Thursday, May 25, 2006

Retirement Benefits Monster

Sez USA Today:
Taxpayers owe more than a half-million dollars per household for financial promises made by government, mostly to cover the cost of retirement benefits for baby boomers, a USA TODAY analysis shows. Federal, state and local governments have added nearly $10 trillion to taxpayer liabilities in the past two years, bringing the total of government's unfunded obligations to an unprecedented $57.8 trillion. (projected over 75 years).

I used to have this Sesame Street book when I was a kid called "There's A Monster At the End of This Book" where Grover is all scared of the monster, trying to stop you from turning the pages, and at the end he realizes...the monster is him.

1 comment:

ProgressiveEconomist said...

Some appealing writing, but a badly flawed pretext for a book

Kamnetz's book caught my eye because of its title, "Generation Debt". I thought it might have some popular exposition of ultra-right economic deception on "Generational Accounting". Chapter 6, on deficits and social security, did not disappoint me. But, fortunately, most people seem to be focusing on another aspect of the book and Kamnetz's VV and oped pieces--unpaid internships. Kamnetz's labor economics on that issue is no better than her Social Security macroeconomics, but at least on the internship issue she's not a well-meaning "liberal"-"progressive" (pp. 156-159) dupe of well-organized ultra-right ideologues and academic frauds.

Her profile on (at ) lists Social Security as one of her major interests. What follows may help her begin to educate herself on a crucial issue where her work has great potential to assist the far right in its well-oiled campaign to destroy intergenerational old age insurance.

In a June 6 2006 blog entry (at ), Kamenetz says, "no, I am not an economics PhD (although I did have one econ PhD read it before I submitted" the manuscript for "Generation Debt". From high praise on the back cover from, and numerous mentions of, one BU economist, I think I know who that person was: Laurence Kotlikoff, a protege of far-right economist Martin Feldstein. As President of the National Bureau of Economic Research during the 80s and 90s, Feldstein helped spread plenty of "research" money around to undermine Social Security over the last generation.

Feldstein's--and Kotlikoff's--absurd argument against Social Security is that it inhibits national saving and that privatization would increase national saving. Feldstein believes this argument so strongly that he apparently was willing to falsify econometric calculations submitted to a peer-reviewed economic journal at the dawn of Reaganism (see a reference to a 10/5/80 NY Times article on "Martin Feldstein's computer error" in a bibliography on scentific fraud at ).

Apparently, Kamenetz fell so far under the spell of Kotlikoff that she failed to get countervailing opinions and tutoring on the economics of intergenerational transfers. If Kamnetz could read only one thing about Social Security, in my opinion she couldn't do better than a 1999 University of Chicago Press book, "Social security: the phony crisis", by Dean Baker and Mark Weisbrot, partially online at . Baker and Weisbrot were students of a prominent liberal economist at the University of Michigan in the 70s and 80s, Robert Eisner, and they do their mentor proud in their book on the academic fraud of Feldstein, Kotlikoff and company. The whole book is only 175 pages long, but I'd recommend in particular chapter 2, "Generating phony wars with generational accounting".

In my opinion, Alan Greenspan's least-understood career anti-progressive accomplishment was the Social Security "reform" he hammered through as Ronald Reagan's "Social Security Commission" chair in the early 80s. This "reform" was a sham to partially fill huge budget holes White House largess to the very wealthy had started to open up. Few people remember that Greenspan was Reagan's campaign economist and a chief source of the "supply side tax cut" plank Reagan ran on.

Since the 1930s, each generation of American workers has paid FICA taxes that were used immediately to pay pensions to those who'd retired, counting on the next generation to do the same for them when they got too old to keep working. The Boomer generation born between 1946 and 1964 has already filled that intergenerational obligation to those born before 1946.

But demographic projections re-calculated each year by Social Security actuaries (see the graph at ) showed that FICA revenues from the generation born after 1964 would be up to $200 billion a year short of what Boomers would need from 2016 until they'd reach their life expectancy limits in the following couple of decades. So everyone working since 1983 (mainly Boomers) has paid extra FICA, ostensibly to pre-fund future negative FICA cash flow.

Trillions of extra FICA dollars were collected at the Greenspan Commission's request, raising the payroll taxes of poor workers below the FICA "earnings cap" by 25 percent while Reagan was cutting the top income tax rate for the ultra-rich by seventy percent! The Reagan-era FICA rate increase was the largest and most regressive tax increase in history, yet Reagan STILL is praised by the uninformed as a "tax cutter". Most financial journalists still ignore the fact that Social Security payroll taxes are greater than income taxes for the majority of workers, even though payroll tax revenues and income tax revenues have been spent interchangeably since Reagan.

Through fraudulent Federal budget accounting, trillions of FICA dollars were included as general Federal government income and used mainly to fund Republican tax shifts to the wealthy and other unaffordable regressive fiscal policies. This is precisely how "Reagan showed that deficits don't matter"--just as long as the positive FICA cash flow keeps flowing. The current round of Social Security "reform" proposals is designed to keep the sham alive, but substantially more people are aware of what's really happening now than back during the early 80s.

Under the current Social Security system, after 2016 the FICA cash flow turns negative, and trillions in the "trust fund" would have to be paid out to retirees to pick up the slack. But once again Republicans are devising schemes to keep FICA cash flowing to the government rather than to old people. George Bush has no particular love for younger workers--he just wants to keep FICA cash flowing to the government, by promising it will be availabe to Gen-Yers in 40-50 years, rather than fulfilling legal obligations to pay it out to retirees in 10-20 years. Should the cerrent campaign by Kotlikoff et. al. prove successful, in another 40 years, some future right-wing President could devise another "reform" to "save" Social Security FICA cash flow for regressive fiscal policies, just the way Reagan, Greenspan, and Bush's handlers have done.

Meanwhile, Boomers are portrayed as "the greediest generation" (page xiii of Kamenetz), even though they've already paid completely for their retirements, through FICA payroll tax money already paid out to Boomers' parents and grandparents as well as FICA tax increases paid to finance Republican deficits since Reagan. Logically, the intergenerational dispute Kamenetz must have is not with Boomers but with the next generation of workers: Apparently, Kamenetz does not trust them to do what the Boomers already have done: pay for the retirement of the previous generation.