Social In-Security

The conservative mainstream media has been riding high of late in their quest to privatize Social Security and Medicare. Outlets like the New York Times, the Wall Street Journal, and the Washington Post, rags that beltway insiders get their “knowledge” from, have been hard at work printing distorted versions of reality regarding our nation’s retirement security programs. Fear and ignorance are the tools of the cabal of individuals that want privatization to happen. Fear, ignorance, that is, and the shoddy journalistic efforts of papers that have a reputation for knowing better.

Follow the money; it is a simple process. We all know who benefits from Social Security and Medicare, neither of those two programs stopped paying benefits in this recession, and how many individuals and businesses do you know that have been crippled by the FICA tax? Do we all know who benefits if Social Security and Medicare are privatized? Wall Street and the insurance industry…that’s who. At least $1 trillion per year would be sent to Wall Street bankers if these programs went private, and I wonder how many of you trust your basic retirement needs with those geniuses. They have, after all, done such a bang-up job with the pension funds of our nation. What they will do with that money, come rain or shine, is pocket billions per year in fees.

The contrast is rather stark; billions in fees to Wall Street versus a Social Security fund that has administrative costs of around 0.1% and never misses a payment. But what of the deficit and the “problems” with both Social Security and Medicare? The drivers of this deficit are:

  1. The recession (lower tax revenues and higher payments in unemployment insurance). You fix this by getting people back to work.
  2. Two wars and hundreds of thousands of troops deployed overseas. You fix this point by winding down the wars and continuing to defuse international flash-points that require U.S. troop requirements.
  3. The Bush tax cuts ($1.8 trillion so far). This you fix by letting them expire per the deal that Republicans made when they wrote the law.
  4. The exploding cost of medical inflation (over 4 times the overall annual rate before reform). You address this by changing the market inputs that cause inflation…i.e., you reform health care.

Well, so far, so good. This Administration is trying to break us out of the recession (according to Moodys and the CBO, the stimulus law worked…it just wasn’t big enough). This Administration is winding down the war in Iraq and has a concrete (if painful) plan for wind down in Afghanistan. This Administration is fighting to eliminate the costly top end of the Bush tax cuts while leaving the middle class cuts in place (you know my position, I would allow all of the cuts to expire). This Administration managed to pass substantive reform of the health care market which will help the Medicare cost structure over time. Which leads us nicely into the latest falsehoods of the Conservative Mainstream Media; that reform increases costs.

The graph above is prepared from the report by the Medicare actuaries, and originally presented by economist Paul Krugman. It does not need much explanation. But Republicans and deficit hawks have jumped on the data for the next decade as “proof” that the law does increase Medicare costs. The problem with their point is the problem with all of their points: math. The law reduces the rate of change for Medicare cost…in other words, it kills off medical cost inflation. The chart at right shows the rate changes for the coming decade. Note the large spike in the graph represents the one time charge associated with adding uncovered Americans to the rolls. Larry Levitt, of the Kaiser Family Foundation, explains:

Reform lowers the rate of growth of health spending for a few years, primarily with Medicare savings. Then the rate of growth jumps up above baseline as the uninsured are brought into the system (the effect is really a one time increase in spending, but it shows up as big rates of growth for a few years as the uninsured are covered and use more services). Then things settle down back to the point where the rate of growth is below baseline, reflecting the effect of Medicare savings and the tax on high cost insurance plans.

More work needs to be done on this aspect of our economy, work that should help individuals, the private sector, and Medicare. But progress has finally been made. That is Medicare, what of Social Security? Isn’t it being raided (as Sharron Angle claims), or going broke, or infiltrated by corrupt federal workers as the Washington Post claims (see link above)? The critical facts relating to these myths are easily accessible to the public, so there is no excuse for professional journalists to miss them.

  1. Social Security will take in less in tax revenues than it will pay in benefits this year…it is a recession and revenues are down. But this is an irrelevant point (thank you Dean Baker), as its total revenue (thanks to the bonds it holds) will exceed payouts by $80 billion.
  2. The 1,500 workers who apparently defrauded the program (per the Washington Post’s exceptional piece of yellow journalism) represent 0.01% of beneficiaries. It is not immediately apparent that any other story would merit the mention of something worth one one-hundredth of a penny on the dollar.
  3. Any long term shortfall in the program could be easily addressed by raising the earnings cap on the FICA tax or raising that tax by a small increment. Both of those fixes are measurably more popular with the general public then raising the age or cutting benefits.

Isn’t it curious that candidates like Sharon Angle who criticize the “raiding” of social security actually support that very action? There is a real disconnect between the grassroots populists who support massive changes to our social insurance programs, and the monied interests who cultivate that support. The actions of the deficit commission and the deficit hawks are not in the best interest of the working class either now or in the future. While controlling the debt levels of the United States is critical, doing so by addressing the true drivers of that debt is the proper focus. The current and lasting theme of attacking Social Security and Medicare while leaving the real drivers alone is akin to cutting the household budget of vegetables and school clothing to support an internet porn habit. The so-called journalists of the conservative mainstream media need to figure this fact out, and so do the legislators who listen to the garbage.

The Rational Middle is listening…

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