Sunday, April 7, 2013

Bitter disappointment

I was an enthusiastic supporter of Barack Obama when he ran in 2008, and I am dead-on certain that electing Mitt Romney in 2012 would have produced an economic disaster for the nation in short order.

While I have not supported Obama on every point--I think he's done a poor job of getting us out of Afghanistan; his use of drone strikes against Americans is legally and morally questionable; his failure to close Guantanamo is inexplicable; and his negotiating style could be fairly characterized as spineless--I have remained hopeful that he was trying hard to negotiate difficult political waters and accomplish an agenda with a lot of genuinely crazy people in positions of power and arrayed against him personally.

But today I stand bitterly disappointed.

Social Security is one of the most successful government programs in history.  Not just American history.  History period.  Even though most people don't understand what it is, they recognize its importance for our national economy as well as for millions of individuals who would be destitute in their old age without it.

Social Security is an insurance policy.  The thing that Social Security insures against is living.  Ordinarily, we think of living as a good thing.  I know I do.  But there is a cost of living--you need food, shelter, and clothing for a basic life, and some other things for a happy life, and all of those things cost money.  We pay for these things through work.  It is not just possible but also likely that you will outlive your ability to do useful work to support yourself.

Before Social Security, we paid for life after work in a combination of ways.  One was through savings.  Another was by relying on children and grandchildren to support you in old age. You might rely on charity.  Or, in some places, there were such things as "poor houses," where elderly people were supported, usually by local governments.

If you got sick and only expensive medical care would save you, you usually died.

It doesn't take much to recognize that living beyond your ability to work can be a tough thing, especially if you have no children, or your children cannot afford to care for you, and you have little or no savings.

Social Security was devised to insure against that problem.  By paying a small portion of your lifetime wages into a pool, you are guaranteed to have a minimum foundational income for life--an income that will never run out.  Everyone pays in, and everyone draws out according to complicated formulas that take into account what you paid in, how old you are, and other factors.

Social Security is not a "retirement plan," and if all you have to cover your expenses in old age is Social Security, you're going to be living in poverty.  But it is a minimum foundation, below which we will not allow elderly people to fall.

For nearly 80 years, the Democrats have been protecting Social Security and the Republicans have been complaining about it.  Having managed to destroy the effectiveness of most labor unions, to disassemble the retirement pension system in favor of the 401(k) plan, and to starve the general fisc of the revenues necessary to pay for government, the Republicans have often looked to Social Security as a giant pot of money that could easily be siphoned off for investment on Wall Street, where it could be applied to the One True Purpose of today's GOP:  Getting more money into the hands of the people who have the most already.

Social Security does not contribute to the deficit or the national debt; it is funded entirely through its own taxation, which would be adequate to fund full benefits for the foreseeable future also long as we have reasonable economic growth.

But Social Security does contribute to the general fund.  Right now, Social Security takes in more money than it spends, and it will do so for at least another 20 years, when all of the Baby Boomers will be drawing benefits.  That surplus is invested in government bonds.  What that means is that the government borrows the excess from Social Security instead of borrowing it from other investors.  Those bonds will eventually have to be paid off--but that would be true regardless of whom we borrowed the money from.

Now, back to my disappointment.  Barack Obama has proposed a budget that is based in part on a change to the way in which Social Security benefits are calculated.  As it stands now, SS benefits are adjusted based on the Consumer Price Index, which measures the whole market for goods, but which does not take into account the way in which price changes affect behavior.  As a result, CPI tends to overestimate price inflation for the general public.  Because seniors--especially those who rely mostly on SS income--spend a disproportionate amount of their income on food, shelter, and health care, which are involuntary purchases, and don't usually buy things like cars, large appliances, and electronics, which aren't, the current method of calculation more effectively measures the impact of inflation of that income.  (In fact, if anything, for seniors CPI tends to underestimate inflation because prices tend to increase more rapidly for basic items than for luxuries, especially in hard economic times.)

Obama is proposing to switch to a method called "chained CPI," which does take into account how price changes affect behavior.  The practical impact of such a change will be to reduce benefits by slowing cost-of-living adjustments to SS benefits by as much as 0.6% per year.  That doesn't seem like much, but over the next 30 years, if benefits are cut by 0.6% per year, SS beneficiaries will lose 20% of the ground they would have gained if no change were made.

For the poorest SS beneficiaries, that's a brutal cut.  And it's one that the Republicans have advocated for a long time, partially to make more borrowed money available to the government, but mostly because it undermines the effectiveness of the Social Security system and with it the confidence that the American people have in the program.

Which forces me to ask the question:  If a Democrat is willing to do that, what's the point of electing Democrats?

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