Social Security Update
Hey kids, last month the latest Trustees Report for Social Security and Medicare came out. Check out the following excerpt summarizing the condition of Social Security. Note that because they have a bunch of IOUs from the Treasury in the “trust fund,” which are rolling over at interest, the trust fund can grow even in years when SSA takes in less from payroll taxes than it pays out in benefits. With that subtlety in mind, here ya go:
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
If you’re really a hardcore wonk you can look at Table V.F2 in the formal Medicare report to discover that over the next 75 years, Medicare and Social Security’s combined cashflow deficit (i.e. disregarding their stockpile of Treasury IOUs) has a present discounted value of $38.6 trillion.
In other words, if the government needed to (say) levy a one-time, lump sum tax on Americans today, to put a pile of money aside that would earn interest and could be drawn upon to make up for shortfalls for the next 75 years (because payroll “contributions” for Medicare and Social Security wouldn’t cover the benefits to which people were legally entitled under existing law), the government would need to get a pile of $38.6 trillion today.
Of course, another school of thought would say this blog post is a giant scare tactic, fueled by my hatred of the sick and elderly.
I stopped reading after the title, because I’m pretty sure it’s a giant scared tactic fueled by your hatred of the sick and elderly.
Or is it actually about slumps?
Keyword: Unfunded.
Keywords: Gold Standard
Well, I guess it’s not a problem if you are already elderly and retarded.
Sure, you don’t need to worry.
Oh come on! You can do better.
Keywords: Slumped Gold Standard.
Keywords: A gold standard protects the common man from the government’s fiscal and monetary shenanigans.
People could have stashed their gold away from the “trustworthy” government. But no, generations of our trustworthy politicians have spent the entire sum of SS contributions.
People for generations have contributed to SS believing that the government is keeping that money safe in their names.
I submit the bankruptcy of SS to be the greatest case grand larceny in the history of the country.
Too bad you couldn’t read that Krugman said it was about slumps.
Too bad you can’t read Murphy said that Krugman’s point was about bank panics.
If only you can read Krugman measuring the extent of bank panics by economic slumps, in his second post, the one being addressed.
You can’t read.
I can, and the subject still is bank panics.
As Murphy acknowledged.
But you can’t read. Nor count.
You can’t read, because the subject was the extent of economic slumps, as Murphy addressed.
You can’t count either.
No way, the subject was and still is bank panics, for anyone who can read.
Nope. It was economic slumps. That’s why we can count the top 4 worst as occurring after the Fed.
You can’t count.
No the subject was bank panics as even Murphy acknowledged.
Then why did Krugman say slumps?
He used plenty of words to talk about bank panics
Glad you finally admitted he used the word slumps.
I never denied he used the word slumps and many others.
But his subject was bank panics not slumps.
Because I can read.
I never denied he used the word slumps and many others.
OK, but do you positively admit Krugman used the word slumps?
But his subject was bank panics not slumps.
You’re conflating slumps with recessions.
When I said economic slumps, I wasn’t talking about non-bank panic recessions. I was talking about slumps in output, of productivity, the data that Krugman referred to in his second post charts.
Yes he used the word slumps and the fall in output to measure the consequence of pre-Fed bank panics, but the subject was bank panics and the role of the Fed in preventing them.
And he made a bad case as I already mentioned, not because he doesn’t know better but because he is often too careless in his blog
Yes he used the word slumps
And so an analysis of Krugman’s second post data, which you finally admit he used word “slumps” to describe the declines in output accompanying bank panics, means that the subject at hand when it comes to comparing slumps pre and post 1913, are the slumps Krugman referred to.
Ergo, the subject at hand, which is the substance of Murphy’s post, is the number and size of slumps accompanying the bank panics.
And he made a bad case as I already mentioned, not because he doesn’t know better but because he is often too careless in his blog
Like I said, your problem is with Krugman, not the people here who are discussing the number and sizes of the slumps Krugman referred to.
You’re saying “Krugman SHOULD have said X, but he said Y.” But that has no bearing on an analysis of what Krugman actually said, and that analysis was the subject being discussed before you derailed it into a childish game of “nuh uh!”.
No the subject was bank panics, not slumps.
Krugman never mean bank panics = slumps. No one will say such a stupid thing.
Well, someone maybe.
No, the subject was the slumps accompanying the bank panics.
We were looking at the number and sizes of such slumps. We found that the top 4 worst slumps accompanying bank panics occurred after 1913.
You still can’t read.
No, the subject was bank panics, as acknowledged by Murphy.
No, the subject was the number and sizes of slumps accompanying bank panics, as Dr. Murphy showed regarding Krugman’s second post, the one that contained economic slump data, and the one that included Krugman using the word slumps.
http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/13/~/average-monthly-social-security-benefit-for-a-retired-worker
The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012.
—-
This doesn’t seem overly generous does it? In any case, Stein’s Law applies – if something can’t continue, it won’t.
It’s quite pointless to argue with MMTers such as Mam-mouth. I’ve been challenging them for months now over at the Mike Norman site and there truly is no there there.
The entire fantasy world of MMT starts with the insight of Stephanie Kelton that perhaps the world of fiat funny-money creation does not completely mimic the real world of commodity money.
http://mikenormaneconomics.blogspot.com/2012/05/stephanie-kelton-on-why-us-doesnt.html
Since the “money” received by the state in taxes and from bond sales might not be exactly the same “money” “spent” by the government and since the accounts generally do not match up, the MMTers take a flying leap off the of the cliff and conclude that the government need not tax or sell bonds at all in order to “spend”. Ever. (The purpose of taxes is simply to suck funny money out of the system and control price inflation). And therefore, the government is not revenue constrained and the government can just “spend” and “spend” on SS and $100 trillion worth of adult diaper changing services without any concern for the source of those funds BECAUSE THE GOVERNMENT CREATES DOLLARS AND HAS AN UNLIMITED SUPPLY. The only “constraint” possible is price inflation, but that’s easily controlled and only fools worry about that. Further, the underlying theoretical foundation of MMT is just the nitwit Keynesian jargon and categories of “thought”. Thus, they conclude that “demand” can easily be fixed because the government has an unlimited supply of funny money dollars to “spend”. That’s MMT. That’s it. There is nothing more to it.
They have no familiarity with or understanding of even basic Austrian concepts such as economic calculation, ignorance and human exchange. They don’t know and they don’t care. They ain’t worth the powder. In fact, they do us all a favor whenever they start their blabbing because it helps the public understand what an outrageous monetary system we have. Further, the American public does not believe that government spending causes prosperity and they should be the target of our concerns and outreach.
Before I read it, is your rambling about bank panics or slumps?
It’s about schlumps.
Funks.
(Look it up.)
If I read this correctly, it says that the problem can be kicked down the road until 2033 right? Until then, SS can still pay out. Plenty of time. Even aliens can attack by then
Yosef not sure what you mean by “SS can still pay out.” It already is taking in less in payroll “contributions” than it pays out in benefits. It currently is making up that difference because of the interest it earns on the pile of IOUs from Uncle Sam. By 2020 (I think, not double checking it) even that won’t be enough, and then it will have to start selling those IOUs to other people to fetch current market price for them (drawing down the principal).
When we talk about the government’s debt, like it’s currently 67% of GDP etc., that does NOT include the bonds held by the SS Trust Fund. So if you want to say SS is funded at current benefit levels through 2033, OK, but then you have to add at least another trillion to the government’s debt to be consistent.
“then it will have to start selling those IOUs to other people to fetch current market price for them (drawing down the principal).”
It’s always been my understanding that those IOUs are nonmarketable. That is, they cannot be sold to another party. Granted, it has been a while since I read the ‘Social Security Act’ and all of its changes, so that could have changed.
Hmm that sounds vaguely familiar to me too, JF. If you’re bored you might want to do some digging on that. You can even call someone at the SSA. No fooling, those people are usually very helpful on the phone, probably because I’m more interesting than Minesweeper.
But you can clearly see from the discussion that they plan on drawing down the assets. I don’t know if that means they will get a lump sum from Uncle Sam who in turn will then roll the bonds over to the open market, or what. But you’re right, it seems they would have to do something they aren’t allowed to do.
Well, they’ve been doing a lot of things they aren’t supposed to do in other areas, so I don’t see anything stopping them here. However, as far as I know, they are still allowed to use one line of credit to pay another line of credit. So, it would be my guess that they would pay the principle and interest on those IOUs with marketable treasuries, kinda like using one credit card to pay the other. If that doesn’t work, then they’ll just “ease” the payments into retiree’s hands.
I’ll try to look into that whole nonmarketable thing to verify, but I am pretty sure that that is the case.
Oh yeah, speaking of how the debts/deficits are accounted for, it turns out that if unfunded liabilities were included into the budget for last year that our deficit would actually be $5 trillion. I imagine that much of that came from the fact that SS was in the red on a cashflow basis.
Just imagine what the current debt would be if we accounted for the fact that the government is probably going to have to borrow more money at interest to pay off those nonmarketable securities.
Oh my god! A huge number!
It isn’t the number per se, rather it is the lack of resources and productivity to substantiate such a number.
http://www.ssa.gov/oact/progdata/fundFAQ.html#n2
You two are right. Treasuries in the SS trust fund are non-marketable securities.
The trust fund used to own marketable securities, but those darn things kept going down in nominal value, so they dropped that, and made it so that all the securities owned can be redeemed at face value.
Thanks.
Bob, I meant exactly what you wrote, that SS can pay out until 2033 by selling their assets, ie the IOUs. They have 3 sources with which to make payments: the payroll tax. the interest earned on their assets, and the assets themselves. My point was that all these three will be enough to keep paying until 2033, so no one will have to face a cut in benefits until then.
I wasn’t making a point on the total government debt, which I agree to be consistent should include the IOUs held by SS. I was only saying that politicians have plenty of time to delay working on the problem.
It is even worse. The payroll tax was cut in 2009. Right now, what counts as part of the non-interest income coming into the program is a direct payment by the general fund already to make up for the payroll tax cut.
Bob,
As has been stated, the SS IOUs are non-marketable special issue treasury bills that can only be redeemed by presenting the IOU to the Treasury. And Bob it is even worse than you think because the Treasury pays the interest it owes to the SSA in even more SS IOUs. Further, what all of those IOUs represent is simply claims on the federal government’s general revenues. The Trust Fund is simply an accounting gimmick to show how much claim it has on general revenues. It holds no real assets that can be sold to pay SS recipients.
Tom, back when SS was running a surplus, I would have agreed with you. But now that it is running a deficit on non-interest income, it must be the case that general tax revenue is being diverted to pay some current SS beneficiaries. I.e. the Treasury isn’t simply issuing more IOUs at this point, it is actively sending cash to help cover SS’s non-interest cashflow deficit.
(We’re agreeing on the overall point, that the “Trust Fund” is bogus.)
Bob, I don’t know how I gave you the impression that general tax revenue is NOT being diverted to pay current SS beneficiaries that is not covered by the shortfall in the payroll tax. What you are saying is entirely true. The fact that the interest income SS earns is greater than the $45 billion dollar payroll tax shortfall means little, since the interest income is only additional claims on general revenues. Once payroll taxes cannot pay all SS recipients, then any shortfall in payroll taxes can only be covered with general revenues. However, because interest income is greater than the short fall in payroll taxes it does means that the Trust Fund can be growing even as the SSA redeems some of its IOUs for general revenues to pay SS recipients. The SS IOUs are only claims on general revenues.
Tom, yeah, I think we are saying the same thing. It’s not worth me going back and saying what you said that made me believe otherwise; probably I just misunderstood a turn of phrase.
Murphy you’re such a worry wart — the fed will loan us $38.6 trillion, duh. Why worry about paying it back? Isn’t that why we have children and grandchildren?
There are no children or grandchildren involved anyway.
And those children and grandchildren will have children and grandchildren of their own! It’s Hilbert’s Grand Government
The more I think about it, the more I realize the the monetary theorists/fiat believers have really only one goal that can’t ever be realized- the removal of the “store of value” function of money.
Bingo.
The only way to destroy the store of value function of money would be to destroy money itself.
And that is exactly what has happened to fiat money systems throughout history.
75 year projection of US dollar flows.
The fiat money system would have almost certainly collapsed by then.
Kind of like reading 1930s German material on “thousand year” plans, isn’t it?
Social Security cures everything. It’s like vinegar or Vitamin D. Who knew?
Thanks to the Imperious “Lord Keynes”, we learn that after WWII “because of Social security there would be a large reduction in private saving and so that (economic problems in the postwar era) would be no problem”.
LK explains the world to the oblivious Tom Woods.
In 1943 — the same year Samuelson got it wrong — Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’s reply is significant:
“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.” (Colander and Landreth 1996: 202).
Woods, like other Austrian ideologues, seems utterly ignorant of this. What kind of analysis of the post-war boom ignores what Keynes — the founder of Keynesian economics — thought about this question?
DK heartily approves:
Daniel Kuehn May 31, 2012 7:53 AM
Tom Woods attempts to debunk Keynesianism and Tom Woods falls flat on his face? You should really try to make your posts less redundant LK.
http://socialdemocracy21stcentury.blogspot.com/2012/05/thomas-e-woods-on-keynesian-predictions.html
It took DK to finally and completely debunk Keynesianism, didn’t it?
The latest report of the Social Security and Medicare trustees shows an unfunded liability for both programs of $63 trillion. That is equal to about 4.5 times the entire U.S. gross domestic product (GDP). However, the actual liability is almost twice what the government is reporting. The reason: “ObamaCare.” The minute President Barack Obama signed his health reform bill, he cut Medicare’s unfunded liability by more than $50 trillion.
ObamaCare uses cuts in Medicare to pay for more than half the cost of expanding health insurance for young people. So even if the Medicare cuts take place, they won’t reduce the government’s overall obligations — they just replace entitlements for seniors with entitlements for young people.
So the only realistic way to make cuts in Medicare spending is a mechanism that will pay less and less to doctors and hospitals over time.
The Center for Medicare & Medicaid Services’ Office of the Actuaries has predicted what this can mean for seniors. By the end of this decade, the fees that Medicare pays to doctors will be lower than what Medicaid pays. Also by the end of the decade, one in seven hospitals will be forced out of business.
To address these defects, Medicare must be truly reformed. That means shifting from the current “pay as you go” system to one in which workers pay their own way. John C. Goodman and his colleagues have calculated that workers (and their employers) must save and invest 4% of payroll.
Eventually, we will reach the point where each generation of retirees will pay for the bulk of its own post-retirement medical care — with a payroll tax no higher than the one we have today (http://politi.co/JQmEAz).
Carly, where are you getting the $63 trillion? I’m only finding $38.6 trillion. I thought the “official” figure was bigger too, so where are you getting that number from?
The difference is probably that you (Bob) are using a 75 year time horizon and Carly is using the infinite time horizon.
That might do it.