Tag: Social Security

Social Security Demagoguery from Mitt Romney and Michele Bachmann: Economically Wrong, Politically Wrong

Governor Rick Perry of Texas is being attacked by two rivals in the GOP presidential race. His sin, if you can believe it, is that he told the truth (as acknowledged by everyone from Paul Krugman to Milton Friedman) about Social Security being a Ponzi scheme.

Here’s an excerpt from Philip Klein’s column in the Examiner, looking at how Mitt Romney is criticizing Perry.

Mitt Romney doubled down on his attack against Texas Gov. Rick Perry this afternoon, warning in an interview with Sean Hannity that his critique of Social Security amounted to “terrible politics” that would cost Republicans the election. Romney’s decision to pile on suggests that he’s willing to play the “granny card” against Perry if it will help him get elected, a tactic more becoming of the likes of DNC chairwoman Debbie Wasserman Schultz than a potential Republican nominee.

And here’s a Byron York column from the Examiner looking at how Michele Bachmann is taking the same approach.

…another Republican rival, Michele Bachmann, is preparing to hit Perry on the same issue. “Bernie Madoff deals with Ponzi schemes, not the grandparents of America,” says a Bachmann adviser.  “Clearly she feels differently about the value of Social Security than Gov. Perry does.  She believes Social Security needs to be saved, that it’s an important safety net for Americans who have paid into it all their lives.” … “She strongly disagrees with his position on that…”

Shame on Romney and Bachmann. With an inflation-adjusted long-run shortfall of about $28 trillion, Social Security is a Ponzi scheme on steroids.

But as I explain in this video, that’s just part of the problem. The program also is a terrible deal for workers, particularly young people and minorities.

Here’s what’s so frustrating. Romney and Bachmann almost certainly understand that Social Security is actuarially bankrupt. And they probably realize that personal retirement accounts are the only long-run answer.

But they’re letting political ambition lure them into saying things that they know are not true. Why? Because they think Perry will lose votes and they can improve their respective chances of getting the GOP nomination.

Sounds like a smart approach, assuming truth and morality don’t matter.

But here’s what’s so ironic. The Romney and Bachmann strategy is only astute if Social Security is sacrosanct and personal accounts are political poison.

But as I noted last year, the American public supports personal accounts by a hefty margin. And former President Bush won two elections while supporting Social Security reform. And election-day polls confirmed that voters supported personal accounts.

I’m not a political scientist, so maybe something has changed, but I wouldn’t be surprised if Perry benefited from the left-wing demagoguery being utilized by Romney and Bachmann.

P.S. This does not mean Perry has the right answer. As far as I know, he hasn’t endorsed personal accounts. But at least he’s telling the truth about Social Security being unsustainable.

Cooling out the Marks in Uncle Sam’s Ponzi Schemes

The flap over whether Social Security is a Ponzi scheme reminds me of two passages about Social Security’s sister program, Medicare, from Cato adjunct scholar David Hyman.

The first is from his book Medicare Meets Mephistopheles, which remains the best (and only) satire ever written about Medicare:

Consider what happened when I presented some considerably less pointed remarks at the conference at Washington and Lee University School of Law. One of Medicare’s most enthusiastic supporters responded by making an impassioned speech that it was improper to describe Medicare as a “Ponzi scheme,” and the program should not be judged by the standards that would apply to a private pension because it was actually a “sacred bond” between the generations. (Leave aside the fact that I never used the word “Ponzi” in my remarks. I did note that the Medicare program bore certain similarities to an inter-generational pyramid scheme, which is something quite different. Of course, it is possible that the use of this term by the commentator was a Freudian slip.) His words brought enthusiastic applause from those members of the audience who had heard enough bad news of the sort found in this book and were more than ready to ignore Medicare’s problems on the basis of empty political sloganeering.

The second is from Hyman’s response to a critic of Medicare Meets Mephistopheles:

Finally, my reply is titled “Cooling Out the Marks, Medicare Style.” This is a reference to a well-known article by a famous sociologist, on con games and the social process of adaptation to failure:

“Sometimes, however, a mark is not quite prepared to accept his loss as a gain in experience and to say and do nothing about his venture. He may feel moved to complain to the police or to chase after the operators. In the terminology of the trade, the mark may squawk, beef, or come through. From the operators’ point of view, this kind of behavior is bad for business. It gives the members of the mob a bad reputation with such police as have not yet been fixed and with marks who have not yet been taken. In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play. It is called cooling the mark out. After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his team-mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation. An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss.”  Erving Goffman, “On Cooling the Mark Out: Some Aspects of Adaptation to Failure,” 15 Psychiatry 451, 451-52 (1952).

The occupational hazard for Medicare’s defenders is the tendency to become coolers on the program’s behalf. Professor Horwitz largely avoids this temptation, although she is not (yet) willing to concede how hot things actually are in the place in which we find ourselves. The same cannot be said for Medicare’s more ardent defenders, who routinely justify and excuse Medicare’s pathologies on the grounds that it is a “sacred inter-generational trust,” and not just another mediocre government program. Yet, even these ardent defenders may eventually find themselves wondering, in the dark of night, how it came to pass that they became coolers, giving instruction to the poor and working classes on the philosophy of taking a loss at the hands of a program that was supposed to help them, but ended up treating them as marks. With friends like that, who needs enemies?

Washington Post Asks for Budget Plans

The Washington Post’s editorial board issued a challenge to the president and his Republican opponents: “show us your plans” for deficit reduction. In fact, the Post says it would be “delighted” to receive plans from its readers. However, the Post isn’t interested in “meaningless promises” to cut “waste, fraud, and abuse”—it wants specifics:

Here’s what we’re not looking for: pablum about eliminating unnecessary spending without identifying where. Gauzy rhetoric about making hard choices without making them. Meaningless promises about eliminating waste, fraud and abuse. Broad assertions about where to find the money — “Medicare savings,” “tax reform” — without specifics. Arbitrary spending caps without accompanying details about how those limits are to be met. If you believe, for example, that federal spending should be kept to a specific share of the economy — 18 percent? 20 percent? — show the plausible path to getting there.

Amen. Chris Edwards and I have been beating the drum for Republican policymakers in particular to get specific about what they would cut. Chris recently noted that with the exception of Sen. Tom Coburn (R-OK), Sen. Rand Paul (R-KY), and perhaps a few others, Republicans aren’t putting much effort into identifying programs to terminate. And I have noted that “It’s more common to hear Republicans blubber on about ‘reducing waste, fraud, and abuse’ in government programs and ‘saving’ the pillars of the welfare state (Social Security and Medicare) for ‘future generations.’”

As for deficit reduction ideas from Washington Post readers, we have a balanced budget plan on our Downsizing the Federal Government website. In fact, not only do we have a plan, we have over three dozen essays on numerous government agencies that provide details on what programs to cut and why.

How Your Government Deceives You, ‘Social Insurance’ Edition

From my former Cato colleague, Will Wilkinson:

The trick to weaving an effective and politically-robust safety net for those who most need one is designing it to appear to benefit everyone, especially those who don’t need it. The whole thing turns on maintaining the illusion that payroll taxes are “premiums” or “insurance contributions” and that subsequent transfers from the government are “benefits” one has paid for through a lifetime of payroll deductions. The insurance schema protects the main redistributive work of the programme by obscuring it. As a matter of legal fact, payroll taxes are just taxes; they create no legal entitlement to benefits. The government can and does spend your Social Security and Medicare taxes on killer drones. But the architects of America’s big social-insurance schemes, such as Frances Perkins and Wilbur Cohen, thought it very important that it doesn’t look that way. That’s why you you see specific deductions for Social Security and Medicare on your paycheck. And that’s why the government maintains these shell “trust funds” where you are meant to believe your “insurance contributions” are kept.

Alas, like Social Security and Medicare themselves, the deceptions that protect these entitlement programs cannot go on forever.

Generally, liberals are profoundly conservative about the classic Perkins-Cohen architecture of America’s big entitlement programmes, which they credit for their remarkable popularity and stability. Yet that architecture offers very few degrees of freedom for significant reform. Crunch time is coming, though, and sooner or later something’s got to give.

If Wilkinson’s overlords at The Economist demand that he misspell program, they should be consistent and allow him to abandon the American convention of mislabeling leftists as liberals.

ObamaCare’s Latest ‘Glitch’: Medicaid for Millions of Middle-Class Retirees

Remember how ObamaCare inadvertently kicked members of Congress out of their health insurance plans?  (Just kidding!  The Obama administration ignored that part of the law!)

Well, today we learned that ObamaCare also inadvertently gives free health care to millions of middle-class Social Security recipients:

President Barack Obama’s health care law would let several million middle-class people get nearly free insurance meant for the poor, a twist government number crunchers say they discovered only after the complex bill was signed.

The change would affect early retirees: A married couple could have an annual income of about $64,000 and still get Medicaid, said officials who make long-range cost estimates for the Health and Human Services department.

Up to 3 million people could qualify for Medicaid in 2014 as a result of the anomaly. That’s because, in a major change from today, most of their Social Security benefits would no longer be counted as income for determining eligibility.

Medicare chief actuary Richard Foster says the situation keeps him up at night.

“I don’t generally comment on the pros or cons of policy, but that just doesn’t make sense,” Foster said during a question-and-answer session at a recent professional society meeting. It’s almost like allowing middle-class people to qualify for food stamps, he suggested.

What other surprises lurk in ObamaCare’s 2,000-plus pages?

Kudos to Rick Foster and the Associated Press’s Ricardo Alonzo-Zaldivar.

Wednesday Links

Senate Vote on Rand Paul’s Budget

Last week, a motion to proceed on a budget resolution introduced by Sen. Rand Paul (R-KY) was decisively defeated in the Senate (7 in favor, 90 opposed). Paul’s proposal would have balanced the budget in five years (fiscal year 2016) through spending cuts and no tax increases. Social Security and Medicare would not have been altered. Instead, the proposal merely instructed relevant congressional committees to enact reforms that would achieve “solvency” over a 75-year window.

That’s hardly radical.

Paul’s proposed spending cuts were certainly bold by Washington’s standards, but they weren’t radical either. For example, military spending would have been cut, in part, by reducing the government’s bootprint abroad. From the Paul proposal:

The ability to utilize our immense air and sea power, to be anywhere in the world in a relatively short amount of time, no longer justifies our expanded presence in the world. This budget would require the Department of Defense to begin realigning the over 750 confirmed military installations around the world. It would also require the countries that we assist to begin providing more funding to their own defense. European, Asian, and Middle Eastern countries have little incentive to increase their own military budgets, or take control of regional security, when the U.S. has consistently subsidized their protection.

Over 750 confirmed military installations around the world. That’s enough to make a Roman emperor blush. Isn’t continuing to go deeper into debt to subsidize the defense of rich allies the more “radical” position? (See these Cato essays for more on downsizing the Department of Defense.)

Other cuts included eliminating the Department of Housing & Urban Development, the Department of Energy, and most of the Department of Education. But unlike most Republicans, Paul didn’t apologize for the cuts or use the debt dilemma as a cop out. Instead, he explains in his plan why these federal activities are counterproductive and should be devolved to the states or left to the private sector.

It’s disappointing that Paul could only get seven Republicans and no Democrats to support his budget. For all the bluster about needing to cut spending, not raise taxes, and stop the Obama administration’s big government agenda, most Republican senators said “no dice” when given the chance to vote in favor of a plan that would accomplish all three objectives and balance the budget in five years.