Joenertia II

Senator Joe Lieberman is at it again:

The New York Times > To the Editor:

Paul Krugman ('The $600 Billion Man,' column, March 15) claims that when I say that every year we do nothing about Social Security's coming insolvency we add $600 billion in unfunded liabilities, I am 'helping to spread a lie.'

Nonsense. Experts we've consulted at the Social Security Administration have confirmed this estimate.

Everyone knows that Social Security is on a path to insolvency. Every year that we wait to make the program solvent will cost us more.

I know that Mr. Krugman opposes the president's carved-out private savings accounts. So do I. But if we stop there, the victims will be tens of millions of seniors who need Social Security to escape poverty.

As a columnist, Mr. Krugman has the right to just say no. As a lawmaker, I have a responsibility to work with other members of Congress in both parties and with the administration to protect this great program.

And as a Democrat, I feel a special responsibility to preserve one of my party's most effective initiatives ever.

Joe Lieberman
U.S. Senator from Connecticut
Washington, March 16, 2005

I don't doubt that the SSA actuaries "confirmed this estimate" that "every year we do nothing about Social Security's coming insolvency we add $600 billion in unfunded liabilities" to Lieberman's staff. But if Lieberman's staff had continued the conversation a little bit, they might have learned some other things.

For example:

1. Of the $600 billion, $250 billion is a simple inflation adjustment--the difference between valuing an obligation in 2004-value dollars and valuing the same obligation in 2005-value dollars.
2. If we are going to close the Social Security funding gap by cutting benefits in the future, moving the valuation date forward in time raises not just the present value of the unfunded liability but also the present value of benefit cuts in, say, 2080. The same benefit cuts in 2080 and beyond are required to close the gap whether the gap is measured as $10.4 trillion 2004 dollars or as $11.0 trillion 2005 dollars.
3. If we are going to close the Social Security funding gap by raising taxes, then what we should compare the present value of the funding gap to is the present value of the tax base. And the present value of the tax base also grows larger as we move the valuation date forward in time. The present value of GDP in 2004 was $867 trillion. The present value of GDP in 2005 will (I think) be higher by $58 trillion--$21 trillion because of the inflation effect on nominal values, $26 trillion because of moving the valuation date forward a year, and an additional $11 trillion because productivity growth in 2004 was faster than the SSA had anticipated and that has implications for the entire forecast path of GDP.

If Lieberman had said, "The SSA projects that each year we delay the present value of the infinite-horizon unfunded Social Security obligation goes up by $600 billion. It also projects that the present value of all of America's future wealth--all future GDP--goes up by $58 trillion," then Paul Krugman would not be complaining. If he had said, "In 2004 the infinite-horizon unfunded Social Security obligation was 1.20% of the present value of GDP. It looks as though in 2005 it will be 1.19% of the present value of GDP," then Paul Krugman would not be complaining.

But Lieberman strips the $600 billion number of the surrounding context needed for it to make sense. That is why he is guilty of spreading a lie. He pretends that $600 billion is the extra economic cost of delaying the Social Security fix for a year, and it is not. What it is is a combination of an inflation adjustment and a valuation-year effect.

The fact that he is so easily snookered into repeating deceptive Republican talking points makes me wish that he would curb his feeling of "responsibility to work with other members of Congress in both parties and with the administration": he's going to get taken to the cleaners.

---

UPDATE: Let's contrast the phony Republican $600 billion calculation with a different, real one: suppose we wait an extra year before we start fixing the Bush deficits. What are the implications? Well, if we fix the deficit--stabilize the debt-to-GDP ratio--just one year later than we otherwise would, we will have run one extra year of deficits and so boosted the long-run debt-to-GDP ratio by three percentage points. Elmendorf and Mankiw's rule-of-thumb is that $1 of debt reduces annual GDP by $0.07. That means an extra three percentage points of debt-to-GDP reduces GDP by $25 billion: puts us on a new, lower growth path where in each year GDP is $25 billion lower than it would otherwise have been. Capitalize this at a yield of 3.33%, and find that delaying action on the Bush deficit for a year is like imposing a one-time tax of $750 billion on America (offset by the fact that people benefit from the U.S. government's spending and not-taxing $360 billion it doesn't have this year: call it a net cost of $390 billion). This is a *real* economic cost: a reduction in people's wealth and standards of living. It's not the result of an inflation adjustment. It's not the result of choosing a different base-date for making your financial calculations.

Comments

[John Emerson]

Lieberman has a personal operation going. The Reopublicans aren't fooling him; he's knwoingly playing their game.

Gore's selection of Lieberman as running mate was the stupidest thing that he ever did. I really think that the Democrats are doomed. Kerry was lame too.

[Randolph Fritz]

"he's going to get taken to the cleaners."

Has been taken to the cleaners, I think. Unless, that is, he has some constituency so loyal it will back him no matter what.

[howard]

well, he does still appear to be popular in CT; he may or may not have a personal operation going; but he is definitely a self-righteous idiot.

[pgl]

Long (and very good version) of what I said when Luskin said what Joe said. The notion that "paying off" a future plan to spend more reduces costs strikes me as the dumbest thing in financial economics since Joe insisted issuing employee stock options was not an expense. Can we ask Joe to switch parties?

[Dubblblind]

You notice Lieberman mentions his responsibility to Congress and the administration but not to his consituency. For them he is Joentropy.

[alan]

Can someone point to a case -- any case -- where a Democrat attempting to work with Republicans since 1998 ("compromise", "reach-accross-the-aisle", whatever) has paid off for the Democrat in any way whatsoever?

[alan]

> For them he is Joentropy.

To me he looks more like a prison bitch attempting to please the top dogs on the cell block with amusing antics, but after they are done laughing at him they have their way with him anyway.

[Unstable Isotope]

My husband calls him "Joeron."

I find it really sad that Brad has to dedicate a whole post to refuting Joe Lieberman. I thought he was supposed to be one of the good guys?

[anne]

Joe Lieberman has always been especially responsive to large business interests. Whether working to limit options expensing by corporations, or supporting the passing of the bill limiting bankruptcy, or wishing for private accounts that investment companies might administer, here is a Senator who is primarily responsive to large business interests.

[Tom Marney]

So, Brad, you've sent this off to the NYTimes editors, right?

[Avedon]

Joe Lieberman's principal constituencies are the insurance industry and the Republican Party. That's the only way he could ever have beaten Lowell Weicker, the Republican who had his seat and who was far more liberal than Lieberman has ever been. The GOP hated Weicker and found the most expedient way to get rid of him.

Democrats need to field a good solid Democrat to get rid of him. It's doable.

[Pikit]

Ah Joe:

Chimpy: No WMDS here
Lieberman: Hee hee hee hee hee

funniest joke he ever heard.

[ecoast]

So, Brad, you've sent this off to the NYTimes editors, right?
by: Tom Marney

That's the problem with Brad. He comes up with all these great ideas here, but doesn't take his case all the way to the court. Last week, many readers, including me, encouraged him to write to Wash Post to correct something they published. Nothing happened, or at least nothing I could read in the paper.

[RonK, Seattle]

"In 2004 the infinite-horizon unfunded Social Security obligation was 1.20% of the present value of GDP. It looks as though in 2005 it will be 1.19% of the present value of GDP".

If Krugman had said this (instead of invoking the L-word), he would not have put Lieberman in the advantageous position of being called a liar and rebutting the accusation by pointing to a direct literal confirmation of his assertion. At that point, it's a little late to direct any presuadable's attention to the proper contextual comparison.

Unforced error, Krugman, and point, Lieberman.

[jr]

Joe was Zell before Zell was Zell

[cgs]

A Dem challenger would have to get 20%+ of the vote at the summer convention next year to qualify for the primary ballot. That might be more difficult than you'd think, given that delegates to these conventions are often political hacks and officeholders, and that the CT Dem establishment, Dodd et al., will be backing Lieberman. Even if a challenger does get on the ballot, they'd face an uphill climb. Lieberman had a 72% approval rating from CT Democrats in February.

It brings me back to the presidential primaries last year. All the ink and attention and blogging and analysis that went into the race in 2003 meant nothing. Kerry won Iowa, the press hung the "winner" label on him, and most of the primary electorate followed along like good little sheep. Most people pay only cursory attention to politics, and I imagine most CT Democrats admire Lieberman because the press keeps telling them how wonderful he is.

[The Fool]

Joe Uberweasel is the sorriest ass little putz boy in all of American politics. He put the "L" in loser.

[BartCopFan]

John Emerson wrote: Gore's selection of Lieberman as running mate was the stupidest thing that he ever did. I really think that the Democrats are doomed. Kerry was lame too.

John, I agree that Lieberman's a weak element. But what Gore was trying to do with Joe is misunderstood. He wasn't seeking to make history with a Jewish VP, he was seeking some balance to his liberalism. Gore was among the smartest and most liberal people to ever run for President, and that he won would have been unthinkable to anyone who remembers the 1980s. Kerry, too, was extremely bright and less restrained in his liberalism. Both men I think see Clinton as an enormously successful moderate, and tried to look like him while running. Both were targeted by the right for not being who they really were - because GW really is a folksy cowboy who thanks God for his great luck. How this bullshit was sold to the American people is the story of the century. The media stuff - Gannon, Rather, etc., - is only the tip of the iceberg.

That said, Joe needs to be held accountable for being a Republican whose deep, and sincere moral faith keeps him on our side of the aisle. He needs to answer Brad's charges.

[Tom Marney]

RonK,

You're right.

Now, what are the chances that Leiberman honestly doesn't understand his mistake? He wins because the facts are too complicated. Plus, in Connecticut I'd guess that of the few people who understand such things, most are the same people who stand to make a lot of money from administering Bush's private accounts and/or from the bidding up of stock prices by yet another tidal wave of surplus capital.

The Fool,

Off topic, but if you make an L for "loser" with your right hand, from your side it makes a dandy little map of Texas. God is definitely trying to tell us something...

[Rand]

SpaceGhost

This was a terrible comment. Shame.

[Mark]

What exactly was the point here? First that Social Security is not in trouble, but that Federal Budget as a whole is a disaster? Someone remind me again o f just exactly what the Federal Budget is composed of? Did I here any one mentioning entitlements around here?

[howard]

Mark, are you really not able to tell what's being discussed here? or are you just looking to shoot off a right-wing point?

Joe Lieberman has joined with george bush in making a completely inaccurate statement about the "costs" of not doing something about social security this year. That's the proximate basis of the discussion

And yes, there is a huge general fund crisis at hand right now, rooted in the essential incoherence of modern republican "borrow and spend" strategies. Within that general fund crisis, there is a problem of one entitlement program in particular: Medicare. This problem was made enormously worse by...george bush and his prescription drug benefit, which all by itself causes 2x the 75-year problem that social security may cause.

Lumping that very real and very difficult to solve problem together wiith a potentially real and easy to solve problem of social security under the heading of "entitlements" is another inaccurate argument, this time by you (and david brooks, and dozens of other ill-informed talking heads and pundits).

Meanwhile, the huge near-term risk with the general fund is that, as long rates march upward thanks to a "reallocation" of reserve currencies by foreign central banks removing some of the marginal purchasing of 10-year paper, the annual costs of financing the national debt are going to be quite nauseating very soon, which has nothing to do with entitlements at all and everything to do with what i already mentioned: the incoherence of the modern republican philosphy (if we can call it that) of governance.

Does that help you understand what we are talking about?

[qwayhwqy]

So, what's the present value of the long-term damage done to California's economy by the Enron electric power scam?

Just curious.

[RonK, Seattle]

Tom -- The facts ARE too complicated. For most observers, this will come down to a game of "Who Do You Trust?" ... and our reputability is a precious resource.

[Movie Guy]

Put the Social Security Trust Fund Out Of Reach

I have problems with any discussion that focuses attention on increasing the surpluses presently paid into the existing Social Security program.

What is the benefit of that exercise? It's a black hole game.

It's clear that the Congressional leadership is scoffing at supposed value of the trust fund. Why pour any more tax monies from individuals into a fund that may never be honored in full? Why, indeed.

Where is the discussion that focuses on separating the trust fund and perhaps the Social Security Administration from the general government? Restructure it as a quasi-government agency.

At the present time, the loaning of funds from the Social Security Administration to the general fund of the U.S. government is very similar to what is happening with many corporate defined benefit pensions. The corporations borrow money based on the value of the underfunded DB pension plans.

I have recommended to a few employee groups that their interests would be better served if separate corporations with separate boards were set up to manage their defined benefit plans. Such DB plan corporations could continue to loan monies to the employer corporations (as a matter of partial appeasement). At the same time, the DB plan corporations would qualify as creditors of the other corporation, and would have redemption rights under bankruptcy laws. Existing in-house DB plans and participants have no such legal rights under U.S. bankruptcy laws.

Similarly, taxpayer participant ownership in the surpluses of the Social Security Trust Fund really doesn't exist. The government's ready ability to cut monthly benefits, further extend age eligibility, or raise payroll taxes nullifies that argument.

There needs to be a better answer than to support the notion of growing future surpluses of the existing Social Security Trust Fund.

The absence of this discussion indicates that we're not courageous or smart enough to seek meaningful alternatives to protect the existing surpluses.

Discussions focusing on any aspect of growing the surpluses simply overlook the statements of members of Congress who do not respect the obligations of the trust fund and will do whatever is necessary to severely limit redemption of interest and principal on the special issue Treasury bonds held by the Social Security Administration.

Bush and the Congressional leadership opened the door. Use it. Let's put the Social Security Administration and trust fund out of reach of the Department of Treasury. If the Secretary of Treasury is so brazen as to state publicly in Congressional testimony that the special issue Treasury bonds issued to the SSA are mere IOUs, let him support the needs of the general fund without them.

If there was every a time to launch a movement to protect the trust fund, this is it.

[john c. halasz]

Matt F:

Nice deadpan, but the number cited was over an "infinite horizon".

Movie Guy:

Cool shades. Good idea.

[LORETTA STRATTON]

VOTERS REMEMBER THE *JOE'S* ON ELECTION DAY::THEY WERE ELECTED AS DEMOCRATS;NOT TOO BE KISS-UPS TO(BUSH&CO)THANKS MUCH ,GLAD YOU ARE WORKING FOR US...

[W Action]

Movie Guy:
Bonds representing Social Security surpluses are not worthless. Never will be. Are bonds sold to finance the mushrooming federal deficit worthless. Of course not. Never will be. Are bonds sold to finance additional debt to finance Iraq War worthless. Of course not. U.S. debt has always been good paper, and in fact it is specifically stated in the Constitution that it is treason to suggest U.S. debt is not valid. (Not that that stops Greenspan, uber-President Cheney and others from planting the idea in Poor Dumb George's brain.) So, other than that, your version of privatizing Social Security has...absolutely no merit at all. Although it IS different idea than anything being discussed. So it has THAT going for it.

[Movie Guy]

W Action

Let's expand this comment that I made in the post:

"The government's ready ability to cut monthly benefits, further extend age eligibility, or raise payroll taxes nullifies that argument."

One issue isn't whether the government will directly default on paying the interest and principal on the special issue Treasury bonds "sold" to the Social Security Administration. The issue, is this case, is whether the Congress and Administration (at any given point in time) will undertake actions that will avoid fulfilling redemption obligations of such special issue Treasury bonds.

How? As stated above. Reducing benefits, extending the eligibility age and/or growing payroll tax revenues will defer some redemption requirements.

Result? Indirect default.

Legal interpretation? "We just modified the program."

If you actually believe that there will not be resistance to pulling funding from the general fund to allow for redemption of the special issue Treasury bonds, then I suggest that you should listen closer to the stated views of the Administration and majority leadership in Congress. Greenspan has said as much in his recent communications.

We will witness indirect default. But it will be called benefit adjustment or reduction.

[Kosh]

Will Lieberman be speaking at the Republican Convention in 2008? Stay tuned. (Zell, he's after your job.)

[Bill]

The debate over social security reform is both a substantive and a political debate. Brad DeLong's economic analysis is certainly plausible, but the attack on Joe Lieberman is unnecessary. He is a pivotal vote in the Senate, and he indicated in the NYT letter that he is against the President's "carved-out private savings accounts", which is the heart of the matter. Joe Lieberman is a good Democrat, simply not a knee jerk Democrat.

[Anand]

Isn't the point of an infinite horizon that it is... well, infinite? Why does the NPV of the infinite horizon liability change year over year? I understand the inflation adjustment - 2004 dollars are worth more than 2005 dollars - but other than that I don't see what changes between 2004 and 2005.