Zombie Curmudgeon ---- Alan Simpson lets the catfood out of the bag

Zombie Curmudgeon

by digby

Here are two important pieces today about the Alan Simpson comments from last week on social security. The first is from Krugman, who says that commission, a bad idea anyway, has been killed by zombie lies. He explains the facts:
Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.

Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.

OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.

And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.

So what does it mean that the co-chair of the commission is resurrecting this zombie lie? It means that at even the most basic level of discussion, either (a) he isn’t willing to deal in good faith or (b) the zombies have eaten his brain. And in either case, there’s no point going on with this farce.

I'm of the opinion that zombies ate his brain some time ago and that he has never been willing to deal in good faith. He's a misanthropic coot put on the commission to persuade his fellow seniors that they have nothing to fear from the reforms and reassure them that this is aimed at the ungrateful kids who were given everything in life and now can't even find the time to call.

The other article surprisingly comes from Pete Peterson's house organ, which is concerned that Simpson's intemperate remarks let the cat out of the bag and will make it harder to dupe the liberals into going along with their own destruction. But it does very usefully unpack some of the lies and misapprehensions:
In the interview, Simpson maintained Social Security is already insolvent because it is paying out more than it is getting in tax revenue. It is not clear whether that will be true for the current fiscal year or the next few years, but it will be happening not too far in the future.

Then Lawson asked, "But what about the $180 billion in surplus that [the trust fund] brings in every year [in interest payments on the Treasury securities it holds]?"

"There is no surplus in there. It’s a bunch of IOUs," Simpson said. "Listen. It’s two-and-a-half trillion bucks in IOUs which have been used to build the interstate highway system and all of the things people have enjoyed since it has been set up."

Since Social Security finances were overhauled in 1983, tax revenues have far exceeded costs. That surplus went into the trust fund, was invested in Treasuries and has been earning interest for almost 30 years. Those annual surpluses meant that the government did not have to borrow as much from the public to finance whatever it spend money on. (However, interstate highways have not been financed even indirectly by Social Security surpluses, but rather by motor fuel taxes.)

Whenever tax revenues don't cover Social Security costs, Simpson said, " What do they do? They go to that trust fund and say, ‘We need the IOUs out of it.’ And they say, ‘You can have them, but you have to pay for them.’ So you’re taking a double hit on your own government. Makes no sense."

Indeed, Simpson makes no sense. What is the "double hit"? The government didn't have to borrow in the past, or pay interest on what it didn't borrow. Now it has to borrow from the public and pay the interest. There's no "double hit" involved.

Finally, Lawson said that his understanding was that part of the justification of the 1983 changes was "prefunding the retirement of the baby boom by building up that huge surplus."

Simpson responded, "They never knew there was a baby boom in '83."

Well, Alan Greenspan, who headed the bipartisan commission that proposed the 1983 changes, would tell Simpson something different. The big demographic shift that began right after World War II was precisely why Social Security was expected to face a deficit as the number of workers relative to beneficiaries began to decline when the Baby Boomers began to retire. And that was why taxes were raised and benefits were cut then--to build up a trust fund surplus so benefits could be paid.

That last is why those of us who are of that age group are feeling burned at the idea that after paying in extra for most of our working lives to forestall cuts when we hit retirement, we're now being told that we're a bunch of scofflaws who have to live on catfood in our old age for the good of the children. It's not exactly a persuasive case for planning ahead, being responsible and paying your way. We were, after all, paying for our own parents and grandparents while creating a surplus for ourselves so our own kids wouldn't be overburdened. It's not a great argument for trusting the government. But then, that's the whole point is it not?

Update: Krugman's NYT column on the deficit is also a must read. Why he should have to argue something as elementary as the idea that high unemployment is exploding the deficit and failing to deal with that through stimulus rather than magical thinking will only make matters worse is beyond me. But he does. Once again, we're down the rabbit hole.