During the election season, factcheck.org (not factcheck.com, Dick) did a stellar job at evaluating the truthfulness of advertising and claims made by the respective presidential campaigns. After the election, the non-partisan group did not go completely dormant, and has set its primary sights on the Social Security reform debate. Importantly, the organization has taken no positions yea or nay on Social Security, seeing its role as debate referee. In its first entry, the group analyzed an ad produced by the pro-reform group Progress for America Voter Fund, and one made by AARP agin the Bush reform package:
A pro-Bush TV ad gets the central fact right about Social Security: by the time today’s young workers retire there are projected to be only two workers paying Social Security taxes for every one person receiving Social Security Benefits. Today there are 3.3 workers per beneficiary.
But a different ad opposed to Bush’s efforts uses a misleading photograph. It shows wild trading in commodities like cocoa futures to depict the risk that workers could face with private Social Security accounts. Actually, what’s being proposed is not investment commodities, but in far less risky stock and bond mutual funds, which would be broadly diversified.
The AARP ad was misleading because it showed commodities traders whooping and hollering in a trading pit free-for-all, inaccurately portraying the actual proposal of investments in bond and stock mutual funds. In factcheck.org’s next offering, Bush and Cheney are taken to task for claiming that Social Security faces an $11 trillion shortfall if no action is taken:
President Bush and Vice President Cheney have told audiences that Social Security faces an $11 trillion shortfall if nothing is done to fix the current system. But they fail to mention that this is over the course of the “infinite future." Over the next 75 years — still practically a lifetime — the shortfall is projected to be $3.7 trillion.
The "infinite" projection is one that the American Academy of Actuaries says is likely to mislead the public into thinking the system "is in far worse financial condition than is actually indicated," and therefore should not be used to explain the long-term outlook.
Beware "infinite horizon" statistics. After skewering Bush/Cheney for using misleading numbers, factcheck.org turned its skewers on another dot.org, the one with the "moveon" prefix:
MoveOn.org launched a false TV ad in the districts of several House members, claiming through images and words that President Bush plans to cut Social Security benefits nearly in half. Showing white-haired workers lifting boxes, mopping floors, shoveling and laundering, the ad says "it won’t be long before America introduces the working retirement."
Actually, Bush has said repeatedly he won’t propose any cuts for those already retired, or near retirement. What MoveOn.org calls "Bush’s planned Social Security benefit cuts" is actually a plan that would hold starting Social Security benefits steady in purchasing power, rather than allowing them to nearly double over the next 75 years as they are projected to do under the current benefit formula. The White House has discussed such a proposal, and may or may not adopt it when the President puts forth a detailed plan expected in late February.
A sad testament and lowpoint for the Bush-hating, Soros-funded keyboarding crew. The factcheckorg folks then peered over to the right of the aisle and found it wanting:
In his State of the Union Address, President Bush said again that the Social Security system is headed for "bankruptcy," a term that could give the wrong idea. Actually, even if it goes "bankrupt" a few decades from now, the system would still be able to pay about three-quarters of the benefits now promised.
Bush also made his proposed private Social Security accounts sound like a sure thing, which they are not. He said they "will" grow fast enough to provide a better return than the present system. History suggests that will be so, but nobody can predict what stock and bond markets will do in the future.
Bush left out any mention of what workers would have to give up to get those private acounts — a proportional reduction or offset in guaranteed Social Security retirement benefits. He also glossed over the fact that money in private accounts would be "owned" by workers only in a very limited sense — under strict conditions which the President referred to as "guidelines." Many retirees, and possibly the vast majority, wouldn’t be able to touch their Social Security nest egg directly, even after retirement, because the government would take some or all of it back and convert it to a stream of payments guaranteed for life.
This was also the moment when Bush officials conceded that personal accounts would have a "net neutral effect" on the fiscal situation of Social Security; therefore, other measures will be necessary to shore up the forthcoming shortfalls. In its next go-round, factcheck.org shreds an ad by Campaign for America’s Future, a liberal Democratic group:
New information turned up by FactCheck.org shows that the type of private Social Security accounts being proposed by President Bush would yield very little profit to the securities industry, contrary to persistent claims of a potentially huge "windfall" to Wall Street.
What we have discovered is that the model for Bush’s accounts — the Federal Thrift Savings Plan for federal workers — actually paid securities firms a net total of only 16 cents for every $10,000 in workers accounts. The TSP had refused to make that information public — until now. It shows that fees actually being paid to Wall Street are hundreds of times smaller than some critics had assumed.
For that reason and others we find that ads run in Louisiana by the liberal Democratic group Campaign for America’s Future are grossly misleading. The group is accusing Republican Rep. James McCrery, who is chairman of the Social Security subcommittee and a supporter of Bush’s private accounts, of "corruption" for accepting campaign donations from Wall Street, which it falsely claims will "profit most" from private accounts.
So much also for Paul Krugman’s misleading Chile comparisons. AARP’s "moderate changes" proposal came next under factcheck.org scrutiny:
Can the current Social Security system — without individual accounts — be fixed with only "a few moderate changes," as AARP suggests in a recent newspaper ad? A look at some of proposals that have been verified by neutral experts shows that they rely more on tax increases than benefit cuts. Whether the required changes are "moderate" or not will be a matter of opinion, but readers can judge for themselves by looking at the details we present here.
We note here that some proposals turn out to be only temporary fixes. They put the system in balance for a 75-year period immediately following enactment but leave it with a large and growing gap between benefits and taxes at the end. Worse, such "75-year fixes" actually come undone within a few years, just like the 1983 package of tax increases and benefit cuts that was supposed to solve the system’s financing problems, but didn’t. Achieving sustainable solvency requires bigger changes.
After "infinite horizons", beware the phrase "sustainable solvency", which is something no one can achieve without significantly higher tax rates or cuts in benefits, cracking into fiscal bedrock. Demonstrating once again that conservative groups can manipulative numbers, factcheck.org lays into Progress for America:
In a new TV ad, Progress for America exaggerates the true state of Social Security’s finances by comparing it to the Titanic. The ad claims the system will go "bankrupt" if nothing is done and that we must rescue the program "before it hits the iceberg." Actually, neutral experts predict the system can pay between 70 and 80 percent of currently scheduled benefits even if the Trust Fund is exhausted, which isn’t predicted to happen for another 37 years, at least.
The ad also touts Bush’s plan for "voluntary personal retirement accounts" as though that would improve the system’s finances. But even the White House now acknowledges that individual accounts alone do nothing to fix the system’s long-term financial shortfall.
C’mon, guys. We don’t have to fudge to sell reform (mmm, fudge). Later, AARP continued its ongoing disservice in misinforming the public:
AARP’s latest TV ad shows a suburban home being flattened to repair a clogged kitchen sink, and claims that the creation of individual accounts would "dismantle Social Security" and "lead to huge benefit cuts."
The ad is intended to be humorous but presents a distorted picture. It both understates Social Security’s financial problems and misrepresents the effect that individual accounts would have.
Social Security’s problems are more serious than a stopped-up drain. And the system isn’t about to sink like the Titanic, either, as an earlier ad by Bush supporters says. Social Security is more like a home being eaten slowly by termites.
I can only hope their series of distortions reduces their member rolls and revenues. Finally, Harry Reid has gotten into the game using a rigged calculator:
Democrats have been using a web-based "calculator" to generate individualized answers to the question, "How much will you lose under Bush privatization plan?" For young, low-wage workers it projects cuts of up to 50% in benefits. And a $1-million TV advertising campaign is amplifying the claim, saying, "Look below the surface (of Bush’s plan) and you’ll find benefit checks cut almost in half."
In fact, the calculator is rigged. We find it is based on a number of false assumptions and deceptive comparisons. For one thing, it assumes that stocks will yield average returns of only 3 percent per year above inflation. The historical average is close to 7 percent.
The calculator’s authors claim that they use the same assumption used by the Congressional Budget Office. Actually, CBO projects a 6.8 percent gain.
The Bush-hating, Soros-funded Media Fund has a similar trick calculator. Anyhow, it’s been helpful reading through the entries because it does help separate the wheat from the chaff. Social Security isn’t on the legislative front burner right now, but there’s no reason it shouldn’t be. The situation isn’t urgent, but it remains still important. Outflows will exceed inflows in 13 years and the fund will go into deficit in 37 years. A lot can happen between now and then, but the fact remains that fewer workers will be paying more beneficiaries more money over time. Seems reasonable to handle it sooner rather than later.
The Bush-hating, Soros-funded Media Fund
click
Hey, you missed the Heritage foundation’s calculator, which assumes a 26% cut in SS benefits starting well before any such cuts would be necessary even if nothing at all were done to fix the system.
“We find it is based on a number of false assumptions and deceptive comparisons. For one thing, it assumes that stocks will yield average returns of only 3 percent per year above inflation. The historical average is close to 7 percent.”
Oh, so factcheck guarantees me 7% above inflation in the stock market? Can I get a contract from them to make me whole if I only make 3% over inflation?
Outflows will exceed inflows in 13 years
Won’t dispute your timeframe, nonetheless, it’s a good thing the Greenspan committee thingy upped (regressive!) payroll taxes back in the 1980s to build up a surplus to get us over the hump.
and the fund will go into deficit in 37 years.
We ought to be able to assume the fund returns closer to balance or surplus at some point after that when the last of the boomers die off and the demographic bulge settles out. Some amount of minor tinkering ought to carry us the rest of the way over the hump.
but the fact remains that fewer workers will be paying more beneficiaries more money over time.
Increasing worker productivity means you get more bang per worker.
The White House has discussed such a proposal, and may or may not adopt it when the President puts forth a detailed plan expected in late February.
Errr… which February?
Anarch, I’m thinking February ’09.
I thought it was scheduled for Feb 30th…
Thank you Charles for going after the exaggerations on both sides, including the liberal-hating corporate funded propagandists.
Wouldn’t it be a better ivestment of time and energy to figure out how to handle medical insurance issues, Medicaid, and Medicare?
Why does C. Bird have such little faith in the American worker?
A very balanced examination of the distortions and misunderstandings on both sides of this debate. I commend you.
I find this factoid particularly noteworthy:
Actually, neutral experts predict the system can pay between 70 and 80 percent of currently scheduled benefits even if the Trust Fund is exhausted, which isn’t predicted to happen for another 37 years, at least.
This isn’t the only place it’s cited, either, and it makes sense if you think about it. Which does raise the question: can we now dispense with the scare tactics based around the canard of “OMFG SAVE SS it’s going BANKRUPT!!11one1!!!”, and instead concentrate our energies on solutions aimed at addressing the choice between raising taxes, cutting benefits, and running up an even bigger deficit?
the fund will go into deficit in 37 years.
No one knows what will happen in thirty-seven years, but the chance that the fund will go into deficit is in fact very low. Let’s understand where this projection comes from.
The SS trustees forecast the system’s finances every year. They construct three scenarios, low-cost, intermediate, and high-cost. The low-cost scenario is the one with the most optimistic forecasts of the economy, and so on. The projection that the fund will go onto deficit in 2041 is from the intermediate forecast. All well and good and prudent and so on.
Except for one thing. “Ein kleinigkeit.” Under the low-cost assumptions the fund never goes into deficit, and the assumptions underlying this scenario are in fact quite conservative in light of recent history. It is far from inconceivable that, so long as there is no default on obligations to the trust fund, Social Security will be on a sound footing for many decades to come, perhaps forever.
Privatizers need to consider this and, as others have argued, produce a sensible economic forecast which both shows SS in trouble and promises fine returns in the stock market. Any takers?
Charles: FactCheck.org’s criticism of the MoveOn ad came under a lot of criticism when it came out. Some of it was on small points — e.g., the MoveOn ad never said benefits would be cut for current retirees — but some was on larger issues, especially their criticism of MoveOn’s reference to ‘cuts’. If one takes a ‘cut’ to be a reduction in benefits relative to what they would be under current law, then MoveOn’s claim is accurate. If one takes a ‘cut’ to be a cut below present benefit levels, they are wrong. What a lot of people pointed out at the time was that (a) MoveOn’s usage is standard, but also (b) Factcheck.org uses ‘cuts’ in exactly the sense they object to, later in the very same analysis, when they say:
To quote Lee Price, the Research Director at the Economic Policy Institute:
I’m also not convinced by this criticism of Reid’s calculator. They say: “For one thing, it assumes that stocks will yield average returns of only 3 percent per year above inflation. The historical average is close to 7 percent.” A calculator should be based on whatever the best projections are of future returns, not on a historical average. These may not differ if there’s no reason to think that future returns will be different from historical returns, of course; but if there is such a difference, it should be taken into account, and this will cause projected future returns to differ from the historical average.
In fact, there are reasons to think that future returns will not match the historical average. For one thing, price/earnings ratios are way higher than their normal levels. The historical rate of return reflects this growth; even if p/e ratios stabilized, returns would not match their historic averages, and obviously they would be even lower if p/e ratios started to drop back to their more usual levels. Another is that population growth, and thus economic growth, is projected to slow in the coming decades. For discussion, see (e.g.) here.
One other thing: I was just looking at FactCheck’s page on the calculator, and they say that it’s wrong because: “It says “The calculator assumes that your investments get a rate of return of 3 percent above inflation ,” a figure most financial advisers would find absurdly low. As we’ve pointed out before , the stock market has averaged 6.8 percent above inflation for the past century .”
But this response is only on point if we assume that ‘your investments’ in your private account will be exclusively in stocks. If, instead, your private account is in a mix of stocks and bonds, then ‘your investments’ would not do as well as ‘the stock market’, and saying that claims about the return on ‘your investments’ are misleading because the rate of return on ‘the stock market’ is higher is just wrong.
I have no idea what portion of the discrepancy FactCheck cites is due to this; I just don’t like it when supposed fact-checkers make this kind of basic mistake..
1. Without cuts to the benefits that the current law would provide, nothing in the Bush plan-that-isn’t-a-plan addresses the overall solvency of the SSA, by the Bush Administration’s own admission.
2. The SSA is currently in surplus. The Federal Government is currently in deficit. The house (with the full support of the Administration) has just voted to increase the operating deficit by hundreds of billions of dollars.
When, and if, the Administration actually addresses these points, I will listen to their plans. Until they do, I see no reason to seriously consider any of their proposals re: Social Security.
Oh, and since it hasn’t been said yet on this thread – guys, Charles is ruining the site 🙂
preposterous
The Bush-hating, Soros-funded Media Fund
You say that like it’s a bad thing. 😉
hilzoy,
Factcheck.org responded to moveon.org’s complaints at the bottom of this link. An excerpt: “Matzzie also accuses us of inconsistency, stating that the MoveOn.org ad refers to “cuts” in the same way that we do later in our article. He points to our statement, for example, that “all benefits would have to be cut 27% when the Social Security Trust Fund is exhausted in the year 2042.” We think that sentence clearly refers to benefits in 2042, not current benefits.”
I have no idea what portion of the discrepancy FactCheck cites is due to this; I just don’t like it when supposed fact-checkers make this kind of basic mistake..
It’s called comparing apples to apples. The critics are using stock investments to make their case. So if someone’s private account is 100% in a stock mutual fund, the comparison is apt. Adjust lower risk investments accordingly.
preposterous
Care to explain, wd, or am I left just to guess? The sustained will to achieve victory happens to be working.
altho I applaud the intent of FC.org, because of their paired format (X says this, Y says that) I don’t find them useful. the paired format requires finding something from each side to criticize which inevitably leads to imbalance. eg, look at the first example above. the pro-bush ad is accurate while the anti-bush ad uses exaggerated and mis-leading ad techniques (ok, that’s redundant – sorry). the clear impression is then that the pro-bush faction is honestly providing useful info while the anti-bushers are trying to mislead. the truth, of course, is that both sides exaggerate, cherry-pick stats, and engage in puffery. but worse, one side lies routinely (which is an exercise for the reader). this often results in pairing an exaggeration, cherry-picked stat, or puffery with a flat-out lie.
and to the post itself, as suggested by other commenters, upon encountering a phrase like “bush hating …” I immediately discount an opinion entirely. strange that those who are so excited about turning government over to businessmen villify one of the more successful businessmen around when he presumes to disagree. like a previous commenter, I view “soros-funded” as an endorsement (based on his foundation work, not on his campaign involvement).
Charles: “It’s called comparing apples to apples.” — I don’t think so. The calculator speaks of “your investments”. I, at least, understood that to refer to your private account, and to its rate of return. If that account is 100% invested in stocks, then comparing assumptions about its rate of return to that of the stock market is fine. If not, it’s not comparing apples to apples at all.
Or, shorter version: the assumption that “your investments” = stocks seems to be factcheck’s, not the calculator’s.
And I find the ‘cuts’ response completely unconvincing. As one (I forgot who) of the many people who criticized this said, if FactCheck was going to be fair on this, they should at least have pointed out that Bush uses ‘cuts’ in this very same sense when he says that if we don’t fix Social Security, our benefits will have to be cut. The fact is that most people who talk about this, on both sides, use ‘cut’ to refer to a reduction in benefits below the level provided by current law.
Hilzoy,
I think its great you want to really delve deep and try to figure out the calculator.
But, I also find it telling that no one has yet to post any results of both methods. Everyone was quick to do it when it made Bush look bad. I wish I could say I was suprised by that behavior. Let’s take the time to analyze factcheck.org, but let’s don’t take time to see how their conclusions might affect the debate.
For all I know they could be flawed. But, the original thread was all about jumping on the bandwagon to bash Bush.
I mean shouldn’t we maybe see both sides of the issue. Why won’t anyone recalculate and post both results?
I guess that really was a pipe dream for me to think posters here might do that in an effort to be unbiased.
Sorry for the interruption… please everyone… let’s just go back to bad mouthing all Bush initiatives.
smlook: I didn’t run the calculations the first time either, as far as I can recall. And I don’t have the computer skills to program a second calculator either. Trying to figure out what’s up with the criticisms is, alas, as far as I can go.
Why won’t anyone recalculate and post both results?
I’m confused, smlook. I don’t think the calculator has been revised to reflect a different assumption about returns. Is there some easy way to do the calculation you want us to do?
I think everyone here understands that the higher the return you assume the better a privatization plan will look on average. And if you want to illustrate the point with some numbers, why don’t you do the calculation and post the results?
PTI, but when did this place turn into such an echo chamber?
Maybe I’m just talking out of my hat, but, doesn’t the very idea of private accounts assume that investors are fundamentally irrational?
Let’s assume that the current investor expects to receive 33% of her retirement income from SS. The investor would then choose the risk distribution for the other 66% based on the certainty of the initial 33%. If the between the remaining investment funds is 50% stock and 50% bond, this represents a 33% to 66% split between risky (stocks) and stable (Bonds + SS).
For privatization to work, aren’t the privatizers arguing that investors will take the “certain” 33% and invest it at a higher risk? Thereby creating an investment mix different than the prior 33% to 66%? But if the investor wanted a different mix, let’s say 66 to 33 rather than 33 to 66, then why, given the current existence of SS, invest in Bonds at all? If you want 33% guaranteed then you already have it, and you would already have invested your bond funds into stocks.
Why would the elimination of SS shift our risk preferences? And if it didn’t shift our risk preference, then wouldn’t we replace “guaranteed” SS income with the more certain bond income (or even money market income), rather than the less certain stock income?
Maybe I’m missing something, but this all seems rather bizarre. For personal accounts to make sense — bring a higher rate of return — we have to assume that we are currently investors of questionable competence and that privatization will magically fix us. This is bizarre.
IF,
Correct for those with outside investments. Similar things happen with IRA’s, where part of the contributions are simply transfers from other savings.
The picture changes at the low end, where there is little or no shift because there is little or no outside investment to move around. Lower-income people will tend to be relatively risk-averse, of course, and are more likely to prefer a guaranteed government benefit. To the extent they choose riskier alternatives in a privatized scheme they are also the ones who will need supplementary assistance when the risks turn out badly, as they must for some.
Charles, until George Bush balances his current accounts, I am not going to give him the time of day on something 75 years in the future. No amount of bloviating can make up for the fundamental lack of emperial clothing. It’s a g-d farce!
If not, it’s not comparing apples to apples at all.
Hil, all of the ad campaigns opposing partial privatization focus on stocks and the risks of same. Reid’s rigged calculator uses returns of stocks to make its misleading case.
On the issue of “cuts”, moveon.org was misleading because it was inferring that cuts were imminent, saying “it won’t be long…” in its ad. The issue isn’t the word “cut”, it’s how and when the term is used.
Maybe I’m just talking out of my hat, but, doesn’t the very idea of private accounts assume that investors are fundamentally irrational?
The exact opposite, IF. It also assumes that investors are trusted to make their own choices instead of mommy government making it for them. The historical evidence couldn’t be more clear. Over the long term, balanced investments in stocks produce the highest rates of return, particularly over bonds and Treasuries.