Social Security 101

This is what you need to know to follow every discussion on Social Security.

First of all, Social Security works by having those workers presently working pay for those workers presently retired. I remember my dad explaining this to me back in 1969 or 70, when he was retiring and we were moving to town. I asked him how Social Security worked and he explained that people of his generation were receiving a gift. That he was going to be receiving monthly checks and the total amount would almost certainly surpass what he had paid in to it.

Social Security is an insurance program. It is not a savings plan. This means that the money you pay in to it is used to pay claims. If you do not reach retirement age, you will receive no money back. If you live past 100, your benefits will never run out.

Understanding this is the key to understanding why George W. Bush's plan to privatize Social Security was a farce. People were going to be allowed to invest their Social Security payments in the stock market. Social Security would have been in an immediate financial crisis, unable to pay out the benefits it was committed to paying. Either it would have gone bankrupt or the government would have had to raise taxes. The end result would have been that money raised from a tax on the working and middle class would have been used to increase investment in the stock market.

From its creation Social Security has been treated as a financially independent entity. The government calculates how much money is taken in, and how much is paid out, and it knows that today it has a $2.6 trillion surplus. It plans ahead and knows that this is enough money to pay every benefit owed to every eligible American for the next 25 years. It also knows that in about 12 years it will start running into deficits. Either retirees need to receive a little less in the way of benefits or more money needs to be paid in to the system. In the budget shutdown game from earlier this year, Obama agreed, by reducing inflation adjustments, to cut the amount of money retirees would receive. He has since backed off on this, but not before losing the waning support of people like me who think that given the great expansion of wealth at the top 1/10th of 1%, it would be more proper to have them, rather than the working class, pick up the slack. But I digress.

Conclusion. Social Security is financially sound. It will need an adjustment some time, but that adjustment is very minor.

So why does Social Security somehow keep entering into every serious discussion about reducing the national debt? This is because in 1968, during the Johnson administration, the government adopted the unified budget. Prior to that time, Social Security dollars were held completely separate from the rest of the federal budget. After 1968, Social Security continued to maintain its own records concerning income, expenses, surplus or debt, but the federal budget added the net surplus or deficit from Social Security to the national debt number. This means that without the Social Security surplus the national debt would be $2.6 trillion higher than we are being told that it is.

Another way of looking at it is to note that in 2010, Social Security's total income was $781.1 billion and its expenditures were $712.5 billion. (All numbers from Wikipedia). This means that $68.6 billion was taken in 2010 from the Social Security tax and used to pay for other operations of the federal government. By about 2023, Social Security will begin drawing down on the surplus paid in to the system by baby boomers. The federal government will then have to find other sources of revenue.

The defense of Social Security is, to me, a basic test of whether a candidate is a true Democrat. Social Security is 100% funded by the American worker and his employer. It is a tax which does not target wealth. Income over $106,800 is not taxed. It is an example of a government program that is has worked exceedingly well and which today has no deficit.

Any call to end Social Security or to reduce the payment of Social Security benefits can only appear as an attempt to maintain the present circumstances in which a tax on the American wage-earner and his employer is being used to finance the general operations of the government.

When President Obama agreed to reduce future payments to Social Security retirement beneficiaries, he showed his true colors. He sided with the ultra-wealthy against the interests of the working and middle class. He revealed once again that he is neither a liberal nor a true Democrat.

http://donaldleach.blogspot.com/

Wall Street vs the American People

It is revealing to read in the paper on the same day about the Occupy Wall Street movement and the fact that the Obama campaign is breaking records in the amount of money it is raising. From Wall Street. It brags to its supporters about the record number of individuals who have donated, but the record amount of dollars it has received it owes largely to Wall Street.

It has been interesting how many people don't get the point of Occupy Wall Street, including people who are in many ways anti-establishment. I'm thinking of Paul Tukey, my expert for organic lawn care, who filled me in on the Obama administration's quiet approval of genetically modified (he calls it "mutant") alfalfa and Kentucky blue grass seed. Leave it to Suze Orman, of all people to understand it completely (see her October 11 blog: http://www.huffingtonpost.com/suze-orman/occupy-wall-street-approv_b_1005128.html).

Main points: The very year that the taxpayers bailed out the Wall Street "banking" industry, its leadership was maintained and was even paid its normal bonuses. Today these mega-"banks" are once again showing hefty profits. Meanwhile there are still 10 million more people unemployed today than before the crisis. Those who were conned in to buying houses they couldn't afford are living in poverty, sending their kids to schools with 50 kids in a classroom, seeing their police forces cut and dealing with whatever healthcare they can finangle through Medicaid. And it is not just the poor who have been left behind. "Inflation-adjusted median house income declined 7.6% from June 2009 to June 2011." (Suze Orman)

No one resents the wealth of Steve Jobs. The technology to which he contributed will be one of the pillars of the future, post oil economy. Wall Street bankers have done nothing to improve the long-term well-being of the American people. This is so clear to me that it leaves me astonished to listen to people who have no awareness of it.

A few numbers from my April 29, 2011 blog post: Wall Street banker Henry Paulson at that time was being paid 2.4 million dollars an hour. The combined salary of the top 25 hedge fund managers was listed at 25 billion dollars. This is enough money to pay the salaries of 658,000 school teachers. The Plain Dealer confirmed the accuracy of one of our local state senators when she asserted that the banking crisis brought about a loss of $5.5 trillion to American home owners. Banks as we knew them in our childhood shared in the cost of the bad loans they made. These banks did not.

I'm yearning for an alliance with the Tea Party. Could it be that they are not the same as the new Right? When the Tea Party first emerged, I was profoundly hopeful. Then they were suddenly putting forth notions that I still don't think represents them. It seems that they felt a need to put their authentic concerns on more intellectual grounds and became the victim of the right-wing (corporate money-making) propaganda machine.

For a populist alliance with the Tea Party, the left has to realize that the Democratic party has sold out to big money. The Tea Party has to end its alliance with big money. That would allow a national move to take back our government, which seems to be the common ground of the alienated on both the left and the right.

Our candidates for City Council get elected by going around and talking to the voters. We just had one at our door. He wants the support of the people. That is where we have to get to with our federal congressmen. Our Supreme Court ruled that spending money is a form of speech and that corporations, now considered to be people, have the constitutional right to spend as much money as they wish in pursuit of political aims. The right-wing justices did not need to make this ruling. They picked on a minor case (Citizens United vs The Federal Election Commission) to bring about a radical increase in the power of big money over our democracy. The Justices supporting this decision and, in particular, its leader John Roberts need to be impeached.

Slogan coming from Occupy Wall Street: "I'll believe corporations are people when Texas executes one. "

I'm using the term corporation excessively and inaccurately. Big money is also private companies like Cargill and Koch Industries. Also, I understand that corporations are diverse and not unified. But it seems to be the term which best reflects my concerns. I'm trying to shout as loud as I can that big money is squashing democracy. It provides us with our news, and is increasingly funding propaganda research so that its news can refer to its own studies.

The characteristic argument is that government can't do anything right, but it never focuses on how much of our taxes end up in the pockets of the very people getting rich by saying that government can't do anything right.

Lincoln said we fought the civil war so "that government of the people, by the people, for the people, shall not perish from the earth."

Obama is neither a Liberal nor a true Democrat

I like to use the term "a true Democrat" to refer to someone who believes in and fights for the view of government entertained by Roosevelt, Truman and Johnson. Similarly, I hesitate to call the views today dominating the Republican party as Republican. Ronald Reagan is what I think of as a Republican. Or Barry Goldwater. Our retired Senator Voinovich of Ohio was a Republican. On the other hand, our current Ohio Senator Rob Portman and Governor Kasich are so different that I hardly feel it is accurate to refer to them as belonging to the same party. The first three were citizens. These new guys are political players who draw their inspiration from right-wing (corporate) think tanks and the right-wing press. When they left congress they hung around in the corporate sector and now they are working to bring corporate government to Ohio. (At the turn of the twentieth century, Standard Oil owned both Ohio Senators, so this is historical déjà vu).

It is becoming increasingly evident that Barack Obama is not a liberal. His views are very difficult to distinguish from those of Mitt Romney. Indeed, I've gone to referring to ObamaRomneyCare. (As governor of Massachusetts, Romney signed healthcare legislation into law that is eerily similar to the Affordable Healthcare Act.) Not only is Obamacare not socialist, it isn't even liberal democratic. It is based on the notion that the role of government is to leave initiative to the private sector, dominated today by international corporations. If you object to the mandate that people must buy health insurance, keep in mind that the mandate is for them to buy private insurance, which for practical purposes means buying it from some corporate entity.

During the debate over the debt limit, Obama repeatedly stated to his Republican opponents: "I have to deal with my people on the left just like you have to deal with those on your right." In other words, Obama was equating his liberal progressive wing with the Tea Party movement. His goal was and is to situate himself halfway between the Tea Party and the liberals in his own party, which situates him in that space that used to be occupied by something that was called "the moderate Republican," but which doesn't exist anymore. There's a blog to be written on the systematic elimination of this creature starting around 1980.

During the great debate on the raising of the debt ceiling, Obama took to referring to the need to cut "entitlements." In other words, he took up the perspective that either, 1) the United States of America is too poor to spend money on the poor, sick and elderly or 2) the "Government" is not the appropriate means of caring for the poor sick and elderly. These perspectives are by definition conservative perspectives. Of course he expressed pain at taking up these perspectives, which is typical of the now disappeared "moderate Republican" creature. Roosevelt, Truman, and Johnson argued explicitly that these perspectives were false and immoral. That's because they were Democrats. What today has come to be called Liberals.

Obama's course of sacrificing liberal principles in order to compromise with the new Right seems senseless and incoherent. It may be, however, that his advisors are simply responding to the power of big money. To maintain its power, big money needs to be perceived as independent of either political party, and donates to the candidate perceived as being independent of politics. This also explains Obama's simultaneous denunciation of the progressive left and the Tea Party. These are the two groups with the political patriotism to push for reform of the political status quo.

Thoughts on the Economy

A new economic term to be learned: the Liquidity Trap. This is when investors have money to invest, but no where to invest it. We have one today. In order to put money in the Bank of New York Mellon, you have to pay the bank. This is because neither the bank, nor the investors who put their money in this account, have any use whatsoever for cash. No one is buying anything, so it would be foolish to invest in the economy. It is obviously an absurd state of affairs, when the government seems unable to pay its bills and corporations are basically paying no taxes. Wall Sreet Journal blog, August 4, 2011, by Jon Hilsenrath. http://blogs.wsj.com/economics/2011/08/04/bny-mellon-deposit-fee-life-in-the-liquidity-trap/

Interviewed an individual today who wanted a part-time retail job nights and weekends at Gabriel Brothers. She had worked 10 years in a factory and when it closed she was making $17.00 per hour. She spent two years in another factory which also closed. She then got hired at Lake West Hospital, but is paid so little that she now wants to take on an evening and weekend job to make things meet: $7.50 per hour. We talk to these people all the time, but they find it very difficult to actually perform well at two jobs.

Daniel Griswold, Director of Trade Policy Studies at the Cato Institute, founded and funded by the Koch Brothers, gave the following statistics in his talk to the City Club of Cleveland. I didn't right the numbers down, so my memory might be off, but very slightly. In 1990, it took 10 man hours to make a ton of steel. In 2000, it took 5. Today it takes less than 2. There are two obvious conclusions. First, this increased productivity means that all things made of steel are much cheaper than they would otherwise be, and this is a wonderful thing for all Americans, especially the working class. Second, the effect on employment is a catastrophe for the working class.

The international economy has undergone a fundamental shift in the last 30 or 40 years, which requires the American people to engage in thoughtful and open-minded discussion. The problem is that the the economic changes have created immense corporate and personal fortunes which have nothing to gain and everything to lose from thoughtful and open-minded discussion.

In a series of speeches in 1933, 1934, Franklin Roosevelt addressed the nation to state the necessity of government providing work to the people. He said that if industry was unable or unwilling to provide jobs, then the government would have to do it. Over the next 10 years, the US government created 11 million jobs.

Many Americans have been convinced that the government should not be involved in creating jobs, but I believe the alternative is an extended period of high unemployment and low wages and all the negative social consequences which result from that. There seems to be a mood sweeping the country that the time has come to suffer.

Why We Have a Large Federal Deficit

I. Our government decided that corporations should not have to pay for anything.

According to Richard Wolff, Emeritus Professor of Economics at University of Massachusetts Amherst, Democracy Now, 7/20/2011: "If you go back to the 1940s, here’s what you discover, that the federal government got 50 percent more money year after year from corporations than it did from individuals. For every dollar that individuals paid in income tax, corporations paid $1.50. If you compare that to today, here are the numbers. For every dollar that individuals pay to the federal government, corporations pay 25 cents."

II. Our government decided that the extremely wealthy should not be called on to contribute more than anyone else. From 1940 to 1970, the highest earnings were taxed at 70% or more. At one point the rate hit 91%. During these 30 years, the economy boomed. Reagan lowered the highest rate to 28%. Clinton raised it to 39% and balanced the budget. Bush lowered it back to 36%. You may think it unfair to tax anybody at a rate of 70% and up, but the results of this major shift in taxation have been dramatic. In 1977, the top 1% of Americans had 9% of the nation's wealth. Today, they have 20%. Today, 120 million at the bottom have the same combined wealth as the 150,000 at the top. While corporations publish record profits, wages and employment are in a long-term state of decline. The top 1% of Americans makes close to 25% of the total income made in America. Just moving the rate back to 39% would make a tremendous difference.

The right-wing propaganda machine likes to speak of "a vast expansion of government under Obama." This is total nonsense. Ezra Klein posts a blog reproduced in yesterday's Plain Dealer, which shows where the debt really came from. To read the original post: tinyurl.com/4xogtb5 (I can't seem to copy his graph, so I'll have to describe the content).

Under Bush, 2002-2009, new costs incurred totaled 5.07 trillion. The biggest four items being:

1.) 1.469 trillion: multiple wars. (Joel Stiglitz argues that the total cost of the Bush-Obama wars will hit 5 trillion.)

2.) 1.812 trillion: Bush tax cuts (non-stimulus tax cuts first proposed by Bush during the 2000 election. He was concerned about the Clinton surplus. This is true. Not sarcasm.)

3.) 0.773 trillion: 2008 stimulus and other changes

4.) 0.608 trillion: Non-defense discretionary spending

Under Obama, projected 2009-2017, the new costs minus planned cuts total 1.44 trillion

1.) 0.711 trillion: Stimulus spending

2.) 0.425 trillion: Stimulus tax cuts

3.) 0.278 Non-defense discretionary spending.

4.) 0.152 trillion: Health reform and entitlement changes

It deserves repeating that the bulk of the current deficit comes from the consequences of having over 9% of our workforce unemployed. Not only did those people stop paying taxes, they are receiving unemployment and other government benefits intended to help them until they find a job. In the meantime, the government is doing nothing to get them back to work. Indeed, the government is laying people off.

In the Cleveland Public Schools, they are discussing whether class sizes will hit 50.

So far Obama has:

1) Agreed to cut Social Security benefits. He backed off after pressure from his own party.

2) Agreed to raise the age when the elderly can begin Medicare. He backed after pressure from his own party.

3) Signed on to a deficit reduction package which does nothing to increase revenue.

In a speech to the U.S. Senate, Bernie Sanders, Senator of Vermont said the following: "Despite Democratic control over the White House, despite Democratic control over the Senate, despite overwhelming opposition from the American people, a small minority of the members of the Republican-controlled House have successfully pushed an extreme right-wing agenda onto the American political landscape. It is an ideology which believes that despite the fact that the rich are getting richer, the middle class is shrinking, and poverty is increasing, all—all of the burden for deficit reduction should rest on working people."

August 2, 2011

http://donaldleach.blogspot.com

Tidbits

I have thoughts for more developed thinking, but haven't had much leisure to write as my job is requiring me to work more hours than I think are appropriate. In this, I feel a lot of solidarity with the working class, where it is now common for both parents to work, or for one parent to work two and three jobs. This explains why there is no outbreak of political activism among the working class, which comes home and turns on the dribble of cable news, if they get any news at all.

Our largest corporations are making more by paying people less. Michael Cembalest, chief investment officer of J.P. Morgan Chase, asserted in his bank's regular report that "U.S. labor compensation is now at a 50-year low relative to both company sales and U.S. GDP." Corporate profit margins are now at 13%, compared to just under 11% in 2000. (Source, editorial by Harold Meyerson of the Washington Post entitled: "Corporate America's Chokehold on Wages.")

Our Democratic President has now agreed to 1) raising the age at which one can begin to be covered under Medicare, 2) reducing the inflation adjustments to Social Security so that the payments will be less likely to keep up with inflation. He seems to be inching further toward the Republicans on a couple of points of principle: 1) "Across the board" means million dollar tax breaks for billionaires and peanuts for the average American, 2) "Tightening your belt" only applies to the middle and working class.

Quote from the blog of Robert Reich, July 15: "A recent paper by Cornell political scientist Suzanne Mettler surveyed how many recipients of government benefits don’t really believe they have received any benefits. She found that over 44 percent of Social Security recipients say they “have not used a government social program.” More than half of families receiving government-backed student loans said the same thing, as did 60 percent of those who get the home mortgage interest deduction, 43 percent of unemployment insurance beneficiaries, and almost 30 percent of recipients of Social Security Disability."

Most of what passes these days for tax cuts is disguised corporate welfare.

Obama is now governing further to the right than Mitt Romney did when he was governor of Massachusetts. The democratic electorate is all about jobs, and Romney might well defeat Obama if he should manage to get the nomination. When is the last time you heard Obama discuss a plan for creating jobs?

A couple of poll results in today's Plain Dealer show what Obama is banking on. 66% of Americans want the President and Congress to compromise on raising the debt ceiling. 55% of Americans are more concerned with the deficit than they are with an economic crisis caused by the failure to raise the debt ceiling. So Obama works to be the leader of compromise and the leader in fighting the deficit. It's a center-right position.

Obama knows that people like me will never vote Republican, given the influence of the Tea Party and the whole right-wing propaganda machine on even a moderate Republican like Romney or Huntsman. It is urgent to get the Supreme Court out of the hands of Thomas and Scalia. Even after his recent betrayals, I am still confident Obama will do that.

Interesting also that the poll in the Plain Dealer doesn't ask people what they think about Medicare and Social Security being reduced. That's because Obama, the leader of the Democratic party, is himself leading the way in negotiating those reductions.

I am a regular reader of Paul Krugman's blog: "The Conscience of a Liberal," affiliated with the New York Times. He is my specialist on economics. For Krugman's take on the now rejected Obama-Boehner agreement to raise the age when you can join Medicare, go to http://krugman.blogs.nytimes.com/2011/07/23/what-obama-was-willing-to-give-away/. Best point: by sabotaging and mocking any attempt to reduce the cost of private health insurance, and by raising the age when people can begin Medicare, the Republicans are ensuring that a group of people in their 60s will go without insurance for a couple more years. Many people in their 60s are already doing so. They wait for Medicare to begin treatment of chronic conditions.

The obvious fix for healthcare is to allow any body who likes to sign up for Medicare at any age. Between 3 and 5% of the cost of Medicare goes to its administrative costs. From 15 to 20% of private health insurance costs go to administrative costs. Its one of numerous examples where government does a better job than the private sector. (Numbers from Democracy Now, but I've heard similar statistics from many other sources.)

Ezra Klein on the Strategy of Republicans in Congress

I'll cede the floor on this one to Ezra Klein, Washington Post, June 28, 2011.

http://www.washingtonpost.com/blogs/ezra-klein/post/column-in-praise-of-mitch-mcconnell/2011/05/19/AGoMj1oH_blog.html

Klein's column concerns the political tactics of the Republican Party and, in particular, the political strategy of Mitch McConnell, Senate majority leader.

Mitch McConnell is the one who, in October 2010, told the National Journal: "The single most important thing we want to achieve is for President Barack Obama to be a one-term president."

So far, the Republicans seem to be succeeding. Obama challenged the Republicans to not participate in the healthcare debate. He thought they would have to participate or face an irate public, but they proved him wrong. Backed by their formidable spin machine they were able to convince almost half the country that the bill was an example of extreme incompetence and moved the country down the road toward socialism.

Now the same pattern is playing out with regard to economic policy. Obama presenting himself as the figure of compromise, willing to face-down his own liberal base; the right presenting themselves as unwilling to compromise with someone so liberal as Obama.

The Republicans have thus destroyed effective government for the four years of Obama's first term.

While the government thus produced has been horrible, politics have never been more interesting. When he finds himself trailing in the polls, will Obama come back to life? Could we finally be treated to a liberal who can articulate outrage? Or maybe his Republican opponent will be so out of the mainstream, that he won't have to. I don't know which of those two options I prefer. I don't even want to consider the option that he will go out like a sacrificial lamb.