KRUGMAN (1/11/05): Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front, and then the system will become self-sustaining. The Wehner memo talks of borrowing $1 trillion to $2 trillion ''to cover transition costs.'' Similar numbers have been widely reported in the news media.Krugman gave a source for his figures. These numbers are based on a Congressional Budget Office analysis of Plan2, which was devised by a special presidential commission in 2001 and is widely expected to be the basis for President Bush's plan.
But that's just the borrowing over the next decade. Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt.
So according to Krugman, the transition cost for Bushs plan may run as high as $15 trillion, over the course of next four decades. But thats not what a voter would think from reading this mornings Washington Post. The following passage appears on page one, above the fold, written by Nell Henderson:
HENDERSON (2/17/05): Greenspan, appearing before the Senate Banking Committee, endorsed the idea of personal accounts but said there was no way to predict how financial markets would react to the federal government borrowing as much as $2 trillion to finance the plan.Hendersons rendition might even be a technically accurate account of what was asked-and-answered. But from this passage, any Post reader would naturally think that transition costs will top out at $2 trillion. Meanwhile, readers of todays New York Times get a completely different, third figure, courtesy of Edmund Andrews:
ANDREWS (2/17/05): White House officials have estimated that Mr. Bush's plan would require borrowing about $754 billion over the next decade. That figure, however, reflects Mr. Bush's strategy of delaying introduction of the accounts until 2009 and to phase them in over a number of years, a step he has said was intended in part to hold down the costs.In one way, Andrews agrees with Krugman; after all, $15 trillion does exceed $4 trillion, by a lot! But how fact-averse is our public debate? As a Washington Post survey showed last week, public opinion changes fast when people are told that Bushs plan will involve large borrowing. But how much borrowing could it involve? As is almost always the case with our public discourse, its essentially impossible to find a reasoned discussion of that basic question. And lets not miss the obvious context. The Bush Admin has been fighting hard to downplay the size of that future borrowing. Krugman gave an estimate for the next four decades; Andrews restricts himself to the next several decades. Is Andrews playing stooge for Bush by restricting the period under review? And why in the world is the Washington Post putting that passage by Henderson at the top of page one? Inevitably, the passage will mislead Post readers about a basic fact in this crucial debate. And again, lets not miss the obvious context, the context which Krugman pre-supplied: Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front. Henderson and Andrews seem to be helping those advocates as they pretend that the costs will be short-term and small.
Vice President Dick Cheney has acknowledged that the costs would be in the trillions of dollars in subsequent decades once the program is fully up and running, and some outside experts estimate that total borrowing could exceed $4 trillion over the next several decades.
Facts are stubborn things, someone said. Whoever said it was blissfully unaware of the ways of Americas press corps.
A GOOD TALK SPOILED (PART 4): How would Bushs plan for private accounts really work? In fact, Bush hasnt proposed an actual plan—a fact which Meet the Press host Tim Russert seemed not to know this past Sunday. (It fell to Charlie Rangel to tell him.) But in December 2001, the presidents Social Security commission did propose three actual plans, and Plan 2 has seemed to be the most likely White House model. So how would that plan actually work? According to the New York Times Mary Walsh, medium-wage workers wouldnt do all that well; in future years, they would increasingly fall short of the future benefit level that they are currently promised. Under current law, for example, a medium-wage retiree is slated to receive $26,940 from Social Security in the year 2075. And under the Bush commissions plan? That same worker would receive only $21,417 total (guaranteed benefits and private account combined)—even if the investments in his private account have earned a 4.6 percent annual return. And ouch! If his private account earned 3 percent, hed be stuck with $16,272—only about 60 percent of what he is currently promised. Nor must we wait until 2075 to see adverse effects of this plan; by the year 2035, the income for a medium-wage retiree would fall considerably short of current promised benefits. So much for the pleasing rhetoric Bush has spouted for the last five years. So much for the misleading claims of Campaign 2000, when Bush made it sound like his private accounts would hand each voter a sack of free cash—a misleading claim which the mainstream press corps effusively praised him for making.
But dont worry! No one watching this Sundays Meet the Press had to worry their little heads about those nagging figures. Indeed, their host, Tim Russert, seemed overmatched by the simplest matters before him. How fact-averse was Russerts discussion? As the maddening session neared its end, Senator Grassley made a ringing declaration:
GRASSLEY (2/13/05): The president has said, on television, that he will sit down and talk to anybody, he invites anybody, a bipartisan group to the table, and he will consider any alternative.Bush had even said it on television! It sounded good, and spirits soared. Unfortunately, Grassleys statement was baldly inaccurate; in fact, President Bush had repeatedly said that he wouldnt consider proposals which include tax increases. But so what? When Grassley made his inaccurate statement, his host politely stared into air. We started on Monday by asking a question: Can major Republicans make any statement so bogus that the Nantucket bulldog will notice? Grassleys odd statement put Tim to the test. Again, the island dog lay down and died.
Why is the public confused, mis- and under-informed, about the Social Security matter? Consider what happened this Sunday. Russert persistently failed to note the fact that Bush had ruled out tax increases. When he began to question Charlie Rangel, he played the stupid old game for which hes so famous—he dredged up an obscure, three-year-old quote and ambushed Rangel with his find, failing to provide even the simplest bit of context. By the end of the show, he had lost all control; Rangel and Grassley staged a silly, irrelevant, incoherent debate about the provisions of the Senates thrift account. And most important, when Russert tried to discuss the provisions of the commissions Plan 2, he engaged in long-winded, world-class incoherence. For old times sake, lets marvel again at Russerts bewildering presentation:
RUSSERT (2/13/05): Senator, shouldn't there be truth in packaging? The suggestion being made around the country that if we have private or personal accounts, then that's going to really be a big step towards dealing with the long-term financial problems of Social Security.In TV land, no one had the slightest idea what the man was talking about. Why is the public confused, misinformed? Russert didnt care enough to prepare a coherent presentation this day. Closing question: If you were paid millions of dollars each year; and if you had to broadcast one hour a week; would you have spent a little more time preparing a coherent program?
Here's what— a memo that was written by Peter Wehner, whos Bush's director of strategic initiatives. And he says that, "The suspicion that personal savings accounts may have little to do with making Social Security solvent over the long run was reinforced—by his e-mail. If we duck our duty on benefit calculations, it can have serious short-term economic consequences. Here's why. If we borrow $1-2 trillion dollars to cover transition costs for personal savings accounts and make no changes to wage indexing"—future payoffs to recipients—we'll have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities.
So when the president talks about private accounts, the second piece of that is what has to be done to pay for those? Now, the Center on Budget and Policy Priorities [CBPP] has done an analysis of what the commission that reported to President Bush recommended in terms of wage indexing. And this is what they found, that under current law, in 2042, recipients would get a 36 percent replacement, money—their three highest years' income, a 36 percent replacement; 2075 it would be 36 percent. Under a proposal of so-called wage indexing, it would drop to 27 percent, and in 2075 to 20 percent, which would be a benefit cut of 26 percent and 46 percent. OK. Now, that's reality. That's part of what an honest presentation to the American people would include. Why haven't we heard that?
VISIBLY UNPREPARED: For the record, lets note the problem Russert had in reading that quote about transition costs (see above). Clearly, Russert believed, when he began to read, that he was quoting a memo that was written by Peter Wehner, whos Bush's director of strategic initiatives. But uh-oh! The text he was quoting appeared on the screen, and he wasnt quoting a memo by Wehner; he was actually quoting a news report from Dow Jones Newswire (1/18/05), a two-paragraph news report which quoted a Wehner e-mail in its second paragraph. Just to establish the record on this, heres the actual text Russert was quoting, just as it appeared on the screen:
DOW JONES NEWSWIRE (1/18/05): The suspicion [that] personal savings accounts may have little to do with making Social Security solvent over the long run was reinforced by an e-mail sent to conservative backers by Peter Wehner, Bushs director of strategic initiatives, on January 5.For the record, there was no reason for Russert to quote this confusing, jargon-laden text at all. By quoting this text, he was trying to establish a well-known fact, a fact which everyone now accepts—the fact that future benefit cuts will accompany the use of those private accounts. In quoting this text, Russert introduced confusion into his presentation for no good reason at all. But note the way he bungled the reading of a text he should have skipped in the first place. When he reached the Newswires reference to Wehners e-mail, Russert realized that he hadnt been quoting the e-mail itself, a fact he had mistakenly announced to his viewers. So now he began to interrupt himself as he diverted from the posted text (compare his reading to the actual Newswire text). Of course, theres an obvious explanation for this; to all appearances, Russert hadnt spent much time reviewing the document he planned to use. He thought he was quoting a Wehner e-mail, when he was actually quoting a news report which quoted the e-mail in its text.
If we duck our duty (on benefit calculations), it can have serious short-term economic consequences. Here's why. If we borrow $1-2 trillion dollars to cover transition costs for personal savings accounts and make no changes to wage indexing, we'll have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities.
There was no reason to quote this report at all; it only injected more confusion into Russerts incoherent discussion. But to all appearances, Russert didnt even know what sort of document he was quoting. So lets ask you to examine your souls once again: If you were paid millions of dollars a year; and if you were discussing a crucial program, on one of the countrys most important news shows; would you have taken a couple of minutes to prepare yourself for this task?
MEETING THE PRESS: For more about Tim Russert, click here. Tomorrow: Some odds-and-ends topics.