive, and ill-informed, and we wouldn't have to put up with this continual stupidity from him.

Posted by howard | October 3, 2007 10:58 AM

"society can only consume as much as gets produced."

You hit the nail on the head. I can save for my retirement and you can save for your retirement but society as a whole CAN NOT save for retirement since

society can only consume as much as gets produced.

Posted by neil wilson | October 3, 2007 11:00 AM

alan, dealing with health care costs is a big deal; dealing with social security is not. combining them into one as samuelson habitually does is dishonest. i could do the same thing by saying that the highway trust fund and medicare are going to bankrupt us....

Posted by howard | October 3, 2007 11:03 AM

1. Raise the retirement age
2. Raise the income cap on the payroll tax
3. Slow the rate of growth in benefit payments
4. Give Robert Samuelson incentives to retire early in exchange for giving up his laptop and moving to a small, desert island with no internet connections, so we never again have to read the same damn column he's been writing over and over again for 20 years.

And yes, a far more pressing problem that needs to be addressed is rising health care costs. But any solution to that problem is likely to come from planning and rationing, not the magic miracles of the marketplace, therefore folks like Samuelson prefer to shoehorn the issues into their preferred narrative with a combination of half-truths and outright deceptions.

Posted by LaFollette Progressive | October 3, 2007 11:05 AM

I can save for my retirement and you can save for your retirement but society as a whole CAN NOT save for retirement since society can only consume as much as gets produced.

Depends on your definition of 'society'. What if everyone in the US saves by investing into, say, Chinese economy? Then the Chinese produce and we consume.

Posted by abb1 | October 3, 2007 11:11 AM

We looked at the demographic problem in the early 80's, and solved it. We don't need a new solution now; what we need is for Samuelson and his allies to live up to their side of the bargain, rather than using the Social secutiry surplus to finance tax cuts for the superwealthy.

Posted by rea | October 3, 2007 11:12 AM

Joe will the government not honor SSA bonds? Do you really believe that the Social Security Trsut Fund really encouraged borrowing instead of the huge Regan Tax Cuts? Do you realize that Social Security is fine for at least 40 years?

The only way it can honor SSA bonds is by taxing to pay for them. Social Security was fine for the last 40 years because there were more people working than retired. But the demographics are going to shift, and government hasn't put the money anywhere. It has spent the money, and then written itself an IOU, which is what the SSA Bonds are. In order to pay those bonds, it has to tax.

Posted by Joe Strummer | October 3, 2007 11:15 AM

If Social Security were means tested - an effort was made at means testing SS in the 1950s - then it would simply be a welfare program and we could pay for the people who haven't saved enough.

As far as "over" savings? That's never been a problem in the American economy, and especially the danger of "over" saving for retirement is non-existent.

I mean, you're worried about oversavings in a world where we have a program with an unfunded liability of $30 trillion? Do you understand economics?

Posted by Joe Strummer | October 3, 2007 11:18 AM

The only way it can honor SSA bonds is by taxing to pay for them.

Why, it could, say, sell Alaska back to the Russians. Or even - god forbid - cut the 'defense' budget by, say, 90%. Or even - here's an idea - borrow!

Posted by abb1 | October 3, 2007 11:21 AM

In order to pay those bonds, it has to tax.

True, but the same is true for all other bonds as well. They should be paid off like any other bond. Medicare is still the bigger problem.

Posted by crack | October 3, 2007 11:22 AM

In order to pay those bonds, it has to tax.

That is true of all bonds, true of defense spending, and true of the Iraq war. We simply set out priorities, as a country, for what we want to spend money on. Since we're constitutionally obligated to follow through on our debt obligations, that's something we have to follow through on.

Posted by Tyro | October 3, 2007 11:22 AM

joe, we all understand, as rea implies, that the social security surplus was stolen by the bush administration (and not by some anonymous "government") and taxes will have to be raised to make up for that theft.

so what. (alternatively, i could note that it's social security that will be paid out of available revenues; it's for other reasons, like the unwillingness of creditors to loan the us government money indefinitely in the absence of fiscal discipline, that we'll have to raise taxes.)

social security payments come from a special purpose tax. the last time the supreme court ruled on a special purpose tax - the highway trust fund (hence my analogy at 11:03) - it said that the money isn't fungible. now, admittedly, i have no idea what precedents the roberts court will feel like smashing when the time comes, but insofar as they rule with precedent, any attempt not to pay social security, in addition to roiling markets in general as to the full faith and credit of the us government, would be overturned by the supreme court.

Posted by howard | October 3, 2007 11:25 AM

See that Joe, they'll just issue new bonds! Net Debt won't change because SSA binds are already part of the debt!

Posted by Rob | October 3, 2007 11:26 AM

"4. Give Robert Samuelson incentives to retire early in exchange for giving up his laptop and moving to a small, desert island with no internet connections, so we never again have to read the same damn column he's been writing over and over again for 20 years."

That's program I could support scaling up. We need a bipartisan commission on potential growth of columns conflating healthcare spending and social security spending and screeching about how we need to cut spending/work till we are 100. If nothing is done columns such as these could represent as much as 75% of all columns published over the next 50 years.

Posted by Christopher Colaninno | October 3, 2007 11:26 AM

Why, it could, say, sell Alaska back to the Russians. Or even - god forbid - cut the 'defense' budget by, say, 90%. Or even - here's an idea - borrow!

Fine. I'm happy with cutting spending - which would mean cutting defense and entitlements - i.e., Social Security and Entitlements - which are the two biggest parts of the budget. That's exactly what Samuelson is saying.

Umm, your other idea, "borrow" shows that you don't know what you're talking about. SSA Bonds are debt already. You're just borrowing from the market on top of the borrowing that you've done already.

Posted by Joe Strummer | October 3, 2007 11:27 AM

joe, you are still demonstrating that you haven't mastered the subject and need to do some remedial reading.

social security is funded through the payroll tax. if, in fact, we never adjust anything and if, in fact, productivity sucks for the next 30 or 40 years, then eventually social security payments would have to fall to match revenues.

however, the idea that you can cut social security spending while leaving the payroll tax in place is simply a non-starter, no matter how much george bush would like that idea. that was the genius of the special-purpose tax mechanism for social security: it is paid for.

Posted by howard | October 3, 2007 11:38 AM

See that Joe, they'll just issue new bonds! Net Debt won't change because SSA binds are already part of the debt!

Fantastic! And why didn't government just borrow the money straight from the market instead of issuing phony SSA bonds which it's just going to convert to bonds in the long run?

Because shoving trillions dollars of government debt into the capital markets now makes obvious the relative risk associated with government bonds, and would drive up the cost of borrowing.

And it's much much more difficult to back out of paying real T-Bills. That would mean defaulting on T-Bills which would be cataclysmic.

However it's much easier to back out of phony SSA Bonds, which is what government will do when it inevitably reduces benefits, as it must.

Posted by Joe Strummer | October 3, 2007 11:47 AM

joe, we all understand, as rea implies, that the social security surplus was stolen by the bush administration (and not by some anonymous "government") and taxes will have to be raised to make up for that theft.

It was stolen by the Bush administration, and every previous administration too. This is not a new phenomenon.

Posted by Joe Strummer | October 3, 2007 11:49 AM

Joe, here's the thing, "SSA Bonds" are not "phony." They're T-Bills like anything else. The 1982 plan was purposely constructed that way specifically to ensure that politicians wouldn't end up doing precisely what you're proposing.

The government has certain expenses. One of those is paying the social security obligations accounted for by the SSA and stored in the form of treasury bonds. You might not LIKE this to be a spending priority of the federal government, but there it is.

Posted by Tyro | October 3, 2007 11:52 AM

That is true of all bonds, true of defense spending, and true of the Iraq war. We simply set out priorities, as a country, for what we want to spend money on. Since we're constitutionally obligated to follow through on our debt obligations, that's something we have to follow through on.

Except that government SSA bonds are not the same as other forms of government debt. Government SSA Bonds are debt issued by one government branch (treasury) to another (SSA), and government is not constitutionally obligated to pay that debt. In addition, it's not constitutionally obligated to pay social security obligations.

The very reason why government issued these phony SSA bonds is so that 1) it *looked* like it was issuing less debt than it was and 2) so it wouldn't be obligated to pay them in the way that it's obligated to pay on T-Bills.

Posted by Joe Strummer | October 3, 2007 11:52 AM

Joe, here's the thing, "SSA Bonds" are not "phony." They're T-Bills like anything else. The 1982 plan was purposely constructed that way specifically to ensure that politicians wouldn't end up doing precisely what you're proposing.

The government has certain expenses. One of those is paying the social security obligations accounted for by the SSA and stored in the form of treasury bonds. You might not LIKE this to be a spending priority of the federal government, but there it is.

They are phony. They are debt instruments from one part of the government to another. And gov't can default on its own debt instruments, but it can't default on T-Bills.

Posted by Joe Strummer | October 3, 2007 11:55 AM

Yes, while the government isn't constitutionally obligated to pay Social Security, it is not constitutionally obligated to tax at rates under 99%. However, politically speaking, a failure to pay SS benefits or an initiative to raise taxes to confiscatory levels would never happen, politically.

Calling the t-bills held by the SSA "phony" is just a dodge by anti-SS crusaders to convince everyone how "easy" it would be just to not pay them.

Posted by Tyro | October 3, 2007 11:56 AM

...and government is not constitutionally obligated to pay that debt...

Well, someone like me might get a little upset if told that his payroll taxes were used to subsidize tax cuts to the billionaires and billionaires' wars and now the billionaires refuse to pay back. If a lot of people like me get upset, slick lawyering on the constitutional issue may quickly become moot.

Posted by abb1 | October 3, 2007 12:17 PM

We're not a closed society. If Americans don't produce it, someone else will.

Posted by Jeffrey Davis | October 3, 2007 12:28 PM

SSA bonds are phony because an Administration can default without changing the Constitution.

Similarly, home ownership is phony because an Administration can enact national real estate tax in such a high level that hardly anybody will be able to afford them.

For that matter, we may have a Communist revolution and all private ownership can be abolished, and woe to anyone trying to raise a point about the Constitution! Communists will appoint their stooges to SCOTUS and the constitution will mean what they want, and nothing else.

Honestly, the schemas that were proposed to facilitate the default were about as politically viable as a Communist revolution. Thet were roughly like that: the poor will keep their minimal or close to minimal benefits, middle class will be screwed and upper middle class will be screwed royally. The rich will just look at it while having fun.

We are talking about screwing up people who are very active politically, who have numbers, and who habitually whine a lot. And who understand what is going on a bit better than the average. That dog ai'nt gonna hunt.

back to R. Samuelson: perhaps he indeed departed to some locale with more fun, Monte Carlo, Tahiti or the Kingdom of Fife (if he is partial to golf), while living behind a program that recirculates the same column again and again with some superficial differences? Test processing tools that were in existence 20 years ago were clearly sufficient for something as simple as that.

Posted by piotr | October 3, 2007 12:32 PM

Its awesome how many people are willing to argue in favor of a trillion dollar theft from the poor and middle classes by the rich. Thank god for the Bush administration to make this aspect of cutting SS benefits or defaulting on SS bonds totally clear.

Posted by mpowell | October 3, 2007 12:37 PM

Joe and the Washington establishment would love to raid the Social Security trust fund for more billionaire tax cuts. But it's not going to happen.

I know everyone dates Bush's enormous slide in all the polls to Katrina, but that's not how I remember it. After the 2004 election Bush gathered up all of his "political capital" and used it to try to convince the country that he needed to destroy Social Security in order to save it. The Washington establishment media was full force behind him. But the American public was not convinced. His efforts failed miserably and resulted in a major nosedive in the polls for the president.

The third rail is alive and well.

Posted by Rob Mac | October 3, 2007 12:45 PM

The vast majority of the growth in spending on "Social Security, Medicare and Medicaid" comes from Medicare and Medicaid. And that growth is mostly driven by rising health care costs rather than by aging.

Not according to the data Samuelson cites. The programs are projected to grow from about 40% of the federal budget to 75% (an 88% increase), and the share of the population 65-and-over is projected to grow from about 12% to 20% (a 67% increase). So the growth in spending is mostly driven by the aging of the population.

Posted by Jimbo | October 3, 2007 12:47 PM

So in 1983 the Rebublican god, Ronald Reagan, signed a bill that was intended to defraud the American people and persuade them that Social Security was a-ok, and now it's up to George W. to tell us that the deal was phony and the cupboard is bare.

Is that the way it happened, Joe Strummer? Or are the 1983 reforms just supposed to go down the memory hole?

Posted by Bloix | October 3, 2007 1:02 PM

Joe and the Washington establishment would love to raid the Social Security trust fund for more billionaire tax cuts. But it's not going to happen.

You've completely misread me. I opposed tax cuts that were funded out of debt (or by raiding the social security administration). I'm in favor of truthful budgeting though, where the gov't doesn't take money, use it to fund other kinds of spending/tax cuts, and then claim that it's in SSA Bonds, which everyone knows are phony bonds that do not require repayment by the Gov't.

I'm also in favor of Matt Yglesias getting his analysis right, especially because I agree with him on so much of what he says.

Posted by Joe Strummer | October 3, 2007 1:17 PM

So in 1983 the Rebublican god, Ronald Reagan, signed a bill that was intended to defraud the American people and persuade them that Social Security was a-ok, and now it's up to George W. to tell us that the deal was phony and the cupboard is bare.

Is that the way it happened, Joe Strummer? Or are the 1983 reforms just supposed to go down the memory hole?

The 1983 "reforms" were phony. Greenspan, Reagan, Bush, Clinton, Bush have all lied about it. Clinton at least made a stab at refunding the trust fund, but fell well short.

I'm really amazed that the same people who believe Democratic and Republican politicians who lied or were deceived about WMD and the Iraqi threat (which it obviously did) have been telling you the truth about Social Security. Many politicians mislead, some (Bush) more than others (Carter).

Posted by Joe Strummer | October 3, 2007 1:21 PM

To continue Rob Mac: up to the time of Social Security debate Busheviks (Rovians?) were quite adept in the arts of demagogery. I think that as long as the demagogery concerned things that they do not believe in (like the threat to the institution of marriage) they were very professional and dispassionate. But they believed in the merit of SS reform.

The more they were explaining, the worse it was. One beautiful argument was that SS, right now, is unfair to Blacks. Given pretty solid skew in the favor of low income people and people in blue collar occupation (more prone to have early disability), I doubt it, but it is a subtle issue. Politically, Blacks did not trust a word of GOP as "their friends", while Whites could feel that Bush wants to dismantle the single federal program that gives them a fair break. Opposition to the plan in places like Alabama reached 70% level.

Then there was a documented fact that average working/middle class GOP voter is somewhat deluded as far as his/her social status is concerned. Allegedly, 20% believe that they are in "top 1%'. This allows to sell them ideas like getting rid of inheritance tax or a cut in capital gains tax. By the same token, explanations that SS reform would protect lower middle class did not cheer these people. "Reagan Democrats" started to think more fondly about Democratic party.

Back to Samuelson: one we live long enough, we cannot afford retirement, or once a society has higher average age, like in many countries of Europe, you got to have higher tax levels, like in many countries of Europe? It is nice to pronouce gravely "we have to reform entitlements or we will have to increase taxes", but taxes were decreased, and the statement is meaningless unless you can make a comparison: will we have to return to Clinton's taxes, or will we have to reach the levels of Japan, or of Switzerland, or UK, or Sweden? To which circle of hell will this road go?

Posted by piotr | October 3, 2007 1:26 PM

Back to Samuelson: one we live long enough, we cannot afford retirement, or once a society has higher average age, like in many countries of Europe, you got to have higher tax levels, like in many countries of Europe? It is nice to pronouce gravely "we have to reform entitlements or we will have to increase taxes", but taxes were decreased, and the statement is meaningless unless you can make a comparison: will we have to return to Clinton's taxes, or will we have to reach the levels of Japan, or of Switzerland, or UK, or Sweden? To which circle of hell will this road go?

Fair enough, I suppose. But the problem is a lot worse if the government has essentially dissuaded people from saving (by promising them income upon retirement) and at the same time has not saved any of the money it has purportedly taxed from them. In that situation, there are a lot of people depending entirely on a government program that has no money.

To resolve the problem in that world - i.e. the world in which we live - gov't either needs to raise taxes to make up the trillions, or decrease benefits.

Posted by Joe Strummer | October 3, 2007 1:36 PM

> 4. Give Robert Samuelson incentives to retire
> early in exchange for giving up his laptop and
> moving to a small, desert island with no internet
> connections,

The last time I read a "behind the scenes" interview with Samuelson in Newsweek he used a manual typewriter and was quite proud of the fact that he had no Internet connection or e-mail address and read no e-mail. Not sure if he still gets away with that since his Newsweek benefits probably have to be managed via a web page (I am sure he has opted out of all corporate medical benefits) but it gives you an indication of his thinking.

Cranky

Posted by Cranky Observer | October 3, 2007 1:44 PM

Can we inject some actual data points here?

First of all the much ballyhooed dependency ratio. If you look at 'Total' Dependency which includes children as opposed to focusing only on 'Aged' in the following table from the Social Security Report
Table V.A2.-Social Security Area Population as of July 1 and Dependency Ratios you will see that we would not reach the 1975 level of .828 until 2056 and at no point over the 75 year window do we ever get back to the ratios seen in the 60s and 70s. And why would there be a worker shortage to start with. Well it helps if you make the assumption that somehow the United States would, should or could respond to that shortage by taking combined legal and illegal immigration from the 1.2 million of 2005 to 1 million in 2010 to 950,000 in 2020 to 900,000 in 2030 Table V.A1.-Principal Demographic Assumptions, Calendar Years 1940-2085.

That doesn't make sense at any level. If we are going to be faced with a worker shortage we will get them where we always have, from immigration.

On the medical front. Doing a straight line extrapolation of cost increases is junk science and junk thought. The working premise under Medicare or Social Security 'Crisis' is that people in the future will be powerless to make choices so we have to make those choices for them RIGHT NOW. Well why? And given that there are no real Medicare Reform plans on the table and that Social Security is actually on a trajectory for solvency (you read that right) there isn't particularly a need to do anything on a programmatic basis, instead we need to be looking at cost control on the delivery end.

Let me end with a little quote from page 3 of the 2007 Medicare Annual Report
"Under the Intermediate Assumptions the HI trust fund is projected to be exhausted in 2019, 1 year later than in last year's report, due to slightly higher payroll tax income and slightly lower projected benefits than previously estimated." In other words our revenue model is too pessimistic. In 1992 Medicare Part A was projected to go to depletion in 1999. Fifteen years later the outlook has improved by a total of twenty years. There is a word for an event that has been receding out in time at a rate of more than a year per year, that word is neither 'looming' or 'impending'.

I am not Rebecca of Sunnybrook Farms, we have real issues here. But we also have a lot of deceptive rhetoric and cherry picked data being used by people who hate Social Security and Medicare and always have. Don't get played on Medicare like we almost were on Social Security. These people screeching about 'Entitlements' (itself a weasal word) are not our friends in this one.

Posted by Bruce Webb | October 3, 2007 1:46 PM

Matt wrote:

"The vast majority of the growth in spending on "Social Security, Medicare and Medicaid" comes from Medicare and Medicaid. And that growth is mostly driven by rising health care costs rather than by aging.

Jimbo wrote:

"Not according to the data Samuelson cites. The programs are projected to grow from about 40% of the federal budget to 75% (an 88% increase), and the share of the population 65-and-over is projected to grow from about 12% to 20% (a 67% increase). So the growth in spending is mostly driven by the aging of the population.

The fact allone that one figure rises 67% and another rises 75% does not prove that that the latter causes the former.

It's a fairly common misconception that an aging population automatically causes exploding health care costs. It is true that most health care spending is concentrated on the elderly, but that doesn't mean health care costs rise at the same rate as the numbers of seniors. Because more precisely, most of the health care provided for the elderly is needed in the final phase before death, when their health deteriorates. But as life expectancy rises, this final phase doesn't get longer. Instead, on average, it just begins later.

Posted by Patrick | October 3, 2007 1:59 PM

And Strummer I'd like to see that Constitutional argument that intragovernmental debt is not an obligation. And while you are at it spell out a realistic political scenario that would actually have some future government repudiating it. It can't be done. The whole 'phony IOU' narrative is no better than a fairy tale. It is a right wing talking point and no more.

Nobody ever suggested the Special Treasuries were somehow phony in the eighties or early 90s. That was because Trust Fund depletion was then projected to be in 2023 and so coincide with the peak wave of Boomer Retirement, the 'Crisis' model held up. By the mid to late 90s that story line began to fall apart as the date of depletion got pushed back into the 2030s and now to the 2040s. EPI: Changes in Trustees Projections over Time. Suddenly the narrative needed to shift the emphasis from 'Depletion/Bankruptcy' to 'Shortfall' which required this totally bullshit theory trying to draw some line between regular Treasuries and Special Treasuries that isn't there.

The Trust Fund lent the General Fund $169 billion in 2006. Per you President Bush is simply a thief and a liar, taking money from workers that will never be pre-paid. Well I've called him worse, but I'm not sure you would be comfortable with depicting the situation in those terms.

And can you present any evidence at all that draws a direct line between Social Security and national savings? A median income household can only expect to replace about 30% of their last year paycheck via Social Security, and each year get a Statement showing what their projected retirement check would be. I doubt many people look at that and say 'well that's plenty. Its just another concocted story point.

Posted by Bruce Webb | October 3, 2007 2:04 PM

bruce webb has handled some heavy lifting, so let's just turn back to joe strummer's misreading.

first of all, joe, the social security surplus has not routinely been stolen by past administrations: the surplus was very small initially and only began to amount to something by the clinton administration, which most assuredly did not "steal" it. just to get our terms straight, the reason that "steal" is appropriate for bush 43 is that he used the surplus to mask the loss of revenue that his tax cuts resulted in, and then went so far as to claim that the social security trust fund is worthless. neither reagan nor bush 41 funded tax cuts with social security dollars and neither claimed that the trust fund was worthless. so you're wrong there.

second of all, you're wrong about the government "dissuading" people from saving. obviously, there are people for whom lifetime earnings is a very low number, and for them, social security is their only source of income in old age, but that's not true for most people. the problem with "savings" in america is that incomes are too low and consumption expectations are too high.

third of all, don't say silly things and then lecture people about their lack of knowledge of economics. Roughly speaking, 70% of the american economy is driven by consumer spending. If there were no social security and everyone needed to accumulate savings sufficient to purchase an annuity at age 65 (because you individually don't know whether you're going to live to 65 and a day or 130, so you have to plan for 130), then consumption would drop off tremendously and the economy would tank. It doesn't matter what global needs for capital are in that context.

Finally, the social security trust fund obligations are very real: they are backed by the full faith and credit of the united states and, as i have now noted three times, they result, ultimately, from a special purpose tax and the supreme court precedent is that special purpose taxes are not fungible.

Jimbo, i suggest that you read bruce webb, or simpy memorize this simple concept: robert samuelson doesn't know what he's talking about.

Posted by howard | October 3, 2007 2:07 PM

Where to begin...

first of all, joe, the social security surplus has not routinely been stolen by past administrations: the surplus was very small initially and only began to amount to something by the clinton administration, which most assuredly did not "steal" it. just to get our terms straight, the reason that "steal" is appropriate for bush 43 is that he used the surplus to mask the loss of revenue that his tax cuts resulted in, and then went so far as to claim that the social security trust fund is worthless.

Money taxed for social security has gone to one of two places: SSA Bonds (loans to treasury to spend on current budgetary expenditures, in exchange for which the treasury department promises to pay in the future) and current beneficiaries. Money has never been squirreled away, though through high growth and sounder fiscal policy, Clinton did make a stab at correct the general fiscal health of the government.

second of all, you're wrong about the government "dissuading" people from saving. obviously, there are people for whom lifetime earnings is a very low number, and for them, social security is their only source of income in old age, but that's not true for most people. the problem with "savings" in america is that incomes are too low and consumption expectations are too high.

There are certainly some people who earn too little for which savings could account for all of their retirement years. For them, I see no reason not to have a means-tested Social Security system. The problem with means-tested Social Security is that

But the middle class are not in the same boat. 12.5 percent of their income has been taxed from them and they've been told to expect that returned to them in the form of social security benefits. That dissuades those people from saving, unless you think - as people in my generation do - that promise is meaningless. That doesn't mean that the middle class have not saved at all.

Third of all, don't say silly things and then lecture people about their lack of knowledge of economics. Roughly speaking, 70% of the american economy is driven by consumer spending. If there were no social security and everyone needed to accumulate savings sufficient to purchase an annuity at age 65 (because you individually don't know whether you're going to live to 65 and a day or 130, so you have to plan for 130), then consumption would drop off tremendously and the economy would tank. It doesn't matter what global needs for capital are in that context.

I can't help it if people here don't understand what an SSA Bond is, or that a bond is in fact debt, or that in fact there's NEVER been a problem in the American economy with oversavings.

It's beyond me why you'd think that the fact that the economy has a mix of 70 percent consumer spending would therefore necessarily mean that that anything less than that would be catastrophic.

In fact, the whole point of capital savings is to find more efficient ways of leveraging labor.

You can be ideologues if you want. That's fine. But please feed me bullshit about how the Social Security system is going to automatigically right itself by guaranteeing the same benefits to the same number of people beginning at the same age.

And I'm all for immigration, but increasing the workforce but not fixing the structure of the program merely delays the problem into the future. Maybe that satisfies a lot of you reading this thread because all you want is your benefits, future generations be damned.

Posted by Joe Strummer | October 3, 2007 2:32 PM

Oh, the reason why you don't like means tested social security is because you realize that if the Middle Class doesn't get theirs, there will be no political support for it.

Cynical bastards!

Posted by Joe Strummer | October 3, 2007 2:35 PM

It's a fairly common misconception that an aging population automatically causes exploding health care costs. It is true that most health care spending is concentrated on the elderly, but that doesn't mean health care costs rise at the same rate as the numbers of seniors. Because more precisely, most of the health care provided for the elderly is needed in the final phase before death, when their health deteriorates. But as life expectancy rises, this final phase doesn't get longer. Instead, on average, it just begins later.

Patrick's point is excellent. But you can make that same point about Social Security. That the population over 65 goes from 12% to 20% does not mean that the cost of retirement goes up proportionately, instead the real issue is overall size of the economy. There is a fixed population of Boomers. If you have an economic model that shows Real GDP growing at 2.8% on average (the Trustees Low Cost assumption) then current rates of FICA plus certain interest payment on the debt in the Trust Fund maintains 100% of all scheduled benefits through the standard 75 year window, and all without do anything about retirement age. If instead you have an economic model that shows Real GDP slowing sharply and permanently to 2.0% as the Trustees standard Intermediate Cost one does, then the system can only pay out 75% of scheduled benefits. Table V.B2.-Additional Economic Factors

Which raises a couple questions. First given that Professor Rosser of JMU brought forward the fact that scheduled benefits at depletion are 160% relative to what a similar situated retiree gets today, and that 75% of 160% = 120% relative to what say my Mom's check, all at economic growth rates much slower than any seen in recent decades, why the hell are we talking about this at all?

Second, the first Boomers (1946 birthdates) would have hit the workforce in 1964, the last Boomers (birthdate 1964) hit the workforce starting in 1982. In the nine five-year periods from 1960 to 2005 six of them had Real GDP growing at rates above 3.0% and in none of them did Real GDP go lower than an average 2.4% (thanks Georgie, you're doing a heckuva job). Yet per the standard projections Real GDP will start a steep dive in 2008 (right as the 1946 vintage becomes eligible for early retirement) from 3.0% to 2.2% in 2013 to 2.0% in 2020. I thought 'Slacker' was just a nickname, per the Social Security Trustees it is an economic descripter. It seems the real question is not about the temerity the Boomers showed by being born, but why generations following ours will simply fall down on the economic growth front. Somebody needs to get off the couch here, and it ain't granpa.

Posted by Bruce Webb | October 3, 2007 2:38 PM

Strummer: "...But the problem is a lot worse if the government has essentially dissuaded people from saving (by promising them income upon retirement..."

Howard: "there are people for whom lifetime earnings is a very low number, and for them, social security is their only source of income in old age, but that's not true for most people. the problem with "savings" in america is that incomes are too low and consumption expectations are too high."

Nice to see you guys placing the blame on the beneficiaries of Social Security, rather than the managers of the program or its structure. Such reflexive ass-covering must serve you both very well in the corporate world, although I doubt it helps you make many friends.

Posted by James Gary | October 3, 2007 2:38 PM

Oh, the reason why you don't like means tested social security is because you realize that if the Middle Class doesn't get theirs, there will be no political support for it. Cynical bastards!

What crap. Social Security was designed as an insurance plan with a modest amount of progressivity built in. Society has a vested interest in insuring that the elderly have a least a minimum dignity in retirement (because we are not going to allow old people live on a steady diet of cat food), but that interest only goes so far, at some point additional savings become the obligation of the worker. The cap is a relatively successful device to identify where governmental interests stop.

Social Security is not a welfare plan. It is an insurance plan funded by workers for workers and is buffered away from the demands of Capital. It draws nothing from Capital and thus owes nothing to Capital and damn right this was the result of a careful political calculation. Am I a cynical bastard? Well yes, cynical enough to understand that if Social Security was transformed into just another government program that the Right would allocate it, as they have SCHIPS, into the category of "spending we can't afford" while keep every possible cost-plus military program in the category of "spending we can't NOT afford".

The real cynics are the ones that are crying crocodile tears over the plight of the poor in this one case, but ruthlessly slash at programs that would directly assist them in all others everytime they get a chance. Those who would means test Social Security are identical with those who propose to destroy it altogether, it is just a tactical move that is, yes indeed 'cynical'.

Posted by Bruce Webb | October 3, 2007 2:59 PM

Nice to see you guys placing the blame on the beneficiaries of Social Security, rather than the managers of the program or its structure. Such reflexive ass-covering must serve you both very well in the corporate world, although I doubt it helps you make many friends.

I don't know what's wrong with your reading comprehension. How many times do I have to say in this thread that government has cheated people out of money they thought they were going to get for retirement, by claiming there was a Trust Fund and claiming that the money was being saved for them.

If government had ACTUALLY done that, then we wouldn't have a problem. But government did not do that. It spent the money as it came in on current beneficiaries and, mostly, current budget items. That means that these SSA Bonds are debts the government owes itself, which means they can only be paid by taxing more, or cutting spending (defense and entitlements are the only ways to cut spending because defense and entitlements are the bulk of the budget), or some combination of the two.

Government doesn't create wealth, so it can't automagically pay for shit.

Now, the fact that you all want to shift focus on my supposed allegiance to the corporate world - I can't stand corporations - or my supposed allegiance to Bush - I can't stand him - doesn't change the fact that Social Security, absent significant tax increases or significant benefit reductions, will not be able to fund beneficiaries.

I'm sorry to break this to you.

Now, I'm done. Hopefully we can agree in a future thread that this war is stupid or something.

As John Mellor once said, "kick over the wall, cause governments to fall."

Posted by Joe Strummer | October 3, 2007 3:03 PM

james, since joe strummer and i are not in agreement, i don't know what you are talking about: i'm not "blaming" anyone. i have no idea where you got that. i'm talking about a useful issue to address: the notion that the existence of social security serves to dissuade people from saving for their old age. sheehs.

now, back to joe.

in terms of point 1: the key issue is whether the general fund has an obligation to repay the social security trust fund. bush 43 is the first president to deny that obligation; as a result, he is the one for whom "steal" is an appropriate term. given that, in the short term, the money is fungible, there's no need as such to "squirrel" it away: indeed, the point of the social security surplus was to enable us to pay down a considerable chunk of national debt.

in terms of point 2: i can't begin to figure out what you're saying. as best as i can tell, you seem to be saying that there is some cohort of people who would save more for retirement if there was no social security program. so what? (nor are people taxed 12.5%). the question is whether social security dissuades people from savings, and the answer is of course not: it's a form of forced savings all by itself and anyone with sufficient means to save on top of social security isn't going to want to retire on social security benefits exclusively (nor was the system set up that way).

in terms of point 3: of course the american economy could adjust to a lower level of consumption. it would merely be a grinding, painful, wrenching readjustment that would take decades. and all because all of us, in your world, should save as though we're going to live to 125.

i mean, why bother with insurance? doesn't that dissuade us all from saving?

finally, i oppose means testing for social security because i favor social insurance, which is what social security is. if that means bill gates and warren buffett get their little checks every month too, that's a small price to pay.

Posted by howard | October 3, 2007 3:04 PM

"Joe and the Washington establishment would love to raid the Social Security trust fund for more billionaire tax cuts. But it's not going to happen."

Rob Mac,

You sound like a retard when you talk about "raiding" the Social Security Trust Fund. Since the trust fund is invested in Treasury Bonds, OF COURSE the federal government spends the money immediately -- that's what the government does with the proceeds of all the Treasury Bonds it sells, whether to a Japanese bank or the Social Security Trust Fund.

The difference between our Social Security Trust Fund and, say, the sovereign wealth funds around the world that are invested in investments other than those countries' own Treasury bond equivalents is that the sovereign wealth funds hold assets that those countries' can draw upon to pay expenses in the future -- other countries' government bonds, stocks, corporate bonds, real estate securities, etc.; on the other hand, the Treasury bonds in our Social Security Trust Fund represent liabilities that our government will have to pay back in the future.

Posted by Harry | October 3, 2007 3:11 PM

joe, based on your 3:03, let's try again to cut to the chase: so, taxes will have to go up (or some combination of taxes and borrowing will have to go up). so what? that's true for a large number of government programs. what exactly is your point?

the money is only stolen if the linkage between the general fund and the social security trust fund is deemed non-binding. otherwise, it was perfectly fine for the trust fund to loan the money to the general fund. the fact that it's one part of the government owing it to another part of the government doesn't make it non-binding: again, i refer you to the supreme court on the highway trust fund. the court ruled that ultimately, those dollars must be spent on highways; it didn't rule that the dollars could otherwise never be touched.

so i really have no idea what your point is other than that you seemingly don't like social insurance and would prefer (as bruce webb so excellently points out) to replace it with a welfare plan....

Posted by howard | October 3, 2007 3:14 PM

http://www.jcpr.org/wpfiles/dominitz_manski_heinz.pdf?CFID=14321976&CFTOKEN=92750105

On the pretty uncontroversial point that Social Security dissuades people from saving (I never said that SS means people do not save at all), here's a study that shows that, in fact, people are dissuaded from saving for retirement because they anticipate benefits from SS. Younger people are less inclined to believe SS will exist in the same form as it does now because, unlike the people who comment on this website, they actually understand that there is no trust fund.

This all seems a pretty uncontroversial point, and my point is not to blame people who were dissuaded, but to blame politicians who made promises on which people relied for their retirement planning, but who have taken that money that was earmarked for Social Security and spent it immmediately.

If you make a promise to people that makes them choose one path in reliance on that promise, and then you spend that money right away, in the common law that promise is enforceable. But as someone else has pointed out, SSA bonds are not debt instruments requiring government repayment. They are accounting instruments. And so when the demographics shift, and those people begin retiring, government will have to find the money to pay them by either cutting spending (which necessarily means cutting benefits) and/or raising taxes. At $10 trillion, that's a lot of both cutting and taxing.

Posted by Joe Strummer | October 3, 2007 3:20 PM

so i really have no idea what your point is other than that you seemingly don't like social insurance and would prefer (as bruce webb so excellently points out) to replace it with a welfare plan....

My point is that gov't is going to have to raise $10 trillion just to fund the unfunded liability. That's it.

And yes, I do favor a welfare plan and not social insurance. I understand why gov't would want to create a safety net. I don't understand why gov't would want to fund, partially, retirement for the whole middle class other than for because supporters of Social Security have made the crude political calculation that Social Security will be wiped away as a welfare plan, but, with the middle class on the hook, will be protected politically.

That seems like a calculation that works only so long as you believe that gov't can finance the $10 trillion gap (on top of all the other spending. I do not think it can do so in ways that avoid tax policies that will have harmful effects on growth going out the next 100 years. Maybe you're John Keynes and you don't care about the future because we'll all be dead. That's one view.

If you go back to the start of the post, I merely took issue with Yglesias making the incorrect point that Social Security is like everything else in society by pointing out that Social Security is decidedly not like every other aspect of society in that Social Security creates incentives and structures that are pernicious.

From there we got into this long debate about SSA Bonds, and obligations.

Posted by Joe Strummer | October 3, 2007 3:31 PM

"so, taxes will have to go up (or some combination of taxes and borrowing will have to go up). so what?"

It depends how much the taxes have to be raised. If current trends in the growth of entitlement spending continue (and absent politically difficult reforms, they will), we will end up with a perfect fiscal storm in the next couple of decades: significantly higher taxes needed to pay part of current entitlements and service the debt incurred to pay the rest; slower growth due to the higher taxes and higher interest rates (as our worsening fiscal health makes international investors less eager to lend to us). In short, the "so what" is worsening living standards for you and your children, as they are taxed to the hilt, to pay of the money we borrowed to spend on our wealthiest demographic today.

Posted by Fred | October 3, 2007 3:35 PM

Fred put it all more eloquently than I could've.

Posted by Joe Strummer | October 3, 2007 3:40 PM

The meta point of Matt's comment is that he does not want to focus on the looming fiscal crises of our current entitlement programs, because if he did, it would raise questions about the fiscal viability of new entitlement programs he wishes for, like nationalized health care.

If Dems were honest, they'd level with this country about what it will take to get our current entitlement programs on a firm fiscal footing, before promising us new programs when they haven't figured out how to pay for the previous ones. More free lunches from the Santa Claus party.

Posted by Fred | October 3, 2007 3:40 PM

I should add -- and Samuelson deserves credit for bringing this up -- that when one considers the current trajectory of our entitlement spending, it makes no sense to continue to import unskilled immigrants who will consume more in entitlement benefits than they pay in taxes.

Posted by Fred | October 3, 2007 3:47 PM

Thanks, Joe.

I'm off to get some lunch. Discuss amongst yourselves in the meantime.

One other thought for the discussion: our progressive tax system and tax-advantaged investment vehicles (IRAs, 401ks, etc.) have encouraged saving among those who are net income tax payers, but among the bottom 40% of earners who aren't. Perhaps we would have higher savings rates if everyone had to pay at least some amount in federal income taxes, and, consequently, had an incentive to shelter some of that money in a retirement account?

Posted by Fred | October 3, 2007 3:54 PM

well, joe, then let's start with fred's comments, which are quite foolish and maintain the fiction that we should look at social security and medicare together.

if there had been no (or only temporary) bush tax cuts, and if there was no unfunded war in iraq, we wouldn't even be having this conversation. in short, we do not need to be "taxed to the hilt" unless you regard the tax rates of the 1990s as "taxing to the hilt."

at least as far as social security goes. (i will give fred credit insofar as he is consistent: he has opposed, as best i can recall, the fiscal irresponsibilty of the bush administration, and truly wants a smaller government. i'll also note that samuelson's use of data on immigrants has been called previously for its inaccuracy, but being an oped pundit means never having your facts checked.)

now, nationalizing health care would, without question, add to tax rates, and matthew (despite fred's snotty remarks) has made it perfectly clear that he personally is totally prepared for higher taxes to come with nationalized health care, because he believes (as i do) that the upsides of nationalized health care - portability, record-keeping, reduction in overhead, and likelihood of achieving the same health results at a lower level of gdp than we currently spend on health care - are worth the use of the power of the purse.

as for the issue of "dissuading;" your paper doesn't say what you think it says (although it's a very nice paper, don't get me wrong). it's full of buyer bewares about the limitations of the model and the data and so on. that said, yes, the paper seems pretty clear that if we had no social security, people would "save more," but then again, social security is forced savings for most people. as i noted, the biggest impediment to more savings in america is the stagnation of real wage growth; it is not the future prospects of social security, which are fine....

Posted by howard | October 3, 2007 4:03 PM

How many times do I have to say in this thread that government has cheated people out of money they thought they were going to get for retirement, by claiming there was a Trust Fund and claiming that the money was being saved for them.

The reading comprehension problem does not rest with others. There may have been people gullible enough to believe that the Treasury Department was designed like Gringot's Bank, with 200,000,000 individual vaults stocked with ever dustier piles of dollar bills representing excess contributions. Heck there are some people ignorant enough to believe that the bank is actually holding your money for you. But I don't believe there is anyone in government who said anything of the sort.

Nobody has been cheated out of anything. When you buy a government or corporate bond that jurisdiction or company takes your money and spends it. In return they promise to pay it off with interest at some point in the future. That's what a bond is, its just a promise. The Chinese for now seem to be okay with this, they are holding $400,000,000,000 worth while the Japanese hold $600,000,000,000. The only way to argue that anything has been looted is by making some spurious distinctions between regular Treasuries and the Special Treasuries (generally based on some bogus constitutional argument) all while arguing that some theoretical future Administration is made up by liars and thieves. To say nothing of a serious case of political blindness. Absent the elimination of democratic elections there is no scenario under which this works. We are supposed to believe that in 2017, a point at which Boomers will be ranging in age from 53 to 71 (and in prime voting years), that they will be able to say "Sorry we know we have been borrowing all this money, but we can't afford to make a partial payment of $30 billion on the $250 billion you earned last year on your $4.7 trillion dollar portfolio". Good luck in the next mid-terms buddy

The initial numbers just aren't that big, the only point at which this could remotely put a strain on the overall economy would be the ten year period immediately prior to depletion with the need for transfer from the General Fund ramps up from $250 billion to $370 billion in inflation adjusted dollars in the year before depletion, and then down to zero in 2042.
Table VI.F7.-Operations of the Combined OASI and DI Trust Funds, in Constant 2007 Dollars,1 Calendar Years 2007-85. Would this be painful? Well if it happens, then moderately. But we were running much higher deficits during Reagan/Bush 1 and in the mid-years of Bush 2 over similar periods of time, the notion that financing this would be a strain is ludicrous. All it takes is some moderate discipline on the General Fund side over the next 20 years or so.

The notion that any Administration would be able to make the argument that it was simply impossible to pay interest on money they borrowed, which is all we are talking about until 2023, still less that they could simply repudiate the principal for the 18 years after that is stultifyingly stupid. It really doesn't matter how many times you try to sell it, your argument remains stupid and depends entirely on an audience that would be thoroughly ignorant of both political reality and finance. Well this isn't that audience, repetition of stale talking points doesn't cut it, when you pin it down to dollars and votes none of it adds up.

Posted by Bruce Webb | October 3, 2007 4:26 PM

There may have been people gullible enough to believe that the Treasury Department was designed like Gringot's Bank, with 200,000,000 individual vaults stocked with ever dustier piles of dollar bills representing excess contributions. Heck there are some people ignorant enough to believe that the bank is actually holding your money for you. But I don't believe there is anyone in government who said anything of the sort.

No, there was never anyone who ever talked about anything called a Trust Fund! And there was never anyone who further referred to things like lockboxes! And there aren't people in this thread who insist that an SSA bond is just like any other government debt!

Come on. Maybe you and I and others of us who follow this stuff understand, but I guarantee you the average 50, 60, 70 year old out, if they haven't been made cynical by 6 years of GWB, believe that that money was put in a safe place.

You're right that these are all promises to repay on debt. The difference between a corporate bond or a government bond bought on the market is that an investor can decide whether he wants to purchase that bond at that price given the risk.

Social Security doesn't work that way. People weren't given a choice. They were taxed, and in exchange for that money, gov't took some of the money and paid current beneficiaries, and took the rest of the money, gave them SSA Bonds, and used that money to finance current spending.

That money wasn't invested (as a bank might do when you deposit). It wasn't put into companies that earn a return.

It was spent on current programs. That means gov't is going to have to cut programs, or tax to both cover current programs plus the money that was putatively put away in a "trust fund" for social security recipients.

Public finance is not the same as private finance, and to analogize the two the way you do makes it apparent you don't understand the difference.

Posted by Joe Strummer | October 3, 2007 5:01 PM

The notion that any Administration would be able to make the argument that it was simply impossible to pay interest on money they borrowed, which is all we are talking about until 2023, still less that they could simply repudiate the principal for the 18 years after that is stultifyingly stupid. It really doesn't matter how many times you try to sell it, your argument remains stupid and depends entirely on an audience that would be thoroughly ignorant of both political reality and finance. Well this isn't that audience, repetition of stale talking points doesn't cut it, when you pin it down to dollars and votes none of it adds up.

What are you talking about? There's already widespread talk about adjusting benefits and means testing social security, and privatizing social security. Some or all of these things will be part of the structural changes that will change the benefit mix. In addition to that, gov't will raise taxes.

That's got to happen. There's no other way gov't can finance itself. It either can cut spending or increase taxes. You seem to think that it can increase taxes to cover the entire obligation. That's certainly *possible*, but it will mean, as Fred described earlier, tax rates that threaten the living standards and growth rates of the next bunch of generations.

Small differences in growth rates have compounding effects over time. 1% doubles an economy's size in 70 years. 3% doubles an economy's size in 25 years.

Posted by Joe Strummer | October 3, 2007 5:15 PM

Is it just me, or was Joe Strummer's political commentary fresher and more thought-provoking before he died?

Posted by LaFollette Progressive | October 3, 2007 6:23 PM

Strummer: "Fair enough [my implicit claim that we can raise the taxes to German level, and last time we checked, Germany is not like hell], I suppose. But the problem is a lot worse if the government has essentially dissuaded people from saving (by promising them income upon retirement) and at the same time has not saved any of the money it has purportedly taxed from them."

Right now I am visiting Germany and trying to earn some Euros (ah, the smell of REAL money!). When I was opening bank account, I noticed two things:

1. Somehow, it is easier to open an interest-bearing account -- I could do it before getting a social security number.

2. These people actually want to be paid good coin (2-3 Euros per month) for having a credit card! Un-American!! (well, why should they be American-like, so my blood cooled a bit). Next day, the person I was discussing a problem with had to make a hotel reservation for a bussiness trip and he had a difficulty because the secretary who has the institutional credit card went on vacation (another European peculiarity, she is in Ibiza right now). So I helped him with my credit card number, while regaling him with the story that not only I pay nothing for the privilege, but they pay me back 1%.

In short succession, we can make more observations. First, Germans have better benefits that we do, in proportion to income. Second, families tend to be separated to a smaller degree, so actually one can rely a bit on children and grandchildren more than in USA. Third, these people are thrifty (unnecessary 3 Euro per month? are you kidding??). Fourth, banks like it that way and they do not ply customers with credit with any particular zeal.

My conclusion is that the lack of savings among American families is not caused by "rational choice of overprotected citizens" but by responses to (a) marketing of credit and goods, (b) more occasions in life to loose one's savings (illness, college degree, lawsuit, lost job), (c) some anti-saving and pro-credit regulations and tax laws.

Moreover, any time you would try to change it, people start telling that "70% of the economy is created by personal spending and you try to bring a depression".

By the way, these people may be thrifty, but skipping foreign vacations is just not done.

Posted by piotr | October 3, 2007 6:54 PM

This is all such incredible BS.

The 'Greatest Generation' cohort had about the worst health experiences you can imagine. They smoked, they drank, meat was graded 'A' if it was loaded with fat, for decades everything they ate was like white bread and canned tomato soup. Whether it was in their home, on the highway or on the job they inhaled asbestos, soot, and lead fumes from gasoline. The amount of lead, arsenic, mercury and PCBs dumped in their environment every year was measured in tons, plenty of 'em.

And this is about as bad as American healthcare is going to get, if only because we can't afford for it to get any more expensive or useless.

To put it in the simplest terms, things are going to get better- not worse.

And, BTW, you want older people to keep working? Stop shutting them out of the workplace.

Posted by serial catowner | October 3, 2007 6:59 PM

Re: However it's much easier to back out of phony SSA Bonds, which is what government will do when it inevitably reduces benefits, as it must.

The bonds are not phony and if the US government defaulst on them that would have the sanme consequence (runous ones, and not just for the US) that deafulting on any other government bonds would. Those bonds will be paid. The people will insist on it and the capital markets will insist on it. Who the hell is going to say No to that combination?

Also, contra another poster, taxes will NOT have to be raised to "confiscatory" levels. Good grief, where is this wildly inaccurate propganda coming from? Simply removing the income cap and allowing all wage income to be subject to FICA taxation would fund Social Security indefinitely under even a pessimistic set of assumptions.

Re: So the growth in spending is mostly driven by the aging of the population.

Only if you ignore the fact that this simply represents a transfer of healthcare spending from (mainly) private insurance to the publci porgrams. Yes, the public programs would grow, but so what? It's not really new spending. If we enacted single payor hralthcare tomorrow the public healthcare bill would also grow enormously, but as far as the economy as a whole is concerned we'd simply be changing funding mechanisms, not increasing spending.

Re: That dissuades those people from saving

Huh? How do you account for all the 401ks and IRAs middle class people have?

Re: Second, families tend to be separated to a smaller degree, so actually one can rely a bit on children and grandchildren more than in USA.

I think it's a canard that Americans do not rely on their families. Every elderly, infirm person I have known lived with some family member (or had one living with him/her) until and unless their condition deteriorated to the point that they needed round the clock skilled care.

Posted by JonF | October 3, 2007 7:53 PM

Fred and Joe, the big part of the gap between revenue at current tax rates and forecast expenditures under current law comes from Medicare, not SS. And it's more driven by rising health care costs than aging. If you want to even be viewed as intellectually honest in a discussion about SS, talk about the gap between SS payroll taxes and SS forecast outlays, which is far away in time and not l