Our first installment began the task of decoding Barack Obama’s curious appeal to our right-of-center friends and relatives. (His point man on domestic policy is also the DLC’s Senior Economist — a deregulatin’, free tradin’, globalizin’, sharp-shootin’ son-of-a-centrist-gun from Waco Texas, Milton Academy, Yale’s Skull and Bones society and the Chicago school.)
The second member of Obama’s policy advisor triad is Harvard’s Jeffrey Liebman. Specialty: “pensions and poverty”, i.e., “entitlements”, i.e., “Social Security“.
Liebman’s reputation: centrist alarmist and moderate privatizer.
He has supported partial privatization of the government-run retirement system, an idea that’s anathema to many Democrats and bears a similarity to a proposal for personal investment accounts that Bush promoted, then dropped in 2005.
“Liebman has been to open to private accounts and most people in town would say he’s a moderate supporter of them,” said Michael Tanner, a Social Security expert at the Cato Institute
Flashback: November 4, 2004, a triumphant Dubya announced “I earned capital in the campaign, political capital, and now I intend to spend it.” First acquisition target on his hostile takeover list? Bush declared his intent to “save” Social Security, i.e., “privatize” Social Security, i.e. “kill” Social Security, seizing the opportunity to implement CATO’s “Leninist strategy” (pdf) articulated a generation earlier.
The netroots smelled out the plot, and leapt to the ramparts. Josh Marshall brilliantly classified the Democrats “most likely to go wobbly” on the issue as the Fainthearted Faction. More bloggers, experts and advocacy group allies joined the fray. Their full-court press harried the Fainthearts into extinction, and pushed or persuaded a goodly share of elected Republicans to take the pledge: no private accounts.
By mid-2005 privatization was Dead Before Arrival. The White House never even coughed up a legislative package … just a clutch of trial balloons, and even those didn’t pencil out. In the back halls of think tanks, however, the dream would not die. A bipartisan trio of entitlement crisis hawks concocted a “nonpartisan” compromise plan — a plan to save the plan to “save” Social Security.
In a 2005 policy paper Liebman, along with [Bush economist] Andrew Samwick of Dartmouth College in Hanover, New Hampshire, and Maya MacGuineas, a former aide to Senator John McCain, advocated a mix of benefit cuts, tax increases and mandatory personal accounts to shore up the system …
(This interview with Liebman. provides an accessible brief of the L-M-S proposal.)
No surprise here. Liebman was central to Bill Clinton’s flirtation with private accounts (eventually discarded as sharper analysis penetration the fog of crisis rhetoric and “free lunch” solution, replaced by a proposal to keep contributions in the public pool but invest some of them in higher-return private assets).
Liebman and Chief Reaganomicist Martin Feldstein had already uncorked Distributional Aspects of Social Security and Social Security Reform (U. Chicago Press, 2002), polishing the case for private accounts.
Candidate Obama’s stated position (and historical trajectory) on Social Security reform is intriguing enough in it’s own right. He seems to have arrived at Hillary’s “donut hole” position, for which he scathingly criticized her last summer, while simultaneously claiming she didn’t have a position. We’ll reserve this decoding exercise to the honors seminar.
Filed under: General |
The Confluence 
Ronk: I’m in awe. Really good informaition. The thing that worries me most about Obama’s plan is the possibility that some of us will see benefits cuts. I remember hearing Alan Greenspan talk about it recently on Fresh Air with Terry Gross. He seemed to think that benefits cuts were a real possibility. It seems that those of us in the twilight zone between the Baby Boomers and the GenX’ers can’t catch a break. We’ve paid into this system for nigh on 30 years and it’s kind of too late to go back and put away even more money. And we’ve already seen that some of us are considered wealthy, in spite of the high costs of living in our state.
But is social security in that much of a crisis? And if it isn’t what does he gain by saying that it is?
The projected imbalance remains hypothetical, and may be an artifact of overly pessimistic modeling assumptions. Productivity growth is lowballed, for instance. (We won’t get a trustworthy Trustees’ Report until well into the next administration.
Odds are there is some minor imbalance — extremely minor compared to the real and present danger of the general federal budget deficit.
Even then, SocSec benefits are on an escalator. Purchasing power goes up year by year (at retirement, and stays level after that).
The real source of the problem is that ordinary wages (earned income up to the cap) as a share of GDP is in longterm secular decline. Relative returns to capital and upper percentile earned incomes are increasing … a symptom of deep structural distortion in a Republicanized economy.
Your information is correct. The predictions about the shortfall are based on figures that assume an economic growth rate well below the historical average. There is no reason to think our economy will grow at such a pitiful rate, unless of course we have Republicans like Bush in charge.
The Republican strategy is to frighten younger voters with dire predictions about Social Security so the believe SS won’t be there for them and they will therefore support privatization. FYI privatization was tried in Britain under Thatcher with disastrous results. Low returns and much fraud. Chile, too, was disappointed by their program which did underperformed the traditional program for a lot of people. (Not surprising when you think that the estimates of returns are average, so half the people will be below that, with many being well below.)
The point that you do not bring up is that even if the cap needs to be raised, if we do this before we fix our fiscal policy we will be no better off than we are now. Everyone seems to forget that Social Security was supposed to have been fixed in the 80’s when we started increasing payments into the system beyond what was needed to cover current retirees, thus creating the SS Trust Fund. Because of irresponsible tax cuts and out-of-control spending by Republicans, the government debt is now so huge that payment of the fund’s obligations when the baby boomers start to retire in large numbers will be a big burden on the government. That is why Hillary is right to insist that we get our fiscal house in order before tackling SS, so that any extra funds that may be needed won’t be squandered on tax cuts for the rich, bridges to nowhere, disastrous wars or other Republican boondoggles. If she reinstitutes economic policies similar to those in place under Bill Clinton, there is every reason to believe that our economy will return to strong growth, budget supluses and economic betterment for not only the affluent but also the poor and middle class. This is what we accomplished in the nineties and what Bush’s economic policies destroyed. Sometimes a return to past policies is not a bad thing.