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Morgenson Runs Peterson Institute Propaganda Against “Entitlements” Meaning Medicare and Social Security

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I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view. And the one she chose to represent tonight is one that is in no need of amplification, that of the Peterson Foundation’s well-funded campaign to gut Social Security and Medicare.

The Peterson Institute paper she relies upon, by former Fed and Treasury economist Joe Gagnon and Peterson Institute research associate Marc Hinterschweiger, is about the government deficits and the need to take Serious Measures to get them under control, which of course means reducing entitlements, in particular Social Security and Medicare.

We’ve written before about some of the Peterson Foundation’s efforts:

For those who did not catch wind of it, the Peterson Foundation, which has long had Social Security and Medicare in its crosshairs, held a bizarre set of 19 faux town hall meetings over the previous weekend to scare participants into compliance and then collect the resulting distorted survey data, presumably to use in a wider PR campaign. It’s important to keep tabs on this propaganda effort, since its big budget (the Foundation has a billion dollars to its name), means it will keep hammering away on this topic. But it appears that they overestimated how much public opinion expensively produced and stage-managed presentations can buy.

The brazenness and ham handedness of these so-called “America Speaks” sessions, which have garnered well deserved criticism on the Internet, is probably due to at least two factors: deluded confidence that the average person will fall into line when a confident and well-credentialed presenter makes a pitch and a stunningly naive belief that aggressive efforts to manipulate opinion and mislabel it as polling would not be called out.

The paper does make this disclosure:

The Peterson Institute undertook this project at the request of the Peter G. Peterson Foundation, which is a completely separate entity.

The two organizations are broadcasting the same message, that looming deficits must be dealt with via entitlement cuts, so the lady is protesting way too much in trying to depict them as independent. And in case you doubt that the paper itself is advocating cutting entitlements, this is its recommendation on page 2:
Accordingly, we propose that budget cuts currently being planned should be implemented in 2013-2015 and that additional budget cuts should begin in 2016, although there is some scope for additional cuts in Japan starting in 2014. In addition, reaching agreement soon on long-run changes to curb retirement and medical costs even partially could send a signal to markets that advanced governments are prepared to deal with a problem that threatens to become more serious in the next two to three decades.

Let’s now turn to the Morgenson piece. It does not question the economic model used, which projects that if the economy remains at or near trend after 2015 (when growth is assumed to have normalized), that the budget deficits remain constant as a percent of GDP (sports fans, this is guaranteed to make debt levels blow out). It would have behooved her to check the Peterson numbers against the the Medicare trustees and CBO forecasts. The latter shows Federal debt to GDP stabilizing at a bit over 75% of GDP, below the 90% level that Carmen Reinhart and Kenneth Rogoff deem to constitute a drag on growth (note we don’t buy their analysis; it mixed gold standard countries with currency issuers, plus there are examples in their data set where the causality went the other way: debt levels grew because growth was lousy).

It also stunningly shows the howler of the Eurozone showing improvements in debt to GDP ratios as a result of the austerity programs being implemented. The examples of Latvia and Ireland have demonstrated that austerity measures have worsened debt to GDP ratios, dramatically in both cases, and the same deflationary dynamics look to be kicking in for Spain.

The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Gee, how is that working out in Europe, the Peterson Institute’s obedient student? From Bloomberg on Friday:

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects.

An index of executive and consumer sentiment in the 17- member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said today. Economists had forecast a drop to 105.7, the median of 27 estimates in a Bloomberg survey showed.The euro-area economy is showing signs of a slowdown as governments toughen austerity measures to lower budget gaps as investors grow increasingly concerned that Greece may default, while oil-driven inflation squeezes household incomes. European manufacturing growth slowed this month….

And another article in the New York Times tonight seems almost annoyed that investors aren’t reacting as Gagnon and Hinterschweiger insist they must, by worrying about bond risk:

In mid-April, Standard & Poor’s placed United States debt on negative watch, saying there was a one in three chance that over the next few years it would actually downgrade the Treasury’s pristine triple-A rating. The agency cited concerns about the ability of Congress and the White House to agree on a plan to reduce the budget deficit.

On May 16, the Treasury hit its statutory debt ceiling — the point at which the government cannot borrow more money without Congressional action. But Congress didn’t act….

Has this melodrama shaken the bond market? Not a bit.

Since April 18, the prices of Treasuries haven’t fallen. To the contrary. They’ve risen while yields, which move in the opposite direction, have plummeted. On Friday, the 10-year Treasury yield dipped as low as 3.05 percent, its trough for the year. Despite a mounting debt burden and a dithering government, Treasuries have rallied.

Morgenson covers the same argument, and uses the rationale that Japan and Europe look worse than the US. The facts don’t line up. If investors were reluctant purchasers of Treasuries, you’d see them sticking to the short end of the yield curve.

This suggests that investors increasingly recognize (as we have suggested) that we are in a re-run of sorts of 2008 (hopefully without the September-October fireworks), of a liquidity-induced commodities bubble leading to inflations fears when the deflationary undertow is stronger. Cash and high quality bonds are the place to be in deflation.

There are other canards in the paper that Morgenson simply parrots, for instance, that having a lot of countries in debt at the same time in unusual. Huh? Big wars produce that outcome, just look at the 1815, and the period after World War I, which culminated in the Great Depression. Oh, and the concern about “financial repression” meaning “the transfer of wealth to a debtor government”. Earth to base, private sector debt in the US is way way larger than government debt. And the transfer that led to the increase in government debt, and is also reflected in the failure to write down and restructure private sector debt, is a transfer from taxpayers and investors to banks.

Now some readers will be very unhappy by now, since taking issue with the austerian party line is treated an endorsement of no-holds-barred government spending. But this discussion ignores the fact that we have capitalist not acting like capitalists in virtually all advanced economies.

The reason most people don’t like government deficits is that they are assumed to crowd out private sector borrowing, thus discouraging business investment. But companies in the US, even in the last expansion, were net savers. That pattern has taken hold in advanced economies, even in many emerging economies ex China, since the mid 2000s, and some as early as the late 1990s. Andrew Haldane, the director of financial stability for the Bank of England, confirmed that companies and investors are taking an excessively short-term perspective, which is leading to underinvestment.

In simple terms, the household sector always wants to save. If the business sector also perversely wants to save, then government needs to take up the slack and deficit spend, otherwise wages and GDP will contract (if you run a big trade surplus, you can escape that conundrum, but that isn’t germane for the US). If GDP contracts, debt to GDP gets worse, not better. Conversely, when the economy is strong and the business sector is borrowing to expand operations is when the government sector should run a surplus.

But the idea of government spending has become anathema in the US, despite plenty of targets (start with our crumbing infrastructure). The banks got first dibs on the “fix the economy” money in the crisis, and continue to balk at measures that would shrink a bloated and highly leveraged banking sector down to a more reasonable size. Evidence already shows the size of the banking sector is constraining growth, yet a full bore campaign is on to gut social spending out of a concern that sometime down the road the size of the government sector will serve as a drag on the economy. In addition, the banksters need to preserve their ability to go back to the well the next time they crash the markets for fun and profit. So the attack on deficits is financial services industry ideology, packaged to make it look like it’s good for the little guy. We have too many people who should know better like Morgenson enabling it.

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103 comments

  1. SH

    I hope I’m not too “tude” like tonight but I would like to say that I think that subsidies increase costs of those goods subsidized. If we want to cut health costs, the easy way to do that is to stop throwing money at it. Of course there are bureaucratic things to deal with, but being at risk of being a Peterson shill(I’m not a troll), if you cut the funding, costs will not rise to meet the money thrown at it. There is a reason why college education and health care have outpaced the CPI. I think this is a subtle difference between “I don’t want to pay for you” and “increasing health costs are going to bankrupt us”. Americans are probably comfortable with a little shared sacrifice. There’s a disconnect between that “shared sacrifice” and Congressional solutions devised which only increase funding because the only fix Congress knows is one that spends more to fix it. I bet that if funding decreases, hospitals, doctors, nurses, and the evil empire, insurance companies, will all figure out a way to fight for their take at a cheaper price. Otherwise we subsidize and continue the inflationary march on what really matters, staying alive.

    Thanks again,

    Scott

    1. Yves Smith Post author

      Read Maggie Mahar’s Money Driven Medicine and then we might have an intelligent conversation. She explains at considerable length why market mechanisms don’t work in medicine (the big one is consumers simply cannot judge whether their doctor is doing a good job and make appropriate v. self-serving recommendations. On top of that, Americans have been trained to think more care is better care, hence to overconsume medical services).

      The counter-evidence is simple. Countries with “socialized” or more heavily subsidized than in the US medical systems deliver better results at lower cost. Reader RDE pointed out yesterday that:

      According to the World Health Organization overall health system performance rankings, (http://www.photius.com/rankings/world_health_performance_ranks.html) the country of Columbia ranks #22 in the world. Isn’t that the country riddled by narco-terrorism, famous for its cocaine cartels and right wing death squads? The ranking for the USA? #37. Of course we are #1 in medical care expenditures per capita.

      1. sgt_doom

        Most excellent comments and response, Madam Smith, and I would like to add a stunner which ALWAYS appears to be overlooked.

        Two chief cost drivers in the USA of healthcare: (1) speculation on all areas of the healtcare sector by hedge funds, including healthcare hedge funds; and, (2) private equity firm leveraged buyouts across all areas of the healthcare sector (which would most definitely include Peterson’s Blackstone Group, from which he recently retired from).

        Peterson is a sham, and he’s been cheating ever since he got kicked out of MIT for major cheating.

        David Rockefeller laid out a career path for Peterson, and everything fell into place like clockwork.

        1. Yves Smith Post author

          Do you have a source for Peterson getting kicked out of MIT? This is news to me, and too juicy not to mention every time his name comes up.

  2. financial matters

    Well said Yves. Nice to have a strong counterpunch to this sort of simplistic ideology. Medicare and medicaid can definitely be made more efficient but are important safety nets. Unemployment insurance and social security are also important social safety nets. Good health care and employment transition coverage can improve employment levels by encouraging flexibility in the work place.

    I think these programs are strongly undermined by poor corporate governance. If we have to have a health insurance industry it needs to be run more similar to a utility that functions as a transparent insurance industry. Shareholders have virtually no control over corporate management of these and most other corporations which leads to poor worker compensation and poor benefit programs such as health insurance and pension plans. This makes more people more dependent on entitlement programs.

    It seems like federal involvement is necessary to enforce some corporate governance responsibility such as getting Delaware under control. Why are 217,000 companies headquartered in a small building in Delaware? And of course in a similar vein, if corporations and the wealthy didn’t have extensive tax shelters these entitlement programs could easily be better funded.

  3. PaulArt

    Yves,
    By the way, I am reading Econned right now – great work! Keep it up! On the issue of entitlements I once had a harangue about this with a young feller and although I was mad at him to start with, he made me think and later on I must say that he convinced me. His argument went something like this: Social Security and Medicare have balkanized our Society. Seniors who are secure in their old age do not know and hence do not care about issues like Outsourcing and the nefariousness of our Medical Insurance companies. If I get a monthly SS check in the mail and never worry about rescission of medical coverage(Medicare) then what the hell do I know about how people in the private medical insurance market are suffering? ‘I got my Medicare Scooter and Hip Replacement’ just about sums it up. Moreover a lot of Seniors traditionally vote GOP – we may not have numbers for this but I am sure that if we went looking we would find it. This is true especially in low turnout Congressional elections. So, this young man’s argument was, Seniors only care about Social Security and Medicare, Religion and Social issues. Who cares about my job and my health insurance? Why should I support programs that Seniors are making sure wont be around when I get to 65? Its time, he said to bring Seniors on a level playing ground with the rest of Society – its time they knew how tough it is to make a living in the great USA. As long as the lives of Seniors are secure and protected then they are NEVER going to understand what the people they are sending to Congress and Senate are doing to our Country and our lives. I must say I found his logic seemingly infallible.

    1. Paul Tioxon

      I don’t many young people who make it habit to be politically aware about anything other than what their church or synagogue tells them, abortion is bad, Israel has few friends in the world. But I have spoke with plenty of people who are older who worry about the crap they see on tv everyday in the news and read about in the newspapers. I have spoke with D-Day vets who told me about the payback they saw on the beach with bullets in the backs of CO’s. I have heard more than enough about fragging squad leaders in Nam who like to wander off into places nobody wants to go. And the massive amount of suburban middle class pot and pill and coke dealing is an indication of the underground economy is as part of America as buying franchise in a strip mall. But what I have never heard one word, from anyone white or black young or old, working class, middle class or anywhere else in the stratification is that they don’t believe that Social Security won’t be there and that one age group is pitted against another. Other than the infamous “critics charge” intro to typically lame news reports, that program has operated flawlessly for 75 years, outlasting three banking collapses and more than handful of wars and economic crack ups.

      The only thing that has proven unsustainable is business that produce jobs and not just profits, and with the nationalization of the auto industry, in order to rescue it, it does not look like even profits can be saved. Mutual corporations, cooperatives, credit unions, business models that work on the principle of creating livelihoods for people who work to produce the goods and services we need and create a commonwealth of prosperity is a clear example of a sustainable model that can continue to fund Social Security. That and UNCAPPING THE INCOME LIMIT ON SSI CONTRIBUTIONS AND INCLUDING ALL INCOME OTHER THAN W-2 WAGES SUCH AS RENT, CORPORATE PROFITS AND CAPITAL GAINS.

      1. Carla

        “Mutual corporations, cooperatives, credit unions, business models that work on the principle of creating livelihoods for people who work to produce the goods and services we need and create a commonwealth of prosperity is a clear example of a sustainable model that can continue to fund Social Security. That and UNCAPPING THE INCOME LIMIT ON SSI CONTRIBUTIONS AND INCLUDING ALL INCOME OTHER THAN W-2 WAGES SUCH AS RENT, CORPORATE PROFITS AND CAPITAL GAINS.”

        EXACTLY. Paul Tioxon, your program would do it. How on earth do we get from here to there?

        We need a systematic program to do this, but how we develop and implement such a program in a country in which there is no longer any sense of “the common good”?

        1. Paul Tioxon

          The cooperative is a corporation that can be a vehicle to run a business. It is more widely used in the farming sector and has traditionally been a part of the food chain in America from Farms to Grocery Stores in America. Here is a link from a current coop organization which specializes in consume food coops, with linkages for farmer and worker coops, which saw a resurgence in the movement for alternative institutions in American during the 1970s.

          http://www.cooperativegrocer.coop/articles/2009-01-18/help-guide-america-new-age

          It is a brief outline of a longstanding coop activist and politician, Jerry Voorhis. He was also a US Congressman and a leading humanitarian in the post WWII reconstruction efforts, founding the Cooperative for American Relief Everywhere, more familiarly THE CARE PACKAGE.

          Internationally, one of the best examples of cooperatives is the Mondragon Coop of Spain, founded by a priest among the brutally oppressed Basque in the wake of the Spanish Civil War. Today, it is a leading group of businesses in Spain. Here is their site.

          http://www.mondragon-corporation.com/ENG.aspx

          Go here to find the super, no…. ULTRA radical manifesto for the rights of labor being superior to that of capital.

          http://www.justpeace.org/mondragon.htm

          And because I know the true NCers Love Liz Warren, check out the beautiful up and running CFPB website which specifically advocates Credit Unions as well as the Community Banks, meaning State Chartered Banks, not NBA entities.

          http://www.consumerfinance.gov/at-the-podium-with-americas-credit-unions/

          Also, find a credit union with this hand Federal Government Web Site:

          http://www.ncua.gov/dataservices/findcu.aspx

          That should be a good start.

      2. beowulf

        Technically, SSI (Supplemental Security Income) is paid out of general revenue, but good points otherwise, don’t forget to include unrealized capital gains. :o)

    2. DownSouth

      PaulArt said: “…Seniors only care about Social Security and Medicare, Religion and Social issues.”

      As if the Austerianism that Peterson proselytizes is not a religion!

      Austerianism may indeed be a stealth religion, but it is nevertheless a religion. As Yves makes so abundantly clear, it is not based on any factual reality, but on a faith-based belief system that has about as much in common with factual reality as does the Garden of Eden.

      And by the way, the idea that young people are converting to Austerianism in any significant numbers is another fiction that Peterson and his paid liars and bumsuckers are parroting.

    3. LeeAnne

      PaulArt ‘I got my Medicare Scooter and Hip Replacement’ just about sums it up’ sounds like the charming ex-Senator Alan Simpson projecting his own image as a nasty old fart who cares nothing about others.

      On the contrary, today’s seniors were pushed out of the work force and undermined on the job at least since the early 1980s by the likes of such predatory ‘civil servants’ as Peterson, Alan Simpson, Greenspan, et al.

      They; Peterson, Simpson, Greenspan, and I might add Nixon, Rumsfeld, Cheney, Jim Baker, Bush, daddy and junior, are all joined in the same criminal enterprise of destroying the Republic of the United States, its people and its productivity and creativity for a frenzied idealogy of elitist control to force everyone but themselves to compete for their daily existence while they harvest the world’s resources at the point of a gun.

      1. Doug Terpstra

        Indeed PaulArt, IF not a useful idiot or a clever troll, has fallen easily for the divide and conquer strategy.

        “Its time”, he writes, “to bring [Grandma] on a level playing ground with the rest of Society – its time [she] knew how tough it is to make a living in the great USA.”

        It’s the neo-Deal, the neo-American way.

    4. Yves Smith Post author

      PaulArt,

      Do you actually know any old people? Boy, it doesn’t look like it. I know plenty who care about the environment and the sort of world that is being created for their grand and great grand children.

  4. Bruce Krasting

    Everyone spins numbers when it comes to SS and Medicare. Peterson does it. So does Dean Baker (the other side of this coin) I’m disappointed that Yves spins numbers too. She says this:

    The latter shows Federal debt to GDP stabilizing at a bit over 75% of GDP, below the 90% level that Carmen Reinhart and Kenneth Rogoff deem to constitute a drag on growth.

    Yves conveniently leaves out $4.6 Trillion from our debt load. She excludes all of the debt that is owed to SS, medicare and all the other “Trust Funds”.

    Yves, our debt is in excess of 90% today. It will be over 100% in the time frame you mention. The CBO does make a distinction between Debt to Public and the Intergovernmental Account, but it does not exclude it in its definition of debt.

    The USA has 1/3 of its debt to the IG account. 50% of the annual interest tab goes to the IG. But the most troubling part is that the Trust Funds are winding down at this point. As they do, they add (dollar for dollar) to the public debt numbers. The numbers are about to go ballistic.

    In 2010 SS had a deficit of $49b. That was added on to the amount Treasury had to borrow. In ten years what does this number become according to the SSTF annual report?

    Answer: $118 billion in 2021 alone. (it goes completely nuts after that. 2021-2035 total =$4.9 Trillion. The amount grows so that in 2035 the required borrowing comes to $644 billion!

    How much will SS force Treasury to borrow from the public over the next decade? Answer: $520 billion.

    Those that deny that this realty exists are also the supporters of the system. Trust me folks, we will not make it to 2021. We will blow up before then.

    I understand why the lovers of SS and medicare hate Peterson. But to deny what is happening with these programs and their consequences to the real economy is a very big mistake.

    Note: The numbers above are based on the SSTF “Intermediate” case. We will not see those results. They are based on flawed economic assumptions. The actual results will be much worse that that.

    1. PeakVT

      “How much will SS force Treasury to borrow from the public over the next decade? Answer: $520 billion.”

      Wrong. The SSTF will simply ask the Treasury to pay the money it owes to the SSTF. Whether or not Treasury borrows that money will be due to taxing and spending policies set by the US Congress in agreement with the US President.

      1. Jim Haygood

        Not wrong. Since there is no prospect of ending deficits even with massive tax increases, all of the $520 billion shortfall will be borrowed at the margin.

        Your argument is analogous to asserting that ‘if my aunt had balls, she’d be my uncle’ — theoretically true, but practically irrelevant.

        1. francis

          Sounds like another hoary cliche, if you know what I mean, Jom. It’s not like billions aren’t being used to subsidize failed bankers and pointless war profiteers. Why not use the money they’re getting to help old folks? Hell, we could even just print it up, Jim. Did you know that?

          1. Jim Haygood

            I object to subsidizing bankers and war profiteers just as much as you do. But redirecting the budget in this beneficial manner is most unlikely.

            Meanwhile, currency IS BEING printed — which means that entitlement programs will not default, but beneficiaries’ purchasing power will steadily fall as inflation steals it. So you’ll still receive your $1,300 a month from SocSec, but it will barely buy a bag of groceries. If you wanna treat your old granny this way, fine, but don’t chisel mine with this kind of flimflammery.

          2. petrov

            @Jim Haygood

            I’m with you Jim. We can’t stop crime. So after they’ve taken everything from us, the only thing left to decide is who starves: granny or junior? I’m also going with junior.

      2. Bruce Krasting

        Yes, taxes can be raised to offset the problem. That is always the answer given. While technically correct it is not a realistic solution.

        According to the SSTF 2011 report SS taxes would have to be raised by 2.2% IMMEDIATELY and PERMANENTLY. So there is your solution (yes there are many other approaches but raising taxes and/or cutting benefits are necessary).

        Do you see any support for that today? Not from either side of the aisle. Not even Ryan would touch this.

        So the reality is it will be borrowed from the public. As of today, that IS the plan (see 2011 SSTF report to Congress). I see nothing in the way of stopping this plan from unfolding.

        1. francis

          Oh, you see nothing, huh, Bruce? Oh well, good enough then.

          Please.

          All of these little quibbles are irrelevant, the USG owes the American people the money it accepted for social security, they will not be able to welsh on that deal no matter how the rich and the corporate welfare state (and small minions) cry about it.

          Nobody is buying it, Bruce.

          1. Jim Haygood

            This assertion sounds remarkably like Woody Wilson and the allies, asserting at Versailles that defeated Germany would pay every penny of the mountainous reparations heaped upon it.

            How did that work out?

            But ‘Le Boche paiera!’ insists Monsieur Francis.

          2. francis

            Let me put it this way, Jim, I’m not opposed in the slightest to using my Future SS check to buy canned banker, even if it is a couple years out of date.

            Get me?

            : )

        2. Doug Terpstra

          “Yes, taxes can be raised to offset the problem. … it is not a realistic solution.”

          “According to the SSTF 2011 report SS taxes would have to be raised by 2.2% IMMEDIATELY and PERMANENTLY. So there is your solution …”

          “Do you see any support for that today? … I see nothing in the way of stopping this plan from unfolding.”

          Well, there it is then. If rape is inevitable, you might as well try to enjoy it; you’ll only get hurt if you resist.

        3. PeakVT

          If you want argue that “it’s reality” or “it’s inevitable” then knock yourself out. But using the word “force” was, is, and will continue to be wrong on this matter.

      3. LillithMc

        When I paid money into social security, I expected it to be managed honestly. Social security has been running at a surplus. Perhaps when the money was placed in the general fund with all kinds of iou’s there was a commitment to honor debt, but that commitment is long gone. Now the money flowing into social security and medicare payments from paychecks is a magnet for the likes of the Peterson crowd. Keep you hands off my money. Social security never added a penny to the deficit. We pay twice as much for medical care as anywhere else. I like Gretchen Morgenson, but sometimes she runs with the wrong crowd.

    2. ambrit

      Mr. Krasting;
      You leave out the most important aspect of Medicare and Social Security: they are social contracts that have economic impacts. That question should be structured as not how to shrink or remove the safety nets to meet tax revenues, but how to expand tax reciepts to meet the safety net requirements. This is the Big Lie being peddled, (quite literally so,) by Peterson and the rest of the Cabal.
      As to arguements about the debt burden ‘ruining’ the nation, consider; America looks back fondly, (and not all sentimentalist nostalgia either,) to the Fifties and Sixties as Americas’ “Golden Age,” despite of, (and I would suggest partially because of,) the eras’ “high” tax rates. Think what you like about Eisenhower, he did accept that when expenses go up, taxes must follow. Considering this dynamic, who “won” the Cold War anyway?

      1. Jim the Skeptic

        ambrit said: “America looks back fondly, (and not all sentimentalist nostalgia either,) to the Fifties and Sixties as Americas’ “Golden Age,” despite of, (and I would suggest partially because of,) the eras’ “high” tax rates. ”

        Excellent point. Here is some tax data for incomes of $4000, $25000, highest bracket:

        Year__Tax Rate for $4000___Tax Rate for $25,000___Highest tax rate__For Income over___Number of Brackets
        1940 _________8%________________31%_____________________79%_______$5,000,000__________31
        1941________17%_________________48%____________________81%________$5,000,000_________32
        1942________26%_________________58%____________________88%_________$200,000_________24
        1944________29%_________________62%____________________94%_________$200,000_________24
        1946________26%_________________59%____________________91%_________$200,000_________24
        1951________27%_________________60%____________________91%_________$200,000_________24
        1952________29%_________________66%____________________92%_________$200,000_________24
        1954________26%_________________59%____________________91%_________$200,000_________24
        1964_______23.5%________________53.5%___________________77%_________$200,000_________26
        1965________22%_________________50%____________________70%_________$100,000_________25
        1971________21%_________________40%____________________70%_________$100,000_________25
        1977________17%_________________40%____________________70%_________$102,000_________26
        1979________16%_________________39%____________________70%_________$108,300_________17
        1982________14%_________________35%____________________50%_________$41,500__________14
        1983________13%_________________32%____________________50%_________$55,300__________14
        1984________12%_________________30%____________________50%_________$81,800__________16
        1985________12%_________________30%____________________50%_________$85,130__________16
        1986________12%_________________26%____________________50%_________$88,270__________16
        1987________15%_________________28%____________________38.5%_______$54,000__________5
        1988________15%_________________28%____________________28%_________$17,850__________2
        Note : The rates stayed the same between the years shown.
        Rates from: http://www.taxfoundation.org/publications/show/151.html

        Notice how high taxes were on the highest incomes until 1982. We are told that high taxes prevent investment to create jobs. During this time of high taxes the baby boomers came into the work force. Where did all those new jobs come from?

        1. Jim the Skeptic

          This table looked great in the Reply window but now is very difficult to read. Sorry.

          When I zoom in on the screen and measure text height I get 4cm in the Reply window but I get 6cm when the text is in the Comments section. Why the differences in text sizes?

          Yves, can this be corrected?

          1. DownSouth

            Jim the Skeptic,

            No apologies are necessary. We get your message loud and clear, and very much appreciate your untiring efforts to beat back the half-truths and outright lies of the evangelistis of greed like Bruce Krastings. We never hear from him except when this subject comes up, so he seems to be like a player piano that is equipped with only one scroll, which plays on cue.

            Krasting is stuck in a time warp—-early 19th century economic dogma—-and endlessly regurgitates the same old hackneyed talking points that the kleptocrats have used for over 200 years. And they’re just as big a fiction now as they were then.

            Maybe this from Robert L. Heilbroner’s book The Worldly Philosophers will help us to see through the kleptocrats’ propaganda:

            They lived in a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. Necker, the French financier and statesman, said at the turn of the (19th) century, “Were it possible to discover a kind of food less agreeable than bread but having double its substance, people would be reduced to eating only once in two days.” Harsh as such a sentiment might have sounded, it did ring with a kind of logic. It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.

            The laws were few but final. We have seen how Adam Smith, Malthus, and Ricardo elaborated the laws of economic distribution. These laws seemed to explain not only how the produce of society tended to be distributed but how it should be distributed. The laws showed that profits were evened out and controlled by competition, that wages were always under pressure from population, and that rent accrued to the landlord as society expanded. And that was that. One might not necessarily like the result, but it was apparent that this result was the natural outcome of society’s dynamics: there was no personal ill will involved nor any personal manipulation. Economic laws were like the laws of gravitation, and it seemed as nonsensical to challenge one as the other. Hence a primer of elementary economic principles said: “A hundred years ago only savants could fathom them [economic laws]. Today they are commonplaces of the nursery, and the only really difficulty is their too great simplicity.”

          2. DownSouth

            And to give a specific example of the sort of half-truths and outright lies that Krasting engages in, there’s this exchange from an earlier comment thread here on NC:

            Bruce Krasting says:

            February 4, 2011 at 11:02 am

            SS will take in 650b in payroll taxes this year. Nearly a third of all taxes.

            SS will pay out 730b this year. That is 5% of our entire economy.

            This is the elephant. You can dabble around all you want with other areas as ways to cut the deficit and size of government. But if you mean business and actually want to get total deficits under control you can’t avoid looking at SS.

            Sorry.

            Jim the Skeptic says:

            February 4, 2011 at 11:57 am

            Bruce Krasting said: “SS will take in 650b in payroll taxes this year. Nearly a third of all taxes. SS will pay out 730b this year. That is 5% of our entire economy.
            This is the elephant. You can dabble around all you want with other areas as ways to cut the deficit and size of government. But if you mean business and actually want to get total deficits under control you can’t avoid looking at SS.”

            So now you have inflated this year’s deficit up to $80Billion. Now the Social Security Trust fund will run out in 31 years!

            Let’s see, $730Billion is 5% of our economy, so our economy must be $14,600Billiion.

            So $80Billion is .54% of our economy. Is that your best argument? Wow, I am shaking in my boots.

            The war in Afghanistan is running $40 to $55Billion a year according to the New York Times. Maybe you should spend your efforts saving that money?

            Perhaps class warfare is more important to you.

            Since 1935 the Social Security system has been promising benefits and collecting contributions. Now you believe that those promises were worthless. Where would that attitude end? Would you favor defaulting on Treasury bonds?

            Bruce Krasting says:

            February 4, 2011 at 12:16 pm

            You point to Afghanistan and a NY times report that it costs us 40 billion a year!!!!

            I say again to you folks. SS spent $60b in February alone. Get some perspective, please.

            DownSouth says:

            February 4, 2011 at 1:18 pm

            Hum. Let’ see. Here are the budget figures.

            Defense spending, including Veterans benefits and services, in 2000 was $341,352 billion, or 19.1% of total Federal outlays. By 2009 that figure had increased to $661,049 billion, or 21.5% of total Federal outlays.

            In 2000 Social Security spending was $409,423 billion, or 22% of total Federal outlays. By 2009 that figure had increased to $682,963 billion, or 19.4% of total Federal outlays.

            So as a percentage of total Federal outlays, by 2009 Defense spending (21.5%) was greater than Social Security spending (19.4%).

            So by all means, Bruce: Get some perspective, please.

            DownSouth says:

            February 4, 2011 at 1:39 pm

            And Jim the Skeptic is right.

            If you look at Table 2.4 of the 2011 Budget, the draw…on the trust fund is $60.15 billion.

            So Bruce, you may “study SS.” All I can say is that your definition of “study” must be very different from mine.

        2. Steve

          Your discussion of the marginal tax structure is a canard. The only issue is: What can the Government collect as a % of GDP?

          The amount has ranged from between 18-21% in the post-war period in the US, regardless of marginal tax rates.

          In a voluntary tax system, with no VAT or national sales tax, you aren’t going to collect more than this without a meaningful change in the system. This change probably wouldn’t be progressive either.

          1. DownSouth

            Yea right.

            Where the tax burden falls makes no difference whatsoever.

            If the portion of the tax burden paid by the rich and by corporations falls, and the working- and middle-class have to pick up the slack, that is of absolutely no significance.

            Likewise, if the tax burden on the rich and corporations falls, and the slack has to be made up by government borrowing, that is of absolutely no import either.

          2. Jim the Skeptic

            Steve said: “The only issue is: What can the Government collect as a % of GDP?”

            Taxes can be raised if it is necessary. To deny that is just silly. If investment income were treated as ordinary it would raise revenues and investors would be powerless to prevent it. Please spare me the threat that they would leave the country, that would happen just before hell froze over.

            My main point was that during the 1960s and 1970′s when the baby boomers were coming into the workforce, the richest individuals and corporations were paying much higher taxes. We have been told repeatedly that high taxes deter investment. If that were true then transitioning the baby boomers into the workforce should have been a nightmare, but it wasn’t.

  5. ScottW

    What is lost in the Peterson propaganda show is how people will live in the future with reduced social security and medicare benefits. The road show seems to focus on scare tactics of huge government deficits caused by continuing entitlement payments without the specifics of how individual recipients of social security/medicare actually will support themselves if benefits are cut. Last time I checked, my mother-in-law is not living the life of luxury on her $1,0000 a month check. And she still pays quite a bit for medical care that is not covered by medicare.

    We should allow all of the Peterson followers the opportunity to just check a box on their tax returns opting out of receiving their ssi/medicare benefits. Do you think there would be many takers?

    1. Jimbo

      Excellent point. One decade ago, with the median wage growing at a healthy clip, the voter would have tolerated some changes to entitlements. Today, with the median wage having stagnated for over a decade, and with the real median wage down 1.9% over the last year, the public won’t tolerate it.

      If President Obama signs off on entitlement reform this year, he won’t be reelected.

  6. Chaos

    Why doesn’t any reform of SS start with taking this “broke” program out of the general fund?

    Why does the responsibility of funding the retirement needs of workers who make 20-40K per year fall on those who make 60-100K per year instead of their employers? Why place a cap this responsibility and why not include income from dividends and capital gains? Small business is one thing but Walmart is the same size as the 22nd largest country in the world. When does Walmart have an obligation to its workers and not use SS to make it someone elses obligation?

    1. Jim the Skeptic

      Chaos said: “Why doesn’t any reform of SS start with taking this “broke” program out of the general fund?”

      This is wrong on so many levels that I am embarrassed for you.

      1. Social Security is not broke, it can pay out benefits until 2037 with no changes.

      2. Social Security is funded by a special tax on employees and employers. It was called “FICA” on my pay stubs for years, but now seems to be referred to as the Payroll tax.

      3. In the past when Social Security was not collecting enough funds they raised that special tax to cover any shortage.

      4. To resolve the future issue of baby boomer retirement, in 1983 that special tax was raised to generate a surplus. That surplus was borrowed by the Federal government which left bonds in the Social Security Trust Fund.

      Now the Republicans would never default on China’s US Treasury bonds but defaulting on those bonds in the Social Security Trust Fund appears to be acceptable to them. Thus the current political battle over Social Security.

      1. Chaos

        I think you misunderstood, I’m not saying social security is broke (hence the “broke” in quotes). If the argument is it is broke then remove it from the general fund. You don’t borrow from something that is bankrupt or going bankrupt.

        Removing from the general fund never enters the discussion. Social Security is solvent until 2032 using grossly understated economic growth numbers in order to present a crisis. There’s no crisis. The reality is SS monies are needed to fund general obligations in order to keep the true tax rate artificially low. Neither party wants the raise the appropriate amount of revenue to fund their expenditures so its hidden by borrowing from SS.

        1. Jim the Skeptic

          There is no safe place to put the Social Security Trust Funds (SSTF) other than US government bonds. That means that government borrowing was bound to happen and that is not the problem. Investing the SSTF in the stock market would have been lunacy! (The holders of 401Ks have been taught a brutal lesson about that!)

          Everyone knew that the baby boomers were going to start retiring in about 2010. There is general agreement that the federal budget was balanced in 2000. That should have set the stage for the Federal government to pay down all debt except the SSTF debt. But the Republicans and Democrats did not do that, instead they cut revenue, engaged in 2 very expensive wars, and bailed out the financial system.

          As I approached retirement I did not build a new house, take a world cruise, or quit me job. Why did the politicians act so recklessly? Because they are idiots.

          1. Chaos

            I believe the present crisis is being manufactured to deal with the structural problem of the budget. 70% of the budget is funded through tax revenue, 20% from borrowing, and 10% borrowing from SS. The 20% from borrowing, much from overseas, is unsustainable. Interest rates are too low and investors are not getting an appropriate rate of return relative to their risk. Central banks around the world are conspiring to keep rates suppressed. But things will change, if say Greece, defaults or Ireland or Spain. Portugal is a little bit different given they hold most of their own debt. Investors will eventually demand higher ROR if bondholder haircuts occur in these situations. This leaves 20% of the budget in doubt and its debt service unsustainable. There’s no political will to raise taxes, and there’s also no political will to cut spending. Both of which will dampen current economic activty. Where’s the money going to come from that people won’t immediately notice until some distant time in the future and taking from it won’t impact economic activity today? Hence the need to justify the present crisis.

          2. ambrit

            Dear Jim;
            Thanks for putting figures to my comment! Even this jaded Amero Boomer is flabbergasted at the true size of the wealth transfer pulled off by the “forces of evil.”
            As to the ‘political will’ mini thread anet; I’m reminded of one of Gore Vidals’ mordant quips: “America has one political party, with two Right wings.”
            Another dimension of the revenue battle is the percent of revenue generated by ‘business taxes’ versus ‘individual taxes.’ Has anyone done any good work on the relative degree of ‘regressivity’ of business vs. individual taxation? (I originally put ‘recessivity’ until my wife pointed the Freudian slip out to me. My subconscious must be processing Social Darwinism today.)

          3. DownSouth

            ambrit,

            A couple of months ago the congressional Joint Committee on Taxation released a report, which can be found here, called “PRESENT LAW AND HISTORICAL OVERVIEW OF THE FEDERAL TAX SYSTEM.” I think it has much of the information which you are seeking.

            The single most important fact revealed by the report, the one that just screams at the top of its lungs to be heard, was this:

            In 1952, the year I was born, 32.1% of federal receipts were paid by corporations. In 2009, the last year that data was available, corporations paid only 6.6% of federal receipts.

            This constitutes an amazing tax break for the rich, who own the overwheming majority of corporate stock, in two ways:

            1) They do not have to pay income taxes on corporate income in the year it was earned like those who work for a living do, thus the tax burden is greatly reduced by the effects of the time value of money, and

            2) When they finally do cash in their shares, the proceeds are taxed as capital gains at a rate of only 15%, a fraction of what most people pay on salaries, wages, interest and dividends.

          4. propertius

            Never attribute to idiocy that which can be explained by corruption.

            Or something like that.

          5. ambrit

            Down south;
            We just got back from the coast and here you leave me this land mine of a congressional report. Thank you! Solid evidence that I am not delusionsl when I argue with people about tax progressivity. Now I have some ammo to shut up the bald faced lies so many people have been conned into believing. The next Town Hall meeting my local representative has near here,(we replaced a Blue Dog Dem with a pseudo Tea Party Repub,) I’ll be the one asking some tough questions. And they’d better not ask me to leave. If they haven’t heard it before, this is, in theory, a participatory democracy. They taught us that in grade school!
            Thanks again Down South. BTW, how’s the smog in the District nowadays?

  7. Carla

    Thank you, Yves, for calling out Gretchen Morgenson on this wretched column. I, too, am disappointed in her. I thought she was better than that.

    One by one, the few hold-outs among the finance writers and economics professors are being captured. Maybe it’s some strange version of the “Rapture.”

    OMG, Yves, don’t let it happen to you!

      1. ambrit

        Mz. Smith;
        If you were on a payroll, being ferine would be hopeless. We all like you just as you are, straight commission, no hidden fees.

  8. Jim Haygood

    ‘The two organizations are broadcasting the same message, that looming deficits must be dealt with via entitlement cuts.’

    Yves rightly points out that this is an Austerian message — benefit cuts deep enough to materially reduce the deficit would also cripple spending power among those dependent on entitlement programs.

    Ironically, most of those who vociferously oppose entitlement cuts also oppose the only way of offering more generous SocSec benefits: by allowing it to invest in a diversified portfolio as all other pension plans do, rather than being restricted to Treasury bonds. According to Ibbotson data, equities have outperformed T-bonds by almost four (4) percentage points — that’s 400 basis points — since 1926:

    http://corporate.morningstar.com/ib/documents/MediaMentions/AreBondsGoingToOutPerformStocks.pdf

    While mean-spirited conservatives want to starve Granny by cutting her benefits, mean-spirited good-government liberals want to keep Granny (and her grandkids) on a threadbare near-starvation diet by ensuring that her Social Security taxes are never properly reserved or invested for the best returns. Both benighted, well-heeled groups wield their oppressive ideologies to impoverish the masses.

    1. DownSouth

      Jim Haygood,

      Social Security was never envisioned as an investment program. It is an insurance program. It’s like a rock in a storm that one can crawl onto when all these other investment schemes have sunk to the bottom of the ocean, and it’s not relevant whether that is because of bad timing, bad luck or imprudence.

      The United States Government is the most secure counterparty in the world. Without it, many of the so-called gold-plated investments which you tout would, as we speak, be worth what the little boy shot at—-nothing.

      1. Jim Haygood

        More than fifty years ago, the Supreme Court ruled in Nestor v. Flemming that Social Security consists of a payroll tax and an entirely separate social welfare program. Either can be modified or terminated by Congress. Paying the tax does not entitle one to a benefit, as Nestor learned to his disgust after paying in for 19 years, but being denied benefits. The case established that Social Security is not insurance, since there is no contractual right to benefits.

        The U.S. government is the most secure counterparty in the world, but according to Professor Laurence Kotlikoff, has a negative net worth of $202 trillion, and is therefore insolvent to the tune of 13 years worth of GDP.

        Is the glass half empty or half full? Neither; it has a hole in the bottom, and a stray dog just lapped up the puddle.

        1. DownSouth

          Jim Haygood said: “The case established that Social Security is not insurance, since there is no contractual right to benefits.”

          Jim, maybe you should have taken the time to read the Supreme Court decision before you cited it in support of your religious beliefs. Nestor v. Flemming itself calls social security “insurance”. What Social Security is not, however, according to the decision, is “accrued property.” But that is a long, long way from giving the Congress carte blanche to alter Social Security benefits. Quoting from Nestor v. Flemming:

          The challenged section, set forth in full in the margin, [Footnote 1] provides for the termination of old-age, survivor, and disability insurance benefits payable to, or in certain cases in respect of, an alien individual who, after September 1, 1954 (the date of enactment of the section), is deported…

          [….]

          Payments under the Act are based upon the wage earner’s record of earnings in employment or self-employment covered by the Act, and take the form of old-age insurance and disability insurance benefits inuring to the wage earner (known as the “primary beneficiary”), and of benefits, including survivor benefits, payable to named dependents (“secondary beneficiaries”) of a wage-earner.

          [....]

          The Social Security system may be accurately described as a form of social insurance, enacted pursuant to Congress’ power to “spend money in aid of the general welfare,’” Helvering v. Davis, supra, at 301 U. S. 640, whereby persons gainfully employed, and those who employ them, are taxed to permit the payment of benefits to the retired and disabled, and their dependents.

          [....]

          This is not to say, however, that Congress may exercise its power to modify the statutory scheme free of all constitutional restraint. The interest of a covered employee under the Act is of sufficient substance to fall within the protection from arbitrary governmental action afforded by the Due Process Clause.

    2. bob

      How exactly does this work?

      The market cap of the SP500 is now about 12 trillion dollars.

      If SS funds (SS trust fund is about 2.5 trillion) are able to be “invested” into the stock market, instantly that market cap would go up.

      Would this be because the SP500 would be worth more? or because there was more money chasing fewer “things”.

      The law of diminishing returns.

      Of course the smart money would sell into the rally.

  9. Steve

    Yves–Please check your links. Where you should be linked to Mortgenson’s article (‘the one she chose to represent tonight’) is linked to Somers’. Please fix.

  10. New Jork Warmonger

    ….Meaning Medicare and Social Security … (and housing)
    Lois Lane will never cross ‘the line’!

  11. 16 shells from a 30.06

    “The budget for the 2011 fiscal year…..looks to be about $3 trillion, not counting the funds collected for Social Security (since the Vietnam War, the government has included the Social Security Trust Fund in the budget as a way to make the cost of America’s imperial military adventures seem smaller in comparison to the total cost of government).

    Meanwhile, the military share of the budget works out to about $1.6 trillion.

    That figure includes the Pentagon budget request of $708 billion, plus an estimated $200 billion in supplemental funding, called “overseas contingency funding” in euphemistic White House-speak), to fund the wars in Afghanistan and Iraq, some $40 billion or more in “black box” intelligence agency funding, $94 billion in non-DOD military spending, $100 billion in veterans benefits and health care spending, and $400 billion in interest on debt raised to pay for prior wars and the standing military.

    The 2011 military budget, by the way, is the largest in history, not just in actual dollars, but in inflation adjusted dollars, exceeding even the spending in World War II, when the nation was on an all-out military footing.

    Military spending in all its myriad forms works out to represent 53.3% of total US federal spending….”

    excerpted from:

    http://www.commondreams.org/view/2010/04/13-4

    And those figures above do not take into account the war in Libya, or how much it will ultimately cost.

    The solution is clear: The USA doesn’t spend enough money on wars and having only three wars (Iraq, Afghanistan and Libya) isn’t enough. We need to eliminate Social Security and Medicare entirely, use all of that money to increase military spending, then see if we can’t find some way to increase the number of wars from three to six.

    One way to save money on the transportation costs of new wars would be to invade countries closer to home, such as Uruguay and Argentina.

    1. Jim the Skeptic

      16 shells from a 30.06 said: “The solution is clear: The USA doesn’t spend enough money on wars and having only three wars (Iraq, Afghanistan and Libya) isn’t enough. We need to eliminate Social Security and Medicare entirely, use all of that money to increase military spending, then see if we can’t find some way to increase the number of wars from three to six.
      One way to save money on the transportation costs of new wars would be to invade countries closer to home, such as Uruguay and Argentina.”

      Sir, my father and uncles served in the military in WWII. I, my brothers, and my cousins served in the military during the 1960s and 1970s. I have strong positive feelings about the military. But the current defense spending is absurd.

      The sad thing is that your attempt to point out the absurdity is insufficient to the job although I agree wholeheartedly with the sentiment that wars do not bring prosperity but only debt.

      It should also be pointed out that a gold plated aircraft carrier or fighter aircraft is not remotely necessary. We have 11 aircraft carriers at a time when we are at peace with most of the world, absurd. When was the last time that an F-118 was shot down by enemy aircraft? So why do we need that F-135?

      So when we invade Uruguay and Argentina we won’t use bomb, we will use laser guided gold bars!

  12. shoogie

    From what I’ve been able to glean, the real issues of than they are the US Population Profile and out of control growth in health care costs which are expected to reach a critical mass around 2030 under current conditions:

    http://www.census.gov/population/www/pop-profile/natproj.html

    http://www.ssa.gov/oact/trsum/index.html

    This indicates that unless significant health care reform is implemented, no real and lasting progress can be made that will ultimately preserve such social programs.

    All discussions directed at the public that focus on simplified political ideology rather than these fundamental issues lose my ear immediately.

    1. shoogie

      Somehow I lost a significant part of a sentence.

      Correction: From what I’ve been able to glean, the real issues of “Social Security and Medicare are less about budget deficits” than they are the US Population Profile and out of control growth in health care costs which are expected to reach a critical mass around 2030 under current conditions:

  13. F. Beard

    The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Yves Smith

    Governments should not borrow in the first place so the “Bond Gods” should be told to take a hike. The government should simply cease borrowing and pay off debt as it comes due with new debt-free fiat.

  14. LizinOregon

    I heard Morgenson on Fresh Air flacking her book and she was blaming Fannie and Freddie for the subprime crisis. She also mentioned deregulation and the policy of homeownership for the masses. Not once did she mention any bank responsibility except for a swipe at Countrywide. When she gets it wrong, she goes all in.

  15. Hugh

    An economics reporter at the New York Times acting like a neoliberal shill, boy, I didn’t see that one coming.

    As in everything else, this is about kleptocracy. Cutting entitlements leaves more money in the rest of the budget which can be looted by the Pete Petersons of this world.

    Real fixes for Social Security and Medicare have always been out there and fiercely ignored by kleptocrats and the politicians (and reporters) they own. You want to fix Social Security? Take off income caps, as many have suggested in the comments above. Want to fix Medicare/Medicaid? Go to a universal single payer Medicare-for-All program, like the rest of the industrial world. Overall, it costs a lot less and produces better outcomes, in addition to eliminating the obvious and palpable fear and worry of becoming ill that pervades our society.

  16. Hugh

    Re the Social Security “surpluses”, there was never a valid reason to run them. They were just a backdoor regressive revenue enhancing tax on workers. All that was ever needed was just the commitment to fund the system when outflows became greater than inflows. This could have been done either by redirecting money from the discretionary side of the budget, or more logically from taking off the income caps.

    The situation we have now was always a huge multi-trillion dollar scam, one put together by that master of the con Alan Greenspan in his career before the Fed. Indeed his appointment to the Fed was a reward for this heist. Basically, politicians (both parties were in on this and profited from it) got extra trillions to spend borrowing it from Social Security, that is ordinary Americans, knowing that A) future ordinary American taxpayers would have to pay it back or B) future politicians would welch on their commitment to Social Security by cutting benefits.

    But the gist of all this is that those who lent the money, American workers, are the ones expected to pay it back or bear the burden of its not being paid back. As a con, it is a work of beauty, something that Greenspan should spend the rest of his days in prison contemplating.

    1. F. Beard

      As a con, it is a work of beauty, something that Greenspan should spend the rest of his days in prison contemplating. Hugh

      Agreed. I only regret that he has so few years to give for his country. But a central banker in jail would set such a wonderful precedent.

    2. Expatriated

      “All that was ever needed was just the commitment to fund the system when outflows became greater than inflows.”

      So that’s all that’s needed! In this case all further federal elections should be cancelled in the same Enabling Act. Clearly future Congressmen and Senators will have nothing to decide. From their perspective the main appropriation decision will have been made decades to centuries ago.

      And Congress itself can be disestablished as superfluous. All these functions can be transferred to a small team of actuaries in the IRS. Henceforth they will adminstratively set the annual tax rate necessary to fund SS & Medicare.

      1. Hugh

        Boy, when you miss the point you don’t mess around, do you? Perhaps you should review the 1983 reform of Social Security that Greenspan chaired, the off-budget deficit, and options for keeping Social Security funded.

  17. Psychoanalystus

    I work in a Medicare/Medicaid-paid environment, and the waste, fraud, and abuse I see are rampant. This is perpetrated by very large (and often transnational) corporations that provide services at obscenely inflated rates, shamelessly ripping off the government. For example, $7,000 per month for room and board in a 50 year old third-world style nursing home.

    It is amazing to see how one segment of the oligarchy (that represented by the Peterson Institute) is trying to displace another (these Medicaid/Medicare milking corporations). One set of crooks competing with another set of crooks for the chump’s (a.k.a. “taxpayers”) funds. Is this a sign that free market forces are now governing the very corruption based economy we have?

    Psychoanalystus

  18. Doug Terpstra

    Thank you, Yves. May your ceaseless 24/7 toil in the vineyards bear abundant fruit. Such plowing can’t be lucrative, yet you never do fund-raising (how about a little dancing Gif by the tip jar?). When the great paradigm shift inevitably comes, I sincerely hope you suffer an embarrassment of riches.

    The kleptocracy has made “entitlements” its key target, after unions, and Morgenson is a willing tool. Another is David Gregory on “This Week”. Today, he provided the slow-pitch setup for Mitch McConnell by asking what he can do to rein in the “50 trillion dollars in unfunded liabilities” (SS and Medicare). Huh? Without questioning demonstrably false premises, he readily stipulates to “facts” not in evidence. Even the late Tim Russert occasionally questioned official presumptions, but this show now causes acid reflux worse that an habanero smoothie within seconds. It is inexcusable journalistic malpractice.

    Orwell understood well this insidious perversion of language in propaganda, how we are cunningly induced to uncritically accept false premises. How could citizens otherwise possibly accept that 58% of our federal budget is spent on ‘security’ and ‘defense’ in endless aggressive wars where the ONLY defined enemy is a tactic—terrorism—or an emotion, terror? And speaking of the only thing we have to fear, how is it possible that the “Patriot” Act could be extended by the duopoly without amendment and scarcely any debate or press at all?

    The terms “unfunded liabilities” and “entitlements”* are similar examples of the devious framing of assumptions by the klepticracy and its MSM collaborators. The first is a provably false assumption that SS and Medicare (not Wall Street, wars or billionaires’ tax cuts) cause market-spooking deficits. The second is “entitlements”, an otherwise neutral legal term, used here as a pejorative for “undeserved charity” (rather than a right for premiums paid), in order to invoke a sense of guilt and shame. This allowed Obama to “heroically” defund SS by 30% (reducing payroll taxes 2%), and under cover of GOP threats to eliminate it, he is now poised to do the same to Medicare.

    * Wikipedia: “In a casual sense, the term “entitlement” refers to a notion or belief that one … is deserving of some particular reward or benefit … the term is often given with pejorative connotation (e.g. a [undeserved] ‘sense of entitlement’).”

    “… In clinical psychology and psychiatry, an unrealistic, exaggerated, or rigidly held sense of entitlement may be considered a symptom of narcissistic personality disorder, seen in those who … arrogate to themselves the right to demand lifelong reimbursement from fate’.”

    1. Jim Haygood

      ‘a right for premiums paid’

      Any fair-minded person would share your opinion. But the Supreme Court, regretably, did not:

      2. A person covered by the Social Security Act has not such a right in old-age benefit payments as would make every defeasance of “accrued” interests violative of the Due Process Clause of the Fifth Amendment. Pp. 363 U. S. 608-611.

      (a) The noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits are based on his contractual premium payments. Pp. 363 U. S. 608-610.

      (b) To engraft upon the Social Security System a concept of “accrued property rights” would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands and which Congress probably had in mind when it expressly reserved the right to alter, amend or repeal any provision of the Act. Pp. 363 U. S. 610-611.

      http://supreme.justia.com/us/363/603/case.html

      ‘Boldness in adjustment to ever-changing conditions’ — spoken like true flimflam artists! And this was in 1960 — too bad millions of American workers never noticed this public declaration of bad faith by their government.

      1. DownSouth

        Jim Haygood,

        To reiterate what I said above, you should probably have taken the time to read the entire decision before you cite it in support of your stealth religion.

        It inno way says what you claim it does.

  19. mcgee

    Peterson is an ex-investment banker, former CEO of Lehman Bros, co-founder of Blackstone Group. This billionaire understands how much the finance sector depends on government spending and the simple fact that post financial crisis there is only so many pieces of pie to go around. His uber capitalist POV means that the citizens will simply have to make do with less to ensure the banks and corporations will have low taxes and subsidies.
    His them or us attitude is clear. The 1% he represents understand the stakes and are making sure their interests will be considered before the needs of the rest of us.

  20. A Good Bankster

    Speaking off the record, my good buddy Pete Peterson knows that if we eliminate Social Security and Medicare and other entitlements, that will reduce the life expectancy of seniors and think how much money we can save from all those useless eaters dying in their 60s.

    First thing we do is send their corpses over to the “Chop Shop” to pick over the body parts.

    Like any business, this comes down to simple supply and demand. Waiting lists for legal transplants are impossibly long and many die before seeing their name on top.

    But for those who can afford it, there is an alternative. The sale of human body parts is big business.

    And business is good. According to reports by U.S. insurance companies and hospitals, the going rate for a lung is $116,400, a kidney $91,400 and a heart $57,000 – making a human body one of the most lucrative commodities around. Like mcgee said, there’s only so many pieces of pie to go around, and selling body parts is one of the best pieces left. One of the last resources capitalism has going for it, is an unlimited supply of human bodies.

    Someone once asked me why we couldn’t fund Social Security and Medicare by stopping the wars, ending the Wall Street bailouts and cutting taxes on the rich?

    After I stopped laughing I had to explain it to him this way: look, if I give a homeless bum $1, that means I’m down $1 and he has a $1 profit at my expense. On the other hand, if I misdirect him by waving a $1 bill in front of his eyes, then steal all the money he’s worked for with the other hand, that’s pure profit. All we’re doing is applying this same principle to Social Security and Medicare.

    If eliminating Social Security and Medicare results in millions of seniors dying in their early 60s, instead of their late 80s, I don’t see how we lose money. Speaking from the billionaire point of view there is no valid argument for continuing these wasteful entitlement programs. In fact eliminating them will be good for business: it’s what they call a two-fer: we save a fortune by not having to pay out Social Security or Medicare; at the same time, the millions of dead bodies that result may be worth another fortune in parts.

    If you’re a member of the billionaire class, it doesn’t get any better than that.

    1. LillithMc

      The oligarchs took over Russia at the urging of the Peterson types. In a short amount of time Russian people dropped 10 years off their life expectancy dropping into their 50′s instead of their 60′s. It is a proven formula for the 1% you are talking about. As Alan Grayson said last week, the aim is for cheap labor. Seniors don’t fit into that category.
      Obviously they are expendable and that includes me.

      1. FatCat

        Lillith,

        Please don’t say that about yourself. You are very valuable. Look, I offer your family $25 in cash, if you surrender your decrepit body to MY SoylentGreen Food Processing Corporation.

        Is that clear?!!!

        FatCat!

    2. billions for me, none for you

      Not to mention the soap you can make from their fat, or the lampshades from their skin. And the unusable parts can be ground up and fed to animals or used as fertilizer. It’s a 100% green recycling plan if you ask me.

      1. FatCat

        I like the way you think. How about if I offer you a management job at my SoylentGreen Food Corporation? I provide a nice salary and all you can eat fresh meat.

        Fatcat!

        1. billions for me, none for you

          Fatcat, I am working on perfecting my patent 5,395,353 “Biomass fuel generation from recently deceased elderly”

          By depriving 1/2 of the world your Soylent Green product, millions will starve, and their corpses can be used to power my fleet of limos and jets.

          In the future, I hope to create a machine that will accept the elderly on the fly and turn their bodies into high octane biomass fuel. I call it “Just in Time Fuel”.

          1. FatCat!

            Indeed, my fellow billionaire, indeed. We need not waste any of grandma’s decrepit body parts. May I submit to you my offer to buy all tender and more chewable parts of the numerous grandmas you process in your biofuel plants, in exchange for the mountains of highly flammable gray hair we get left over here at Soylent Green?

            That’s what I call a “win-win” oligarchic alliance.

            FatCat!

          2. billions for me, none for you

            Fatcat, as you probably know, the best way to make money these days is to rip off the government and the taxpayer. Why don’t you sell that grey hair to the government for $1 a strand. They can use the money they saved on not paying grandma’s medical expenses.

            Then they can give the hair to me as part of a subsidy for fuel producers. We can also have a lucrative side business ripping off pension funds by derivativizing the grey hair commodity markets. In addition, I think the life insurers are gonna want in on this because they’re already betting Grandma is going to die youngish.

            I’ll take care of lobbying the pols on my side if you buy the pols on yours.

    3. FatCat

      Thank you for sharing your truly genius wisdom with us, my Good Bankster friend. You and I should go golfing together sometimes to see how we can get to appoint you as US Surgeon General.

      See my detailed response to you below. Let me know if that is not clear…LOL

      Respectfully,
      FatCat!

  21. F. Beard

    It’s really pretty simple. Just stop allowing theft via government backed banking and there would be little need for social welfare programs in the first place.

    So-called “credit” is simply theft of purchasing power from all money holders including and especially the poor who are usually not considered “credit-worthy” themselves.

    1. FatCat

      FatCat! here, so listen up! This is in reply to the Good Bankster, above, but I think you all should carefully read what I have to say. Yes, my bankster friend, I too think there is lots of money to be made by making sure that geezers drop dead by age 60. However, my personal interest lies not in harvesting their decrepit bodies for replacement transplant organs, as we can certainly obtain better quality and younger supplies of human organs from India.

      My own interest in seeing old farts kick the bucket as early as possible is in order to process them in my SoylentGreen Food Processing Corporation, selling them as low-cost alternatives to imported food sources. Furthermore, in order to further maximize our profits, we need to make sure that our friends in the non-human meat processing industry pump up the growth hormone levels in meat sold in the US, and also that our partners at Monsanto and Cargill Corporations introduce even fattening genes in their GMO grains, because as we need to get these seniors to be even more plump than they already are. At SoylentGreen Corp we do sell them by the pound, so the more obese grandma gets, the better for ME.

      Is that clear?!!!

      FatCat!

      1. FatCat

        Oops, posted in the wrong place. Even oligarchic FatCats like me make mistakes sometimes… the key is to never admit it…

        FatCat!

        1. ambrit

          Dear Fat Cat;
          I think you’re spoofing on Peterson Foundation territory! This can be dangerous for your health. We here at PF have good friends over at XeCorp, (not to be confused with the Peoples Republican Party of the Middle Kingdom,)who are usually good at enforcing our ‘intellectual property rights. The giveaway? When you said that “even oligarchic Fat Cats like me make mistakes sometime.” A real Oligarch has flunkies to “take the heat” when things go wrong. So, cease and desist, lest you fancy a visit from the otters, who will juggle your stones.
          Love always, the Forces of Evil.

          1. FatCat!

            My dear Forces of Evil,

            First and foremost, I offer you my utmost respect and deepest felt regard. You should know that I have already fired the moron who posted MY reply in the wrong place, but not before I arranged for his house to be foreclosed on MY (and yours) good buddy Jamie Demon at JP Morgan Chase. I also had his kids put in one of my GEO Group private juvenile prisons for jaywalking. Furthermore, his wife has already filed for divorce, that with the probono assistance of one of MY 1000 attorneys I keep on payroll.

            But MY friend, may I suggest that Peterson Foundation (along with the rest of the Forces of Evil) and MYSELF consider a business partnership in this highly lucrative elderly recycling operation? Since you are so well connected with Xe Corp, may I suggest that you ask your good friend Eric Prince, Xe Mercenary in Chief, if instead of covertly burying the bodies of all those Muslims he murders daily across the world, perhaps to should just simply turns them over to my SoylentGreen Food Processing Corporation to be turned into nutritious meals to be served in public schools across America. Reading about all the good work that Mr. Prince has been doing in Iraq, Afghanistan, and most recently UAE, I think he should have no trouble maintaining a daily supply of 5,000 nutritious corpses.

            What do you say? Are we partnering in this or what?

            Respectfully,
            FatCat!

  22. Don Levit

    Peak VT:
    If the government is running a deficit, how else can the Treasury pay back the loans to the SS TF other than increasing debt held by the public?
    By the way, doing so transforms intragovernmental debt into debt held by the public.
    Debt held by the public is considered more “serious” debt for at least 2 reasons.
    First, the interst on debt hled by the public is paid in cash, with a direct, immediate budget impact. Interest paid on intragovernmental debt is paid in debt, with no immediate budget impact.
    Second, the federal government considers debt held by the public to be level one debt, the most important obligation to fulfill.
    Intragovernmental debt, which includes future Social Security and Medicare benefits, is level 4 debt, the weakest federal government obligation to fulfill.
    Don Levit

    1. PeakVT

      “If the government is running a deficit, how else can the Treasury pay back the loans to the SS TF other than increasing debt held by the public?”

      What does this have to do with what I said? Krasting made the assertion that the SSTF will “force” the Treasury into a certain action. It can’t. The end.

      1. ambrit

        Dear Friends;
        Ever hear of inflating the debt away? Now that COLAs are being ‘downsized’, it should be easy.

  23. FatCat

    FatCat! here, so listen up! This is in reply to the Good Bankster, above, but I think you all should carefully read what I have to say. Yes, my bankster friend, I too think there is lots of money to be made by making sure that geezers drop dead by age 60. However, my personal interest lies not in harvesting their decrepit bodies for replacement transplant organs, as we can certainly obtain better quality and younger supplies of human organs from India.

    My own interest in seeing old farts kick the bucket as early as possible is in order to process them in my SoylentGreen Food Processing Corporation, selling them as low-cost alternatives to imported food sources. Furthermore, in order to further maximize our profits, we need to make sure that our friends in the non-human meat processing industry pump up the growth hormone levels in meat sold in the US, and also that our partners at Monsanto and Cargill Corporations introduce even more fattening genes in their GMO grains, because we need to get these seniors to be even more plump than they already are. At SoylentGreen Corp we do sell them by the pound, so the more obese grandma gets, the better for ME.

    Is that clear?!!!

    FatCat!

    1. A Good Bankster

      FatCat,

      Please contact me at the following address and as soon as I run this by the Board of Directors I’ll be in touch with you with about doing business with your SoylentGreen Food Processing Corporation:

      A Good Bankster
      c/o Peter G. Peterson Foundation (Our America, Our Future)
      1383 Avenue of the Americas
      PO Box 278
      New York, NY 10019

  24. Mike G

    The Peterson Institute undertook this project at the request of the Peter G. Peterson Foundation, which is a completely separate entity.

    That is what amounts to a “second opinion” in the fetid conformist swamp of DC.

      1. ambrit

        Mr Beard;
        And you a man of the cloth!
        Analogously (sic0, there are always the Koch brothers and their ‘hangers on.’ (Not well educated enough to be considered sycophants.)

        1. F. Beard

          And you a man of the cloth! ambrit

          A man of the Book not the cloth.

          The Bible on rare occasion uses less than polite conversation though I admit I probably went too far. But it is difficult to resist a pun!

  25. F. Beard

    The proper response to Pete Peterson and ilk is: “The fascist banking and money system preceded and is the cause of socialism in the US; abolish that and the need for socialism should whither away.”

    But no, liberals and progressives imagine they can “regulate” an inherently crooked system when the true solution is to abolish it.

  26. TC

    “This suggests that investors increasingly recognize (as we have suggested) that we are in a re-run of sorts of 2008 (hopefully without the September-October fireworks)…”

    Don’t hold your breath in that hope. After all, the finale always is the most explosive part of any fireworks show.

  27. A. Wells

    Health care system is completely broken. Medicare can not be permanently fixed on such background. But that has little to do with deficits. If the Social Security, Medicare, and Unemployment have been abolished in 2009, the deficit would still have been more than 1 trillion dollars that year. The picture would have been similar for the last twenty years. The deficit simply does not originate with these three programs. They go after the entitlement programs for one reason. If they leave their dedicated taxes intact, even raise them a little, and cut the benefits, there is money to be stolen.

  28. I.M. Cynic

    We are forgetting about the single payer concept.Shortly after the 2008 election roughly 80% of the public favored it.Baucus said that the senate would not even consider it and slowly it has receded from the debate. With single payer in place there would not be a deficit problem because the cost per person for health care services would be reduced considerably.

    And to the guy who talked about seniors not knowing anything about jobs or health care costs…how do you think we got to be 65? We all worked at numerous jobs for considerably less pay than you get and wrestled with our health insurance companies for coverage in those cases where we were lucky enough to have insurance.

    Peterson has come up with a sly way to privatize social security…the Ryan plan with its vouchers will have many of us paying a good portion of our social security to private health care insurers.Remember Peterson was one of the guys who “saved”social security in 1983 by upping payroll taxes considerably.Now that he and his friends have burned through all that surplus(2.5 triilion), he is back for more.Don’t fall for it,the guy is just plain evil !

  29. Ping

    It’s the wars, Stupid

    It is disgusting that our financial crisis is being defined as due to entitlements while glossing over the elephant in the room.

    America spends more on military than the rest of the world combined. The oil consumption of our military is more than the entire NATIONAL (not just military) consumption of any country except China.

    With so much military demand, no wonder oil prices are so high and we are dependant.

    The American taxpayer has sent trillions in weaponry to support despotic regimes only to have those weapons used against us when our politicians decide regime change is advantageous.

    The defense contractors and all those beholden to their contributions are making fortunes while injured serviceman often have to struggle for long term care or their just ‘entitlements’ upon return.

    No doubt there is waste, fraud and inefficiencies in our profit driven health care model and entitlement programs (such as no negotiation with pharmaceutical companies for lower prices) but any basic study of history shows exorbitant support of war and a military eventually collapses any economy.

    The special interest think tanks that provide strategies to political groups with mainstream media in lock step have been drooling to privatize and loot entitlements for a long time.

    Bring our soldiers home, stop spending trillions on absurd wars and handing out enough weaponry to kill us all 10 times over.

    We don’t need to spend 10′s of billions catering to fanatic Israeli politics who’s citizens have better health care and entitlements than we do.

    Oh sure, entitlements are the problem (sarcasm).

    As many here have pointed out, what kind of economy do these think tank geniuses (sarcasm) think will be created after the safety nets have been drastically reduced or eliminated??

    Disposalbe income which fuels countless businesses will preciptously drop and the overall business activity will plunge.

    Or is it really the plan to accelerate crashing the US economy so our bones can be picked?

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