Companion site:


Google search...


Daily Howler: But isn't the trust fund just IOUs? We citizens need to know all the facts
Daily Howler logo
AND NOW FOR THE REST OF THE STORY! But isn’t the trust fund just IOUs? We citizens need to know all the facts: // link // print // previous // next //

STILL FRIGHTENING AFTER ALL THESE YEARS: We couldn’t restrain our mordant chuckles when we read the Times’ front page this morning. Eric Schmitt offered this take on Rumsfeld’s repellent event:
SCHMITT (12/9/04): Mr. Rumsfeld, seemingly caught off guard by the sharp questioning, responded that the military was producing extra armor for Humvees and trucks as fast as possible, but that the soldiers would have to cope with equipment shortages. ''You go to war with the Army you have, not the Army you might want or wish to have at a later time,'' he said.
Why might “sharp questioning” stand out at the Times? Perhaps because the paper engaged in so little of it back in real time, back when it actually mattered. A Tennessee guardsman, Thomas Wilson, served his country when he questioned Rummy. But why didn’t reporters pose “sharp questions” when Bush held his final pre-war press conference? Months later, Elisabeth Bumiller explained why the corps had offered such butter-soft queries (links below):
BUMILLER: I think we were very deferential because in the East Room press conference it’s live. It’s very intense. It’s frightening to stand up there. Think about it. You’re standing up on prime-time live TV asking the president of the United States a question when the country’s about to go to war. There was a very serious, somber tone that evening, and no one wanted to get into an argument with the president at this very serious time.
It was “frightening to stand up there” asking sharp questions, Bumiller said. Luckily, Wilson showed more courage. He and his colleagues asked sharp questions of Rummy at yesterday’s event.

“Think about it,” Bumiller said. Yesterday, Rummy used the same construction several times as he offered his self-impressed sophistries. How amazing to think that both these parties continue at their critical posts! Is there any chance that Bumiller’s crew will pose other “sharp questions” to Rummy this week? Or did yesterday’s session show where we live—in a world where citizens must perform the tasks their “press corps” long ago walked away from?

AND NOW FOR THE REST OF THE STORY: Yes, American citizens constantly hear the scary facts about Social Security (see THE DAILY HOWLER, 12/8/04). For example, here was a Standard Scary Exchange on Monday’s Lou Dobbs Tonight:

DOBBS (12/6/04): Let's turn to Social Security if we may, and that is the idea of privatizing Social Security. It has a lot of people concerned, a country that is running just about $8 trillion in national debt, looking at the prospect of [spending] more than $1 trillion [in transition costs] over the course of just a little over a decade in order to do it. How in the world can we afford this?

SENATOR LINDSEY GRAHAM: Well, you can't afford not to do it. Social Security is going bankrupt, it's coming apart at the seams. When I was born in 1955, there were 16 workers for every retiree. In about 15 years, there will be two workers for every retiree. Between 2011 and 2030, there will be a 65 percent increase in retirees and 8 percent increase in the work force. We're short of money to pay the benefits. If we do nothing, the cost will be trillions; if we do something progressive, the cost can be managed. But to do nothing is a death blow to Social Security.

DOBBS: Let’s be progressive. Let’s talk about the idea of private accounts...

We all heard the Requisite Frightening Facts. Social Security was “going bankrupt.” There would be two workers for each retiree. We’re “short of money to pay the benefits.” But they didn’t hear the rest of the story—facts which are more direct and far less inferential. They didn’t hear that, when the system “goes bankrupt,” it will still be able to pay 81 percent of promised benefits. And they didn’t hear that this event doesn’t happen until the year 2052. And they didn’t hear that this “shortage of money” can be remedied fairly easily. In short, viewers of the CNN program were handed a stage-managed phalanx of facts. But then, you know the shape of your Washington “press corps!” Storebought pundits like NBC’s Russert have peddled this Scripted Scare Story for years, serving the interests of their super-rich owners—the owners who pay them the huge wads of dough that allow them to write phony books about Buffalo from estates among the swells of Nantucket.

We get to hear the scary facts. But what about the rest of the story? Americans need the rest of the facts—the facts that don’t make up this Scripted Scare Story. And citizens need to offer these facts when they hear the Standard Scary Tale. With that in mind, let’s address two other questions—questions which readers have sent us this week. To be minimally literate, American citizens have to know how to answer these questions.

First question: How is it possible? How is it possible that Soc Sec can function in future years, when there may be as few as two workers for every retiree? When the Scare Crows present their frightening numbers—the ratio used to be 16-to-1!—we are meant to shake our heads and marvel at the drop in the ratio. We’re meant to wonder how the system could ever survive such a thing.

But the system could survive fairly easily, largely because of the ongoing growth of the economy. Here are Baker and Weisbrot early in The Phony Crisis:

BAKER/WEISBROT (page 2): The program has promised, and historically delivered, a benefit that rises with wages in the economy. In order to maintain this commitment, we may have to increase the system’s revenues at some point. Would this place an undue burden on the post-2034 labor force? Hardly. Even if we were to increase payroll taxes to cover the shortfall, the added cost would barely dent the average real wage in 2034, which will be over 30 percent higher than it is today.
Baker and Weisbrot wrote this in 1999; the dates and numbers would be somewhat different today. But how can we get from the current ratio (roughly three workers per retiree) to the future ratio (roughly 2-to-1)—the ratio pundits say is so scary? Easy! With that current 3-to-1 ratio, we are producing an annual surplus in Soc Sec revenues. By the time the ratio hits 2-to-1, a larger economy will help offset the declining number of workers. Don’t be fooled when pundits present that Scary Ratio, or when they talk about the Frightening Number of Retirees:
BAKER/WEISBROT (page 32): In fact, the proportion of people over 65 is 12.7 percent today, and will grow to 20 percent by 2030. At the same time, the economy is projected to grow by 59 percent. Can an economy that is 59 percent bigger support an increase of this size in its retired population? There is little reason to doubt that it can, and, as we will see, with little adverse impact on the rising living standards of the rest of the nation.
So don’t let Graham and Russert fool you with those Scary Ratio Tales. They offer irrelevant, dated ratios (16-to-1!) to make the current situation seem frightening. But the current ratio, around 3-to-1, is throwing off annual Soc Sec surpluses! And, as Baker and Weisbrot explain in more detail (se page 24, for example), the growing economy will keep the system reasonably shipshape as the ratio drops. Citizens need to know these facts—and they need to shout them out when Russert, typing from a breezy island, offers Scripted Frightening Tales about the ratio back in the ’30s (42-to-1!!). That pointless old fact is frightening but irrelevant. It needs to be thrown directly back into Russert’s breeze-blown, island face.

Meanwhile, a second question has come in from our readers. Here is one iteration of another familiar tale:

E-MAIL: I'm not sure that the Soc Sec situation is as simple as presented in the Krugman column. As I understand it, we wage earners have been paying far more in Soc Sec taxes than are necessary to fund current benefits. The surplus is the “trust fund.”

But of course the cash was spent on the government's current account, and the Soc Sec surplus was not used to pay down the national debt (except for a few years in the Clinton Admin). Instead, the Soc Sec system got "IOUs" from the treasury, promising to pay when needed. So when the time comes that the Soc Sec taxes are no longer sufficient to pay for that year’s benefits, either those benefits must be cut, or the money will have to be borrowed by the treasury. In that sense, there is no "trust fund" like a bank account or a stock portfolio that is "owned" by the Soc Sec system. So when Sen. Reid or Krugman in his last column say that there is no crisis, they are right as a matter of bookkeeping, but the cash is not there.

This may be the most familiar Scare Story of all. The cash is not there, we’re constantly told. There’s nothing in the trust fund except IOU’s—just a bunch of paper promises.

But, just like the other Scary Scripts, this one is pure propaganda. Over the past twenty years, Congress has sold bonds to (borrowed money from) the Soc Sec trustees, as it has done with many other individuals and entities. Over that time, Congress has borrowed money from (sold bonds to) many sources—and everyone always gets paid back. If Congress hadn't borrowed the money from the SS trustees, they would just have borrowed it from someone else—and those parties would have been paid back too, just as everyone gets paid back, just as the trustees will get paid back. This "IOU" story is Pure Grade A Bullroar, but it's been recited about ten million times. Here’s how Baker and Weisbrot approach it:

BAKER/WEISBROT (page 29): What does it mean, then, to say that Social Security must be cut rather than that the government must meet its obligations to the trust fund? When government bonds held by Bill Gates or Ross Perot or any other wealthy individual or pension fund mature, nobody proposes that the creditors should not be paid their principle. Yet the reformers insist that the 144 million Americans who loan money to the U.S. Treasury from the Social Security trust fund somehow do not have the same claim.
Over the past two decades, the government has borrowed large sums from many sources. Everybody gets paid back. But when they think about paying back the SS trustees, scripted pundits gasp and gag, suggesting that it just can’t be done. Perot and Gates? All they have is IOUs too! But no one suggests they shouldn’t be paid. It’s just the same with these other “IOUs”—the ones the trustees are holding.

The Russerts have peddled a fake tale for years—but citizens need the full range of facts. We suggest you start with the Baker/Weisbrot book (it’s somewhat technical)—and with Krugman’s column this Monday.

VISIT OUR INCOMPARABLE ARCHIVES: Poor Bumiller! For more about the way she trembled, see THE DAILY HOWLER, 3/25/04. Or why not stop by the web site Fact-esque? You know what to do—just click here.