Why Oh Why Are We Ruled By These Liars? (Assistant Secretary Rob Nichols, This Is Your Life! Department)

From Josh Micah Marshall:

Talking Points Memo: by Joshua Micah Marshall: March 27, 2005 - April 02, 2005 Archives: TPM Reader JM could barely believe what he was hearing ...

It was a bit shocking to hear Rob Nichols, assistant secretary for public affairs at the Treasury Department, actually say out loud that U.S. government bonds in the trust fund are just worthless IOUs, causing an uproar from the audience. (This guy works for the Treasury Department!?) He also was emphatic that there would be exactly zero transition costs for establishing private accounts. 'After all, it is simply like pre-paying your mortgage.' He said this prepayment would require only $700 billion for the first 10 years, and to shouts of what about the second 10 years, claimed that they hadn't run the numbers. The audience wasn't buying it judging from the catcalls. Finally, Sally Canfield, assistant to Denny Hastert, tried to throw out the line about how each year we delay costs another $690 billion, until brought to a screeching halt by a cry of 'Liar' from someone in the crowd.

"They hadn't run the numbers" for what happens in the second decade of Bush private accounts? Do they really think the press corps and the people are dumb enough to believe that? And why do they think it's to their advantage to set out such transparent lies? Would anyone support a long-run plan proposed by people who haven't "run the numbers" beyond the first ten years?

Comments

[RT]

And he's an Assistant Secretary of the Treasury Department? Good Lord Almighty, we're in trouble.

[Brian]

Some conservatives seem to contest the idea of "transition costs." Take Gary Becker, who says, "However, neither is there any special “transition” problem in moving to a fully funded privatized system since future generations in some way or another have to pay for the implicit debt due to commitments toward present and future retirees." Barro says that it requires a substitution of explicit libialities for unfunded liabilities and that there would be no effect on interest rates, national savings, or the current account balance.

I'm not sure what to think here.

[howard]

Brian, the prof has dealt with this in some detail (although i'm damned if i can remember the clever name of the post!).

In short, yes, it could turn out that there is no such thing as "transition costs," but not with 100% certainty. The way i look at it is that, at a minimum, there are real interest costs....

[Ghost of Joe Liebling's Dog]

Was it just last week that Bush insisted there was no plan in the first place? Merely askin fer input, gents and ladies, just seekin yer thoughts.

I guess now there's a plan again.

Step right up, friends, just $700 billion and the game begins! Try yer luck. Where she goes, nobody knows. Who's in the game? You, sir? You, ma'am? Step right up!

[Bob McBob]

Brad, you need to write better titles. I don't read articles with titles I'm not interested in. Titles like, "Why Oh Why Are We Ruled By These Liars?", tells me next-to-nothing about the article. Who's Rob Nichols? I don't care. The title should say something *about* Rob Nichols.

"Advances in Infotech Usability", that's a good title, and so is, "The "Hard Landing" Scenario..."

If you care about your readers, and want more readers, make more appropriate titles.

[Bob McBob]

Brad, you need to write better titles. I don't read articles with titles I'm not interested in. Titles like, "Why Oh Why Are We Ruled By These Liars?", tells me next-to-nothing about the article. Who's Rob Nichols? I don't care. The title should say something *about* Rob Nichols.

"Advances in Infotech Usability", that's a good title, and so is, "The "Hard Landing" Scenario..."

If you care about your readers, and want more readers, make more appropriate titles.

[kharris]

This falls into the category of things we can't trust these guys to do. "No transition costs" is way to glib, even if there is a grain of financial reality to it. A massive debt is "realized" when only a contingent debt exists. Once again, there may not be a Social Security funding gap. If we undertake a transition to private accounts, there will be $760 bln in net new Treasury issuance over the first 10 years.

Or maybe it will be a lot more. Or maybe they haven't run the numbers for transition costs past ten years the same way they couldn't get the cost of the Medicare benefit figured out till after the bill was signed into law.

The Secretary of the Treasury is one of the Social Security Trustees. He directs the writing of and signs off on a 75-year estimate of balances for the Social Security program, and has also signed off on an infinite horizon estimate. But he can get around to telling his people to figure out transition costs for private funds past 10 years? No. Those guys are lying again. Just like with the cost of Medicare. Just like with Iraq. Just like with mercury. Just like with everything.

This is getting way out of hand. Read Brad's postings for just the past few days. Nichols is part of a nationwide round of town meetings aimed at selling very damaging Social Security reform, and he's doing it through very slimy means. Sanchez authorized torture, then denied doing so in front of Congress. Danforth can no longer stand the smell of his own party. The GOP (the anti-frivolous lawsuits party) in Florida wants to encourage students to sue teachers for teaching science the students don't happen to like, because the GOP's base doesn't happen to like science very much, either. Most of the people at the White House don't understand Social Security well enough to know that their in-house expert doesn't understand Social Security.

[anne]

KHarris:

"No transition costs" is way too glib, even if there is a grain of financial reality to it. A massive debt is "realized" when only a contingent debt exists. Once again, there may not be a Social Security funding gap. If we undertake a transition to private accounts, there will be $760 bln in net new Treasury issuance over the first 10 years.

Perfect. What may, might, could come later is for another discussion. The current costs are there.

[DaveH]

Actually, it's not hard to believe they haven't run the numbers. These are the same folks who "planned" the Iraqi adventure. Their planning horizon is about three weeks.

[Donald E. L. Johnson]

I guess I'm amazed at the tone of the comments. Lots of scorn and anger along with some substance.

Why didn't someone ask Nichols to spell out his argument, or are we working with only part of his presentation here? Where's the beef?

[matt]

Planning horizon of three weeks??

Way too generous. These people need to screened like Bush wants to screen schoolchildren and then they should be diagnosed and drugged for ADHD. the drug companies still get the profits and these bastards have WAY more money to spend on medication.

If they're willing to drug our kids, they should succumb to it themselves and what better way than to make them FOCUS a bit more on reality.

[ogmb]

"Brad, you need to write better titles."

How about "WOWAWRBTL, Episode 1384: Assistant Secretary Rob Nichols, This Is Your Life!"

[johnchx]

I believe Rob Nichols. Why would they run the numbers for the out years? Pretending that the future doesn't exist is this administation's standard operating procedure. Selective ignorance is strength.

[peBird]

Good to know that those "IOU's" are worthless - now that US has 3 trillion less debt, Congress won't need to raise the debt ceiling for about, oh 8 months.

[RonK, Seattle]

kharris -- Transition costs are not a function of insolvency. If the system were in perfect, perpetual balance (assuming current benefit structure and Intermediate forecast), an abrupt total switch from pay-as-you-go to advance funding of the same benefits would require a capital injection of (present value) $13.5T to pay off projected non-funded benefits for the existing "legacy" population. [Plus the current Trust Fund balance, which would also be applied to legacy obligations.]

Cost of a partial, deferred, graduated transition is a stickier run of numbers -- which would be nice to have -- but under normal growth and yield exectations wouldn't be terribly sensitive to anything but "How much do you want to privatize?".

If the answer to that is "one third", the debt bomb is in neighborhood of $3.3T (p.v.), assuming the $1.7T Trust Fund balance is also applied to legacy obligations.

If the answer is "one third, except for people 55 and up as of 2009", it's a bit less.

If the answer is "one third or $1000, whichever is less, except for 'overs', and increasing the $1000 by $100/yr until 2041, but switching to price indexing" ... you really wish they'd show their work.

[Unstable Isotope]

Bob can write his own titles when he gets his own blog.

A conservative Bush voter asked me today, "Why does everyone think SS privatization won't cost money?" I replied: "Most people don't think that." A lively discussion on Social Security ensued. Only my wingnut colleague thinks SS privatization is a good idea (except for him, because he's over 50).

Anyway, I think the SS clown show is even penetrating into the relatively uninformed Bush voter now.

[Movie Guy]

"The Treasury Department representative, Rob Nichols, claimed that there would be no transition costs involved in creating "personal accounts". When the crowd reacted loudly, he repeated the claim, saying "this is precisely factual, [no transition costs]." That just provoked laughter."

It doesn't get much better than this.

[Randolph Fritz]

"Rob Nichols, assistant secretary for public affairs at the Treasury Department, [said] that U.S. government bonds in the trust fund are just worthless IOUs."

Contact the IMF! Argentina, here we come!

[ecoast]

The sad fact is even Dem leaders don't know the projected costs, except for Nanci Pelosi, who recited Krugman's mantra in summary form on a recent TV show.

All together now, recite Krugman's mantra:

The transition costs in the first decade will be $2T,
in decade 2 about $3T, in d3 $5T and in d4 $5T for a total of $15 trillion in four decades.

Easy to remember: 2+3+5+5 = 15

[Richard Cownie]

>And why do they think it's to their advantage to set out such
>transparent lies?

Maybe because Bush's people have been getting away with
transparent lies since 1999, through three election cycles,
with political gains each time ? Blatant lies, the bigger
the better, currently seem to be a great way to win elections,
and these guys don't care that the consequences for the country
(and the world) are just terrible.

A large part of the problem is the sad state of American
journalism, which seems to have bought into the ideas that
everything is spin, there is no objective reality, and that
"balance" means taking a position halfway between Democrats
and Republicans, even if even when what Democrats are saying
is 95% true, and what Republicans are saying is 100% false.
If the media is playing the game that way, huge blatant
lies are an effective way of moving the public discourse
towards your favored position. If and when someone gets fired
or loses an election for telling lies, the strategy may become
less attractive.

[Derelict]

I think the real crux of the biscuit here is that Nichols stood up there and attempted to tell an obvious blatant lie. No matter one's views on SS privatization, the fact that Nichols would utter such stunning falsehoods should shake administration supporters to the marrow of their bones.

Sadly, it won't make a ripple beyond those of us who read the blogs. For most Bush supporters, it is now accepted as correct behavior for the president and his administration to tell the most egregious lies. After all, the facts and reality both have a liberal bias.

[liberal]

nmg wrote, "The trust fund debt is not counted as part of the debt ceiling."

Wrong.

From URL http://www.whitehouse.gov/ omb/ budget/ fy2005/ pdf/ spec.pdf [remove spaces for true URL]

"Statutory limitations have usually been placed on Federal debt. Until World War I, the Congress ordinarily authorized a specific amount of debt for each separate issue. Beginning with the Second Liberty Bond Act of 1917, however, the nature of the limitation was modified in several steps until it developed into a ceiling on the total amount of most Federal debt outstanding. This last type of limitation has been in effect since 1941. The limit currently applies to most debt issued by the Treasury since September 1917, **whether held by the public or by Government accounts**; and other debt issued by Federal agencies that, according to explicit statute, is guaranteed as to principal and interest by the United States Government." [Emphasis added]

From URL http://www.cbpp.org/6-22-04bud4.htm

"Since 1917, federal law has placed a limit on the size of the federal debt. The limit applies to gross Treasury debt---the amount the Treasury has borrowed from the public plus the amount the Treasury has borrowed from federal trust funds, such as the Social Security trust fund and the Civil Service Retirement trust fund."

[Dave]

If "they hadn't run the numbers" then how the heck do they know that the numbers add up? Bush insists that his proposal will ensure long-term solvency, yet his own Treasury flack says they haven't figured out anything beyond 10 years. So either Bush is lying, or Nichols is lying, or they both are.

[RonK, Seattle]

Nichols doesn't have to be lying -- he's a "Public Affairs" guy, which doesn't suggest he has to know what he's talking about.

Bush walks by faith. He doesn't have to know what he's talking about.

And Krugman, like Treasury, should show his work for full credit.

[ogmb]

"remove spaces for true URL]" ???

What's that for? You worried that the Whitehouse might get spammed?

[wkwillis]

Just curious. Is the civil service retirement trust fund also the military service retirement trust fund? Are their treasury bonds as 'meaningless' to the Republicans as those in the social security trust fund?

[Susan]

I keep wondering what the Chinese and Japanese think about all those "worthless pieces of paper" they hold...

[hyh]

nmg,

Social Security and other public finanaces are qualitatively different from personal finances so your $1,000-in-the-mattress analogy does not stand. The money going into public funds comes from different sources and money going out of public funds goes to different uses/recipients. So, the quaint, cute, little notion of FAIRNESS is as, if not more, important than the debate on numbers.

The surplus funds entrusted to Social Security were built up by taxing wages. It is wrong to then try to claim such funds are no different from general revenue funds, which come from wages and other forms of personal and corporate income. It is morally criminal to make such an argument while sponsoring tax cuts that disproportionately benefit the already well off.

I know I'm just stating the obvious, but it needs to be stated over and over and over again. I'm looking forward to the class war that Bush & Co. are starting.

[liberal]

ogmb wrote, "What's that for? You worried that the Whitehouse might get spammed?"

No.

Rather, URLs tend to be pretty long. For whatever reason, typepad seems to cut them off on the right. If you actually copy and paste, the URL is there in its entirety. But other commenters see the cutoff and think the URL is truncated. (I've seen this more than once on Brad's blog now.)

[liberal]

wkwillis wrote, "Is the civil service retirement trust fund also the military service retirement trust fund?"

I don't think so.

My interactive webpage on the federal budget shows them as distinct entities. (Numbers are directly copied out of the Excel tables in the official "Budget of the US Government".)

http://www.truthandpolitics.org/budget-numbers.php?BA_or_O=O&O_year1=2003&O_year2=2005&mode=function&subfunction=602

(I haven't updated yet for new budget. As I said to ogmb, the entire URL is there; if it appears truncated, it's actually hidden.)

[John]

Reading stuff like this always makes me wish the audience came prepared with bags of rotten vegetables, a la the King & Duke episode in Huckleberry Finn. Instead of shouting "Liar" (although THAT alone is MIGHTY encouraging to see) a well-placed head of cabbage...

[ChasHeath]

Gosh. And the funny thing is, they're dismissing transition costs over the next 45 years as being a "short term" phenomonon.

nmg, regarding the "debt/asset of those bonds doesn't help us one iota".

I think a better way to assess treasury debt, whether held by the Social Security trust fund or otherwise, is that it represents something that is incorporated into the economy at large.

You can quibble that the funds raised by selling the bond may have been frittered away on political pork. But even so, the bond still represents funds not raised by other means in the past, other means, generally, being income taxation.

So, if you believe, as the GOP believes, that is is reasonable to run current deficits in order to reduce the current level of taxation, then you believe that the bonds held by the SS trust, as well as those held by the public, were a prudent past choice, and thus, even after the bonds are paid off, the economy at large has still benefitted from the deal. Even though that eventually means the funds have to be raised from general revenues to cover the debts.

[battlepanda]

Funny. They can't calculate the transition cost beyond 10 years, meanwhile they have no problem projecting the SS deficit to INFINITY.

Good for those town hall participants. Golly, it seems like they took their vitamins that day. If only our downtrodden zombie press can get a little of that moxie.

[Ralph]

Transition costs require real borrowing costs of $1 trillion in the first decade after privatization and $3.5 trillion in the second decade. Currently, the SS trust fund contains about $1.6 trillion in specialinterest bearing Treasury securities which is expected to increase to between $3 to $5 trillion by the time the surplus becomes a deficit in 2017 (latest SS trustee estimate). The SS balance sheet has no liabilities currently and will not have any until 2041 when the trust fund is expected to be exhausted. There will be operational deficits starting in 2017 but the balance sheet will be sound for decades to come. Transition costs will dangerously change this rosy picture. For the first time since 1983, the balance sheet will have substantial liabilities as mentioned in the first sentence. This will make it harder for SS to borrow funds in the future to make up for the solvency gap expected to commence in 2041. The Bush administration admitted for the first time a week or so ago during the SS road show that private accounts will do nothing to solve or plug the solvency gap. Transition cost liabilities show the canard behind this admission. They will significantly damage the SS balance sheet.

[seamus]

I can't help but think that the WMD fiasco has hollowed out the public's trust of the Bush administration. A lot of people voted for Bush because they didn't trust Kerry to manage Iraq or defend America against terrorism. With his job-approval hovering in the mid-40s in spite of improvements in the Middle East, a successful election in Iraq, a strong US economy, and soaring asset prices, people aren't giving Bush much credit for the current situation.

Now, on a complicated issue like Social Security, he's not getting the beneifit of the doubt. He pulled off the war in Iraq by muddying Al Qaeda and Saddam in many people's minds, but his attempts to do the same for future insolvency and private accounts hasn't been as easy. Why? Is it because we're still scared of terrorism even with Saddam gone?

[Debt]

Debt: "How To Get Out Of Debt By: John Mussi "

Debt: "Eliminating Credit Card Debt By: Alan Barnes "

Debt: "We all know about debt. If you don't have too much as an individual you can increase the quality of your life,"