Pretending Social Security Is Our Biggest Problem

Every few years, a consensus opinion seems to form among Washington politicians that the finances of Social Security are so dire that we absolutely must take dramatic steps to reform it. While Social Security's long-term financing shortfall is very real, it doesn't even rank in the top-20 of America's most imminent problems. And the most obvious remedy--dramatically raising or lifting entirely the salary cap applied to the payroll tax--is no longer even being discussed by anybody. The only credible solutions, we're told, involve either redirecting the Social Security trust fund dollars to the oversight of Goldman Sachs or AIG in the form of "private accounts", or draconian cuts in payments and a raising of the retirement age. Whatever the viability of these arguments, the urgency just isn't there, and the pretense by politicians trying to convince us that it is generally represents an effort to both distract us from more serious and imminent threats and to convince us that all diagnosed "austerity" has to come almost entirely at the expense of those in the lower tax brackets.

All the focus on Social Security is a pathetic way of diverting attention from the fact that the most imminent entitlement threat is the bankruptcy of Medicare in just a few years, as opposed to the 30-some odd years before Social Security even begins to face math issues. The answers to fixing Medicare are much more elusive than those of Social Security, so it behooves politicians to avoid talking about it. That luxury is quickly slipping away from us though as soaring elder care costs are spiraling out of control and the bipartisan consensus that the very rationing of end-of-life costs that are absolutely necessary to avoid Medicare's bankruptcy are completely out of the question and tantamount to "death panels". Telling 85-year-old grandma no once in a while on $3,000-a-month prescriptions that are expected to keep her alive four more months absolutely can't be done, but telling her 65-year-old son he has to keep working for five more years before he can collect a reduced Social Security check is perfectly viable. It speaks to seriously messed-up priorities and a disconnect with what's going on in the real world.

Medicare's very real problems are fast approaching crisis mode because we're accepting an unsustainable premise of unlimited health care services for the demographic of Americans that run up the most health care bills and are the fastest-growing population cohort. Those declaring rations for end-of-life costs as tantamount to putting grandma to death could could not be more detached from reality, and they certainly threaten America's financial solvency much sooner than Social Security ever will. But we refuse to even have the conversation. When it's brought it, some faction shouts down the implications to the current elderly, pretending that Medicare by itself gives a permanent entitlement to a bottomless pit of taxpayer-financed medical care. The time wasted on convincing Americans to fear Social Security's bankruptcy should be spent on convincing us of the need to let go of granny when she becomes terminally ill as pretending she can live forever will bankrupt the country within the next 10 years.

And by contrast, let's take a look at a few of the implications of extending the Social Security eligibility age that the geniuses in Washington probably haven't thought through. With increased frequency, companies are letting go older employees because they don't want to bankroll their higher-risk health insurance costs. In other words, it's becoming increasingly difficult for people in their 50s and early 60s to stay on their employer's payroll now, so how much bigger will the problem be when the same employees are expected to stay on the job until age 69?

And just because life expectancy is increasing doesn't mean the human body's ability to do repetitive motions without becoming impaired will increase accordingly. Policymakers sitting on their asses all day pontificating on how store clerks and factory workers need to work an extra five years don't seem to have considered that whatever savings accrued through delayed access to Social Security checks will likely be offset and then some by higher health care costs accrued by working-class Americans continuing to work beyond their body's expiration date. A workforce full of cripples isn't one that saves society money, rendering any discussion of delaying the retirement age a nonstarter until the issue is addressed.

As it stands now, life expectancy isn't growing at all for the working-class Americans most dependent on Social Security, so the program will become that much more regressive if the only people who get to cash in on it are the office workers who live long enough to collect benefits. As Paul Krugman said, the argument effectively amounts to forcing janitors to work longer because corporate lawyers are living to older ages.

The leadership we need is from the President here, but I can't imagine he'll disavow the prescriptions of his own debt commission. The agenda will be set by Congress, and gutting Social Security has been a cause celebre for the Republican majority for years, even before the takeover of even further-right Tea Party radicals. Obama can't possibly think the assault they plan for Social Security is good politics even if he does think it's good policy, which he may given the cacophany of pointy heads in Washington insisting that it is. There are certain issues where taking an unpopular position is the right thing to do. Pretending that cutting Social Security is the nation's top priority is not one of them, and if Obama thinks it is, he'll find his approval ratings sinking even further underwater no matter what his advisers are telling him.

401Ks The Undoing of America?

A generation from now, we may very look back at 401Ks as America's financial undoing. There are so many things contributing to America's fast approaching sunset as an economic superpower, but not since the trojan horse has such an unassuming menace managed to so effectively and quietly condemn a nation's future to rubble. Unfortunately, even as report after report comes out showing how dire the Baby Boomer generation's retirement prospects are, it seems I'm the only one reaching the conclusion. The very people lamenting how the Baby Boomers have been ruined by 401K's are doubling down on their endorsement of funneling still more money into 401Ks.

In an effort to cut costs, the American business community sold the clueless, nonunion American workforce into giving up a defined-benefit pension and into a plan where the worker paid for his own retirement but management still got to advertise it as a company retirement plan. From there, Wall Street barons were like sharks in a feeding frenzy taking advantage of a newly created amateur investor class looking to become millionaires as quickly as possible. Wall Street cleverly blew up all kinds of phony and unsustainable bubbles, reaped the short-lived uberprofits, and then left Joe Sixpack and taxpayers to lose their hair in the nuclear fallout. Twice this has happened now....in a little over 10 years....and with each new round of evidence that the 401K breeds foolhardy investment policy, it becomes all the more popular in contrast to defined-benefit pensions where the return on investment is a bastion of stability by contrast.

So here we are, a nation full of Baby Boomers approaching retirement age...with 401Ks that have lost 50% of their value since their 1999 peak, and which are almost assuredly overvalued right now in the post-TARP bubble that has no bearing on real-world economic conditions which continue to look disastrous. Yet here we are....insisting that still more workers join the 401K bandwagon so they can get caught in the next whirlpool. The definition of insanity is doing the same thing over and over and expecting a different result.

It's a Really Terrible Deal

As I've said before, America has a permanent de facto Republican governing majority. Even if Democrats take over the Presidency and both houses of Congresses with historically large margins, the country will still be governed as though the entire city of Washington, DC, is populated by Tom DeLay clones. Democrats can run on ending pointless and idiotic wars, win by decisive majorities, and then take office and stay the course on the Republican foreign policy agenda. Democrats can run on ending tax cuts for the rich and shoring up Social Security, win by decisive majorities, and then take office and cut taxes for the rich while looting money designated for Social Security.

The latter is the "bipartisan compromise" we just saw brokered, passed by large majorities in both houses of Congress and now signed by the President, to the eternal shame of every last one of them. And even the few sensible liberals who opposed this abomination did so with the caveat that "there are a lot of good things in here...". Like what I ask? Far as I can tell, this "compromise" is one of the first sweeping pieces of legislation in ages in which every item in it is a very obvious mistake.

On the surface, I suppose you could say 13 months of additional unemployment benefits are a good thing, but what's not mentioned is that the people running out of benefits who need them most are not covered by this deal. I'm struggling to understand who is getting additional benefits that wouldn't otherwise. Far as I can tell, what Obama and the Democrats got out of this deal is merely the unemployment insurance program continuing to exist until 2012 before the Republicans get the opportunity to dismantle unemployment insurance entirely.

And a payroll tax holiday? Seriously? This coming only one week after the most recent breathless frenzy on Washington about Social Security's imminent financial trainwreck and how we HAD TO DO SOMETHING....QUICK! Who knew that for all the bluster about Social Security's financial desperation, Washington politicians only nonrhetorical remedy would be to defund the program's current insufficient financing? What could Democrats be thinking by allowing this defunding, expediting the program's financial ruin and strengthening Republican arguments that Social Security's shortfall is so dire that it must be redirected to Wall Street. Even before that, the Democrats also most likely made permanent yet another tax cut that Obama insisted upon himself, as Republicans will scream bloody murder in 2012 about "raising taxes on working families" in the event of the payroll tax holiday expiring. Does anybody really think in a Presidential election year that Republicans will be unable to win that argument in a nation as mindlessly gluttonous as this one? Especially since they're winning arguments now in which only 26% of the public agrees with them?

Also, how exactly did the shrinking of the estate tax get into this "compromise"? Isn't the idea of a compromise that the other side gets things it wants in exchange for giving them exactly what they want? The Republicans got exactly what they wanted with the extension of the Bush tax cuts on high-income earners. How does any negotiator with any mojo at all somehow throw in that freebie as part of the negotiation rather than fight for things HE SUPPORTS?

The new narrative of both the tax deal's supporters and its detractors is that Obama was able to sneak in a second economic stimulus under the Republicans' noses. Well if it's a stimulus it's a stimulus in name only. Nothing in this package will beget economic growth and has the potential of actually stalling it further by weakening America's financial standing in the global markets with another $1 trillion in borrowing. Any serious overture towards stimulus would include financial relief for the states who are beholden to a stack of unfunded mandates from the federal government as well as a balanced budget requirement even in the middle of a serious economic recession. For Obama's negotiating emissaries to not fight for that even while presumably securing a second stimulus for the opposition suggests stunning incompetence as deep cuts to much-needed programs are on the horizon in state governments across the country in 2011.

What should have been done is a two-year extension of existing tax rates only for the middle class, with them set to expire on January 1, 2013, barring an economic calamity. It's almost comical that politicians of both parties pretend to support the draconian budget-balancing recommendations of the debt commission yet can't even ask for sacrifice on the easy stuff like returning to the Clinton era tax rates.

Even the tax rates on the middle class have very little role in the trajectory of the business cycle, but at the current point in time where the hour of reckoning has befallen consumers whose lengthy expanse of financing a consumer binge on credit, it's probably true that it would be economically harmful to let their tax cuts expire. No such equivocation is needed on extending tax cuts for the rich, which will have absolutely no impact on the economy. These "job creators" are already sitting on $2 trillion of idle money and not creating jobs with it. Extend the Bush tax cuts and they'll merely be sitting on $3 trillion and not creating jobs with it. Robust consumer demand is required to propel even marginal job growth, and the fundamentals of our economy indicate that's unlikely to happen anytime soon.

That's why the Republican Presidential candidates who are coming out against this deal (usually justified with the typically monstrous Republican arguments, such as its being too generous to the unemployed) are wise. They're making a credible calculation that this latest mindless and profligate giveaway will not trigger meaningful economic growth, and even if it does, it won't be felt by Joe Sixpack. I'd be very surprised to see unemployment below 9% in November 2012, and it appears that Mitt Romney and Sarah Palin are coming to the same conclusion given that they've come out in opposition to the deal. By doing so, they get to paint the inevitable ineffectiveness of extending tax cuts for the rich as the Obama economic plan while simultaneously being in support of extending tax cuts for the rich permanently. And this will play effectively to the typical low-information voter.

How on Earth do Democrats continually get themselves in this situation? Superficially, there is still a wide chasm of differences between the two parties, but in practice they all seem to agree on the most indefensible public policies when push comes to shove. As I said in the lead-up to the election, the Democratic Party is making it very hard to justify its very existence by folding on this issue. We could just as well have a Republican President and 535 Republican members of Congress because they all end up governing the same destructive way.