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Should we trust Social Security?
Allan Sloan is a senior editor-at-large at Fortune
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TEXT OF INTERVIEW
Steve Chiotakis: Sometime between now and April, we're going to get the Social Security 2009 Annual Trustees' report. And like everything else these days, it's expected to be in the money hole. That's got Fortune Magazine's Allan Sloan talking about the health of Social Security. Good morning, Allan.
Allan Sloan: Good morning, Steve.
Chiotakis: So we're getting this Social Security Trustees' Report in a month or two, what are we expecting to see?
Sloan: Well we expect to see this report, which comes from the Secretary of Labor, the Secretary of the Treasury, and the head of Social Security. It's the annual update, and what it's going to tell you, if you look properly, that this year for the first time since 1983, Social Security is taking in less cash than it's spending.
Chiotakis: And how will they characterize this? Will they sound the alarms and get everyone all worked up, or will they say, "OK, we're OK right now?"
Sloan: They may not characterize it at all, because they typically talk about things like the trust fund, which we won't go into, rather than what's going on on a short-term basis in the system. So the words "cash flow" are not likely to come out of anyone's lips -- except possibly mine.
Chiotakis: Has this always been, Allan, a number-finnageling thing? It seems like we get the wise one to the office and Congress, political party no matter, they find a way to say Social Security is sound. I mean, is that really the case?
Sloan: That's what they always say. It's really not the case, because Social Security, if you really understand it, can really not in the end pay out much more than it takes in. And this trust fund that it has is of no economic value, but everybody focuses on the trust fund, and the year the trust fund will supposedly disappear. And I, being sort of tacky, talk about the difference between what's going in and what's going out -- which is now negative for the first time in a long time.
Chiotakis: What does the government say to 20-somethings, or even older folks -- you know, Baby Boomers or Generation X -- what does the government say to those folks who have paid to Social Security and may not get anything out?
Sloan: To people over 55, they say everything is fine. To those of you whipper-snappers who are under 55, what they say is, "Trust us."
Chiotakis: And should we?
Sloan: Unless they fix the system, no. But I do hope they fix it.
Chiotakis: Fortune Magazine's Allan Sloan with us this morning. Allan, thanks.
Sloan: You're welcome, Steve.
About the author
Steve Chiotakis was the host of Marketplace Morning Report until January 2012.
The way social security was explained to me was that current workers pay for the benefits for the currently retired. If someone adds up the amount that they contributed to social security over their working life, account for interest and then compare that to what they are getting, they get far more out than they ever paid in. This all well and good as long as you have more workers than retirees. But Generation X is a big dip following the baby boomers, so as they retire there will be less workers than retirees and the fund will run out.
I know that the government saw this coming and established a fund to overcome the shortfall, but again, my understanding is that the government borrowed that money to pay for other things and essentially issued bonds on the money it borrowed.
So where am I wrong? Didn't Bernie Madoff just get sent to jail for the same thing, in other words isn't Social Security just a big Ponzi scheme?
I, like just about every other Gen X'er I've ever talked to, have never thought I would see social security benefits. I look at it as a tax to fund the "Me" generation's retirement and there is little that people from my generation can do about it.
I am afraid Mr. Sloan and Mr.Smith don't actually understand the mechanisms of Social Security, the first point being the lie that SS is like a pension fund (regular bond fund perhaps) that relies on current cash flow to keep principle intact. It is not, and not even close. So their first slavo misfires. Mr. Smith of all people should be able to understand that it is not a regular bond fund...in that he cries out in suprise at the 2009 'buried' comment must mean he hasn't read the Reports prior to 2009. Good grief, get a grip. The Trust Fund never made the claim in the first place.
Fred Allen wrote, “The Treasury securities in the Social Security trust fund are slightly different from other treasury securities.†I appreciate that someone acknowledges at least that much. The AARP, the NCPSSM and most others who argue that Social Security is solvent for decades to come say, “The Treasury bonds in the Social Security trust fund are no different from all other Treasury bonds that back up the public debt.†William Novelli, former AARP CEO, wrote, “These bonds are like the ones bought by private pension funds, insurance companies, and individuals because they are the safest investment in the world.â€
I don’t know whether Novelli, and others who make such statements, truly believe what they are saying, or whether they know the awful truth about the so-called Social Security “trust fund bonds†and are deliberately deceiving their members and the public.†What I do know, with absolute certainty, is that no private investor would touch the “trust fund bonds†with a ten-foot pole,†even if they had the option to do so. But they don’t have that option because, by law, only the trust funds can hold the “special issues of the Treasury.â€
The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which was supposed to be saved and invested so that it would be available for paying benefits to the baby boomers. The money should have been invested in “good-as-gold†public-issue marketable Treasuries. If it had been, Social Security solvency would not even be in the news. Almost everyone, who knows anything about Social Security financing, agrees that, from an accounting standpoint, it appears that Social Security can pay full benefits until at least 2037. And it could do so if the surplus Social Security revenue had been invested in marketable Treasuries. The Social Security trustee would simply sell the Treasuries in the open market as addition funds were needed to pay full benefits.
That is not what happened. Not a single dollar of the $2.5 trillion that is supposed to be in the trust fund was saved or invested in anything. It has all been spent by the government (both Democrats and Republicans) for such things as tax cuts, wars, and other government programs. Money can be saved and invested, or it can be spent. But money cannot be both spent and invested. Since none of the surplus Social Security revenue was saved, none of it was invested in anything.
How has the government gotten by with such a fraud for the past 25 years? It has done so by creating a gimmick that gives the illusion that the money is being invested when it actually is not. The gimmick is called “special issues of the Treasury.†These are nothing more than accounting entries that show how much Social Security money the government has spent. They are akin to a note that a bank robber might leave behind in the empty bank vault, stating how much money he has stolen.†These IOUs are just as worthless as a handwritten note left behind by a bank robber.
I have been researching and writing about Social Security for more than a decade. I have published four books on the subject, appeared on CNN, CNNfn, CNBC, and more than 170 talk radio stations in an effort to expose the Social Security fraud. I have spent thousand of dollars of my own money on the cause. Still I am usually treated about the same way as I would be if I were claiming to have taken a ride in a UFO. Unlike most people who say Social Security is in trouble, I am strongly opposed to any attempt to privatize Social Security. I want to save Social Security as we now know it by exposing the fraud and pushing for the government to restore all the Social Security money that it has “borrowed,†“embezzled,†or “stolen.â€
After a decade of frustration, I have recently discovered the “smoking gun†that proves that the so-called “trust fund†bonds have no value and will not generate any new net income to the government for use in paying Social Security. That smoking gun is in the form of an official government admission that the trust fund bonds do generate any income for the government. This admission is in the form of a single sentence, buried deeply within the 2009 Summary of the Social Security Trustees Report. It can be found in the third paragraph up from the bottom of the last page of the report. It reads.
“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.â€
THINK ABOUT IT!
Allen W. Smith, Ph.D.
Professor of Economics, Emeritus
Eastern Illinois University
ironwoodas@aol.com
1-800-840-6812
P.S. Please visit my website at www.thebiglie.net
Allan Sloan is usually so straight in his analysis, but unfortunately, in this case he has taken an ideologically driven stance on 'funded' Social Security status.
The Washington Post companies are some of the most aggressive advocates of Social Security 'reform' -- which always seems to come back to cutting benefits.
The Treasury Securities in the Social Security trust fund are slightly different from other treasury securities -- they don't have the same auction mechanism and they cannot be sold on the secondary market, but like all other treasury securities that fund the government debt, when they mature they are replaced by new issues as the debt rolls over.
Now Mr. Sloan can attack the level of debt that the US will be taking on due to a lack of political will to actually do something (other than talk about it). But the simple fact is that Social Security as a percentage of GDP is remarkably stable -- and NOT GROWING. The folks that have said again and again, "there is no crisis" are correct.
Now Medical entitlements, Medicare and Medicaid, ARE growing and growing and putting the nation's fiscal health at risk, but the cash flow "problem" with Social Security will be grasped as a way to attack the Social Security benefits.
What a shame to see Allan Sloan become part of this echo chamber for the right wing hacks.
Please go back to analyzing stock manipulations, mergers and sharp penciled tax scams undertaken by tycoons.
Allan Sloan is one of the few business writers who have been honest and accurate about the Social Security trust fund. Paul Krugman seems to believe that the trust fund holds public-issue marketable Treasury bonds because he suggests that the trust fund bonds are no different than other Treasury bonds. The 2009 Social Security Trustee's Report sets the record straight as follows: "Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public." I challenge Paul Krugman to quote that statement from the Trustees in his column and then explain it, if he can.
Allen W. Smith, Ph.D.
Professor of Economics Emeritus
Eastern Illinois University
Website: www.thebiglie.net
If business funded their pension plans the way our government funds (or doesn't fund) social security, the corporate officers would be sent to jail. Why do companies have to disclose in great detail their projected future benift obligations while our federal government, who runs the largest pesnion plan (social security) in the nation, doesn't? Aren't laws supposed to apply to all, equally?
As a Gen X kid, I never expected to get the Social Security I was paying for. I don't blame the SS Admin for this any more than I blame many others. I _DO_ blame people who are so afraid of Government that they will do anything they can to gut the benefits my great-grandparents fought to put in place.
My own biases are things I work to remove from myself, but I tell you what: looking at what the Boomers and "Greatest" generations have (spent) done to our social support networks, I can get very upset.
I feel more like they took their kids and grandkids for a ride when they decided it was "too much taxation" and "small Government is good government". Cutting real payments into the system and not accounting for future spending (on themselves) is a great way to have your cake and eat it too. Unless you happen to be young enough to have been stiffed for some of that cake.
What the disinterested Alan Sloan somehow neglected to mention is that the reason social security took in less than it spent is because of the global recession, created by the financial sector together with the ideologically enthusiastic connivance of politicians and regulators like Greenspan and Bernanke.
“Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.â€
From “Fiscal Scare Tactics†by Paul Krugman
http://www.nytimes.com/2010/02/05/opinion/05krugman.html
The motivation for Mr. Sloan’s propaganda is that his employer and the class they represent are in revolt against paying their fair share of taxes for social security and other programs from which they do not directly and immediately benefit. Should we trust Alan Sloan?
Mr. Sloan is being fairly dishonest in his characterization of Social Security's finances and the state of the Trust Fund. The Trust Fund is made up of Treasury Securities...by stating that it has no economic value, he's implying that the US Government will default on it's debt. US Treasuries are still rated AAA, and long-term rates are at or near historical lows. The market simply doesn't judge Gov't bonds to be a risky venture, so how is it that the SS trust fund is economically worthless? Please try and find less ideologically driven 'experts' to discuss theses types of issues.
