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.
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