Wrong! Wrong! Very Wrong!
Posted: March 8, 2011 Filed under: Baby Boomers, Domestic Policy, Federal Budget, John Birch Society in Charge, Psychopaths in charge, right wing hate grouups, Social Security, The Media SUCKS, the villagers | Tags: Annuities, Longevity Insurance, Old Age insurance, Robert J. Samuleson, Social Security 22 CommentsI almost never read Robert J. Samuelson because he is basically one of those people that seems to read a few things 
then moves himself to expert status. He’s one of many writers who seems to derive a livelihood by achieving intellectual dilletante status. I couldn’t get pass this headline at his WAPO column: ‘Why Social Security is welfare’. Why journalistic poseurs are allowed column space to promote so much wrong information is beyond me.
We don’t call Social Security “welfare” because it’s a pejorative term, and politicians don’t want to offend. So their rhetoric classifies Social Security as something else when it isn’t. Here is how I define a welfare program: First, it taxes one group to support another group, meaning it’s pay-as-you-go and not a contributory scheme where people’s own savings pay their later benefits. And second, Congress can constantly alter benefits, reflecting changing needs, economic conditions and politics. Social Security qualifies on both counts.
Samuelson is obviously confused. I wonder if he feels this way about every annuity investment sold by every insurance broker and bank in the country? Social Security is a benefit that every worker pays for that is basically an insurance annuity set up to pay you back when you hit the stated conditions of the contract. It has elements of insurance in it that is comparable to the government-sponsored flood insurance plan. It has elements of a life annuity which is a similar contract that you can buy from any insurance broker. You pay now and it pays you benefits in the future, again, when you meet the conditions of the annuity. It’s a form of longevity insurance.
Additionally, it is not means tested which means that receiving the annuity has nothing to do with your income. It has to do with you joining the plan and paying the premiums as you work or as your parents or spouse works. It is not a transfer payment which is the traditional form ‘welfare’ or safety net program. Transfer payments go to a beneficiary simply upon meeting certain criteria without ever having paid into the program directly. Usually, transfer payments are means-tested which means they pay only to low income citizens. Transfer payments direct payments or services to people that don’t involve any exchange of goods and services for the benefit. They are a one-way transfer of benefits and their main purpose is for income redistribution. Social Security does not fall under this category at all. If you or a qualifying family member don’t contribute to the program, you will not get your benefits. Your benefits are also eventually based on what you contributed and not what your income says you need. This is a huge difference.
You can read two other economics/finance writers who explain this in similar ways. First, Economics professor Mark Thoma on Economist’s View explains the bad logic involved with this argument. He also explains why Social Security is an insurance annuity and not a transfer payment in a similar way.
Social Security is no different, it is an insurance program against economic risk as I explain in this Op-Ed piece. Some people will live long lives and collect more than they contribute in premiums, some will die young and collect less. Some children will lose their parents and collect more than their parents paid into the system, others will not. But this does not make it welfare.
Is gambling welfare? Gambling transfers income from one person to another. Does that make it welfare? Loaning money transfers income when the loan is paid back with interest. Are people who receive interest income on welfare?
There is an important distinction between needing insurance ex-ante and needing it ex-post. Insurance does redistribute income ex-post, but that doesn’t imply that it was a bad deal ex-ante (i.e., when people start their work lives).
Angry Bear has made the same argument. (Both of these quotes are pretty old btw since Samuleson keeps rehashing this canard over and over and over.) There is an example there of the basic insurance problem taught in finance classes in risk theory. It shows why people basically buy insurance. It also discusses the benefits of having insurance provided by the government when the private sector fails to provide the service. Flood insurance and Longevity insurance make sure that people who have experienced those conditions do not become a burden on society and get shoved into the welfare system. They pay premiums on each pay check–just as each of us do–to make sure that we don’t either outlive our incomes and wealth.
What does all of this have to do with Social Security? Those who are hard-working, fortunate, and not too profligate will have a large nest egg at retirement and Social Security will account for only a small portion of their retirement portfolio. This is tantamount to paying for insurance and then not needing it. This happens all the time — every year someone fails to get sick or injured and, while surely happy in their good health, would have been better off not buying insurance. That’s the nature of insurance: if you don’t need it, then you’ll always wish you hadn’t purchased it. Only in the context of retirement insurance is this considered a crisis.
On the other hand, those with bad luck or insufficient income will not have a nest egg at retirement. Because of Social Security, instead of facing the risk of zero income at retirement, they are guaranteed income sufficient to subsist.
This is precisely like the insurance example I worked through above: people with good outcomes will wish they hadn’t paid into the insurance fund; those with bad outcomes will be glad they did. Ex-ante, everyone benefits from the insurance. Overall, society is better off because risk is reduced; because people are risk-averse, the gains are quite large.
Additionally, Samuelson tries to force the Social Security program back into the federal deficit column when it is and was designed as a stand alone program. He also uses the current downturn–with its high and sustained rate of unemployment and hence, people NOT paying into social security at the moment–as an excuse to call the trust fund insolvent. This is another canard.
Contrary to the Obama administration’s posture, Social Security does affect our larger budget problem. Annual benefits already exceed payroll taxes. The gap will grow. The trust fund holds Treasury bonds; when these are redeemed, the needed cash can be raised only by borrowing, taxing or cutting other programs. The connection between Social Security and the rest of the budget is brutally direct. The arcane accounting of the trust fund obscures what’s happening. Just as important, how we treat Social Security will affect how we treat Medicare and, to a lesser extent, Medicaid.
Dean Baker also calls Samuelson “inaccurate and misleading”. (h/t BostonBoomer)
It seems that for some reason he has a hard time understanding the idea of a pension. This shouldn’t be that hard, many people have them.
The basic principle is that you pay money in during your working years and then you get money back after you retiree. Social Security is a pension that is run through the government. Therefore Samuelson wants to call it “welfare.”
It is not clear exactly what his logic is. The federal government runs a flood insurance program. Are the payments made to flood victims under this program “welfare?” How about the people who buy government bonds. Are they getting “welfare” when they get the interest on their bonds? If there is any logic to Mr. Samuelson’s singling out Social Security as a source of welfare, he didn’t waste any space sharing it with readers.
There are a few other points that deserve comment. He claims that the trillions of dollars of surplus built up by the trust fund over the last three decades were an “accident.” Actually, this surplus was predicted by the projections available at the time. If anyone did not expect a large surplus to arise from the tax increases and benefit cuts put in place in 1983 then their judgement and arithmetic skills have to be seriously questioned.
In terms of the program and the deficit, under the law it can only spend money that came from its designated tax or the interest on the bonds held by the trust fund. It has no legal authority to spend one dime beyond this sum. In that sense it cannot contribute to the deficit. Mr. Samuelson apparently wants to use Social Security taxes to pay for defense and other spending.
Social Security coffers will see increased funding as long as people have jobs that pay more. Judging the cash inflows at a time when unemployment is unusually high and sustained is analysis aimed at pushing a political agenda. It’s not a realistic view of the future stream of revenues. The pot will replenish at a rate better than today simply by getting rid of the high unemployment rate and getting people into jobs with incomes that actually improve. Consistently increasing the cap level by the rate of inflation would also provide an additional and reasonable source of funds.
I’ve written more than a few posts explaining the basics of social security. It gets old when you have to repeat the same arguments to the same boneheads–like Samuelson–over and over. I really don’t understand why some news outlets just seem to tolerate deliberate misinformation as ‘opinion’. I certainly hope that some one with a similar sized readership will challenge Samuelson on his facts. He plays fast and loose with them all the time.
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I think one of the major issues we have in this country is that our citizenry is no longer interested in the truth. I think there was a time when someone who purposely lied or misled others would be publicly chastised and then would be relegated to crackpot status and people would never listen to them again.
Unfortunately, those days seem to be long gone as these guys keep spreading their lies and when their lies get eviscerated and they get exposed as frauds no one seems to pay any attention. They just keep on going and going and spreading their misinformation. The question then becomes not what is wrong with them, we already know, but what is wrong with a public that willingly allows themselves to be conned by nitwits who aren’t even pretending to disguise their lies and misinformation.
You have an excellent point. I believe everyone is assumed to be lying, so lying isn’t really the issue ….It use to be the social embarrassment came from not being connected enough to bury the truth or smart enough to keep it getting out . Now even that is not a check….That phone call prank alone would have embarrassed Walker out of office at one time. But they know no shame and they who know the least shame, wins…this is no accident …..But at the time I thought it was too good to be a true ambush rather than set up….these things happen to normalize lying…or so it seems . Alot becomes clearer if you look at politics though the lens of family politics Very often a family has a lie they loyally or non-loyally maintain. So again lying isn’t the issue , it’s how one lies
Rand and Ron Paul should be relegated to crackpot status. Look at them.
Why journalistic poseurs are allowed column space to promote so much wrong information
is beyond me
You are being rhetorical of course because you know why : Samuelson’s paymasters want it so…and therefore it is so!
He says
We don’t call Social Security “welfare” because it’s a pejorative term, and politicians don’t want to offend
That’s exactly why he’s using the term…to paint the recipients in a pejorative way
and he will do so over and over. That 3rd vacation home just doesn’t happen you know. You gotta earn it
Look for a new phase ahead : ” lazy Social Security queens”
All part of this Upper Crust campaign of : We are striping people of their rightful benefits,because it’s unfair to the other peons who we have stripped already .”
They are so good to us!!
I understand the genesis of the “welfare queen” rhetoric back in the 70’s was prejudice and bigotry. What is the genesis of wanting working class people to work until they die or just to die as soon as their productivity wanes? I don’t get the hatred towards elderly people? Do wealthy people think that old working class people should be “retired” ala Logan’s Run?
gregoryp :
March 8, 2011 at 1:28 pm
The answer is : yes
I still can’t believe they’ve normalized the unemployment rate where it is… acting like we should be grateful more of us aren’t on the streets.
And I just don’t understand the libertarian thinking or argument against the welfare protections afforded to a small minority of our citizenry.
Allegedly, they are all pro-business but many of the businesses in my community are only in business because people subsisting in poverty spend their welfare dollars making payments on furniture, on TV’s or their food stamps in the local grocery stores. Take those things away and my entire community would FAIL. Kroger, Brookshire’s,
Several of the local furniture shops, and the big box stores probably would all go bankrupt and the rest of us would have reduced choices and jobs would be reduced. If anything, welfare hasn’t been helping the poor escape poverty as much as it has been to help prop up business.
For the life of me I can’t understand why these libertarian leaning republicans don’t understand that their ideas are bad for everybody. The Scott Walker’s of the world are entirely clueless twits who don’t really understand or care about the ramifications of their belief systems. The problem arises when those clueless twits make policy and enact laws that adversely affect everyone, including themselves. The people of this country are just baffling at times.
I don’t get that at all. They couldn’t even get airtime or print time a few years ago. These people–like Ron Paul–were crack pots and no one even wanted to be seen with them. It’s weird.
I think that the partial answer is MONEY. These guys are promoting ideas that will ultimately benefit the top 2%. Thus, they are given lots of media exposure so that their toxic memes will have time to spread and infect the public with these “beneficial” ideas. Rush Limbaugh did not make money for 10 years, but Rupert Murdoch kept him on the air and cut out the competition, until finally he caught on.
Also, this is the perfect time for anti-government wackos to push their crap on us. First, we’ve had 10 years of horrible government, so people are not big fans of the concept. Second, we have a black man with a Muslim name as President, and a lot of these “Libertarians” are not-so-secret racists. Third, we are experiencing a high misery index, so people are looking for someone to blame. Whomever is gainfully employed and has a good retirement plan is a target for their rage.
That’s the way it seems to me, anyway.
I think a lot of it is motivated by fear that they’re losing their power status. They’re trying to convince us that we were better in the gilded age when White WASPY men were basically it. They’re using the absolute wrong thing to head off the huddled masses. We have social security to stop the social unrest and they’re raising the stakes to get more if it. They must feel safe in their gated communities with their blackwater guards.
Also, this is the perfect time for anti-government wackos to push their crap on us
Indeed. You know how a building’s owner will send in thugs to beat up his legal apt dwellers to get them to move without due process ? …it’s sort of like that…
That’s why we are being beset by the tag team of crazies in the media and the state houses….
Of course you are right, but I don’t think those in business urging this on realize they are on the menu as well and I mean big businesses
People, the gravy train has left the station
If a business still has to get its funds though the consumer, as far as those in charge are concerned, its a loser who has missed the boat.
Dak
I was reading on Calculated Risk that the Atlanta Fed has said that if oil continues to rise that there would be consideration of QE3. Now I’ve supported the Fed on QE2 but QE3 seems like an insane proposal. Can you explain why they would even consider the idea? In particular it seems counterproductive when you are talking about oil, an import.
Well, oil price increases are basically a supply shock. There’s no effective policy proscription for that. If you try to do Q3, it will be inflationary on everything else. I’m assuming the think that the rest of the prices of stuff are enough under control the economy could handle it. We’d get stagflation back … like the end of the 70s. It would be the Carter years again.
I was just over at Financial Armaggedon and stagflation seems to be exactly where we are heading. Productivity gains, as usual, are not being shared with enough of the “regular folk” for them to feel a level of safety in their budgets. Furthermore the rise in oil and food are going to undermine the small gains in confidence(the general feeling I get is spending has started because the private sector workers feel we’ve hit bottom). It doesn’t help that the dolts in Congress all of a sudden decided to find fiscal sanity like it is God or something at a time where demand is weak in the private sector despite record profits because everyone fears that a second dip is coming. With state cuts looming, I’m feeling increasingly anxious again.
I feel like I’m watching a train wreck.
Yes. I keep saying I think they are deliberately tanking the economy. It’s like they’ve naked short sold the entire country.
These memes are being deliberatly repeated because Samuelson and his ilk have so little respect for Americans that there’s reason to believe that repeating the same lie again and again will become truth in the mind of the reader.
I listened to Haley Barbour recently say there were people driving to pharmacy windows in BMW’s taking advantage of Medicaid. It’s the same weary song: the problem with the country is all the moochers, a Welfare Queen redux.
It was a lie back in the day and it’s a lie now. But the GOP and their mouthpieces keep singing the same old tune, hoping it will stick. God forbid we should point a finger at the top 2% in this country. Or the corporations. Or the banks. Then they squeal like little pigs!
Great commentary on this post y’all…
I believe the craziness is aloud to get loud because of the vacuum that’s been created by corruption. Corruption of ideals and people who could have been strong voices but chose the path of greed instead. When you have a Bill or Hillary Clinton calmly laying out the facts and the proper direction that can help fix the problem, then the crazies tend to shut the F up. We need leaders or people will believe these nutbags.
“Why Social Security is welfare”
*eyes glazing over*
LOL! I love the approach Mark Thoma took (see Dak’s post for link)…