When Peter Peterson’s anti-Social Security propaganda organ, Fiscal Times, openly criticized Alan Simpson for his insulting comments to Alex Lawson, calling Simpson "condescending and derisive–and wildly wrong about important parts of the Social Security system’s past," I suspect they were worried about a lot more than Simpson’s typical bullying tactics or even another self-disqualifying "macaca moment."
In throwing Alan Simpson under the bus, the Peterson gang apparently fears that when Simpson blurted out a widely shared but easily refuted Republican misrepresentation that the Social Security Trust Fund was "broke," near bankruptcy, he exposed their agenda to undermine the most important social safety net in America. What Simpson revealed is an agenda that can be explained only in terms of having the US Government effectively default on the US bonds held by the Trust Fund without calling it a sovereign default.
In other words, Simpson has now exposed not only himself, but likely most of his fellow Republican commissioners, as well as the Commission’s Peterson-dominated staff, as being so fundamentally confused (or dishonest) about Social Security, and the contrived relationship between an otherwise healthy Social Security system and the long-run federal deficit, that they have no business being on a commission of "serious people" asked to solve the long-run US deficit problem.
And if that now exposed agenda is not what the Obama Administration had in mind for its Commission on Fiscal Responsibility, it had better replace not just Simpson but the whole gang of his confused buddies before they do severe damage to the credibility of US finances.
Paul Krugman zeroes in on Simpson’s "zombie lies," but bear in mind that Simpson’s views are widely held throughout the Republican Party, including Republican members of the Commission:
Specifically, Simpson has resurrected the old nonsense about how Social Security will be bankrupt as soon as payroll tax revenues fall short of benefit payments, never mind the quarter century of surpluses that came first.
We went through all this at length back in 2005, but let me do this yet again.
Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.
Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.
OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.
And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.
So what does it mean that the co-chair of the commission is resurrecting this zombie lie? It means that at even the most basic level of discussion, either (a) he isn’t willing to deal in good faith or (b) the zombies have eaten his brain. And in either case, there’s no point going on with this farce.
The notion that Social Security is essentially bankrupt and a growing deficit burden is a common Republican framing. For years they’ve been using the same zombie lie to attack Social Security and move billions into privatized accounts managed by Wall Street. They alternate between calling Social Security "broke," "bankrupt" or "insolvent" and (Jim Coburn’s favorite) a "burden on our grandchildren," to John McCain’s calling it a "ponzi scheme."
But in reality, Social Security is NOT in deficit nor a contributor to long-run deficits. It has a huge surplus now and there’s no basis for framing whatever adjustments may be needed to sustain the Trust Fund as having anything to do with long-run budget deficits. And none of these people who are confused (or lying) about that should be allowed anywhere close to a serious Commission trying to solve a long-run deficit problem.
Yet Peterson’s hired analysts have spun the same tales. Here’s the Fiscal Times’ George Hager, just two months ago, with another version of the Republican zombiism that there’s not enough money left:
It’s comforting to think that Social Security is humming along nicely with money to spare, but that’s an illusion. The only way Social Security will stay in the black this year is by borrowing $29 billion to make up the shortfall between its real income and its expenses. . . .
But the point is that we’re deluding ourselves about Social Security’s finances. The far more dangerous delusion is that the trust fund’s $2.5 trillion in accumulated assets means we don’t have to worry until 2037. By then, Social Security will be devouring huge chunks of general revenues to stay afloat. The trust fund may be a moral and political obligation, but it’s not real money.
What is he talking about? In 1983, Congress agreed with the "Greenspan Commission" to raise SS taxes and begin "pre-funding" Social Security in anticipation of the baby boomers. Since then, the Trust Fund has been building a huge surplus, now at about $2.5 trillion. As the baby boomers retire, it will gradually use that surplus, plus continuing payroll taxes, plus interest on the US bonds it purchased with the surplus, to pay full benefits in coming decades. Eventually (2037 or 2044 or later), it may need more revenues to continue paying full scheduled benefits in later decades, depending on what happens with economic growth, interest rates, etc. But its structure is basically sound for decades to come.
Republicans and Peter Peterson’s hired guns don’t want you to know that. They want you to think Social Security is in some "crisis" and somehow related to or causing the deficit. It’s not. The Hager article, for example, says interest on the bonds shouldn’t count as part of the funds Social Security has available to pay benefits. That’s like saying the interest you’ve been earning on your retirement or savings account doesn’t belong to you. But that money clearly belongs to the Trust Fund, because the Trust Fund owns the US bonds earning that interest. That’s how Congress set it up. And the fact the US may have to raise money through some means — taxes, borrowing, printing, etc — to pay that interest or pay when the bonds are cashed in, isn’t a problem with the structure or solvency of Social Security.
But to the Peterson gang, "it’s not real money." What the real money denialists claim is "not real money" is the interest on US government-issued bonds (or even the bonds themselves) which are backed by the full faith and credit of the US government. As Dean Baker has written, those bonds and the interest they earn are as good as any other US bonds . . . unless the Peterson crowd convinces everyone "it’s not real money" — just "worthless I.O.U.s" — and encourages, in effect, the US to default on these bonds. To even suggest this is a dangerously irresponsible notion.
It’s not enough to just replace Alan Simpson, as some groups like MoveOn.Org are now demanding. He’s just the guy who blurted out the zombie lies that other commission members hoping to cut or privatize social security and Peterson support. The whole gang of zombies needs to go.
This weekend, the White House Chief of Staff went on ABC’s This Week to call out Republicans for siding with BP over US taxpayers. That issue, he argued, clarifies the difference between the parties, and we should go to the country on that difference. Okay. What about the zombie lie that the Social Security Trust Fund "is not real money"? Let’s take that one to the voters too.
Shouldn’t a commission assigned to examine long-run deficits have a coherent, reality-based view of Social Security? About what’s real and what isn’t? And shouldn’t that commission be composed of serious people who are not confused or disingenuous about some made up connection between the soundness of the Social Security System and the real causes of long run deficits — like rising health costs, such as paying non-competitive drug makers too much for drugs?
With help from the Peterson gang, Alan Simpson and his friends have shown much of Deficit Commission is more a group of clowns than serious people capable of dealing with serious issues. And the Administration has made a huge blunder assigning such an important issue to a gang of ideologically driven reality deniers and expecting them to come up with a worthwhile solution to long-run deficit issues.
More:
Brad DeLong: Obama’s appointing Alan Simpson to co-chair the deficit commission was really big mistake Quoting Krugman, DeLong adds:
And it simply makes no sense whatsoever to claim that the system is "insolvent" as soon as benefits exceed Social Security taxes. . . .
You don’t name an arsonist to co-chair your fire department. If Obama wants his commission to do anything, he needs to replace Alan Simpson with a reality-based co-chair.
Paul Krugman, Zombies have already killed the deficit commission; Mark Thoma agrees.
Dean Baker, America Speaks Back: Derailing the drive to cut Social Security and Medicare; also, Will it go round in circles? Alan Simpson and the Social Security Trust Fund
Naked Capitalism, good background video with Tom Ferguson discussing Commission and Peterson conference on deficits.
David Dayen, Calls for Washington Post to end content sharing agreement with Peterson’s Fiscal Times



46 Comments

The Deficit Commission needs to be understood as representing the interests of one relatively small set of US Treasury bondholders ( Peter Peterson and his grandchildren, Goldman Sachs, PIMCO, the Bank of China, etc. ) against those of another, much larger set of bondholders ( current and future Social Security recipients ).
The benefit to the former of screwing the latter are large,
while the costs of said screwing are dispersed over an enormous number of people.
In political science, this is called the Logic of Collective Action.
In the Obama Administration, this is called bipartisanship.
Completely agree. The commission is packed with Alan Simpson’s on both the “Republican side” and the “Democrat side”.
Ultimately we need to replace the man who created this commission…. President Obama.
Insofar as corporations are non-living, undead things horrible to behold, I’m gonna have to go with “Zombies ate Simpson’s brain”.
I agree. This exposes a bipartisan hit on Social Security organized and promoted by Obama.
Obama intentionally appointed a commission of thieving snakes to steal the only retirement many of us are likely to have and this alone is sufficient reason to hound him out of office so that he chooses not to run for a second term.
Throw in the rest of his hideous “achievements” and Fed Ex him a Katana together with a sincere request that he do the first and only honorable thing in his life.
Agree.
Not only republicans, but a frightening number of democrats support cuts to Social Security as well (Rivlin, Bowles, etc.) This is the time to put extreme pressure on democrats. If they won’t protect Social Security from the likes of Pete Peterson then who will? The republicans? Riiight. Thanks for keeping up with these stories, FDL, we need you more than ever.
Wow! I thought I’d be out-of-place if I went-off on Obama. Apparently, not. So far opinion has made him the villain it this outrage and I agree. Obama had control of the Catfood Commission and he’s made some very bad choices, at least as far as letting it thrive is concerned. I wonder if he’s trying to kill SS or if he’s just using it as a bargaining tool.
The Republicans have for years wanted to characterize SS as welfare. Part of the reason it was designed to cover all income groups by the FDR administration was to make the statement that a decent life beyond work is an entitlement in a civil society. Simpson was doing nothing more that repeating the GOP, and apparently Obama’s view..
Krugman sayeth unto all:
Why does it have to be either/or? I submit that both conditions obtain, with Simpson and with his confederates on the Cat Food Commission.
All that the Greenspan commission did was allow W to give tax cuts to the wealthy.
The New Democrats (aka the Blue Dogs, DLC types and “third way” types) have been itching to kill SS in order to please Wall Street types and send their donations into New Dem campaign coffers. Bill Clinton had actually cut a deal with Newt Gingrich to pull this off in 1998, but Monicagate intervened and saved our collective bacon.
What a nasty piece of crap Simpson is.
I think the super rich have put a huge bounty to anyone who can sack Social Security. Look how many presidents have tried. Social Security is one of the last big chunks of money to be stolen from the people. Then feudalism.
Everything we thought and hoped about obama is wrong.
He’s a snake oil, used car salesman.
He’s our Bernie Maddof of a President.
I bet he plays golf with the little people once in a while to get the pulse of the land.
I started to read that book yesterday, but it will have to go in small pieces, because there is only so much self-indulgent baby boomer baloney about Gingrich & Clinton that I can read at one sitting.
Speaking of Madoff, NYPost sez he has $9 billion socked away.
Like it or not, this is the public option debate again. Our FICA contributions funded tax cuts for the rich. That said, if we don’t want the public option debacle, this time with social security, we’d better get moving. Comments on threads like this won’t stop it. There’s not all that much time.
Is it possible that republican congresspersons could reverse field on this and paint themselves as the saviors of SS and decry Obama as the villian?
This is not to suggest that Simpson, Peterson et al, are characterized incorrectly here, merely that republicans might be willing to postpone this particular goal in favor of a hammer they can use to beat Obama to death?
And that is also not to say that he wouldn’t deserve said beating.
I remember in 2005 how Goldman Sachs researchers were the info conduit to The Washington Post in regards to the “looming debt” and “IOU’s” propaganda and the marketing of privatizing SS to “save it”.
Now, uh, see here. Mister, uh, Simpson has uh, lots of experience in, uh, starting fires and has even been, uh, caught on tape setting fire to my shoes while I was, uh, giving a speech. But by, uh, reaching out to the arsonists, we can come up with a solution that both arsonists, and uh, firefighters, can agree upon.
I don’t believe in either extreme that says, uh, on one hand, we should fight all fires with lots of water. And the extreme on the other side that says, uh, that we should not only use no water, but, uh, leave several aerosol cans and tons of gasoline around after setting fire to the house so it will, uh, to quote Mister Simpson, “make a wicked cool blaze.” We are all Americans here, and we can, uh, come to a consensus on this that everyone will be happy with.
Maybe Cat Food Commission was too benign a nickname for Simpson’s joint.
Perhaps we should call it the Sovereign Default Commission. That’s what it really is, right? And that’s the scariest term in the bond-market’s world, right?
The Cat Scat Commission.
I
If they do they will change it to welfare through means testing and other similar changes. This would only delay its demise,
A low earner at 65 would receive a benefit that replaced about 54 percent of prior earnings, while one who always earned the maximum that is taxed and counted for Social Security benefits would have a replacement rate of about 28 percent.
“This would only delay its demise,…”
Exactly, note my use of the word “postpone”.
I saw Alan Simpson last year in Wy. The guy is a Republican relic, hardly able to walk or well said by some as a zombie. His mental capacity is/was questionable. Now he is appointed as a member of “deficit” comm.” by no other than Team Obama.
I just can’t wait to replace the black-faced, 3rd term of Boooooooooooshie.
Your description of Alan Simpson is excellent, now we know why Obama pick him.
Obama like Clinton has a way of picking people who hate Democrat ideas.
Ken Sallezar the fool over interior, loves Off SHore drilling.
BP knows they have friends in this White House.
Remember how quickly Van Jones got the boot out this White House.
Ask Labor how many of their allies find comfort in this White House? None
Obama is a Trojan Horse, always has been, always will be.
NNote that Jane has been on top of the Obama/Peterson effort to get old ladies to eat cat food since a month after Obama took office.
If I was 78 and believed in god as much as Alan Simpson claims, I sure would not do something this evil.
Obama also referred to social security going ‘broke’ (or becoming ‘insolvent’) in one of the Democratic debates in late 2007. He specifically said he would put ‘raising the retirement age’ and ‘cutting benefits’ on the table for discussion to ‘save’ social security.
If there’s any doubt he changed his mind about these things, consider he put Simpson and Rep. Ryan on this commission. Ryan, people will recall, is the Republican who wants to eliminate Medicare and replace it with a voucher system.
Obama’s Razor: Never attribute to stupidity that which is adequately explained by malice.
The president is ideologically driven in the exact same direction as his appointed panel.
Why should they have any view of Social Security at all? SS is NOT THE ISSUE. Their mission is to look at deficits, and the attendant balance of outstanding US bonds. Who is holding those bonds is immaterial. The best way to deal with the deficit is retire the Republican tax cuts of the last 30 years, and get folks back to work so they are not only contributing to the general welfare, but at the same time not a burden on it. Duh. I need a job, put me on the commission. As my son told his GF when she was touting her frugality, “Don’t even try to out-thrifty my mom.”
If someone can please explain how Social Security has a ‘surplus’, or a ‘trust fund’, then I’ll be happy. they have Treas bonds, and if you’re happy to get Treas bonds as YOUR soc security benefits, and if your 7-11 or McDonalds will accept them as payment for services same as a dollar, then we’re OK. otherwise, in order to GIVE YOU YOUR BENEFITS IN DOLLARS, the Soc Security ‘trust fund’ must sell the bonds on the open market, get dollars, and send to you. same as when they need dollars for the general budget, they issue bonds and borrow dollars from China, Japan or US citizens. I’m willing to hear Jane refute this.
Interest accrues to treasury bonds. The SS trust fund holds more than enough of these bonds for the interest from them to keep payments going even after they outstrip receipts. The only scenario in which this becomes problematic is one in which the USG decides to default on those bonds (though presumably not on those held by rich individuals like Peterson or foreign governments, like China).
See-now it’s like you’ve been paying attention to this rather than just spouting ideology!
Social Security is currently cash flow negative, so they’re using the ‘interest’, but I’m not sure if that covers current outflows.
And where does the ‘interest’ come from? Its like to paying a debt in your left pocket by taking dollars out of your right pocket and putting them in your left pocket. The US govt likely prints dollars for the interest. Or borrows more dollars by issuing new bonds. Excessive printing of dollars will lead to inflation, or holders of your bonds to dump the dollar denominated bonds in favor of a more stable currency.
Greece, Spain, Portugal are now finding out what happens to govts when excessive debt is built up. We are lucky now to be the worlds most favorite currency. It won’t always be the case though. Empires do fall apart.
On the other hand, one can ‘amplify’ the ‘surplus’ by ‘writing down’ the promised benefits, which are dictated by congress. This is for ‘internal debt’ held by Soc Security fund.
One cannot do this for external bondholders such as China.
And one does not have to default on bonds for a crisis to occur, however at the weekly US govt debt auction, buyers can refuse to buy until higher and higher interest rates are offered.
The Social Security Trust Fund holds special issue US Treasuries. They are avaialble only to the SST and not to the public. They cannot be sold on the open market. They can, however, be redeemed by the US Treasury and they are guaranteed to be redeemed at face value. Unless you believe the United States will default on it’s obligations, the bonds are “as good as gold.”
Or, SS can let the bonds “mature,” in which case the U.S. Treasury deposits the face value of the bonds plus interest into SS’s account. And SS pays you in dollars from that account.
Responding to #38 & #39:
I guess its advantageous for the Soc Security Trust Fund to keep its bonds off the open market, as they’d be priced daily as regular US Treasury securities. They’d be subject to the whims of external holders. As for ‘good as gold’, wasn’t that term used for residential real estate mortgage backed securities?
The ‘interest’ is simply more bonds/IOU’s
http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire
As for the ‘letting the bonds mature’, that still means coming up w/ dollars from somewhere to pay the bondholder (Soc Sec Fund). Where do the dollars still come from? Dollars that are 1) printed up (leading to inflation risk) or 2) borrowed (leading to more external debt).
Or in an expanding economy, dollars can come from tax revenues.
As a reference to my post @ #40
Alan Sloan’s article referring to the interest paid on Soc Sec Trust Fund as more IOU’s…
http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire
Sorry. You’re incorrect about the process. the Government neither needs the money from securities nor uses that money to spend, including to pay SS benefits. All it does is issue checks, or most frequently nowadays, just mark up accounts of entities it is paying benefits too. Generally speaking its spending is operationally unrelated to what it collects in taxes and also the USD it gets from selling Tsys to people, organizations, or foreign Governments.
The only limits to Government spending we have are limits imposed by Congress including appropriations and legal debt limits that Congress raises from time to time. Even the latter aren’t really constraints since the Government has the constitutional authority to spend/create USD without issuing a corresponding amount of debt.
ll this is explained in more detail here, and also here. One of the implications of this view about how Government spends money, is that SS has not and will never have a solvency problem. The whole Catfood Commission thing is based on a fantasy problem. It’s a play being staged so that private elites can avoid taxation they think is coming later if recovery and full employment bring inflation. They want to bring austerity to working people, because they no austerity won’t bring recovery by continued recession, which, in turn, removes the danger of inflation, and the possibility that they may have to pay higher taxes to help cool it off.
In short, this is all about the rich protecting their money at the expense of everyone else. It’s also all about the Democratic Party self-destructing, failing to represent working people, and taking on the same role as the Republicans which is to protect rich people and their interests above all else.
Greece, Spain, and Portugal, can’t be intelligently compared to the United States. They are comparable to the American States, because like the States, they have no currency of their own, but must use the Euro who’s supply is governed by the ECB, a body that by rule and agreement is very unfriendly to deficit spending. The same holds true for all members of the Eurozone, including Germany and France. None of them can be intelligently compared to the United States.
This post explains why in a bit more detail.
Appreciate the contibutions here, lets. I’ve always thought I/we could have used a primer in high school on how central banks function in conjunction with our government fiscal processes — as you note, it’s not anything like how people usually think about it when looking at their own checkbook and bank account.
Mr Mosler’s presentation is intriguing, but how come we never see any major congressional candidate or presidential candidate running on the ‘print more money’ platform…I understand Mr. Mosler is running, we’ll see how far he gets.
Why wouldn’t the ECB become as enlightened as Mr. Mosler and simply keep printing money? Essentially, the US govt is propping up California by printing ‘build america bonds’ to support California debt… why wouldn’t the ECB do the same for Greece and Spain and everyones happier? It will be interesting to see how Mr. Mosler does in his Senate run.
And if Social Security is just marking up electrons, why are we paying so many electrons between our FICA and the percentage that our employer pays? Why was Paul Krugman concerned about deficits in GW Bush years but not in Obama years? Why any concern at all for health care reform costs?
I welcome information using external sources rather than previous firedoglake letters. My concern is that we had 20% interest rates in the late 70′s – 80′s, we’re in a global marketplace competing with other nations for trade and innovation/research, requiring investment dollars earned, not printed. Our dollar is valued every day on the markets:
http://finance.yahoo.com/echarts?s=UUP+Interactive#chart4:symbol=uup;range=2y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
GM was once the worlds largest coporation, and had to file bankruptcy. Its been said that GM is a microcosm for the US economy in general, at one time havint 50% market share now struggling for 18%. Bankruptcy was needed as its long term debt/obligations exceeded its assets. Not sure how long the ‘print more money’ approach can stave off the day for the US government.
the US share of global GDP has reduced in a similar magnitude. Other countries will compete with us to sell goods and services, getting either dollars or euros for their product, and I’m not convinced the ‘print more money/move some electrons at the Fed’ will get sustain us.
God quick take Obama’s shovel away from Him, or He’ll dig up somemore of these assholes.
It used to be You couldn’t keep um down on the farm.
Now we can’t keep these bastards out of Washington. They quit, get voted out, Go to jail, or are thrown out, and they all seem to come back to Washington, or some Person like Obama brings um back.
It’s like trying to clean out a pig pen, when the pigs keep running back into the pen.