Why the Deficit Commission Won’t Cut Social Security: A History Lesson

Nostalgists for some imagined, bygone era of bipartisanship don’t hold out a lot of hope for the deficit commission. They’re right, but for the wrong reasons.

With a few exceptions, blue-ribbon presidential commissions are dismissed as window dressing, a polite way to kick the can down the road on a particular issue. Obama’s National Commission on Fiscal Responsibility and Reform is just such a one.

Disappointed that the commission won’t have the power to force an up-or-down vote in Congress, the deficit hawks call this an ominous failure of government, a further sign that Washington has forgotten how to govern. That’s a dubious proposition: Is a Congress that’s voted consistently and overwhelmingly to keep funding a wasteful, destructive, and ill-conceived “war against terrorism” in the Mideast, despite broad public opposition, for nine years now, really incapable of governing? It may be deeply misguided, but it’s certainly capable of making the proverbial “tough decisions.”

The deficit hawks are right, however, that the deficit commission doesn’t stand much chance of success. Especially of cutting Social Security, which in the wake of the new health care reform law, has become its primary target. To understand why requires a short history lesson.

The long war against Social Security, which began in the early 1980s, is now in its third phase.

Phase 1 began in 1983, Continue reading Why the Deficit Commission Won’t Cut Social Security: A History Lesson

Read this book!

In his new book, Moshe Adler shows how a few bad economic ideas have done so much harm to so many. Economics for the Rest of Us: Debunking the Science that Makes Life Dismal is a new book by Moshe Adler, a Columbia University economist (and – full disclosure – a personal friend). Despite the title, it is not a general primer on economics for the lay reader, although it’s lucid and even entertaining. What it does is eviscerate two of the founding myths of modern economic theory and practice. Anyone should read it who wants to understand the roots of our current skewed system, in which deregulation and subsidies for the owners of capital are just fine but any measure that would redistribute some wealth to the needy – Social Security, for example – is to be avoided.

The first is “Pareto efficiency”: the notion that no one can be made better off without someone else being made worse off. So, in other words, you can’t change the rules to alleviate the misery of the poor because it would take away too much from the affluent, and therefore discourage investment and make “the economy” as a whole less efficient. The second is the notion that there is such thing as a quantifiable “marginal product of labor” Continue reading Read this book!

Health Care Reform, Act II

Progressives should be happy their health care reform bill came out far from perfect. In some ways, it’ll benefit them more than if they’d got all they wanted.

Conservatives are denouncing health care reform as a ruthless power grab, propelled by “the single purpose of permanently expanding the American entitlement state.” They know whereof they speak. Ever since the New Deal, the great engine of Democratic electoral success has been the creation of new and improved services by government that the private sector cannot or will not provide in an equitable way.

Social Security, unemployment and disability insurance, Medicare and Medicaid, a vast expansion of public education: all were products of the great period of Democratic political dominance in the U.S. that stretched from the Roosevelt through the Johnson administrations. These programs directly benefited millions of working families and sealed their loyalty to the Democratic Party.

None were perfect from Day One. And that was the beauty of it.

Take Social Security. It didn’t much resemble today’s program when it was first passed in 1935. Benefits were tiny and not indexed to inflation. About the only category of individuals who were well covered were white, male industrial workers. Although it started collecting payroll tax contributions right away, benefits weren’t even supposed Continue reading Health Care Reform, Act II

The Emperor’s (Old) Clothes

Ryan’s deficit elimination plan shows that the Republican still haven’t figured out how to square the circle on Social Security privatization.

Everyone seems to like Rep. Paul Ryan. The gangly Wisconsin Republican comes off as so earnest and public-spirited that hardened Washington pros lean over hard to think the best of him. Free-market doctrinaires love Ryan because his ideas are a supply-side fantasy come to life. Even Ezra Klein, the Washington Post’s most liberal columnist, who can be pretty fierce sometimes, calls him “a genuinely nice guy.”

What he’s not is an innovator. Almost everything in Ryan’s Roadmap for America’s Future has been around the block repeatedly.

But that’s what makes it so interesting: especially his proposal to privatize Social Security, which would slash benefits and use the savings to fund private investment accounts. The idea is decades old now, and it still suffers from the same fatal flaw as when the Cato Institute first proposed it in 1980.

In a word, he can’t pay for it.

Continue reading The Emperor’s (Old) Clothes

Is Social Security really a Ponzi scheme?

The answer, for the umpteen-thousandth time: It’s not! Here’s why.

The Ponzi metaphor is back with a vengeance. Minnesota Gov. Tim Pawlenty, snatching hard at the “Republican presidential hopeful” tag, last month posted an op-ed on Politico.com in which he accused the entire federal government of being a “Ponzi scheme on the Potomac.”

But of course the current round of joking goes back to late 2008, when Bernard L. Madoff’s high-wire fraud, probably the largest and most sustained Ponzi scheme in history, collapsed.

“Put Madoff in charge of Social Security,” the Wall Street Journal’s Holman Jenkins jeered at the time. Syndicated cartoonist Chip Bok ran a panel showing a glum Madoff being led before the SEC by a guard who tells the commissioners, “He ran out of new investors to pay off his old investors.” One of the latter responds, “Madoff ran Social Security too?”

The Ponzi epithet for Social Security originated Continue reading Is Social Security really a Ponzi scheme?