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Social Security And Other Entitlements

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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.

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[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

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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 →

Alan Simpson: America Is a Cow w/300M Tits. Plus, 10M MOTUs?

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Alan Simpson claims he misspoke back in August when he called Social Security “a milk cow with 310 million tits.”

He explains,

“I meant to say that America was a milk cow with 300 million teats, and not just Social Security.”

Oh. Okay. So Social Security is not the only way we suck at our nation’s teat, huh? Since he’s pushing to cut defense along with Social Security, I guess he’s arguing that our servicemen and women are just a bunch of freeloaders.

But I’m curious.

Back in August, Simpson said Social Security had 310 million tits–presumably counting every American since every American participates in Social Security. His revised statement says America has just 300 million tits.

So where’d the other 10 million tit-sucking Americans go?

My guess? Simpson doesn’t want to hurt the fee fees of any of the MOTUs who mythologize their own accomplishments even while ignoring that they are themselves the chief teat-suckers.

So there you have Alan Simpson’s census of America. 300 million of us are deadbeat teat-suckers. And the MOTUs? I guess they are the poor cow.

The Obama Disconnect: Arlington, Korea and Catfood

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Marcy wrote earlier this morning about David Axelrod’s despicable announcement of Obama’s capitulation to the oligarchs on tax cuts (another lead balloon the Obama White House incompetently tried and failed to walk back). Later this morning, however, were a couple of events that put an even starker gloss on this pig.

First, was this from The Oval:

President Obama is in Seoul, South Korea, where today he said lawmakers in the United States should hold off on comments about his fiscal commission’s proposals to slash the federal budget deficit through spending cuts, ending tax breaks, and a revamping of the Social Security system.

“Before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts,” Obama told reporters.

He added: “If people are, in fact, concerned about spending, debt, deficits and the future of our country, then they’re going to need to be armed with the information about the kinds of choices that are going to be involved, and we can’t just engage in political rhetoric.”

So, Barack Obama is in Korea lecturing Americans to suck it up and embrace the catfood he and the wealthy elite have deemed necessary to feed us in order to pay for their grotesque largesse. Notably, at the same time Vice President Biden was left to be the White House representative at the traditional Arlington National Cemetery ceremony to honor America’s Veterans, where Presidents usually pay their respects and appreciation to veterans and the military. Especially during a “time of war”. Obama couldn’t make it to Arlington for the Memorial Day Ceremony either.

But Mr. Obama could not be present at Arlington this time because he was in Korea. And just what was so pressing in Korea? As Jane Hamsher points out, it is the desire to press for a horribly conceived US-Korea free trade deal:

It would be a truly horrific blow to whatever is left of American manufacturing at a time when unemployment is rampant. But from a political standpoint, fighting for another so-called “free trade” agreement right now has got to represent some kind of death wish for the Democratic party.

Yes indeed, but thus is what we are constantly served by Barack Obama. As Paul Krugman today rightfully termed it, Mush From the Wimp.

You know, it is not just that the arrogant and cluelessly detached President Pangloss is steaming toward a one and done Presidency, it is that he is literally destroying the Democratic Party and liberal ideology in the process and leaving them in his wake.

UPDATE: I guess Obama couldn’t even sell crack free trade to Charlie Sheen the Koreans.

Cutting Social Security in the Name of National Security

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As a number of people have observed, the National Security Strategy Obama released last week prioritizes the economic vitality of the US as one source of security. Much of this discussion places a predictable focus on trade, technology, and education. But I was shocked by the almost mindless privileging on deficit reduction in the document.

For example, the overview paragraph that introduces the importance of our economic health puts reducing the deficit on par with education, science, energy, and health care.

At the center of our efforts is a commitment to renew our economy, which serves as the wellspring of American power. The American people are now emerging from the most devastating recession that we have faced since the Great Depression. As we continue to act to ensure that our recovery is broad and sustained, we are also laying the foundation for the long term growth of our economy and competitiveness of our citizens. The investments that we have made in recovery are a part of a broader effort that will contribute to our strength: by providing a quality education for our children; enhancing science and innovation; transforming our energy economy to power new jobs and industries; lowering the cost of health care for our people and businesses; and reducing the Federal deficit. [my emphasis]

The paragraph immediately following tries to connect all of these ideas directly with security. Yet its explanation for the importance of deficit reduction is so vague as to be meaningless.

Each of these steps will sustain America’s ability to lead in a world where economic power and individual opportunity are more diffuse. These efforts are also tied to our commitment to secure a more resilient nation. Our recovery includes rebuilding an infrastructure that will be more secure and reliable in the face of terrorist threats and natural disasters. Our focus on education and science can ensure that the breakthroughs of tomorrow take place in the United States. Our development of new sources of energy will reduce our dependence on foreign oil. Our commitment to deficit reduction will discipline us to make hard choices, and to avoid overreach. These steps complement our efforts to integrate homeland security with national security; including seamless coordination among Federal, state, and local governments to prevent, protect against, and respond to threats and natural disasters. [my emphasis]

We don’t get any better explanation of the importance of deficit reduction in the paragraphs dedicated to economic issues later in the document. The NSS first claims that deficit reduction, along with an emphasis on savings and reforming our financial system, will be all that it takes to make the US economy more export-driven–a claim that ignores a number of the reasons we’ve become less competitive internationally.

Save More And Export More: Striking a better balance at home means saving more and spending less, reforming our financial system, and reducing our long-term budget deficit. With those changes, we will see a greater emphasis on exports that we can build, produce, and sell all over the world, with the goal of doubling U.S. exports by 2014. This is ultimately an employment strategy, because higher exports will support millions of well-paying American jobs, including those that service innovative and profitable new technologies. As a part of that effort, we are reforming our export controls consistent with our national security imperatives.

And then it throws in a paragraph dedicated to deficit reduction which offers little to explain why that–rather than a range of other actions–is so central to our national security (though it does make it pretty clear this deficit reduction won’t focus on military spending).

Reduce the Deficit: We cannot grow our economy in the long term unless we put the United States back on a sustainable fiscal path. To begin this effort, the Administration has proposed a 3-year freeze in nonsecurity discretionary spending, a new fee on the largest financial services companies to recoup taxpayer losses for the Troubled Asset Relief Program (TARP), and the closing of tax loopholes and unnecessary subsidies. The Administration has created a bipartisan fiscal commission to suggest further steps for medium-term deficit reduction and will work for fiscally responsible health insurance reform that will bring down the rate of growth in health care costs, a key driver of the country’s fiscal future.

The thing is, there are a number of economically-related issues that are more closely connected with our national security yet receive inadequate attention, in some cases because doing so would conflict with the ideology of the deficit hawks.

Manufacturing: For example, there is absolutely no discussion of the role of manufacturing in national security. The NSS sees investing in science, technology, engineering, and math education as one means to keep American competitive technologically. It calls for federal investment in science research. But it neglects the way in which manufacturing turns this know-how into capacity that has always been central to US dominance. At a time when we risk losing key capacities to make our nifty war toys because of the decline in manufacturing, this silence is particularly troubling. But rebuilding our manufacturing capacity takes more than investment in basic science; it requires a concerted strategy to help the US compete with the mercantilist economies that increasingly dominate manufacturing.

Real Financial Reform: While the NSS–as the fourth blockquote above makes clear–pays lip service to reforming our financial system, it never explicitly acknowledges that this must mean more than restoring stability. It must also incent investment in productive capacity rather than bubbles. And the Administration has repeatedly stopped far short of such reforms. Indeed, the Administration has pointedly avoided doing the things that might return our economy to making things again, rather than encouraging finance as a key driver of economic growth.

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