Our Brain-Damaged Elites, Part 3,947: Walter Russell Mead

What causes more brain damage: (1) having your umbilical cord tightly wrapped around your neck for twelve minutes as you're being born, or (2) being one of the people who runs the United States? Based on the way we've been lurching from debacle to catastrophe to cataclysm, I'm going to have to go with #2.

Walter Russell Mead is a truly talented writer who somehow went from writing a funny book about how Henry Kissinger lies all the time to becoming the Henry A. Kissinger Senior Fellow for U.S. Foreign Policy at the Council on Foreign Relations. Today he got extremely excited about the millionth hacktastic Washington Post article about Social Security:

THE SOCIAL SECURITY LIES ARE FALLING APART

The Washington Post has finally laid it out: Social Security is a Ponzi scheme, not a prudent savings program.

That “trust fund” is a myth, an accounting trick. Note that if the money had been invested in stocks or other assets, the government could now be selling those assets to cover the Social Security costs...

While quacking disingenuously about a valuable ‘trust fund’, the government has already spent the payroll taxes you and your employers paid to provide security in your future. The money is gone, exchanged for Treasury IOUs. It really was a Ponzi scheme, and the bill really is coming due.

Of all the dumb things our elite dumbasses say about Social Security, this may be the dumbest of all.

Let's imagine two different worlds:

1. In MeadWorld, the government invests excess payroll taxes in stocks.

What happens when the Social Security trust fund needs money in MeadWorld? The government sells some of its Verizon stock to somebody, takes the cash and sends it to Social Security recipients.

2. In this world, the government invests excess payroll taxes in government bonds.

What happens when the Social Security trust fund needs to be redeemed in this world? The government raises taxes slightly on Social Security-hating billionaire (and former Chairman of the Council on Foreign Relations) Pete Peterson. Peterson sells some of his Verizon stock to somebody to pay his taxes, and the government takes the cash and sends it to Social Security recipients.

What's the difference between these two scenarios? ONE EXTRA STEP IN THE PROCESS.* Likewise, in both scenarios, the money from the excess payroll taxes gets spent in the same year it comes in—in MeadWorld, it's spent by the person who sold the Verizon stock to the government, while in this world it was spent by the government itself.

All that said, Mead does have a genuinely profound point, although it's exactly the opposite of the one he thinks he's making:

From a certain perspective, it's true that the Social Security trust fund is a myth—not because it's invested in government bonds, but because it's impossible for societies to collectively "save" in the same way that individuals do. When a 30-year-old saves for retirement, it's because they want to be able to eat food and drive a car 40 years from now. However, they don't can a bunch of tomatoes, buy three Ford Fiestas, and hide it all in a cave somewhere so they can go get it again in 2051. Instead, they buy pieces of paper called stocks or bonds, or pay payroll taxes, which gives them a claim on a share of the food and cars produced in 2051.

So any attempt by society overall to "save" like this is a myth. Any attempt by society to "save" in this way is simply, as Mead puts it, "government IOU’s to itself." That's because any money society overall "saves" in 2011 is going to be spent in 2011. And any food eaten in 2051 has to be grown in 2051. The people working at any moment in history have to produce enough to provide for both themselves and the people who aren't working—which includes not just children and retirees but rich people who live off their investments, such as Pete Peterson.

Specifically regarding Social Security, we're currently transferring about 4.2% of U.S. gross domestic product from current workers to retirees. To pay promised benefits, this will have to increase to 6.2% in 2035 and then decline to 6.0% in 2050 and remain there. (See the 2011 Trustees Report for details.) Those are the only numbers that matter, not what the trust fund was "invested" in.

And this is simply not a problem for a rich society like the U.S. The economy continually grows more productive—95.8% (100-4.2) of today's economy is a lot smaller than 93.8% (100-6.2) of the economy of 2035. So people working in 2035 can produce enough for all the promised Social Security benefits and still be much richer than workers today.

Moreover, an increase in the amount of the economy we "spend" on Social Security isn't a crisis. It's exactly what you'd expect a society to do as it gets more productive: use some of that productivity to work less.

But if the Social Security trust fund isn't an "investment" in the way individuals own investments, what it is? It's an agreement.

Social Security is largely a direct transfer from today's workers to today's retirees: workers pay their payroll tax, and that money is mailed out to Social Security beneficiaries.

But payroll taxes, which fall regressively on working people, were raised in 1983 above the amount needed for 1983's retirees—and it was the excess from those higher taxes that, ever since, bought the government bonds in the trust fund. At exactly the same time in the eighties, income taxes, which fall progressively on the richest people in the U.S., were slashed.

So the agreement embodied in the trust fund was that when working people from the Baby Boom began to retire, the cost of their Social Security wouldn't fall solely on younger working people via regressive payroll taxes—instead, it would also fall on the richest people, either via higher taxes or by borrowing more from them. Again, this is neither a crisis nor unjust, especially in a society with massive income inequality.

Thus, if we declare the trust fund null and void, it would constitute the greatest theft in the history of the world. Essentially America's richest people would have stolen $2.6 trillion from the America's working people. That's why Pete Peterson hates Social Security so much: he wants that money. That's why he hired Walter Russell Mead.

But—if societies overall can't "save" in the way individuals save, they absolutely can save in another way: by working to make their future citizens more productive. If America is making sure today's children have enough to eat, we're saving for the future. If we're getting all of today's children a great education, if we're building a high-quality, long-lasting infrastructure, if we're pouring money into scientific research, we're saving for the future. That's why it's so unbelievably stupid to cut back on health, education, infrastructure and science today so as not to create a "burden" on our children in the future. The only burden will be if we DO cut back.

FINALLY: If you meet anyone who believes what Walter Russell Mead does about Social Security, you should feel comfortable literally betting your life that they were also completely certain Iraq had terrifying Weapons of Mass Destruction. Here's Mead:

I supported the US invasion. I supported it originally because I believed Secretary of State Colin Powell’s assertion that Iraq had an active WMD program. (I felt that some of the Bush appointees were capable of stretching the evidence, but Powell over the years had convinced me that he was a sober and serious person on whose judgment it was safe to rely.)

Here's more of Mead's pre-war perspicacity, on the cost of war:

Doom spinners...prophesy ruin. Relax...war with Iraq is a one-time expense -- an expense, incidentally, that even at $200 billion will increase our $6.3 trillion national debt only about 3%...Moreover, the high-end estimates are probably wrong.

In the same article, Mead learnedly explained that, in a post-war worst case scenario, the cost of oil might temporarily rise as high as $42/barrel.

So Mead is, functionally-speaking, brain-damaged. But it's not his fault personally. It's just that power makes people stupid.

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*Of course, it's actually not quite that simple—for instance, U.S. business would freak the fuck out if the Social Security trust fund sunk $2.6 trillion into stocks. That would be about 20% of the total stock market capitalization, and would give U.S. citizens collectively a controlling interest in just about every publicly-traded corporation in the country. Corporate America would never have allowed Mead's preferred scenario to unfold.

—Jonathan Schwarz