Burnt Orange Report

Social Security Now: Redux

By Nathan Nance

Guest post by Nate Nance

Tonight I'm going to attempt to leap from hack to wonk in a single bound. But first, we need to have a quick discussion of the media.

Byron pointed out a biased line at the end of an AP article on gay marriage being OK'd in the Canadian Supreme Court a few days ago. There was one kind of bias that I don't think any of us really discussed in the comments to that post. It's the most prevalent bias in journalism: laziness.

Who cares what you say on TV, as long as you get that paycheck you'll parrot Roger Ailes like there's no tomorrow. That's an attitude that I think a lot of journalists take, the path of least resistance.

Part of that laziness shows up in how some stories are reported. Remember the missing 380 tons of explosives from the al Qaqaa facility? That was a huge story before the election last month because the media got to write a lot of process stories about how it will affect who we pick as president. As soon as the election was over, everybody dropped it. It's not like we found all those explosives, it just didn't matter because their was no election.

Need another example, how about Abu Ghraib? A huge human rights story that everybody covered during hte summer. When was the last time you saw a story on it? The mainstream media dropped the story in favor of reporting the Swift Vets, a story that had absolutely nothing to do with anything except the election. For the entire month of August that was the top story, people arguing over what happend 30 years ago.

The media finds it easier to report process stories and horserace numbers than anything of actual value. Why ask questions when you can report quotes?

Before I go much further, I should tell you I'm not an economist. I don't have a degree in economics nor did I minor in economics. Luckily I don't have to be. We've had 30 years of blue ribbon commissions and Congressional hearings and real economists telling us exactly how we can fix the gap in Social Security that will be caused by the Baby Boom generation retiring all at once. A small tax increase now in the payroll taxes to buy more Treasury bonds for the trust fund and a small benefits cut later when we are cashing in those bonds with slightly higher income taxes. All of a sudden the equation equals out and Social Security is solvent indefinitely.

In 1983, Alan Greenspan chaired a committee that came up with the stop loss measure known as the trust fund. They decided that increasing the regressive payroll tax more than necessary to cover curent costs would be used to buy those bonds. After the 2018 insolvency date, the government would start cashing in those IOUs and to pay for it would increase the progressive income tax (coincidentally, since the govt. would no longer be buying bonds to put into the trust fund, payroll taxes would go back down). The bonds run out about 2038, but by then the source of the problem (the Baby Boomers) is gone too and the worker to retiree ratio evens out.

Back to the media for a minute. Most of the stories you're going to see about Social Security reform of the next few months will ask questions like "When will President Bush ask Congress to privatize SocialSecurity?" Very few will ask "Do we need to privatize Social Security?" Remember, process stories not actual issue stories.

One of the people asking hard questions is Edmund Andrews at the NY Times. Brad DeLong has a post on Andrews' article covering the first of the many problems of privatization: risk. There is a lot of risk in investing your Social Security account in the stock market. If you're nearing your retirement and a bad day in the market cuts the bottom out of the mutual fund you're invested in, you have no time to recoup your losses. The market may perform really well over a 40-year period, but you don't retire over 40 years, you retire in a single day and God help you if you pick the day after the market hears about a scandal at your fund's manger's office.

The other problem lies in the assumed return. The bonds the government buys to put in the trust fund return at about 3%, privatization proponents say the market will return 6.5%. Assuming that is true, that extra return would cover the shortfall caused the Baby Boomers retiring en masse, which is about $3.5 trillion (That's trillion with a 't'). Let's asume I start saving a personal account right now. In 40 years, I don't lose any significant sums and the market performs really well (as it does. Even when it goes down it goes back up). The privatizers turn out ot be right and I get a 6.5%. But we've forgotten something very important, the fund manager. This is private sector after all, so the fund gets some of that money. You have your investment advisor, he needs to get paid. Pretty soon your percentage of that return, the money you get for taking the gamble that is the market and putting your retirement on the line, is 3%.

And none of that takes into account the fact that, more than likely, the 6.5% is a pipe dream in the first place. There are some real problems with Social Security, but nothing that can't be fixed easily enough. The sooner we raise taxes and cut benefits, the less severe those hikes and cuts have to be. And the sooner we get our financial house in order (i.e. get rid of Republicans) the sooner we can stop sticking our hand in the till to help pay down the debt instead of buying bonds to put in the trust fund.

This is a guest post from Nate Nance. Nate is a sports/news clerk at the Waco Tribune-Herald and writer/editor of Common Sense a Texas-based Democratic Web log. He can be reached at nate_nance@yahoo.com