Tuesday, February 10, 2009

Politico: Left silent on Social Security, Medicare (for now…)

The Politico reports on the Democratic base's response to President Obama's renewed willingness to take on the challenge of rising entitlement spending.

Obama appears to be getting unusual room to maneuver on entitlements by most of his liberal allies. On the subject of entitlement reform, in fact, Obama's honeymoon continues — at least in the unlikely precincts of the Democratic left, a counterintuitive development that has buoyed the spirits of reformers who would like to see drastic changes in the way Social Security works.

Opponents of significant changes to Social Security benefits were jarred in January, when the then-president-elect echoed George W. Bush's claim of an entitlement "crisis," warning of "red ink as far as the eye can see" in Social Security and Medicare. Obama promised that those programs would be a "central part" of his plan to reduce the federal deficit.

Social Security defenders were surprised again last week, when Obama named a leading voice for reining in entitlement spending, New Hampshire Sen. Judd Gregg, to his Cabinet.

But despite some grumbling in the ranks, the powerful, organized movement that effectively defended the Social Security status quo from Bush's ambitious reform effort in 2005 has been one of the key dogs that haven't yet barked at Obama.

But have no fear: should President Obama yield to the mathematical necessity of "cutting" – meaning, reducing the growth of – Social Security and Medicare, "'he's going to hit a wall real fast,' said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research."

This will be a major leadership challenge for Obama. If he wishes to truly be a change agent, entitlement reform will put his talents to the test.


George Fulmore said...

I always hoped that Obama in the Presidential campaign would have had something intelligent to say about the way the Social Security annual surplus has been spent on other things, rather than saved in the Trust Fund, as it should have been. I hope he understands that $2.2 trillion is missing from the vault. This has been reported and written about enough.
When the idea of "reform" gets floated around, I'm thinking this could be another round of some silly "fix." Most of the "fixes" really make things worse, including any that raise the inflow side, but continue to allow that inflow to be spent, rather than saved. Also, Social Security and Medicare have NOT caused any of the current federal deficit of $10.7 trillion, except for the $2.2 that is owed to the SS Trust Fund.

Serendipity said...

The left has not been silent. They have said they will stand behind Social Security.

Daily Kos, Talking Points Memo and other blogs are watching.

This plan seems to be a well kept secret. Obama said when he was running, that he would not cut benefits and if he had to for more money, he would raise the cap on Social Security Income that is taxed. He also said he would not raise the retirement age.

Obama needs to keep his word. Social Security and his take on it is the reason many voted for him. A person is still as good as his word.

Bruce Webb said...

Well I would add Economists View, Econospeak, Angry Bear and most certainly Beat the Press to that list. That is it is just not the political blogs, the left-leaning econoblogs are not just watching, we are also assembling numbers.

My take based on some private communication is that he is getting some pressure from the Clinton types like Summers and Liebman offset by caution from Orszag with maybe some direct pull back by Furman and Bernstein. Plus we know from news reports that the Administration is at least listening to Galbraith and Krugman who are both pretty firm supporters of Social Security with the former arguing if anything that benefits should be boosted.

I know that Pete Peterson and crew are hoping to leverage the Brookings/Heritage/Concord/etc Taking Back our Fiscal Future Report to essentially take control of the debate at the Entitlements Summit and so jumpstart their so-called 'bi-partisan fiscal responsibility commission'. Which in their vision would be tasked with preparing an up or down 'Reform' plan much like that used for base closing or fast track trade deals. But Hope is not a Plan. I can see the Senate, currently controlled by a combination of Moderate R's and Blue Dog D's signing on but have a hard time believing that House Democratic chairmen of the relevant Committees will be steamrolled into doing this without hearings.

In my mind I can visualize a panel consisting of some combination of Krugman, Baker, Galbraith and Rosser testifying using real numbers and seeing any grand compromise on SS go up in smoke.

Bruce Webb said...

I always hoped that Obama in the Presidential campaign would have had something intelligent to say about the way the Social Security annual surplus has been spent on other things, rather than saved in the Trust Fund, as it should have been. I hope he understands that $2.2 trillion is missing from the vault. This has been reported and written about enough.
Yes it has. But most of that reporting has been based on misinformed or openly malicious opinion.

The Trust Funds are not vaults. They are not the equivalent of Gringott's Bank with the Trustees serving in the role of goblins guarding stacks of galleons, sickle and knuts. Instead the extra flow of cash into Social Security in excess of current cost had to be stored in some financial instrument or invested in some physical object. As to the latter it would have made no sense to convert that money into dollar bills or gold bullion and stored them in some warehouse. Physical dollar bills are at risk of theft, loss or fire while bullion is exposed not only to theft but to actual loss in value.

Leaving only a few options. The dollars could have just been credited to some account at Treasury. Which in practice means an interest free loan. Or they could have been stashed in some account at the Fed meaning a very low interest loan. They could have been used to purchase other asset classes like equities or state and local bonds. Which would expose particularly the former market to direct political manipulation. (Do we really want liberals arguing for 'social investing' that would promote their human rights agenda vs. neo-conish hawks insisting not a penny of it go even indirectly to the 'axis of evil'? No thanks). Instead the decision was to invest them in interest earning Special Treasuries. Which in turn are "saved in the Trust Fund". The notion that the Special Treasuries are in any sense less real than regular Treasuries is the result of some muddled thinking that insists that government can't invest in its own instruments or the fact that Special Treasuries are not marketable makes them somehow not really real at all.

There has been no looting, no theft, no diversion of funds, the much touted 'Gore Lockbox' was always a metaphor for not allowing Unified Budget surpluses to be used as an excuse for tax cuts on the General Fund side.

Every penny ever sent to Social Security has been used to pay out benefits or is invested in the historically safest financial instrument in the world. And honest supporters of private accounts like former Deputy Commissioner Biggs and Prof. Samwick of the LMS Plan will tell you no different. Informed opinion on both sides may differ in their views of whether the Trust Fund should be viewed as a pure asset or as a debt burden that needs to be transformed into a long term system marked by 'sustainable solvency'. But when pressed everyone agrees the Trust Fund Special Treasuries are legal obligations backed by the Full Faith and Credit of the United States.

You give money to the government. They take it and spend it on tanks or health care. In return they give you a piece of paper and a promise. In the glibertarian world view that is simple theft. In the world most of us live in that is called 'buying a bond'. People on the left who think something untoward has gone on have simply fallen into a trap set by the glibertarians. Don't go there, do not buy into any aspect of the Phony IOU narrative.

Ask yourself this: what other real world mechanism would you have chosen to handle the surplus? And why would that be more safe than Special Treasuries?

Andrew G. Biggs said...

Serendipity: "Standing behind" Social Security isn't a plan; if the left wants to raise taxes to make Social Security financially sustainable there's nothing preventing them from putting these plans on the table. (Note: Obama's tax surcharge on earnings over $250k fixes less than a sixth of the long-term shortfall.) Strangely, Move On and the rest haven't got a lot to say. If they're standing behind Social Security, it's well behind.

Bruce: Re possible alternatives to the trust fund, I could think of any number. While I today commented on the trust fund's investment returns, the real problem is that Social Security surpluses tend to encourage larger deficits elsewhere in the budget. Shifting the trust fund to alternate investments might have helped prevent that from happening.