Saturday, October 13, 2012

Glenn Greenwald's Problem with Math and Balance Sheets

Glenn Greenwald has wandered into the world of government finance and proclaimed:
That social security is "going broke ....is, to put it as generously as possible, a claim that is dubious in the extreme. "Factually false" is more apt.

As the Pulitzer Prize-winning former New York Times economics reporter David Cay Johnston has repeatedly explained, this is the primary demonstrable myth being used by the DC class – which largely does not need entitlements – to deceive ordinary Americans into believing that they must "sacrifice" the pittances on which they are now living:

"Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

"Why, social security, of course, which ended 2011 with a $2.7 trillion surplus.

"That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

"So why all the talk about social security 'going broke?' … The reason is that the people who want to kill social security have for years worked hard to persuade the young that the social security taxes they pay to support today's gray hairs will do nothing for them when their own hair turns gray.

"That narrative has become the conventional wisdom because it is easily reduced to a headline or sound bite. The facts, which require more nuance and detail, show that, with a few fixes, Social Security can be safe for as long as we want."
Greenwald really has no clue. While he is very suspicious of many reports coming out of NYT, he is buying the CJ nonsense about  SS as if Sheldon Adleson, after examining the numbers, would want in. The fact of the matter is that the Social Security trustees themselves report a more honest picture of the SS situation than CJ.

This is from the Social Security Board of Trustees summary of the 2012 annual report:
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period.
What this means is that Social Security incoming tax cash flow is less than outflow to SS recipients. The difference that makes SS cash flow still positive (on the books) is interest earned from the Treasury. This is a problem, since not only does the Treasury not have on hand the money to pay the interest earned but it does not have on hand the $2.7 trillion surplus that CJ touts. Got that?

The entire surplus is  a multi-trillion IOU from the Treasury. The Treasury does not have the money and will have to go into the markets to raise it, in addition to the money it needs to cover the   on the books budget deficit.

Thus, the minute SS had to start redeeming some of its IOUs from the Treasury, and that started when SS tax income came in at less than outflow to recipients in 2010, SS was forced to turn to the Treasury for money.

The problem becomes even greater when the amount of IOUs the SS has to redeem from Treasury grows to a significant size. When might that happen? SS tells us (my bold):
The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply... and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
Thus the real problem, as admitted by SS, starts in roughly 6 years. At that point, the payouts will, as SS puts it, "rise steeply," which means SS will have to cash in even more IOUs from the Treasury. And I repeat, this is money which the Treasury does not have and which the Treasury will have to raise in the markets. In other words, the entire surplus is a myth. There is no pile of cash that SS has sitting around. The Treasury has already started borrowing money to make up SS's non-interest short-fall and the short-fall just gets worse as time goes on.

Bottom line, understanding the SS problem is simple math and balance sheet accounting. Lefties, I have noticed, have problems with math and balance sheets. Throw in a few equations and a couple of balance sheets and they will have no understanding of what is going on. Greenwald's quoting of CJ's claim of an SS surplus of $2.7 trillion proves my point. Greenwald doesn't have a clue. It makes me want to contact him and sell him one of my fog making machines that I keep in San Francisco. He should see the balance sheet and profit projections I have that go along with the machines.

(ht Stephen Davis)

26 comments:

  1. Hilariously, the Social Security people eagerly admit that it is a transfer payment scheme while debunking the idea that it is a Ponzi scheme.The genius, of course, was in actually naming the fund a "Trust Fund". It continues to fool people like Glenn Greenwald to this day.

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  2. Glenn....please....stick with a subject that you know about and stay away from even basic addition and subtraction, something which you appear to be completely ignorant of. Stick to foreign policy where you actually have thinking capabilities. Thank you.

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  3. What is there to worry about? Surely, Ben Bernanke will just print up all the missing green in the trust fund. No problem.

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  4. A Ponzi scheme is voluntary. Social Security contributions are not voluntary. The SS Trust Fund was never intended to be anything more than a slush fund for Congress to plunder.

    http://judymorrisreport.blogspot.com/2012/06/yes-my-fellow-americans-congress-really.html

    Yes My Fellow Americans, Congress Really Did Steal Your Social Security

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  5. Great article explaining the Social Security balance sheet. I was wondering if someone was going to call Greenwald out on his claims concerning it. Glenn is great in his writing on the police state, civil liberties, and wars of aggression, but he is, unfortunately, completely enamored with government run social welfare programs, which contribute greatly to the nation's fiscal dilemma.

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  6. Given Greenwald is so good at criticizing the Obama admin on foreign policy, I would think we could correct him more gently, without the insults. Some writers (Krugman comes to mind) are agenda-driven, incapable of truth-telling, and deserve insults. I don't think Greenwald is one of them. Who knows, you might even persuade him.

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  7. I also was shocked when I read this in Glenn's column yesterday. Glenn is so completely spot-on with his analyses of what the state is doing with invading other countries, and protecting itself in court by declaring anything that it has done wrong to be "secret", and many other problems with how the state is "empire building". He is a really smart, analytical guy. Reading him say that Social Security has a trust fund, and will have no financial problems for at least nine years was like a bucket of cold water was poured on me at that moment. Come on, Glenn, you can see through this one, too!

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  8. Glenn Greenwald and his ilk are not "fooled" they know exactly what they are doing, namely using dodgy methodology to politically go where they want to go.

    Social Security-Medicare were simply scams to add more revenue to the overall tax kitty.

    Guess what, Obamacare is simply one and the same.

    Get it?

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  9. "A Ponzi scheme is voluntary. Social Security contributions are not voluntary."

    Although I get the point that Social Security is worse than a Ponzi scheme, I disagree with the contention that Ponzi schemes are "voluntary". A Ponzi scheme is a form of investor fraud. Fraudulent practices aren't voluntary because the investor is mislead about the nature of the product.

    As an example, if I overcharge someone by selling them a zircon while claiming it's the Koh-I-Noor diamond, I have stolen from them the difference between the value of the two products. That's not a voluntary transaction because no reasonable person would volunteer to pay millions for a zircon.

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    1. I think the point is that the payments taken for a Ponzi scheme are fraudulent, but the fraudulence is not compounded by taking the money for it by the threat of force. That's it.

      Using your example, "overcharging" someone by "selling them a zircon while claiming it's the Koh-I-Noor diamond" is fraud. It isn't overcharging, it's just fraud. Taking that money and giving someone zircon is fraud, compounded by two acts of physical violence: taking your money, and forcing the zircon on you. There is some minor benefit involved, due to zircon not being literally worthless, but still, these are the main issues involved in the transaction.

      Obviously, it isn't a voluntary transaction, because you are not suggesting the person is buying the Koh-I-Noor; you are stating it as truth, when you are actually lying - fraud. If you had suggested it, but never outright stated it, that would be misleading, but technically not fraud, since there is no testimony of "this is ___" involved.

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  10. What do the SS trustees do with the interest they receive from the Treasury above what is needed to cover their expenditures? Lend it back to the Treasury?

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    1. Yes, any excess is returned to the treasury and replaced with an IOU. This is required by law. Most people are unaware of that fact.

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  11. David Cay Johnston is a longtime government shill.

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  12. Come on, go easy on the guy. He's one of us.

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  13. This is a needed corrective. Still, I agree with those previous posters who note that it should have been done with a little less acid and a bit more respect. Greenwald, after all, is no Democrabot, but an invaluable libertarian ally in matters of foreign policy and civil liberties; here he consistently places his principles over party. It's fine to challenge him where he is in error---and to do so forthrightly---, but he deserves better than gauche accusations of innumeracy and lame jokes about what a sucker you imagine him to be.

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  14. I agree with the majority of posts above. Greenwald is a misguided friend, not the enemy. Approach him with rational arguments and you just might teach him the err of his ways on this point. He's an invaluable advocate for our side regarding police state and foreign policy issues, specifically because he's a lefty (but a rare honest one).

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    1. Everyone should know by now that this type of in your face refutation is Robert's style. That is just how he rolls. Don't worry about poor Glenn's feelings. Sure, Glenn is great on police state issues, but when it comes to domestic policy, in many areas of it he is a hard-core statist. He thinks that because he favors government administered coerced charity, he is a nice person who cares deeply for the less fortunate. He views the state as the vehicle through which the poor can have a more comfortable existence forever. Unfortunately, the money to pay the handouts is beginning to dry up, as it always has throughout all of history when nations have attempted to implement a utopian society by coerced charity. Greenwald won't admit this. His faith in the utopian dream via the state will not allow him to admit it, even in the face of hard evidence. To do so would be to essentially lose his religion. As of right now, I think Robert is the only blog to point out Glenn's error. Don't expect there to be many more. Be thankful that someone was able and willing to point it out, even if it wasn't done in exactly the spirit and tone that you would have preferred.

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    2. This isn't a letter written to Mr. Greenwald; it's an entry in a public blog. It's not hidden, but it isn't meant to be taken as a direct person-to-person address. I'm sure that if "called on it," or perhaps even done voluntarily, Mr. Wenzel may have sent a polite, congenial, collegiate, amusing, yet mildly chiding email to Mr. Greenwald, making his case in much more civil terms.

      In other words, know your audience, "Anonymous".

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  15. So the interest income earned by a system designed to generate it does not "count"? Any valid reason why? The fact that surplus is handed over to Treasury and turned into an IOU is the government's fault, not Social Security's flaw as a system. The combination of interest income and non-interest income is what gives the system its resiliance. I'm with Greenwald on this one.

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    1. Well, if the only way I was able to pay my credit card bill was to charge the payment to another credit card, would you say I was solvent? Keep in mind that the government's credit card has no credit limit. When you have to borrow money to make payments, you are in danger of bankruptcy.

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    2. Anonymous @11:44 is right on the dot. The system is not resilient, SS is literally lending to a borrower who has to borrow from someone else in order to pay it back. Regular income through taxes is not enough to cover the expenditures government already has. It has to rely on borrowing.

      To say this massive failure is the government's fault and not SS's fault is a bit silly. The government is in charge of SS. It's like responding to someone who says a certain plan sucks by saying "well, it's not the plan's fault! It's the fault of the person who made the plan! The plan was perfectly fine!" Okay, sure, but the person who made the plan was still the one in charge of it, and therefore the plan still sucks. You can't change history.

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    3. ...."The fact that surplus is handed over to Treasury and turned into an IOU is the government's fault, not Social Security's flaw as a system".....

      This has to be a joke. How is it possible to separate the federal government from Social Security?

      Look at the link I posted above. SS was designed to be a pay-as-you-go system. Any excess revenues are immediately stolen and spent on other government boondoggles. The money is gone and still the federal government is running yearly deficits in excess of $1 trillion. I can't think of a more valid reason why the interest income doesn't count.

      SS was another source of revenue for the government disguised as a benefit for the poor. It was a pretty good scam, until the demographics turned against them. Now the jig is up.

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    4. Glenn is correct. The SS system does have a 2.7 trillion surplus. All of you people that don't agree, please send me all of your worthless government bonds. Heck, I'll even pay you 10 cents on the dollar for them to help with your financial balance sheet "problem". What no takers? I thought so. Seriously, Glenn and myself, don't kid yourself, we get it. The people that don't get it are the ones that think the way to fix social security is to cut social security benefits, in stead of the obvious solution of cutting the military bloat and ending the Bush/Obama tax cuts. You know, where the actual real budget deficit exists.

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    5. Why should we give them away when we have the clueless like you and the Chinese who are perfectly willing to buy them off of us?

      The fact of the matter is the Treasury has no cash sitting in its till now to payoff the debt and the numbers are too huge for them to be paid off without massive money printing, so you just keep collecting those dollar denominated bonds, and we over here at EPJ will keep on collecting gold coins.

      Then in 2019, we can compare and see who understands government math and consequences better.

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    6. Unknown, I currently owe about $161,000 to many different people. But this debt grows every year because I also currently spend much more money than I have coming in. So, the only way I can make the payments on my debt and also buy things for myself is to continually borrow more money from my friends and family. I use this borrowed money to make payments on my debt. If they didn't lend this money to me, I wouldn't be able to make any payments on my debt.

      However, I am a nice person, so naturally, I donate to charity regularly. Over the years I've been able to accumulate a charity fund. But for the past two years I've donated more money to charity than I've deposited into my charity fund, which still had $27,000 in it at the end of last year. People try to tell me that I have a problem and that I need to decrease the amount of money I spend on charity. But you and I know that charity is very important and shouldn't be neglected. Besides, my charity fund, while it's slowly dwindling, has a whopping $27,000 surplus and is in great financial shape. Say, you wouldn't want to loan me a little money, would you? I'll pay you 10% interest and I'm never late on my payments. C'mon, man, what'ya say?

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  16. In summary: SS loaned its surplus money to the Treasury, parking it there so that it would be available when the baby boomers retired. The Treasury, however, didn't invest this money wisely, spending it instead on bombs and bank bailouts. So now, when Treasury's borrowings from SS come due, it must borrow the money from someone else (such as China).

    To me, describing this situation as a problem with the SS system is intentionally misleading.

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