Posts

Social Security And Other Entitlements

/47 Comments/in , /by

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade

Chapter 6 of Stephanie Kelton’s The Deficit Myth discusses the perennial conservative effort to cut entitlements. [1] Kelton defines entitlements as statutory determinations that people who meet certain criteria are entitled to certain defined payments. She discusses several of the most widely used entitlements, Social Security, Social Security Disability, Medicare, Medicaid, SNAP and welfare.

Kelton describes the history of these programs, beginning with Franklin Delano Roosevelt. FDR saw Social Security as the first step towards a comprehensive array of programs that would insure that the citizens would be truly free. He specifically chose to fund Social Security with a tax, so that people would feel ownership, making it harder for politicians to vote to take away those benefits. it worked. People are firmly attached to the program. The money is put into a “trust fund”, which holds it in the form of special non-negotiable US Treasury notes.

Politicians, goaded by their rich donors, try to weasel around this powerful attachment. They start with basic debt hysteria: the Trust Funds are Going Bust! [2] They base this on the reports of the Trustees of the trust funds, who are directed to estimate the date on which the Social Security Trust Fund will run out of money. If that happens. under current law, Social Security payments will be cut. They then claim that all they want to do is put Social Security on a firm financial footing. But they have to act now. Now! And somehow the only possible actions are benefit cuts and tax hikes for working people.

This worked the last time the deficit hawks of both parties tried it. Under Ronald Reagan both parties agreed to cut benefits, raise the retirement age, and increase FICA taxes. This increase in tax revenues was then used as cover for tax cuts for the filthy rich. The effort was led by Alan Greenspan, an Ayn Rand devotee, and no friend of working people.

Medicare is also funded with specific taxes which are put into a special Treasury account, and has a board of trustees. But there’s a big difference. Under Medicare statutes, the Treasury is directed to make all payments, regardless of the state of the trusts. So, every report of the Trustees says that Medicare is just fine. We could do the same for Social Security, and all other entitlements. That simple change would solve the problem. That’s what Kelton recommends, and it makes perfect sense under Modern Monetary Theory.

Liberals offer other solutions. We could raise the cap on the wages subject to FICA taxes. We could have a millionaires tax that would fund Social Security and other entitlements. We could impose a tiny tax on securities transactions and direct the funds to the various trust funds. I don’t think Kelton is opposed to funding social programs with dedicated taxes, and I don’t think she would object to any of these ideas or to the idea that paying dedicated taxes adds to a sense of ownership. The issue is that people think it must be this way. It doesn’t. MMT teaches us that we have the money to do what we want to do.

Taking the pressure off of funding sources does two things. It relieves the anxiety of the older people, the group Enzi is trying to frighten. But it also frees us to focus on the actual needs of the future and to plan for them. As people get older, their needs change. They need more medical care, more help at home, more and different kinds of medicine, different furniture, different living arrangements, and so on. Their desires change, too. They want to do more travel, to spend more time with their spread-out families, and to enjoy more varied kinds of entertainment, restaurants, and other kinds of get-togethers.

Kelton, writing before the pandemic hit, calls for the expansion of Social Security. She points out that it was originally intended as one leg of a “three-legged stool” of retirement planning. The other two were personal savings and pensions from employment. The latter two are disappearing.

Before the pandemic, 40% of us didn’t have savings of $400 for emergencies. Once upon a time, employers provided defined-benefit plans, which promised to pay retirees a specific amount based on pay and length of service. [3] Most of those plans are gone. Kelton cites a particularly ugly case where McDonnell-Douglas closed a plant in Tulsa and terminated a defined-benefit plan in part because so many workers were approaching retirement age when they could collect a full pension with terrible results for older workers. [4] Congress established the Pension Benefit Guarantee Corporation to cover a portion of the lost benefits when companies terminate plans. The benefits guaranteed are absurdly low.

Employers now establish defined-contribution plans like 401(k)s. The track record of these plans shows that they are an inadequate substitute for most people. They are expensive, as members pay administration costs as well as management fees to Wall Street. The national average all-in fee is 2.2%. The Center for American Progress estimates that “… the typical American worker who earns a median salary starting at age 25 will pay about $138,336 in 401(k) fees over their lifetime.” Median account sizes vary substantially by age. For those over 50, the median is around $66K. The average is much higher, around 200K, showing that these plans primarily benefit the wealthy.

Taken together, these facts show a critical need for a stronger Social Security system, not the cuts sought by conservatives.

Other entitlement programs are under attack from the deficit hawks. There are constant efforts to make it more difficult to enroll in Medicaid, like work requirements or co-pays. Fifteen states haven’t implemented Medicaid expansion as permitted by Obamacare; Missouri just added a constitutional amendment requiring implementation. SNAP benefits are under constant assault by Republicans in the name of frugality, as if these $68 billion in a 4$ trillion budget was meaningful compared to the needs of the population served.

Kelton’s point is that we have the money. We need the will to establish priorities that match our moral values, and a Congress that will legislate those priorities.

=====
[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] It’s one of the more bizarre conservative demands. Social Security is a crucial element of the financial lives of a very large number of older Americans; approximately 40% of retirees would have incomes near or below the poverty line without it. That’s about 21 million voters who are more likely to vote for conservatives. To protect themselves from voter anger, conservatives explicitly call for the “I’ve got mine, screw you Jack” approach: their proposals always exempt today’s older crowd, as if the younger citizens won’t notice that their parents are safe but they aren’t and neither will their parents.

[2] We are currently getting a heavy dose of this from Republicans as they try to avoid passing a pandemic rescue bill that will primarily benefit ordinary Americans. Here’s Senator Mike Enzi, from the metropolis of Wyoming, where he ran a shoe store, insisting that Social Security is the problem. Kelton has a story about Enzi. P. 41 et seq.

[3] The strange locution “defined benefit plan” comes from the Employee Retirement Income Security Act of 1974. Its counterpart is defined contribution plans, which don’t promise any specific payment on retirement. It just requires the employer to pay a specific amount into some kind of plan with whatever vesting rights and investment possibilities the employer chooses.

[4] McDonnell-Douglas eventually merged with Boeing. Here’s a story connecting its executives to the 737 Max disaster.

John Galt Kills Americans

/7 Comments/in , /by

The National Research Council and Institute of Medicine yesterday released the results of a study addressing mortality in the United States as compared to other developed nations. The full report can be purchased here, where a summary also can be downloaded as a free pdf file. The press release on the study frames the questions addressed:

On average, Americans die sooner and experience higher rates of disease and injury than people in other high-income countries, says a new report from the National Research Council and Institute of Medicine.  The report finds that this health disadvantage exists at all ages from birth to age 75 and that even advantaged Americans — those who have health insurance, college educations, higher incomes, and healthy behaviors — appear to be sicker than their peers in other rich nations.

“We were struck by the gravity of these findings,” said Steven H. Woolf, professor of family medicine at Virginia Commonwealth University in Richmond and chair of the panel that wrote the report.  “Americans are dying and suffering at rates that we know are unnecessary because people in other high-income countries are living longer lives and enjoying better health.  What concerns our panel is why, for decades, we have been slipping behind.”

From the summary, we have this long explanation of the causes of high US mortality, where I have added emphasis:

The panel’s inquiry found multiple likely explanations for the U.S. health disadvantage:

• Health systems. Unlike its peer countries, the United States has a relatively large uninsured population and more limited access to primary care. Americans are more likely to find their health care inaccessible or unaffordable and to report lapses in the quality and safety of care outside of hospitals.

• Health behaviors. Although Americans are currently less likely to smoke and may drink alcohol less heavily than people in peer countries, they consume the most calories per person, have higher rates of drug abuse, are less likely to use seat belts, are involved in more traffic accidents that involve alcohol, and are more likely to use firearms in acts of violence.

• Social and economic conditions. Although the income of Americans is higher on average than in other countries, the United States also has higher levels of poverty (especially child poverty) and income inequality and lower rates of social mobility. Other countries are outpacing the United States in the education of young people, which also affects health. And Americans benefit less from safety net programs that can buffer the negative health effects of poverty and other social disadvantages.

• Physical environments. U.S. communities and the built environment are more likely than those in peer countries to be designed around automobiles, and this may discourage physical activity and contribute to obesity.

No single factor can fully explain the U.S. health disadvantage. Deficiencies in the health care system may worsen illnesses and increase deaths from certain diseases, but they cannot explain the nation’s higher rates of traffic accidents or violence. Similarly, although individual behaviors are clearly important, they do not explain why Americans who do not smoke or are not overweight also appear to have higher rates of disease than similar groups in peer countries.

More likely, the U.S. health disadvantage has multiple causes and involves some combination of inadequate health care, unhealthy behaviors, adverse economic and social conditions, and environmental factors, as well as public policies and social values that shape those conditions.

What stands out to me is that the list of reasons Americans die early overlaps significantly with the social goals of right-wing libertarians who worship Ayn Rand and John Galt. Read more →

Good Thing the Democrats Forced That Vote on the Ryan Plan

/18 Comments/in , , /by

Most of what I have to say about Mitt Romney’s pick of Paul Ryan I said on Virtually Speaking Sunday. I think the Ryan pick will hurt Mitt, and I think it opens up an opportunity for progressives to even box Obama in.

But I am enjoying the response from Republicans, who almost immediately started bad-mouthing the pick. First there was the BuzzFeed story–less than 48 hours after the pick!–describing how the political pros in Mitt’s staff opposed the pick. And now Politico describes the opinions of some three dozen Republican operatives, all of whom except Mary Matalin are queasy about the choice. (The Hill has a similar story.)

In more than three dozen interviews with Republican strategists and campaign operatives — old hands and rising next-generation conservatives alike — the most common reactions to Ryan ranged from gnawing apprehension to hair-on-fire anger that Romney has practically ceded the election.

It is not that the public professions of excitement about the Ryan selection are totally insincere. It is that many of the most optimistic Republican operatives will privately acknowledge that their views are being shaped more by fingers-crossed hope than by a hard-headed appraisal of what’s most likely to happen.

And the more pessimistic strategists don’t even feign good cheer: They think the Ryan pick is a disaster for the GOP. Many of these people don’t care that much about Romney — they always felt he faced an improbable path to victory — but are worried that Ryan’s vocal views about overhauling Medicare will be a millstone for other GOP candidates in critical House and Senate races.

One big reason the operatives don’t like this choice is it makes their job–getting down-ticket Republicans elected–harder.

And that’s just what it does to the Romney-Ryan ticket. Forget how it plays in close House and Senate races.

“Very not helpful down ballot — very,” said one top Republican consultant.

“This is the day the music died,” one Republican operative involved in 2012 races said after the rollout. The operative said that every House candidate now is racing to get ahead of this issue.

And what Politico doesn’t dwell on–but what Crooks & Liars noted the other day–is that it’s already too late for most of the Republicans running for reelection to separate themselves from Ryan’s signature policy. Because they already voted for it.

Even as Mitt Romney was introducing Wisconsin Rep. Paul Ryan as his running mate, his campaign was preparing a defense of the House Budget Chairman’s draconian Medicare proposals. With good reason. After all, in April 2011 the nonpartisan Congressional Budget Office forecast that Ryan’s scheme to convert today’s guaranteed Medicare insurance program into an underfunded voucher system would dramatically shift the health care costs onto America’s seniors. And in February 2010, Ryan acknowledged his privatization plan for millions of future elderly constituted rationing.

But it’s not just Team Romney that should be concerned about being caught red-handed with the proverbial gun pointed at the wildly popular program. Last year, 235 House Republicans and 40 GOP Senators–98 percent of all Republicans in Congress–voted for Paul Ryan’s budget and its blueprint to rationing Medicare.

What’s particularly remarkable about the Politico piece is that, in spite of widely expressed admiration for Ryan, just about all the anonymous sources admit that people hate his plan. The plan their bosses have already voted for.

I don’t think any of the geniuses in DC–whether Republican or Democratic–planned for this. I don’t think they intended to turn Mitt Romney into the poster child for the elites who have been looting our country. I don’t think Mitt realized that by picking Ryan, he would make the problem worse, not better.

But this election has now crystalized into a referendum on the austerity, oligarchy, and looting the Republicans (and more recently, the Democrats too) have been gradually introducing into our country.

Obama may still screw up the election. The economy may recrash, the drought may bring a price spike that makes people desperate enough to vote for Mitt, or there may be an October surprise.

And I’m sure Obama didn’t want to be running this election, pointing out how unpopular and disastrous are Ryan’s policies–policies which are not that different from some of his own.

But that seems to be where we’re heading. A referendum, from the top of the ticket on down, on the unpopular elitist policies that both parties in DC have been pushing for the last decade or so.

Obama Misses the Lesson in NY-26

/in /by

Congratulations to Kathy Hochul, who rode a disciplined campaign against Paul Ryan’s plan to privatize Medicare to victory in a Republican Congressional district tonight.

There’s a lesson here. Republicans voted on Ryan’s shitty plan. Which allowed Democrats to highlight how shitty it, and Republicans, are. And … Victory!!!

Obama, however, seems to be missing that lesson:

I want to extend my congratulations to Congresswoman-elect Kathy Hochul for her victory in New York’s 26th Congressional District. Kathy and I both believe that we need to create jobs, grow our economy, and reduce the deficit in order to outcompete other nations and win the future.  Kathy has shown, through her victory and throughout her career, that she will fight for the families and businesses in western New York, and I look forward to working with her when she gets to Washington.

One corner of real America just made it very clear they don’t want anyone messing with Medicare. And yet Obama’s off negotiating just that, rather than making it clear that Republicans want to hold Medicare hostage along with the rest of the government.