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Home Publications Blogs Beat the Press Yahoo Assigns Arithmetic Challenged Team to Cover Social Security

Yahoo Assigns Arithmetic Challenged Team to Cover Social Security

Thursday, 09 August 2012 20:15

There have been numerous stories about how workers don't have the necessary skills for the available jobs. There is little evidence of this in the data. Wages are not rising rapidly in any major occupational grouping. If employers could not find workers with the necessary skills then they should be raising wages to pull away the limited group of qualified workers from competitors, unless of course the employers were too incompetent to understand that higher wages are necessary to attract workers.

Anyhow, Yahoo clearly has trouble attracting staff with the necessary skills in arithmetic and logic, since it ran a piece on Social Security which contained major errors in one or both. The piece recounts the story of Mary Ann Sorrentino, a woman who spent a career in relatively low-paying jobs, but nonetheless managed to save and invest successfully and thereby accumulate a substantial amount to support her retirement.

It then tells readers:

"Now nearly 70, Sorrentino says her mother's admonitions saved her -- especially considering that Social Security, that very American of safety nets, hasn't quite panned out the way many had hoped. She dubs them the "reality-challenged," referring to those who have long paid into the Social Security kitty with a blind belief they'll see their investments, and perhaps more, kindly returned to them by the federal government.

That dream has soured, says an Associated Press study this week. The average American who retires now will receive less Social Security money than what he contributed over a working life. There are variables (retirement age and income level are two big ones), but for many, it's clear: Social Security, she ain't what she used to be."

Just about every assertion in this piece is wrong. In fact, the statements are sufficiently inaccurate to be libelous. If Yahoo had mischaracterized a private corporation like Goldman Sachs or Morgan Stanley the same way, it is likely that it would be facing a serious lawsuit.

In fact, the study cited by Associated Press (Associated Press did not do a study) did not indicate that Social Security is paying out less than planned. The last cut in benefits was put into law 29 years. This means that if workers had looked at benefits they had been promised at any date since those cuts, they would be seeing exactly the benefits that they expected. The only "reality-challenged" folks in this story are those at Yahoo who apparently did not know this fact.

Also, the study showed that most workers would in fact get more than the standard return on the money they put into Social Security. It is only the top quarter or so of wage earners who could expect to get somewhat less than a normal return on the money they invested in Social Security. (Yahoo's concern for these relatively well off workers is ironic, since the Bowles-Simpson plan, which is enthusiastically supported by most of the Washington establishment, calls for further cuts to these workers' benefits.)

The Yahoo piece also badly misleads readers about the financial condition of Social Security. It told readers of a small business owner who doesn't expect to retire until 2039:

"and that Social Security, according to the Congressional Budget Office, could be bone-dry by 2040."

Actually the Congressional Budget Office does not say that Social Security could be bone-dry by 2040. Its projections show that it will only have enough revenue at that point to pay about 80 percent of scheduled benefits. However, the payable benefit projected for 2040 would still be larger than the average benefit that retirees receive today.

That would be the case if Congress never took any steps to address the projected shortfall. The additional funding needed to pay the full scheduled benefit would be roughly equal to half of the cost of the war in Iraq at its peak. It is likely that a voting population that has a substantially higher share of retirees than we do at present would insist that Congress find the funding to maintain full scheduled benefits.

Yahoo has been having serious management and financial problems in recent years. If this article is typical of its reporting it is a virtual certainty that the company will be out of business long before Social Security faces any real financial problems.

Comments (15)Add Comment
written by Jerry, August 09, 2012 11:12
"Also, the study showed that most workers would in fact get more than the standard return on the money they put into Social Security."

Not sure what you mean by this, it seemed pretty clear to me from looking at the study that almost everyone from 2010 on was paying more in taxes than they were getting back in benefits for social security (not SS and medicare combined).

It seems to me, rather than having a situation where we need to cut benefits for social security, we should be focusing on lowering the FICA tax rate so that people will be getting more out than what they paid in. Printing the money, raising it from financial transactions tax, or raising the SS payroll limit all seem like viable solutions to me. In either case, the recommendations for SS from both sides of the aisle are precisely 180 degrees backwards from what they should be.
"Bone Dry"
written by Bart, August 10, 2012 7:04

So sad that the populace is being brainwashed by the hoards of hate radio liars, and that the real SS CBO projections are not more widely known.
written by Joe Emersberger, August 10, 2012 7:05
The key words in Dean's remark that you quoted is "standard return". The study didn't simply adjust lifetime social security taxes paid for inflation. They added a 2% rate of return on top of that (i.e. a 2% "real" rate of return).

Is it fair to assume that the government should be able to pay back an average earner's liftetime SS tax money with with interst that works outs to 2% above inflation? For example if inflation rate avergae 3% over a person's lifetime, should the gov pay it all back at a nominal interst rate of 5%?

How easily could an average earner have invested the tax money on their own and garantteed themselves a very safe 2% real rate of return?

That aside, the yahoo article is clearly wrong about the study showing that avergage eaners will not get their SS tax money paid back. They will, but at what real rate of return is the question.

Yahoo Deflates Internal Skill Bubble
written by Last Mover, August 10, 2012 7:07
Since Yahoo has had on average one CEO per year for the last five years this proves the absence of structural unemployment at Yahoo. In fact it proves the opposite, that Yahoo is attracting over qualified workers to do the job with unnecessary high pay.

As Baker would say, like anything that is overpriced, this creates perverse incentives to write scary inflammatory stories about SS going bone dry even as it is 80% funded in the out years.

This moral hazard will be corrected as the planned layoffs proceed, pay declines to match skills and follow-up corrections appear in mea culpa articles based on objective facts.
Most workers earn less than the average wage
written by Dean, August 10, 2012 7:08

I should have made clear that most workers earn considerably less than the average over their working careers. The SS benefit is based on a worker's best 35 years. Many workers, especially women, will have some number of years of zero earnings. Even when they do work, the typical worker gets less than the average, which is boosted by including very highly paid workers. Looking at the payback for an average worker is showing the situation of someone who earned far more in their life-time than a typical worker getting Social Security benefits.
written by tom m, August 10, 2012 7:20
The AP article sows confusion by comparing taxes paid to benefits received without explaining that it is the present value (including the hypothetical interest earned on taxes) that is at issue. Most people take the taxes/benefits comparison literally. It seems useful to explain that Social Security does what an idealized pay-as-you go system should do--it gives the average worker a modest return on the taxes paid, roughly equal to the rate of growth of the labor force adjusted for technology. The article actually does a good job of explaining all the insurance features that you get for your money, such as disability, survivors, etc. (The short version that ran in my local paper left that out-giving readers the impression that SS is now a total rip-off.) So there is room here for some op-eds by progressives!
written by Downpuppy, August 10, 2012 8:46
Why cite Yahoo? Ohlemacher's AP atrocity ran in at least 700 newspapers, none of whom seem to have noticed that an "average" couple having contributed $600,000 to Social Security is absurd.

Anyhow, for once I beat you to a story:
written by Kat, August 10, 2012 8:52
I sure wish the Ms. Sorrentinos of the world would stop lecturing us. And, if she is going to lecture us could she at least explain what "smart" investments are available in 2012?
written by skeptonomist, August 10, 2012 9:03
The debate about SS is typically conducted on the basis of projections, some of which are made by people who are effectively lying and some by people who don't know what they're talking about. Actually, even the best of economists can't project 30 years into the future (or even 2 years for that matter) - they're not clairvoyant.

We should never lose sight of the fact that private retirement simply does not work; this has been demonstrated repeatedly. The crash of 1929 wiped out the savings of many people, and SS was started to take care of this situation without relying on Wall Street. That is, the program exists because private retirement had failed miserably, not because of projections. Now it has happened again as the collapse of the housing bubble wiped out housing wealth, but instead of learning from experience politicians are pressing to revert completely to the failed system and the media are largely supporting them.
Intuitive knowledge
written by David, August 10, 2012 9:17
This article illustrates why Socrates held rhetoricians (who these days masquerade as reporters) with great disdain: intuition is often wrong or simply misleading; people tend to confuse intuition with knowledge and emotion for logic/arithmetic.
SS is not an investment plan, it's insurance.
written by coberly, August 10, 2012 9:27
Thanks Dean, and Joe Emersberger and others

who get the "present value" lie.

The fact is that Social Security was never meant to make you rich. It was meant to provide insurance against the worst kind of poverty. It can ALWAYS pay enough to do that, with a premium (payroll tax) low enough to leave you plenty of money to invest and hope to get rich. But keep that insurance just in case.

It's not so much that the Yahoo authors can't do arithmetic, it's that they are highly paid liars. You and I probably can't compete with them. But we could do a better job of explaining to people exactly what SS is.

Hint, it isn't welfare either. It is the workers saving their own money in an insurance plan. Turn it into welfare by making the rich pay for it, and it will go the way of welfare as we knew it.

For those who haven't heard... SS can always pay "enough" (more than today) even if NOTHING AT ALL is done. But if today's workers want a benefit that keeps up with their rising standard of living and their longer life expectancy, they can pay for it with a raise in their own payroll tax of one half of one percent per year. That's about forty cents per week each year, and most workers will only pay half of that.

Full disclosure: because of the bad economy, Trustees are projecting that the rate of increase would probably need to be one full tenth of one percent each year for the next twenty years... that's eighty cents per week... while wages are going up eight dollars per week. And continue to rise at decreasing intervals through the rest of the century... but still averaging one half of one tenth percent per year... leaving future workers with a higher tax rate but more than twice as much money after paying the tax and twice as much money in retirement. SS ain't broke. Unless you let them break it.
written by Jerry, August 10, 2012 9:35
Thanks for the response, Dean. And thanks for addressing this study, it appears I'm in for a four part series on this over the coming weeks from my local newspaper.
written by Joe Emersberger, August 10, 2012 9:41
Again, bear in mind this key quote from the study:

"The 'lifetime value of taxes' is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation)"
It was an AP article - Yahoo just reprints them
written by NP, August 10, 2012 4:54

It's the AP reporter that's dumb as rocks. Yahoo is just a computer hosting their stories.
written by jay, August 11, 2012 7:54
This is definitely one of those zombie ideas that Krugman talks about. Knowledgable people like Dean aren't visible enough to educate ordinary folks. They watch tv or read the paper without having the time or foundation to critically evaluate the information. It's really poor practice, journalistic malpractice, for news outlet to let politics or sensationalism mislead people like this. It's an easy way to have an uninformed electorate and perpetuate industry agendas.

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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.