He screws with SS and he'll be a one term president for sure.

C

Social Security can pay it's benefits until whenever CBO the Trustees say it can. Fine.

So who is going to provide the cash when outlays exceed tax revenue? The country still needs to come up with the cash to pay benefits. Cashing in the bonds is not a drain on the Social Security program, but that is a misleading way of framing the problem. It is a drain on the Federal budget. Which is to say it is a claim on the combined resources of teh economy that are taxed to provide for all federal spending. To those who don't get the subtleties, we pay off the Trust Fund bonds with payroll taxes and when they are used up we tap general revenues, or I suppose more borrowing. Lots of people who want Social Security to stay strong forever, see that as a legitimate problem to think about.

So, sure, Social Security is fine, but only because you are playing a word game.

The only "problem" from one perspective is our willingness to pay for what we have already promised ourselves. If we are unwilling to pay then you have hard decision. But you are pretending we don't have to pay.

Until further information is forthcoming, I will presume that President Obama is setting this group up for the purpose of finding the least harmful way of paying back all the Social Security "bonds" that GWB referred to as "worthless paper" (he had an MBA?).
Any attempt to default on those bonds will bring into question the Federal government's ability/will to repay all other bonds, so there really isn't any question of that happening. The question will be: what, in future budgets, will need to be trimmed to allow for the payback? Or, if the only way out is to raise taxes, which taxes and on what/who?

Dean: You rule. Quickly becoming a big fan, and psyched to see you quoted by Bob Herbert and the like more & more these days... Keep raisin' hell!

Anyway, is there a good list somewhere of:

A) Economists that recognized the $8T housing Bubble,

versus

B) Bubbleheaded Economists?

I'd love to get a sense of which economists are trustworthy...

Maybe Obama better take a closer look at demographics. Those of us within shouting distance of Social Security have just taken a major hit in our 401K's. If he thinks he's coming after my Social Security now, me and the rest of the boomers are going to get out our 60's protesting duds and take to the streets. Talk to me about reforming Social Security when you've got the Dow at 15,000.

It's hard to take Baker seriously, and his prose doesn't read as funny.

He denies any value whatsoever to examining SS reform now, even as he admits that a large chunk of the population might need more government aid than they would have planned for. Not only is long term planning advisable, the short term situation screams out for a discussion and re-evaluation.

Why is Baker afraid of this debate? I don't ordinarily ascribe fear to posters here but I cannot see anything like hope or reason in his post. Obama said a President must be able to multitask, yet now you cry out to decry that, Mr. Baker. Obama has called for all voices to be heard, and now you argue against that, Mr. Baker.

As for "...millions of baby boomers ... now approaching retirement with little or no equity in their homes" that's ludicrous except for those who chose discretionary spending based on irrational borrowing over living within their means and building a nest egg. Must one remind Baker of the story of the ant and the grasshopper??

Baby boomers have been working for 30-40 years. Those who bought a house to raise a family in the 60s and 70s have a huge amount of equity built up, assuming they bought reasonably back then and didn't fritter away the equity. So at least they have a house which should be paid off. Living in a house doesn't require that there be a nice market price for a house, just as getting dividends from a stock or seeing the company grow from reinvested profits does not depend on the market capitalization of the stock.

People who bought their first house in the past 5 years are neutral or in trouble. But they are presumably far from retirement. People who speculated by buying additional real estate in the past 5 years are going to have to take their losses or hold on for a long time and hope rents don't fall along with housing prices. People who bought 10 years ago don't have as much equity as they would have hoped for, but they do have a house and they are not underwater unless, again, they chose to live like grasshoppers enjoying the moment at the cost of the long run.

Such cheap notions from Baker, what is the world coming to??

Is it possible Obama's putting those guys in a task force just to keep them busy while the adults focus on something worthwhile? I mean, there's no way Obama's actually going to try and mess up SS, so maybe he's just penning off some of the worse economists so he can ignore them?

Social Security is fully funded??! On what planet?

Here on planet earth, the U.S. Social Security System is a Ponzi scheme (!) albeit a gradual one and operated transparently by the federal government not deceitfully by Bernie Madoff. Human population growth will not continue forever (see exponential growth, 8th grade Algebra, Jared Diamond's "Collapse") and when it stops growing, or even slows significantly, Social Security will start running short of funds. Unlike some of his supporters, Obama understands that America's something for nothing mentality is finally hitting the skids. It is not the most urgent priority this month, but Obama's first term is a very good time to start working seriously to fix Social Security (i.e. bring taxes and benefits into line with each other) instead of playing stupid games with it.

The investor class

SocSec doesn't need "reform" of any kind. But the stock markets need the inflow of trillions in payroll taxes to keep the prices of stocks up. Politically, we need to keep stock prices up because of the incredibly irresponsible effort to make everyone in America a member of the investor class. Millions of us are stuck in the markets already because of the tax hit, or loss of matching funds, or any of the other hooks keeping folks in securities who have no earthly business being there. As these markets are threatened in the coming months, along with all of the other pyramids we have been fostering these past 25 years, the pressure will rise to circle the wagons around the one such pyramid in which a majority of the electorate has become entangled. Wht better way to insure that the stock markets keep their prices up than a steady stream of forced "investment" by every Amrerican worker.

Throw good money after bad. We wouldn't have one of those Poor Richard's Almanac sayings against the practice were it not a common and expected stupid reaction to real-world consequences of stupidity. Nothing about a crisis magically transmutes stupid into wisdom, and wise people would not have come up with the 401k and the rest of that alphabet soup

Dean Baker has been playing this Social Security game of his for a very long time. Please stop trying to fear monger! I know he is a very smart man, but he is a Krugman economist in that everything must fit within his particular world view or it must be destroyed. I enjoy both, but they are ideologues. Sorry, in the real world, Americans would like to see something done to ensure the long term stability of our entitlement programs. This would be a huge political and substantive boon for the Obama administration and would likely be a major bipartisan victory. It is also something he campaigned on and has spoken about for a long time. Finally, if you are going to make the claim about economists who missed the housing bubble, name names.

"Word has it . . . " "According to inside gossip . . ."

Enough with the unsubstantiated conjecture!

What is the Peter G. Peterson Foundation and how much influence do they have? Why isn’t the Pres being more open?

Here is an AP story excerpt:

White House Chief of Staff Rahm Emanuel said late Thursday that the fiscal summit will be Feb. 23. The leaders of groups heavily involved with Medicare and Social Security say they have heard little or nothing about the event, so they don't know what to expect. But some are urging Obama to be bold and ambitious, even as Republicans pound him for pushing the $789 billion economic stimulus through Congress.

The Peter G. Peterson Foundation is running ads calling for a bipartisan commission to make far-reaching recommendations for Social Security, Medicare, spending and taxes that would be subject to limited amendments in Congress.

"The normal legislative process is clearly dysfunctional" in coping with such big issues, David M. Walker, the foundation's president and former comptroller general of the United States, said in an interview. The public may be reeling from the size of the stimulus and bailout packages, he said. But the economic crisis is "a teachable moment" showing that budgets, deficits, entitlements and taxes are interwoven.

http://www.google.com/hostednews/ap/article/ALeqM5g6EXXh6gQ1bYkdWgnTtpUD7Wi-KgD96AC1MG9

Bob Spencer

Look, from the point of view of a 20 something (and believe me 20 somethings across the political spectrum that I know in Minnesota and Iowa generally agree) we have almost no faith in social security in 2040. I was as happy as Josh to push "there is no crisis" because it was the first step in the long road back from the annihilation of 2004, but there will eventually be rate cuts in SS unless the system is changed. There will probably be rate cuts anyway as well.

As for raising the retirement age, presumably in the future we will ensure quality of life to a later age i.e. most people will remain vigorous into their 70s or 80s as opposed to 60s and then tapering off. This means there will be little reason to not want to shift it back. I am fine with moving the retirement age back a decade in 30 years.

Now is the perfect time to look at reforming social security. Recent events mean that it has never been more obvious that social security is extremely important to maintain in its current form, and that mass diversion of moneys to financial managers to let them invest would be extremely foolhardy.

Anything more than minor, insignificant reforms will be rejected by a fearful public that has lost whatever faith it had in the investment community's ability to guide their retirement. In fact, their declining 401Ks will increase their support of a government based solution - possibly even increased benefits.

Since there is no chance that any significant reduction in benefits will be viable, these foolish economists will be helpfully distracted from working on some other topic where there might be a risk that they could do further damage.

Interesting post! Interesting comments.

As a public school teacher and as an observer of government and how it works (aren't we all?), I must quibble with something you write, and I haven't noticed anyone else commenting on it. You say, "It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble. ....However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm."

I just had to laugh at such a statement as it sounds like someone who is very young and inexperienced. I have witnessed, especially in education but I think in all areas of government, that this is the sad reality of how government works. A government institution not working? Some department fail? Add more money!! That is always the solution for government. Not just for government employees, but for government institutions. Government seems to reward failure and incompetence.

And if you look at Obama's choices of who he has selected to help him, in all areas he has chosen the very typical beltway status quo group. And his economic team are those very people who were in the middle of all the mess, but STILL didn't see it coming, economists and all! I'm of course including Guitner and all the rest.

Change? Sadly, not yet....

A couple of thoughts on Obama and SS.

It could be that this SS panel is a pre-cursor to Universal Healthcare which it seems Obama has not abandoned yet.

As many of you mentioned above, part of the problem with SS is people are living longer and longer. We also know that if everyone has access to healthcare that the proportion of the population that will live longer will rise due to this access to healthcare.

Part of the tough decisions about health care will be rationing. Lots of people are for the access as am I, but to a certain degree there will have to be rationing and/or price controls if everyone will have access.

A wild arsed guess is that the SS panel will lay out the facts about how long people will live with and without universal healthcare. So we come to a place where we say that if we are all going to get healthcare will will have to raise the retirement age to X. Oh and lo and behold this also helps SS meet its obligations.

Or it could be that Obama wants to look centrist like he is doing something about entitlements, even if the conclusion is going to be that we just need to raise the payroll tax on higher earners. If you get the smart people to tell you it is the best way then maybe the country will go along and not make him a one termer?

The idea of encouraging Americans to put two percent of their social security into the stock market was nothing but a scam to get risk free, interest free money for corporations which the corporations otherwise could not get from lending institutions.

And should we not suspect that if this had come about would we not not have the financial crisis we have today caused by Wall Street? It would be interesting for some economist to crunch the numbers to see just how much that would have been.

But then, the crisis would have just been postponed, wouldn't it?

You don't have to be a blind conservative not to see it, just an ignorant one to deny it.

There is no way President Obama is going to take away SS benefits. I am confident this is to study and advise on longevity issues with the program. To jump to any other conclusions is premature and short-sighted.

Social Security is an interesting issue because you quickly learn where people get their information (and how stupid they are...)

Let's see....Social Security has been running a surplus for over 25 years. In contrast, Amtrak and the Postal Service are losing money.

If either of those institutions were doing as well as Social Security, then people would be amazed!

Pretty much every effort to "reform" Social Security is driven by the same class of people (rich bankers, etc.) who came up with the Greenspan "solution" 25 or so years ago. The "solution" that Greenspan came up with was to raise payroll taxes significantly so a surplus would be carried for several decades, and then the budget deficit could be hidden by the SS surplus.

Now any effort to default on the SS bonds, or to reduce the benefits of Social Security will mean that in essence, the payroll tax has been used for the past 25 years to pay for non-SS programs.

Which is another way of saying that the rich class would have successfully screwed over the working class. (More than usual.)

I do not fathom why Obama wants to "investigate" this problem. It certainly is not something he campaigned on. If he tries to make a serious effort to roll back Social Security benefits, he will add another arrow to the quiver of the cynics who claim that there is no difference between Republicans and Democrats.

I, for one, am tired of voting for Democrats with the expectation that they will govern differently, only to see them toady to the same class of corporate interests that rules the Republican party.

And no, there is very little point served in debating with people like Economides who apparently don't know the first thing about the history of Social Security reform. Indeed, I'm still waiting for somebody to explain to me why it's legitimate to borrow $1 trillion to pay for the war in Iraq _and_ to borrow another $1 trillion to bail out the failed banks of Wall Street, and yet every discussion of the future of Social Security is predicated on the notion that Social Security absolutely must not be allowed to add to the national debt.

There are areas where I've been tolerant of Obama's concessions to "centrism", but if he goes after Social Security, he's going to find that he has a lot of enemies, and his sky-high approval rating will quickly go in the toilet. The base of the Democratic party is tired of bs like that.

All I know is that if Obama's stab at SS tinkering is a bipartisan "victory" in the same sense that the stimulus package was, we're screwed.

Somewhere recently I read that a 1.04% increase in taxes now, with no increase in the cap, would make SS fully funded out to infinity. I think this means if I am paying $150 in SS payroll taxes per week, then increasing that to 151.5 will do the trick. Can someone provide a link?

Even suppose it's an increase of 1.04% on my income, suppose that I'm taxed at 15%. Does it really kill me to increase it to 16%, say 150 to 165?

I'd like to know what the corresponding increase in the cap would be to fund SS out to infinity.

If this pans out then I think it is a decent way to show that the whole "crisis" vocabulary about SS is total garbage, and I don't see why Obama would waste time appointing people to "solve the problem."

Medicare is a big problem as I understand it. Presumably it will be addressed by general health care reform.

Dean,

Can you please say where you got the numbers on the net worth of baby boomers? I'd like to look at that information and for other age groups as well. Very Interesting. Good article.
Thanks.

Test

I have heard the term 'housing bubble' so much it hurts.

Why don't we name it the 'housing swindle' as it should more properly be called? The very apparent intent of what happened was focused upon inflating stock values and profits throughout the financial sector. Economists who may or may not have voiced a concern had probably nothing to do with their profession and everything to do with knowing which side their bread was buttered on. After all, they all get paid by somebody. That paycheck is dependent upon the words coming out of their mouths. Reality says you can't name a circumstance where that isn't true.

"It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble."

It's worse than that. The majority of the members of the Obama economic team are, alas, students/disciples of Milton Friedman's "free market/free trade" philosophy. And if you've ever read Naomi Klein's "The Shock Doctrine: The Rise of Disaster Capitalism," you know that Friedman economists' central guiding tenet is that government can't and shouldn't be trusted to run or own ANYTHING; therefore, privatization should be relentlessly pushed for EVERYTHING at every turn -- preferably in the midst of a crisis or other momentous events (e.g., the current fiscal meltdown) that facilitate its introduction while people are too traumatized and focused on surviving the chaotic events to either notice or object. If Obama does in fact go forward with such a Social Security "reform" effort and his team settles on privatization of even PART of the "reform," he will prove to be not just a whole lot more "centrist" and mainstream than many of his supporters thought, but maybe even a closet Friedmanite (he did, after all, spend time at the University of Chicago). And he will find himself with a whole lot of new and determined enemies.

1. Time to flood the White House web site.

2. If there will be difficulty repaying SS treasury bonds, there will be difficulty repaying all of them. If something needs to be cut (it doesn't), then let's start with treasuries owned by wealthy individuals beginning with Peter G. Peterson.