RETURN OF FREE MONEY! Kasich seemed to offer free money. Will your press corps just stare into space?
MONDAY, DECEMBER 6, 2004
RETURN OF FREE MONEY: Can Americans have an informed discussion about big public policy matters? The coming debate about Social Security will surely test that question. If they want to promote a coherent discussion, the mainstream press will have to work hard to explain the issues involved—and to debunk the bogus spin-points which routinely derail our debates.
Are Americas newspapers up to the task? Count us as major skeptics. For example, consider the lead editorial in todays Washington Post. At one point, the eds suggest that transition costs in Soc Sec privatization wont create more public debt. Heres why the net transition cost should be zero, according to the Posts eds:
WASHINGTON POST (12/6/04): Social Security privatization would allow current workers to divert part of the payroll tax into personal retirement accounts. That diversion would leave the government short of money, so...the government would have to borrow more—issuing perhaps $2 trillion in extra bonds over the next generation or so. But, in a soundly designed privatization, this transition cost would generate an equal and opposing transition benefit. The workers who divert part of their payroll tax into personal accounts would accept an offsetting cut in future Social Security payments from the government, thus reducing the nation's debt to future recipients. In sum, privatization would merely substitute new promises to pay bondholders for old promises to pay retirees. In a properly designed reform, the net transition cost should be zero.Sounds great! According to this analysis, the $2 trillion invested in the private accounts would be equaled by cuts in future benefits. Workers who set up the private accounts would accept an offsetting cut in future Social Security payments.
Sounds good—but does it make sense? Count us as major skeptics. After all, most people who promote privatization say it provides a way to address projected insolvency in the Soc Sec program. But if the government spends $2 trillion now—then takes back $2 trillion in the future—how would this help solve this ballyhooed problem? There may be an answer to this, but we have no idea what it is. The vast majority of people who read the Post couldnt answer that question either.
Meanwhile, some who promote Social Security private accounts seem to be up to a very old trick; they seem to be offering voters free money. In last Wednesdays New York Times, for example, John Kasich recommended private accounts (a proposal he has long endorsed). But note the trade-off he proposes for those who would start such accounts:
KASICH (12/1/04): We should also create Social Security savings accounts for those under 55. Workers could invest some of their payroll taxes in their own savings account in a mixture of conservative stocks and bonds, much as members of Congress and federal employees do. In exchange for investing a part of their payroll taxes, workers would give up some of their future Social Security benefit—probably about 25 cents for every dollar invested.Wow! According to Kasich, workers who start private accounts will get a very good deal! For every dollar they invest in a private account, theyll give up 25 cents in future benefits! To our untrained ear, its hard to know why a worker wouldnt go for a sweet deal like that.
Does Kasichs proposal make some sort of sense? We dont have the foggiest. Nor do the vast majority of people who read his piece last week. Most people arent trained budget analysts; if this debate is to make any sense, it must be explained in simple ways. But alas! To our ear, neither one of these pieces seem to make sense—and they seem to be contradictory. To our ear, the Post seems to say that workers will give up a dollar in future benefits for every dollar they put in their private accounts. Kasich seems to give them a better deal—theyd only give up a quarter.
Do either of these pieces make sense? If so, we need more explanation. But one thing did sound familiar in Kasichs piece. We thought we heard a familiar refrain; we thought we heard him offering free money. Invest a dollar, we heard him say. Later on, well charge you a quarter! But then, the pleasing offer of free money has ruled our recent budget debates, with conservative spinners offering free dough, and pundits pretending not to notice. No one is cutting Medicare, the Gingrich Congress said (for two years); were just slowing the rate at which the program will grow. They said this even as they proposed spending less in future years than it would cost to maintain the existing program—but the somnolent press corps failed to notice (links below). And when Candidate Bush proposed Soc Sec privatization during Campaign 2000, he too made a free money pitch. The reforms I have in mind will actually increase [younger workers] retirement income, he said, in the speech in which he introduced his great principles. Here was the free-money pitch which helped Bush get to the White House:
BUSH (5/15/00): The reforms I have in mind will actually increase [younger workers] retirement income. Right now, the real return people get from what they put into Social Security is a dismal 2 percent a year. Over the long term, sound investments yield about a 6 percent return A worker who invests even a limited portion of his or her paycheck could, over a career, end up with hundreds of thousands of dollars.Jeez! Who wouldnt prefer six percent over two? Who wouldnt want hundreds of thousands of dollars—extra dollars, beyond what they were scheduled to get? Bushs pleasing promise was based, of course, on utterly bogus sleight-of-hand. Paul Krugman explained the problem again and again (links below), but the rest of the press corps stared into air. Instead of debunking his phony spin-point, pundits praised Bush for his bold leadership—and criticized Gore for rank negativity when he attack attack attacked Bushs plan. And yes: This is the way your press corps has acted in all recent budget debates.
Our ear is well-trained for bull-roar and spin—and Kasich seemed to be up to old tricks. He seemed to be offering free money again, making a 25 cents on the dollar pitch we hadnt previously heard in this debate. Who wouldnt give up a quarter to get a dollar? Who wouldnt take six percent over two? Reading Kasich, we thought we heard the type of free-money pitch which has turned out so well in the past.
Will this be the spin-point the GOP uses to pimp its privatization proposal? If so, will pundits call them on their spin? Or will they do what theyve done in our recent debates? Will they stare into air while Bush makes proposals which would increase their own hefty net worth?
VISIT OUR INCOMPARABLE ARCHIVES: How did Gingrich promote his Medicare plan? And how did the press corps react? In August 1999, we posted three incomparable papers on the two-year Medicare foolishness. They come in three lengthsshort, medium and long. You know what to do—just click here.
During Campaign 2000, pundits pretended not to notice the fact that Bushs Sec Sec pitch was bogus. See THE DAILY HOWLER, 5/17/02. To see them trash Gore because he did notice, see THE DAILY HOWLER, 12/2/04. And yes: This is the way your press corps has acted in all recent budget debates.
THE OTHER PRIME SPIN-POINT: In tax debates, the most effective pseudo-con spin-point is the one Sean Hannity loves. Here he was, pimping it early last year:
HANNITY (1/8/03): If Democrats say tax cuts for the rich, which is the mantraif they say that all the time, dont we have to define what the terms are? Let me put up on the screen and hopefully you can see it there. If not, Ill read it to you. According to it, the top one percent pays 37 percent of the taxes; top five, 56; top ten percent, 67.3 percent of the taxes; bottom 50 only paid 3.9.The top one percent pays 37 percent of the taxes! That formulation sounds very unfair, which is why Major Storeboughts all pimp it.
Pundits rarely critique this claim, so lets do their work for them. First, the top one percent dont pay 37 percent of all taxes; they pay (roughly) 37 percent of federal income taxes, the one major tax which is somewhat progressive. So Hannity forgets to include the other taxes. He only pretends to have done so.
Second, it doesnt make sense to offer this stat without including a fact thats routinely omitted—the percentage of income the top one percent receive. Is it unfair that the top one percent pays that 37 percent? In order to evaluate that claim, youd have to know what percent of income they actually receive. But Hannity knows to omit that statistic. Reason? Hes pimping the interests of his owners and playing his viewers for fools.
According to David Cay Johnston, the top fifth of earners pay 19 percent of their income in taxes (federal, state and local); the bottom fifth pay 18 percent (see THE DAILY HOWLER, 11/19/04). Why do you hear Hannitys spin-point so often, while Johnstons claim is so rarely cited? And why dont pundits debunk Seans point? Were not sure how to answer that question. Could it be that theyre in the thrall of those potent Millionaire Pundit Values?