Dean Baker warns: "The economists who missed the housing bubble are coming after your Social Security"

Economist Dean Baker's new book

"Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression."

-- the opening of Dean Baker's Friday TPM post,
under the title quoted up top

by Ken

It's hard to know how concerned we (especially us economic semi-literates) should be about the outcome of the summit the president seems determined to convene in the near future to do something -- it's not at all clear what, but something -- about the so-called "entitlement" programs, Social Security, Medicare, and Medicaid.

It's not as if there's nothing to talk about. Medicare already has serious funding problems, and Medicaid -- well, with the states involved, that's a real nightmare. And even Social Security, while "funded" through 2040, is sitting on a pile of gummint bonds that still have to be, you know, paid for by that same gummint. But I don't think I'm the only one who hears, when politicians talk about "reforming" or "fixing" "entitlements," the sound of an axe falling.

I've been trying to focus on what exactly the president has had to say on the subject, but I don't really get a lot of clarity or comfort. And I keep coming back to the feeling I get when he talks about the subject, and maybe the problem is that the way he talks about it sounds so much like the way right-wingers who are dead set on killing these programs talk about them. Surely the president is aware of this reality of public discourse, and if he intended some other outcome, he would be capable of finding language to make this clear. He might talk, for example, about "the need to provide sound ongoing funding for the economic programs crucial to our public safety net."

It probably doesn't help that so many of the people around the president are Wall Street-based or -influenced thinkers when it comes to economics. And it helps even less that the administration's history to date is to offer accommodations just this side of limitless to the Right, without even getting their votes in exchange. The reality, of course, is that for those people nothing short of the Full Cheney is enough.

In the comments to Dean Baker's TPM piece, one theme that's frequently sounded is that Dean is trafficking in rumor and innuendo, with no hard facts about this commission. And this strikes me as dangerously ignorant of the way these things are done. Of course it's all rumor until the actual announcement is made; this is one of the many ways in which Digby's wonderful image of Washington as a "village" is so apt. Gossip is central to its way of working. The president has committed himself to action this month on his summit on "entitlements" (the word itself suggest a powerful ideological tilt), which makes it reasonable to think that discussions with the intended participants are pretty far along if not actually completed.

I think the ship has sailed on "privatization" of Social Security. But that leaves lots of ways to kill or maim it, and I don't doubt that the Norquistians of the New "All No, All the Time" Republican Party are armed and waiting. If the president has something else in mind, I sure wish he'd spell it out. The Congressional Budget Office, after all, has indicated that a modest increase in the Social Security tax rate would solidify funding for the next 75 years, and that's without factoring in the even more obvious fix of raising the income maximum subject to SS tax.

If it's just a "framing" problem, then I for one would be pleased to hear the president start talking about "securing the social safety net for ourselves, our children, and our grandchildren."

For the record, here's what Dean Baker has to say, picking up from the opening paragraph, above:

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economists in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.

The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

Similarly, if they had been fortunate enough to accumulate any substantial amount of savings in a 401(k) account, they just saw much of this wealth vanish with the plunge in the stock market. The median late baby boomer household (ages 45-54) has a net worth of just over $80,000 including the equity in their home. This means that if they took all of their savings, they would have less than half of their home (assuming a median price $175,000) paid off, and nothing else.

The median household among older baby boomers would be doing a bit better. With a net worth of $143,000, this household could have most of their home paid off, but nothing else. And of course, half of the population has wealth less than the median, so they would be less well-prepared for retirement.

In short, the vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them. And now President Obama is apparently prepared to appoint a commission that will attack these only remaining pillars of support.

It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble. The incompetence of such economists has inflicted enormous pain on billions of people around the world. However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm.

My guess is that this task force will not be very popular except at the Washington Post and on Wall Street.

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