Monday, February 4, 2013

Randy Wray — Social Security’s Unfunded Entitlements: Much Ado About Nothing, Or Little To Do About Something?

Back in January 2005, when President Bush was ramping up his attack on Social Security, Peter Wehner, a White House political strategist, wrote in a memorandum to conservative groups: “We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course. The reality needs to be seared into the public consciousness.”
Bush desperately wanted to privatize Social Security—to send the hundreds of billions of dollars to Wall Street so that the geniuses who manage money could blow the whole wad on their speculative schemes. Just imagine how that would have worked out! The already bubbling real estate and commodity markets could have reached an even more stupendous peak before crashing into what presumably would have been an even worse Global Financial Collapse. And today’s seniors would be dumpster diving without Social Security to fall back on.
Bush lost that squirmish but he won the war. Now even the “friends” of Social Security have the program’s unsustainability seared into their consciousness. The program is broke, bust, bankrupt. If you are young, you’ll never collect a dime from the program. But is there any truth to the rumor? Of course not.
Economonitor — Great Leap Forward
Social Security’s Unfunded Entitlements: Much Ado About Nothing, Or Little To Do About Something?
L. Randall Wray | Professor of Economics, UMKC

26 comments:

Bob said...

Put the scumbag congress, and President on the same retiremet deal the tax payers get that is social security, than you would see how fast they would be willing to chop the lambs heads off. How about passing a new law to reverse the trickle down , We'll call it trickle up and the laborers will see a 500% increase in wages and the 1 % can get a o% increase, that would be justice.

Bob said...

Michelle Obamas million dollar closet can be recycled too!

Matt Franko said...

So is Wray making the case for our current Social Security system which is in perennial surplus and every month extracts $nfa from the non-govt sector?

Would it not indeed be better to have invested funds into a equity portfolio of the non-govt corporate sector ex-financials? As these firms end up with all of the $nfa by logic?

So at least a retiree would have this albeit indirect ownership of the $nfa that govt allows to be left in the system?

While SS is mathematically nothing more than a monthly $nfa extraction machine...

What is his point here? To Bush-bash or to teach somebody something?

Wray is fighting along the wrong axis of the political compass...

Rsp

Detroit Dan said...

Atrios is now on a mission to increase Social Security benefits. Good for him!

MOAAAAAAAAAAAAR SOCIAL SECURITY

paul said...

Matt,

S/S is a guarantee. Unless the law is changed that guarantee holds.

Private-sector pension funds are a promise that will only work if the 0.1% are allowed to skim most of the funds off the top for their gambling addiction.

I don't want to play at that table, and I don't want it funded by money- printing under those conditions.

A system where a small cohort accumulates funds 3 times faster than the population at large is unsustainable, inequitable and just plain nuts.

The (401k) pension fund system is a ponzi scam...a game of musical chairs. Another kind of bubble.

Bush is not a special monster... just another moron in a long line of morons that have been helping their buddies screw the little guy. None of these people gave or gives a shit about us.

Clinton probably screwed us worse (Iraq war notwithstanding).

Ryan Harris said...

The SS transfer tax (without the surpluses) should be more efficient to administer than an investment fund which extracts rents from politically favored industries. Imagine a Dem rhetoric porfolio and Repub rhetoric portfolio. A mess that would be. The US could never have a sovereign wealth fund. Too many opinions.

Matt Franko said...

Dan, agree, this article could leave one with the impression that SS is just fine.... It's not! This is where Wray ends up when he sets out to frame this as left/right political... Bad move.

Paul, agree. Imo all of the 'privatisation' comes from morons thinking we are 'bankrupt'.... And Bush probably thinks in classic libertarian style, 'the private sector can bail us out'... When in reality, if nfa flows are not pro actively sustained, we are all bankrupt eventually,

Why not just give the nfa balances to retirees directly? And let the libertarians go f themselves....

RSP


paul said...

Why not just give the nfa balances to retirees directly? And let the libertarians go f themselves"

FDR gave us the reason...it was a matter of optics to make it look like it was "our" money so no one could take it from us.

This will always be a tug-of-war.

Your suggestion is obviously too logical...we have to frame everything to fit our moral perceptions.

The Rombach Report said...

I thought Randy Wray's article was very compelling precisely because of his focus on capital: human, public infrastructure and private investment.

With the number of workers per SS beneficiary falling from three to two, is it a fait accompli that worker productivity will quadruple over the same period to compensate?

Wray argues that more private investment like new and improved private production facilities to enhance growth will require new and improved aggregate demand today, which was recently taken away with the expiration of the SS tax holiday... skimpy as it was. However, to put a Supply Side spin on the discussion, the tax cut with the best chance of quadrupling worker productivity when the number of workers per SS beneficiary falls from three to two
is the capital gains tax.

Cut the capital gains tax and capital will come out of the woodwork to finance private sector investment. This suggests that theoretically the capital gains tax should be ZERO PERCENT (0.00%), which Alan Greenspan argued from time to time.

Instead, capital gains taxes have gone up from 15% to 20%... at least for the "wealthy". It will probably never be politically feasible to cut the capital gains tax all the way down to 0%, but I think 10% is achievable. Moreover, the government would "collect" or in the MMT paradigm "extinguish" much more "revenue".... at least in an accounting sense.

Chewitup said...

I agree with Ed. Randy's post was fairly apolitical. How are we going to make sure we have real resources available in the future to take care of our societal needs? What is the public role? What is the private role? Will we have the know-how to get it done?

Jonf said...

I guess I will have to go back and read Wray's post again. I thought he was simply saying that when it comes to the actual money, there is no problem. The only problem could be real resources, things like doctors, nurses, staffs, hospitals and facilities and the equipments. Even here he suggests (I thought) that this should not be a huge hurdle to get over. So all the hype about SS being in trouble or unsustainable is just that: nonsense, given any reasonable growth and productivity improvements.

Chewitup said...

The post references Pete Peterson and his ilk a couple of times in regard to their influence on policy makers. It's obvious that influence is creating existing policy.

We don't need to worry about funding Social Security. We need to worry about who in influencing policy decisions. And whether policy will allow us to use and develop our resources appropriately.

Matt Franko said...

Chewie right Peterson is mentioned without affiliation but Ive noticed Bill Black always refers to Peterson as "Republican"... which I'm not so sure about...

This is the seed of Peterson's bio at "Fix the Debt":

"Michael Peterson is President and Chief Operating Officer of the Peter G. Peterson Foundation. In addition, Michael is currently President and Co-Founder of GPX Enterprises, LP, a private investment firm focused on the sponsorship, development, and management of selected private equity investments. He worked on the Clinton and Dukakis presidential campaigns, served as a Congressional Aide to Majority Leader Richard Gephardt,..."

Sounds like "Peterson" is a Democrat....

And no one else has a higher media profile from there than Steven "We Need Death Panels" Rattner who was in the Obama administration, he has a higher profile lately than Walker...

So I dont see this as a partisan issue and the Bush-bashing here seems gratuitous and no value added....

rsp,

paul said...

"So I dont see this as a partisan issue and the Bush-bashing here seems gratuitous and no value added"

Matt, I'm not sure this is as much partisan as it is historical.

Bush is the guy that is on record attempting to deliver SS to the sharks. He has to own it.

Clinton should be remembered for delivering de-regulation to the sharks. The unfortunate part is he succeeded.

That said, I'm pretty sure Randy is not a Bush fan, but then most people aren't.

These days I tend to be an equal-opportunity politician-basher but Republican Politicians are especially odious.

I suppose it would be easier to choose sides if I had any inkling of what anybody stands for anymore. Judging by what they do not what they say.

Dan Kervick said...

Matt it doesn't matter whether the Social Security trust fund is in surplus. The SSTF is just a sub account of the entire government, and the entire government is in deficit. That's all that matters.

It's not like the SSTF represents a potential source of private sector assets that are not being exploited. If the trust fund is in surplus, it gives the general fund the money, and the general fund gives the trust fund a bond. The intergovernmental balance sheet changes net to zero.

If the private sector needs more NFAs, then buying private sector bonds doesn't seem like an especially effective way to do it. That's in effect just more QA, whether it is being done by the Fed or the Treasury. Better to spend the money on employment and real activity, not in the financial markets.

Dan Kervick said...

Randy's focusing on the right issues: what are our best estimates of how many people will be retired at a given point in time, and our best estimates of what percentage of the population will be working, and how productive they will be.

MoveThroughIt said...

"It's not like the SSTF represents a potential source of private sector assets that are not being exploited."

I think it represents just that to the .1%. Think of all those FICA taxes that could be going into their coffers. Not to mention addional social control.

Matt Franko said...

I understand the system level deficit math etc... but the SS pensions will not be enough for the j6p's to live off of in retirement....

Many cannot put away funds in IRAs and 401k's as their income is too low to begin with... old style corporate pensions have been eliminated with the destruction of the US industrial economy.... even if you managed to save, with ZIRP you cant even get a decent yield today....

This system is in reality "broken"... from an out-of-paradigm perspective it is perhaps "solvent" but WE are NOT out of paradigm...

Dan "inside baseball" the Medicare side is in strong deficit but the SS side is running at about a small surplus....

here is a link to the so-called "actuaries" report:

http://www.ssa.gov/oact/trsum/index.html

SMI is taking 222B from "general revenues" and this is the target of the "fix the debt" people now....

if you listen to them lately, now that they ended the payroll tax holiday they dont talk about SS but they talk about "medical entitlements" which is this 222B to SMI which (other than accounting for healthcare to our seniors) creates a much needed large injection of $NFA to the domestic non-govt sector....

these idiots want to eliminate this flow specifically... and it will bring the whole system down if they are successful...

rsp,

Dan Kervick said...

Move throughIt, that's true, but it doesn't depend on the existence of a social security trust fund. Even if the FICA taxes poured directly into the general fund, the financial sector would target them.

I often think it would be better just to pay SS out of general revenues and get rid of the trust fund. The existence of the trust fund gives the plutocrats a target with a bulls-eye on its back, and an opportunity to complain about whether the fund is or isn't "in surplus". If the fund itself is projected to be in deficit at some point in the future, they say our social security obligations are "unfunded liabilities."

If all of our projected spending obligations were obligations of the general fund, and the general fund were expected to be in deficit at some year in the future, then all of the obligations of the government in that year could be said to be "unfunded" - including military spending, farm subsidies and bridge repairs in America's richest counties.

paul said...

"they say our social security obligations are "unfunded liabilities."

The inconvenient truth is that anything that happens in the future that has to be paid for is an unfunded liability.

Liabilities we can always afford to pay unless the greedy bastards suck all of the oxygen out of the room.

These are the morons impoverishing our grandchildren.

Matt Franko said...

Right if you look at that report I linked to above they itemize "interest" as "income" to the funds (which comes from the Treasury anyway! Arrgh!!)

You need a high level of mathematical maturity though to be able to see through all of these cost accounting structures... most dont have it... then it goes to "appeal to authority" and most are then caught up by the "fix the debt" idiots and it defaults back to ideology...

This basic ideology, I'm calling it "libertarianism" for now, has to be confronted... and then concurrently we can conduct unapologetic advocacy for greatly expanded Public Enterprise...

rsp,

Jonf said...

We don't need the SSTF. The bailouts proved that beyond any doubt. But it does make us "feel good". The SSTF is, in reality, the excess taxes paid on earnings up to around $100k per year. Those making more than that, i.e. the top one percent and those making their money on capital gains and carried interest, kept most of their money. So the 99% subsidized the fucking wars of the top one percent. Now they want us to either(a) raise the tax or, preferably,(b) cut the benefits. YOu know why. It is obviously unustainable. Nice fairy tale.

paul said...

"You need a high level of mathematical maturity though to be able to see through all of these cost accounting structures"

Exactly Matt, which is why my policy is to not go down those rabbit holes...they don't lead anywhere.

My rule is simplicity...the domestic non-government is closed...meaning any net gains/losses can only occur through outside actions.

Without that input it follows that within the economy only changes in distribution can occur and the system is somewhat rigged in that respect...the wealthy will not engage in any activity that will risk that wealth.

No one fishes an empty pond but even if they did they would come up empty.

As a result flow only occurs in one direction...flowing up rather than trickling down.

No amount of finagling of the accounting will change that reality.

If the government stops net spending it's game over.

These people are playing a dangerous game.

Jonf said...

Randy made a bit of mince meat out of that unsustainable argument. Sweet, as they say.

Tom Hickey said...

Randy made a bit of mince meat out of that unsustainable argument. Sweet, as they say.

Agree. Again, back to the MMT basic point. It's all about availability of real resources, stupid. Funding is never the issue for a currency sovereign. Do we have the desired level of real resources now and will we have them in the future. That depends on capital formation and deployment now.

Tom Hickey said...

Should add to the above, because the currency sovereign self-funds, it's cost of capital is zero.

Obviously, in a capitalistic society, govt should not compete directly with the private sector on this privileged basis in areas where the private sector can do the job as efficiently and effectively as govt, or where public purpose supervenes. Where it makes more sense for govt to do it, in many cases this can be accomplished by govt funding capital requirements and contracting out operations.