-- Posted by Neil H. Buchanan
My Dorf on Law post last Thursday asked: "Is the Attack on Social Security Finally Over?" Along with its companion piece on Verdict the same day, that post noted that the political fear-mongering campaign against Social Security, which has been a perennial favorite for nearly all Republicans as well as many Democrats (including President Obama), appears to be in remission. The annual Social Security Trustees' report was issued last week to virtually no notice (buried on page A14 of The New York Times, for example), and the shouting shows on TV and radio were notably quiet on the subject.
I did not imagine, of course, that this meant that Social Security would remain politically unimportant for very long. The forces arrayed against that overwhelmingly successful government program have too much to gain, both politically and financially, to leave it alone forever (or even for a few years). Even so, it seemed possible that the dishonest attacks on Social Security were temporarily on hold.
But it was not to be. The very next day, the Times ran an op-ed by Boston University economist Laurence Kotlikoff, "America’s Hidden Credit Card Bill," in which Kotlikoff rolled out some very old, and completely dishonest, attacks on Social Security and on government in general. I am all too familiar with Kotlikoff, because my first law review article, published in Tax Law Review in 2005, was in substantial part dedicated to debunking the "fiscal gap" and "generational accounting" snake oil that he was repackaging in Friday's Times op-ed. Even at the time that I wrote that article, a decade ago, I was relatively late to the game, because Kotlikoff's approach had been widely discredited and rejected by scholars who had studied it. I added a few additional attacks before moving on to the main argument of my article, but mine was hardly a lone voice rejecting Kotlikoff's approach.
As shocking as it was to see that Kotlikoff's nonsense was still undead, however, I calmed myself while reading the piece by imagining that this was another of the periodic efforts by the Times's editors to show that they are open to all viewpoints. Imagine my horror, then, when Kotlikoff reported at the end of his piece that legislation requiring the government to adopt his dishonest "generational accounting" method was introduced last year by two relatively liberal Democratic Senators, Tim Kaine of Virginia and Chris Coons of Delaware, along with two Republicans.
Which led me to ask the question in the title of this post, based on the recurring bit on John Oliver's (fantastic) new HBO show, "Last Week Tonight": How is this still a thing? In the remainder of this post, I will focus on Kotlikoff's dishonest rhetoric in his op-ed, and in my next two posts (on Thursday and next Tuesday), I will describe and critique the content of the fiscal gap/generational accounting approach that he ceaselessly pushes. The bottom line is that this should never have been "a thing," and Kotlikoff's efforts to keep it going are fundamentally fraudulent.
The title of Kotlikoff's piece refers to government debt as a "credit card bill," and a "hidden" one at that. So we know that something evil is afoot. What is that evil thing? He tells us that governments cannot permanently spend more than they collect in tax revenues (which is not actually true, but he is just getting started), but they "can certainly leave the bill for their current spending to the young and to future generations." So the "hidden credit card bill" is apparently a call to arms for younger people to be angry, and Kotlikoff immediately tells us that governments have reasons not to borrow "in broad daylight," but instead to hoodwink people. But to whose benefit?
Well, apparently old people are living too long, and according to Kotlikoff they are receiving excessively generous benefits from programs like Social Security (which, he incorrectly tells us, pays "hefty retirement benefits"). He tosses out two scary, context-free numbers that the Congressional Budget Office has published regarding Social Security's "unfunded obligation": "$24.9 trillion 'through the infinite horizon' (or a mere $10.6 trillion, as calculated through 2088)." Actually, he does provide context of a sort, saying that the higher number is "nearly twice the $12.6 trillion in public debt held by the United States government," but he gives no reason why it is meaningful to compare those numbers (debt for all time in the future, and total national debt today). And, as I will explain in detail on Thursday, it is not actually meaningful to do so.
Kotlikoff then invokes the standard notion that Social Security is protected by "the political power of some 100 million Americans over 50," who supposedly are selfishly protecting their own benefits at the expense of their kids. He bizarrely focuses on his 94-year-old mother, who is apparently still going strong and will "keep collecting those Social Security checks for a long time." So, are we supposed to cut her benefits now? He never quite gets around to saying what should be done about current retirees.
Instead, he offers the most breathtakingly dishonest argument that I can recall reading in many years. He equates the government's legal requirement to pay interest and principal on its official debts with its scheduled payments to future retirees. Noting that his mother collects checks for interest payments on her "small remaining holdings of Treasury Bonds," which "look identical" to her Social Security checks, Kotlikoff confronts (and then immediately sidesteps) the basic problem with his claim that the government's "unfunded obligations" are the same as actual debt: future benefits and taxes can (and almost certainly will) be changed. That is, whereas the government must pay principal and interest, on schedule, for the official debt, if it decides that it does not want benefits to exceed revenues twenty years from now, it can simply amend the Social Security Act (now or later) to make that happen.
Kotlikoff's response? "True, Social Security benefits could be cut by Congress and the
president. But so can official debt, as Argentina’s likely default
reminds us." Even he cannot maintain that preposterous equivalence for long, however, so he immediately says that "[i]nformal default via the inflationary, easy-money policies of the Federal Reserve since 2007, is more likely." Odd that those "inflationary, easy-money policies" since 2007 have seen no resurgence of inflation at all. But I digress.
By this point, then, Kotlikoff is simply playing a medley of the anti-government right's favorite hits. Government is hiding things from us. It is captive to greedy seniors. It is trillions of dollars in debt. It might become Argentina, or maybe it will simply hyper-inflate the debt away. He even manages to mention that China is one of our formal creditors, just to keep up the scare-mongering.
Finally, he gets back to his hobby-horse, claiming that the government's total debt (not under CBO's official estimate, but under his preferred "alternative" scenario) is -- are you sitting down? --$210 trillion. And last year, it was $205 trillion. "Thus $5 trillion was the true deficit" last year. I will have to wait until my next post to explain where those numbers come from, and why they are so preposterous, but consider two things here: (1) Kotlikoff is claiming that, in 2013, when the spending cuts to which Obama had already agreed were hitting discretionary spending, when the taxes included in the Affordable Care Act had started to take effect (as part of that net-deficit-reducing health care law), and when health care cost inflation in general had continued to come in below forecasts, the government supposedly found itself $5 trillion deeper in "real" debt than it was at the beginning of the year. (2) Kotlikoff provides no clue that these scary-sounding numbers are computed by aggregating supposed costs and benefits each year into the infinite future, a time during which the GDP's net present value is in the quadrillions (as Paul Krugman and others quickly noted in response to Kotlikoff's piece).
Perhaps most galling, Kotlikoff's final paragraph begins with this: "What we confront is not just an economics problem. It’s a moral issue." This moral issue is whether we will deceive people, or "systematically measure all the bills and set about reducing them." It is pretty rich for Kotlikoff to invoke morality and honesty as values, given his calculated (in a literal meaning of that word) dishonesty. After all, this is a man who is more than willing to distort what others say to score points, as his rant against Krugman for calling Paul Ryan "stupid" (which Krugman did not do), and his sanctimonious call for economists "to act like grownups in speaking with the public," amply demonstrate.
Kotlikoff admits (with rather awkward phrasing) that "none of we economists know anything for dead sure," yet he acts as if it is dead certain that his way to calculate the government's obligations is honest, and all other approaches are dishonest. As I will explain on Thursday, the one thing that is dead sure is that the "fiscal gap" and "generational accounting" are political weapons, far divorced from the truth.