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Home Publications Blogs Beat the Press Robert Samuelson Shows that the Post Has no Fact Checkers on Its Opinion Pages

Robert Samuelson Shows that the Post Has no Fact Checkers on Its Opinion Pages

Sunday, 08 April 2012 21:28

Social Security and Medicare are hugely important for the security of the non-rich population of the United States. For this reason, Robert Samuelson and the Washington Post hate them.

As we know, this is a question of basic political philosophy. In the view of Samuelson and the Post, a dollar that it is in the pocket of low or middle class people is a dollar that could be in the pocket of the rich. And Medicare and Social Security are keeping many dollars in the pockets of low and middle class people. 

Today's column by Robert Samuelson tries to tell us that Franklin Roosevelt would be appalled by the current state of the Social Security program. Of course, he produces not a single iota of evidence to support this position, although it is very clear that Samuelson doesn't like Social Security.

Samuelson begins by telling us that:

"It [Social Security] has become what was then called 'the dole' and is now known as 'welfare.' This forgotten history clarifies why America’s budget problems are so intractable."

He later adds:

"Millions of Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits and that, therefore, they 'earned' these benefits. To reduce them would be to take something that is rightfully theirs."

Of course Samuelson is 100 percent wrong here. Payroll taxes have been segregated. That is the point of the Social Security trust fund and the Social Security trustees report. These institutions would make no sense if the funds were not segregated.

Samuelson is welcome to not like the way in which the funds were segregated, in the same way that I don't like the Yankees, but that doesn't change the fact that the Yankees have a very good baseball team. Since its beginnings, the government has maintained a separate Social Security account. Under the law, no money can be paid out in Social Security benefits unless the Trust Fund has the money to pay for them.

In this sense, the funds are absolutely segregated. Samuelson doesn't like this, but why should any of the rest of us care? The rest of the piece shows the same dishonesty and lack of respect for facts.

Samuelson later tells readers:

"But now, demographics are unfriendly. In 1960, there were five workers per recipient; today, there are three, and by 2025 the ratio will approach two. Roosevelt’s fear has materialized. Paying all benefits requires higher taxes, cuts in other programs or large deficits."

Okay, let's think about this for a minute. We went from five workers per retiree in the 1960s to roughly three workers for each retiree in the 90s. This ratio is projected to fall to roughly two workers per retiree by 2030 (not 2025, as readers of the Trustees report know).

On average we were much richer in the 90s than in the sixties, in spite of the fall in the ratio of workers to retirees. The same will be true in 2030, even assuming that we see the projected decline in the ratio of workers to retirees.

A small fact that Samuelson never mentions in this piece is that the Congressional Budget Office projects the program to be fully funded through 2038, with no changes whatsoever (i.e. no new taxes, contra Samuelson). If we want to make the program fully solvent for the rest of the century, a tax increase that is equal to 5 percent of projected wage growth over the next three decades should be roughly sufficient to do the trick. Are you scared yet?

There is an issue that most workers have not shared in the economy's growth over the last three decades. This is indeed a problem. If recent trends in inequality persist then any increase in Social Security taxes will be a burden, but the problem here are the policies that have brought about this upward redistribution of income, not Social Security.

Then Samuelson gives us his coup de grace:

"Although new recipients have paid payroll taxes higher and longer than their predecessors, their benefits still exceed taxes paid even assuming (again, fictitiously) that they had been invested. A two-earner couple with average wages retiring in 2010 would receive lifetime Social Security and Medicare benefits worth $906,000 compared with taxes of $704,000, estimate Steuerle and Rennane."

Okay, this is a really nice trick. Remember we were talking about Social Security? Note that Samuelson refers to "lifetime Social Security and Medicare benefits." It wasn't an accident that he brought Medicare into this discussion. That is because Steuerle and Rennane's calculations show that this average earning couple would get back less in Social Security benefits than what they paid in taxes. That would not fit well with Samuelson's story, so he brings in Medicare (remember this is the Washington Post).

And, the high cost of Medicare benefits is not due to their great generosity. The high cost is due to the fact that we pay our doctors, our drug companies, and our medical equipment suppliers way more than do people in any other country, and we have no better outcomes. If our per person costs for health care were comparable to costs in Germany, Canada, the UK or any other wealthy country, then workers would be paying far more for their Medicare benefits than the cost of what they are getting in care.

The story here is that Samuelson wants to punish ordinary workers for the fact that we pay doctors and the other big winners in this story too much. That may not make sense, but they don't call this paper "Fox on 15th Street" for nothing.

Comments (36)Add Comment
Good Piece
written by Stephen Knapp, April 08, 2012 11:15
Good piece Dean, did you see 60 minutes tonight? I've never yelled so much at the TV. It was classic VSP news reporting, with the authority on Europe's debt crisis being some random British financial analyst whose first statement was "Europe has gone on a ten year debt binge, has lived beyond its means, and the party is over."

Then it equated every southern European country as though they suffered the same faults. For example, they made blanket statements that tax collection was a major issue for every country, not just Greece. Then the narrator had a real gem, saying that when Greece wanted to maintain its highfalutin deadbeat lifestyle in the pass it would just "print money" and "devalue the drachma". Not those exact words but basically that.

Apparently having your own central bank with the ability to print money and achieve devaluation=deadbeat. That's prob what many viewers think now anyway.
Great Post!
written by cemmcs, April 08, 2012 11:25
Keep it up!
written by HCG, April 09, 2012 9:52
Dean, I suspect that Samuelson's confusion is a common one. As the SS funds come in, what should the Trustees do with them? Invest them, of course. But where? Well, not in the stock market, not in real estate, not in tech stocks -- for well known reasons -- too much volatility and therefore risk that the funds will shrink at the time of need. So Treasuries are the best and essentially risk free. The Trustees are being prudent.

But the Congress, especially the Republicans, does not care about deficits and debt, and so they have borrowed them to fund unwarranted wars and tax cuts for the wealthy. That is the problem which Samuelson should be focusing on.
written by Chris, April 09, 2012 10:02
HCG: Of course writers for the Post ought not to be "confused" even if people are. They should know the facts. Baker is marvelous for calling out our lousy media. Or at least the part that needs to be chastised.
trust fund solution...raise the interest rate
written by pete, April 09, 2012 10:21
Currently the trust fund is invested in special securities like the G fund for federal employees. The interest rate is made up, so to fix the fund just raise this rate enough to make it happen.
rabbit in the hat is that the funds are backed up by regular taxes, Low-rated comment [Show]
written by JW, April 09, 2012 11:23
GREAT response, Dean. Thanks for getting it out there.
written by Troy, April 09, 2012 11:26
>the Congressional Budget Office projects the program to be fully funded through 2038

CBO's latest projections are that real wages are going to be 33% higher by 2030 and 50% higher by 2038.

But I think the next 25 years are going to be a lot harder than the past 25.
written by bmz, April 09, 2012 11:57
The CBO projected that the surpluses Clinton left for Bush were enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. These “surpluses” were made up entirely of excess payroll taxes building up the trust funds. Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that taxes would have to be raised in order to amortize the trust funds. The failure to do so simply permits the Republicons to steal the money contributed by workers for their retirement. Everything about not raising taxes or limiting expenses, is about stealing our money.
Robert Samuelson
written by Brian, April 09, 2012 12:18
This Samuelson has been a notorious right wing mixture of dishonesty and dumbness for many years. A long time ago he had a column in Newsweek. I wrote many letters to the Newsweek editor about the wrong-headed stuff in his column.

Once I got a letter back from someone on the Newsweek staff stating that I shouldn't pick on Samuelson because he was not an economist but a reporter. But his column isn't written in the voice of a reporter. It's written as though he himself was the expert.

I only rarely see the Post, but the few samples I have seen makes me think its main function is conservative propaganda. Maybe they should start a column by Joe the Plumber. He's qualified; he's not a plumber.
"dumb as a" Post
written by tom allen, April 09, 2012 12:31
It's the Washington Post. I think they made "dumb as a" part of their motto and hiring qualifications long ago.
workers paid more into SS than they will receive?
written by coberly, April 09, 2012 12:56

I think this is an error. The "paid more than..." requires that you accept the "present value" understanding of money, which is inappropriate in this case. Mostly, workers will receive about what they paid in plus about 2% "real" return (on average... the lower income workers will get a lot higher "return on investment, and it's the lower income workers that SS insurance is designed to protect.)

but because the 2% is less than the 3% or so that the slightly dishonest experts are claiming you can get from their magic bank, without risk, and without the insurance benefits of SS, they claim that the "present value" of your benefits is less than the "present value" of what you "might have gotten" if THEIR present value assumptions are accepted and your luck holds.

This means SS is a GOOD DEAL.. you do get back more than you put in. and it's guaranteed.

The fact that adding in Medicare makes SS an even better deal... according to Samuelson... is actually an argument on our side, unless you accept his implication that the country is going to have to go into debt to pay the difference.

Which we know is not true... Medicare is also pay as you go... or should be. Part of the pay as you go is the dedicated Medicare tax... which is the only one Samuelson is looking at. The other part is the general taxes which we all pay... and this is also pay as you go... or would be if we just paid for what we need instead of borrowed for it. But we are borrowing for defense spending and other things as well as medical care. It's a question of what we want to pay for. And of course it's a question of whether we are smart enough to bring down the costs of medical care. Cutting Medicare benefits will NOT bring down the cost of medical care. It just will deny people the right to pay in advance for their own care, under Medicare, when they can afford it, and leave them without care when they get old and can't.
pay as you go
written by coberly, April 09, 2012 1:02
probably not clear in the above

pay as you go means you don't go into debt to pay it. since pay as you go is automatically adjusted for inflation it turns out to be the best way to pay for things like social security and medicare. everyone gets more than he paid in because the following generation pays in more, based on their higher incomes. but the following generation is not the loser by this... their own costs are going to be higher than they paid in, and the difference will be made up by the generation following them.. and so on... forever as long as the country lasts and people need the insurance. you have to understand this is not a "debt" it's just a consequences of the growth in the economy.

if wages were going down and costs were going up, that would be another problem... but it wouldn't be a problem caused by Social Security... indeed SS might still be the best we could do, even though it wouldn't be as good as we had hoped.
written by Arne, April 09, 2012 1:07
"Americans believe ... that their payroll taxes .. pay for their benefits "
There is some truth in what Samuelson says. SS was never an entirely "contributory pension plan" as Samuelson asserts, but the Trust Fund was more than the one-year reserve that it became in the 1970s. I personally think a PAYGO system makes a lot of sense for handling the way productivity has grown and demographics have changed, but as long as so few people really understand it (and reject small but necessary adjustments), SS will be vulnerable.
everyone is on the dole, Low-rated comment [Show]
written by coberly, April 09, 2012 4:53

social security was never a "contributory plan" in the sense Samuelson means at all. but that doesn't make "pay as you go" the dole, as Samuelson says.

your payroll taxes pay for your benefits. and oh god i hope you are not stupid enough to think this means , or has to mean, that your taxes are kept in a drawer, earning interest like gerbils having babies... until you take it out as benefits. it means no one else is paying for "your" benefits. unless of course you get yourself all confused about the insurance part.

SS was designed to be pay as you go because that is the simplest, safest way to finesse the inflation problem.
to pete
written by coberly, April 09, 2012 4:57
you don't seem to know much, but boy are you sure about what you think you know.

SS is not welfare. it was made "not welfare" for a reason. that means it is not "needs based." it pays you a benefit based on your contribution without any need to meet a "needs test." when you are old and poor and need your Social Security you will understand why this is important.
written by Calgacus, April 09, 2012 5:32
For the umpteenth time, here is FDR himself on Social Security & taxation:

"We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”


Social Security was designed and administered by MMT economists, or Institutionalists & Keynesians as they were called back then. Many were students of John R. Commons, who Keynes said was the economist whose thought was the closest to his, and whose magnum opus, Institutional Economics, particularly the central, book-length chapter on "Futurity" is very enlightening, clear and valuable.

Taxes don't pay for social security. They just restrict consumption, disinflate when they are taken out of the workers' hands, and thereby maintain the value of the dollar and of federal payments, including SS to retirees.

Greenspan, three decades ago convinced the innumerate, abetted by the maniacs, monsters and morons called academic economists, that the government could and should do the impossible and save up its own debt, and used FDR's political protection as a tool to destroy SS and the US middle class. Of course, if you want to pay the silly Trust Fund game, a sensibler thing would be to just increase the interest rate in the Trust Fund, as Pete recommends. And of course the Greenspan gross overtaxation was just a welfare-for-the-rich scam.
written by Karen, April 09, 2012 11:04
Social security was "absolutely segregated"? Yes, they tabulated the funds separately, then stole them all and wrote a big IOU and dropped it in the drawer. The net result of this sleight-of-hand is that the funds were commingled with the general fund and spent, and they are gone. Suggesting that some initial step of acknowledging a balance before it's borrowed and spent is tantamount to segregation is patently absurd.
written by vasilgrozny, April 10, 2012 4:20
Pete and others argue: the SS Trust Fund is gov't bonds, which are just future tax liabilities, ergo it's not really a fund.

Yeah, ok. So what do you imagine a fund to be? A lockbox storing what exactly? Stocks? Corporate bonds? Gold? Ok, so let's review. Stock= promise of future dividends earned through the labor of those same 2 workers/retiree. Corporate bonds are no different. What else? Gold? Ok, so you pay for high storage cost, hoping that price will trend with inflation. Then again, were government to start buying gold at the needed scale, it would create huge distortions -- massive price runups during the buying phase, and price collapses when selling.

In the end, there is no investment that gets around the demographic aging of the population. The young will have to support the old. The PAYGO approach based on the safest investment available -- US Gov't bonds -- is the only sensible system given the scale of the undertaking. What the Trust Fund insures is not that "money will be there," but that the promised payments won't be cut willy-nilly by a Congress guided by Samuelson's pied piper song.
written by snaildarter, April 10, 2012 8:43
I didn't get exercised by the Samuelson piece because I long ago quit subjecting myself to him. You do a great job of calling him out. Thanks. What I don't understand is why you expect opinion pages to have fact checkers. The problem with having Samuelson on the page is not that nobody's holding him to account. It's hiring him in the first place.
Vasil...so I guess you agree...
written by pete, April 10, 2012 9:32
Yes the source is tax revenues...exactly...just like Apple's price is the sale of future gadgets. I think we are on the same page. Difference is, if present trends continue, the SS fund has a negative value, i.e., the present value of its liabilities, future payments, are far less than the present value of its future SS tax revenues. In this sense it is not like Apple.

Most important, is that SS at heart, in the pay as you go, is just a transfer, not a real burden on the economy. It does not consume GDP. It just shuffles it around. If everybody got triple the SS overnight, it would just mean triple the taxes or whatever. No more beer and pretzels...just giving more beer and pretzels to the old farts. (Yeah!)

These transfers could lower GDP, in the sense that young folks might have a higher MPC than us oldsters.

One solution would be to have the Fed pay SS checks directly, rather than monetizing the debt which will be issued to pay SS. Currently if the fund cashes in one its "bonds" the Treasury will issue a public bond, get cash, and give the cash to SS to pay out.

We could skip the charade and have new money be introduced directly via SS payments. This might actually get the inflation that Krugman is begging for.
written by DonB, April 10, 2012 11:52
In 2005, Business Week published an article (the link to which I have lost) that explained why the FICA tax has not provided the revenue that was expected by the 1986 SS law that created rules for building the trust fund to cover the population bubble (Baby Boom) while the population growth slowed down.
written by DonB, April 10, 2012 12:00
It was due to the change in the growth of income distribution, with so much more of the income growth going to the rich rather than the 99% and particularly the 95%.
written by Gary Storrs, April 10, 2012 12:42
Great post as always. While you're at it, any chance you could weigh in on the Rs' claim of "double-counting" Medicare savings (e.g., in today's WaPo p. A3)? I see some old BTB posts on that but I think it could use the Baker treatment again.
written by vorpal, April 10, 2012 1:56
look a the bright side, as long as samuelson is employed, we will know whose side the major media is on.
pete: present value
written by coberly, April 10, 2012 3:02

the present value of SS is less than the present value of an imaginary investment at an imaginary interest in an imaginary bank with imaginary risks.

but if you can understand that SS is insurance in case your imaginary bank fails to deliver you imaginary return on investment, you might understand why it is a good buy.

and if you knew that at least fifty percent of workers receive benefits far in excess of the imaginary bank's imaginary interest, you might begin to understand why everyone prefers Social Security to your inadequately considered calculations.
coberly..thanks, made my point even stronger! I always forget about the insurance
written by pete, April 10, 2012 5:12
Wow! You are saying I am screwing up because the present value of the liabilities really really outweigh the revenues. Or maybe you are saying that they should be disconnected. Absolutely! That is exactly the point. Definitely then a pay go system, hence the need to stop talking about the immensely undercapitalized "fund" and simply concentrate on how to pay the liabilities, and whether they should be adjusted in the future, like means testing with a Buffett rule..no SS for those making over $1,000,000 a year.

written by RL, April 10, 2012 8:21
I find it interesting that all the people seeking to "reform" social security are currently in favor of means testing. Why is there not a single one in favor of simply raising the payroll tax on the wealthy? Pete Peterson is so fabulously wealthy that he does not need SS; OK then, why not raise his payroll tax by an amount that would be equivalent to him forfeiting his SS income? This plan would be virtually identical to means testing, in terms of individuals' present-value, after-tax income, so why can one not find a single advocate of it among "reformers"? It can't be because of any extra expense in collecting and distributing SS, which would be truly infinitesimal. It's perfectly obvious: the end goal is to undermine the entire SS system, and what better way to do that than to stigmatize it as a form of welfare for poor people, a handout from independent, hard-working Americans to ungrateful shirkers content to live on the dole?
yes yes flat tax is good...there is hope
written by pete, April 10, 2012 9:03
So now RL says make the flat tax extend to all incomes. This is getting awfully efficient now. Of course you mean limiting their SS payouts to the $104,000 level, but just raising their taxes. Indeed this is far better then tinkering with marginal rates now envisioned. So 12.5% on all income (including cap gains and dividends). This gets very close to the 1980s Cato prescription.

For some reason folks think that 70% rates with things like huge deductions for LLPs and interest on cars and credit cards is better than lower rates and no deductions.....go figure. Flatten it baby.
SS Taxes
written by RL, April 10, 2012 11:18
I was pretty clearly referring to raising the cap on SS taxes, the point being that you could do this in such a way that the results would be identical to means testing, only it would eliminate the need for means testing. This idea would be bitterly opposed by SS "reformers," proving that their "progressive" reforms are utterly disingenuous and a transparent ploy to undermine the whole program.

Not sure how you got the idea of a flat tax on all income out of that one. I'm guessing it's similar to the way fervent Catholics are apt to see the image of Mary on every peanut butter jar and burnt piece of toast they come across. When you're abnormally fixated on some sacred object of obsession--the flat tax in this case--it starts to show up in strange places.
SS is not a big problem
written by BH in MA, April 11, 2012 6:03
Return SS to the setup created by the Reagan/Greenspan/O'Neil deal: set the cap so that 90% of national wages are taxed. This is how the cap was set in 1982, but the cap was indexed to inflation. Since wages at the high end have gone up faster than inflation, we're no longer taxing 90% of the country's paychecks. So boost the cap to $185,000 and adjust it annually so that 90% rate is maintained. Then raise the SS tax rate by .1% for the next ten years. No one is going to notice or care if their contribution rises by $1 per week per year. Then have the actuaries get back to me and tell me how many decades have been added to SS solvency. Social Security is not facing a crisis or even a large problem. Medical costs are 98% of the long term problem, yet we continue to spend 98% of our time arguing about other things.
the dependency ratio includes children
written by Blissex, April 12, 2012 3:32
It is often forgotten that the dependency ratio is not just old people to working people; it it also children to working people, because they both require expenditure that they are getting for free. Whether it is schools or pensions.

What matters in other words is the ratio of working people to the population, that is the participation rate, which has had ups and downs, but not dramatic ones.
money and shares and bonds are IOUs too
written by Blissex, April 12, 2012 3:40
When I read breathtaking statements like "then stole them all and wrote a big IOU and dropped it in the drawer" when those IOUs are interest paying treasury bonds I am amazed.

Because what is in all private savings accounts like 401ks are all far more dubious IOUs, as all Wall Street stocks and bonds are just IOUs that often become worthless, if they don't disappear entirely because people like Madoff or MF Global just steal the money and IOUs that clients have deposited when them,as another commented writes: «SS is insurance in case your imaginary bank fails to deliver you imaginary return on investment».

That's why many people buy Treasury bonds and keep them in a USA Treasury account, which are much safer:

401k and private pension accounts are IOUs that promise you other IOUs
written by Blissex, April 12, 2012 5:25
«all private savings accounts like 401ks are all far more dubious IOUs, as all Wall Street stocks and bonds are just IOUs that often become worthless,»

More precisely a private pension account or a 401K is a set of IOUs that promise to you not money, but other IOUs that are stocks and bonds.

Because when you open a private pension account or a 401K you don't actually get the IOUs that are stocks and bonds anymore; you pay in real dollars and you just get IOUs that promise to you that maybe you will get some IOUs some day in the future if you really insist.

Private pension accounts and 401Ks are basically as good as you trust a bunch of IOUs that promise other IOUs, any of which may become worth zero at any time, and you pay a Wall Street banker and broker a huge commission for managing those IOUs.

Trust your retirement to that.

BTW the "social security trust fund is just IOUs" talking point which has been pushed so aggressively by the neoliberal propaganda is pretty dangerous for Wall Street, banks and insurers, precisely because all they sell is IOUs (which are far less reliable than treasuries.) I wonder if it is in the interests of Wall Street, banks and insurers to fund neoliberal propaganda aimed at ensuring that people think of IOUs as bad worthless things.
written by Calgacus, April 12, 2012 2:56
Quite right, Blissex. But Karen is right that a theft occurred. She just is not describing the big con correctly. It rarely is. The Trust Fund is more or less an accounting record of how many dollars were stolen from working people over the last thirty years, and then given to the rich in the numerous welfare-for-the-rich con games that have become most of the government - e.g. the military-industrial complex.

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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.