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God Speaks to Robert Samuelson

Monday, 19 November 2012 05:45

That is what readers of his column on the budget standoff undoubtedly concluded when they read his line:

"It’s a pity, because the outlines of the needed deal are clear."

He then lists a number of items which would not obviously be in most people's outlines, such as reduction in the top tax rate from 39.6 percent to 30.0 percent, and "sizable cuts in Social Security and Medicare." The latter might be viewed as especially surprising since an overwhelming majority of people across the political spectrum are opposed to cuts in Social Security and Medicare.

As a policy matter, with the vast majority of retirees just scraping by now, the idea of imposing further hardship would not seem to make a lot of sense. According to the Pew Research Center, the median near retiree household will not even have enough wealth to pay off their mortgage (their median wealth is just $162,000 compared to a median house price of more than $180,000).

This means that if a typical household used all of their wealth, including all their retirement accounts and selling their car, they would still have a small mortgage left over and would be entirely dependent on a Social Security check that averages just over $1,200 a month for their income. While highly touted in media outlets like the Washington Post, the number of affluent elderly (incomes over $100,000) are few and far between. Cutting their benefits would have little impact on the finances of Social Security and Medicare or the federal budget.

Given these facts, how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare? I gave my answer.

Comments (12)Add Comment
Gifts That Elected Obama Caused The Fiscal Cliff
written by Last Mover, November 19, 2012 7:04
Correction. It wasn't God speaking to Samuelson. It was Mitt Romney speaking, pointing out that Social Security and Medicare were gifts of excess from Obama that must be cut back or society is doomed to econonic hell as it goes over the fiscal cliff.
Previous comment by Last Mover points to real lesson from 2012 election.
written by Robert Salzberg, November 19, 2012 7:45
Hmmm. Last Mover writes that Social Security Act of 1935 and Medicare Act of 1965 "were gifts of excess from Obama" who was born in 1961. Bush Tax Cuts not mentioned....

The main lesson from this past election is that 2 comments from 2 Senators about rape resulted in a net gain of 2 Senators for the Democrats. By educating the public about their beliefs, they lost their elections.

Suzanne Mettler's excellent book: The Submerged State, details how much of the problem with modern American government is that the benefits of many government programs are hidden which is a large part of the reason why railing against 'Big Government' is still relatively effective.

Mettler's best example is an experiment where people that are given just a few details about how the home mortgage interest deduction disproportionately helps affluent families caused significant reduction in their support for the deduction. Education works.

Samuelson is somehow still deluded into thinking that "starve the beast" is still alive and well even though Norquist lost both his majority in the House and his 40 vote blocking minority in the Senate.
A small criticism
written by ellen1910, November 19, 2012 10:22
Dean --

Regularly, you repeat your "seniors' wealth equals a little less than average(?)/median(?) housing wealth" analysis. While I think I understand where you're coming from, each time I read the argument, I have to think it out all over again -- probably because it mixes income with wealth, confusingly.

Wouldn't it be clearer to stay with an income analysis, only? That is, to point out that the sole expense average retirees are free of is mortgage interest? And then, compare that savings with SS's $1200/mo. payment?

Are there reported numbers from which that average expense could be calculated?
Samuelson's God
written by Dr.BDH, November 19, 2012 11:22
...is the God of "I got mine, Jack, screw you." One may search through the Old and New Testaments and the Koran without glimpsing this god. But he must exist somewhere, declaring the hidden truth to Samuelson. My thanks to anyone who can provide a link to his scripture.
Mixing wealth and income?
written by KeithOK, November 19, 2012 11:23
I think the point of the numbers given for wealth and mortgage is after taking into account mortgage balance, the typical elderly household has no wealth, and survive on income. Positive household wealth is almost completely offset by the negative household "wealth" represented by the mortgage balance, so we're comparing wealth to wealth.

Rather than pointing out that "the sole expense average retirees are free of is mortgage interest" his numbers point out that typical elderly households are not free from mortgages and therefore not free from mortgage interest. If their income generated by their wealth is greater than the mortgage interest, they come out a little bit ahead in income, but given current interest rates on deposits, a net negative is probably more likely.

Salzburg comment/submerged state
written by jennifer reft, November 19, 2012 11:24
. . . how much of the problem with modern American government is that the benefits of many government programs are hidden which is a large part of the reason why railing against 'Big Government' is still relatively effective.

This is not an issue that gets enough play--that majority of the population benefits from government "gifts" especially corporate interests--various forms of government assistance such as tax breaks and protectionism--but these are rarely described as "gifts" in the media. (Kind of like "terrorism" only applies to certain groups of people but not certain national states but I digress . . . ) Also what is never extrapolated is that by keeping funds in SS to pay out to seniors this money is more likely to circulate in the economy through consumption. This is aside from the obvious benefits such as keeping people alive and eating.
written by H-Bob, November 19, 2012 4:47
"how could it be so clear to Samuelson that the outlines of the needed deal include sizable cuts in Social Security and Medicare?" He's a stockholder in "Meow Mix" ?
RE: J Reft
written by Mitchell Nusbaum, November 19, 2012 6:11
I just read the page from the AP; the one where they ignore prior sovereignty clauses in international legal discourse and link to the WSJ attack on SS anyway!
Must Reading For Samuleson
written by Potomac Oracle, November 19, 2012 7:17
I recommend two books that will ease him into the post Aug., 1971 monetary world.

1. Warren Mosler, "The Seven Deadly Frauds of Economic Policy"

2. L. Randall Wray, "Modern Money Theory: A Primer on Macroeconomis for Sovereign Currency Sysrtems."

These two books will disabuse him of his false premises and disasterous conclusions.
written by Lee A. Arnold, November 19, 2012 7:33
I always try to give people the benefit of the doubt, but it is becoming difficult to escape the conclusion that Mr. Samuelson is not mustering the facts to argue the case in good faith.

At least get the facts straight: If you want to win this fiscal thing, the following video might help. A lot of people are confused about deficits and the debt. Here is a serious cartoon animation that gives some clear and useful information. Put it on blast:
the one problem with American government?
written by Paul Meyer, November 19, 2012 8:06
Rob, Analyses by American lib/progs about how must one tweak here or there will fix the system are tiresome and fundamentally ill-informed. We have a dinosaur of a system (undemocratic, structurally conservative, glacial slow-moving) that all other democratic countries declined as a model long ago (those that took up our model are chiefly in Latin America, nuff said). Read Robert Dahl, Dan Lazare's Frozen Republic, Anthony Downs on the role ideological parties in democracy and then reflect on the fact we don't have any (no there are no political parties in our system just loose - which mean unaccountable- electoral coalitions,e.g., I doubt any elected official has ever lost his seat for ignoring a party platform in the US).
The net present value of SS should be added into people's wealth.
written by John Wright, November 19, 2012 11:41
Those on the side of preserving SS benefits should use the net present value approach to compute the annuity value of the benefits.

A 2001 paper by S.P. Fraser at epublications.marquette.edu estimated a married high earner couple had a Social Security net present value at 330K at age 62, 318K at age 65.

So this implies many people have far more net worth in their Social Security income stream than in home equity.

And any decrease in benefits immediately drops the NPV of the Social Security annuity.

Of course the people suggesting cutting benefits probably have little relative net worth in their future Social Security payment income stream.

And the argument that one should decrease grandma's benefits to avoid leaving a lot of debt for the grandkids doesn't allow that cutting grandma's benefits will drop the future value of her estate or cause her to ask for more immediate financial support from her descendants. Better to have her take any excess money now and gift the compounded amount to the grandkids in the future.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.