Steven Pearlstein
Washington Post Columnist
Wednesday, May 4, 2005
11:00 AM
Washington Post business columnist Steven Pearlstein was online to discuss his latest column , which examines the positions of Democrats on economic issues.
A transcript follows.
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
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Laurel, MD: An issue in other chats last week was the risk involved in an investment in U.S. Treasuries. Do you believe they can be fairly described as "zero-risk"? That's how the Post's news pages have described them, which I believe is misleading. There is of course minimal (some would say absolutely zero) credit risk - the risk of the government defaulting on a single bond payment anytime in the next 30 years. But other risks exist, including inflation risk. Today's 10-year note yields about 4.2% versus current inflation exceeding 3% and a historical inflation rate of about 4%. That inflation rate skyrockets if the government resorts to printing trillions to retire debt. Your thoughts?
Steven Pearlstein: You might be interested to know that the Treasury announced today it was bringing back the 30 year bond, on the theory, in fact, that there is less risk to lending to the government than investors once thought and therefore the government can borrow money more cheaply over very long terms. As to your question about inflation risks, you are aware, of course, that the Treasury has started selling inflation-adjusted bonds, and the spread on those has been remarkably small over unadjusted ones -- a reflection of the fact that people think inflation is now under control and will remain so. Also, most Treasury bonds are held by sophisticated investors who hold them for short periods of time, during which they think they have a good read on the inflation factor, which is reflected in the secondary market prices at which they buy and sell them.
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Laurel, MD: You and the Post have been negative for the most part about Bush's plan to add private accounts to Social Security. I suppose part of the concern relates to wealth distribution, which I understand. But why the negativity about a modest amount of Social Security tax payments being invested in broad stock investments? I have yet to hear one story produced by the Post or any other source about either a retiree who made modest investments in Treasuries throughout their working life and retired with a large nest egg OR a worker of any stripe whose regular investments in -broad- stock investments over -decades- who didn't beat Treasury interest by a wide margin. Is there such a story? Have government employees in the Thrift stock funds historically done poorly? Not all stocks are Enron, and on the whole they've done great over the long term, wouldn't you agree?
Steven Pearlstein: I'll let slide whether we have done enough coverage of the wisdom of investing in stocks. The point is a good one and is reinforced in our Sunday investing columns, for example. Maybe it should have been given more proimence in the economic policy stories -- I haven't done an analysis on that.
But I want to suggest you are also conflating two issues. Social Security is designed as a social insurance program, to insure that the eldlerly don't live in poverty when they are not working, no matter what else happens to their savings and investment. But that doesn't mean that people shouldn't, or don't, have other forms of pensions or retirement savings. In fact, half of Americans do have some form of pension plan, and much of that is invested directly or indirectly in stocks. And very frankly, they really don't need any help or encouragement from George Bush or the federal government beyond the tax-favored mechanims they have now.
As for the other half, some are quite young, so we might not want to get all hot and bothered about it until they reach the age of 28 or 30. As for the others, maybe that is a problem government might want to address, but I don't see why it falls to the Social Security system to provide an answer. That's why I actually think Bill Thomas of the House Ways and Means Committee is approaching the Social Security issue in the right way, by dividing the question of SS solvency from the broader problem of reitrement savings.
By the way, SS money is not primarily "invested" in Treasury bonds. It is paid out to current beneficiaries. Some of it has been stashed away in the Trust because we've been trying to anticipate the retirement of the Baby Boomers. And a logical place to park that money is in Treasuries, although I myself would favor putting half of it in the S&P index. But given the government's allergy to being involved in the private sector, the decision to stick with Treasuries is sound.
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Arlington, VA: I think our economy will be like a car with dirty fuel injectors for the foreseeable future. It wants to go, and sometimes lurches forward with activity and consumption, but then we hit the hard limit of energy production peak and the price of energy spikes, driving down economic activity. The lowered economic activity then cools the energy prices and the whole thing happens again. Until we fix our out of balance energy equations, we will not return to sustained economic prosperity.
Steven Pearlstein: Not sure I would agree that we have to be green to have green. But at the moment, rising energy prices ought to force is to rethink how much energy we consume and waste, for all sorts of reasons, including economic.
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Olney MD: If the past is prolog, Bill Young and Ted Stevens will corrupt any Democratic proposals in conference committees. I saw with my own eyes the despicable behavior during the Medicare prescription debates. How can the Democrats prevent the corruption of their proposals in conference committee?
Steven Pearlstein: Maybe they can't. They are the minority party and have to get used to the fact that they have to pick their spots and make the deals they can.
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Danvers, MA: Steve, don't the Dems have a hard time distinguishing themselves from the ruling party anyway? Weren't there polls of Americans showing majority opposition to the war, yet the Dems fielded a pro-war candidate? If it takes as much dough to run a campaign as now, doesn't it make sense they seek large contributions from the same large donors who support the ruling party? Can they ever go back to depending on the little guy for money and then advocate his interests? If the ruling party is piloting a train wreck, there will certainly be a reaction at some point against them, but will the Dems be able to represent the reaction? Their hands are tied, aren't they
Steven Pearlstein: I'm not sure I understand your question. Politically, the problems the Democrats have is that even though the public is with them on most issues, they vote for Republicans. And one reason that is is because voters don't perceive Democrats as being trustworthy leaders at the moment. That's a character issue, in the broadest sense. And one way for Democrats to demonstrate leadership is to show they can break away from the positions of traditional interest groups and further the public interest on important matters. Another way is coming up with good new ideas, and letting go of some old ones that they might like but that don't animate the voters.
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Wrongo: Your column is way off the mark, and presumes that solutions you like are the good solutions.
For example, in Social Security you ignore the obvious. Mayhaps no one wants private accounts carve out, ergo that's a non-negotiable item. You could just as easily flip and blame Bush for being intangient on the issue, refusing to consider anything without them.
Moreover, you push out right-wing spin as accurate. In fact, the affluent are already bought out of the system, as most of their income isn't taxed for this, and SS makes up the "party money" of their retirement. The people who will get dinked by the Bush plan are the middle class (the real one, not the political/comentartiat 6 figure income middle class, who in fact are the top 20%). Unless you consider a $36K annual income "affluent".
So, the Pres wants to dink the middle class, and carve out private accounts. And this is a concession for negotiations? Ina situation where doing nothing will leave the system paying out more to said middle class than this plan. Riiiight.
(This also ignores Krugman's point that once you make this into "poor old folks welfare", people will then kill the welfare. Poor folks don't have much of a lobbying force in DC. Don't buy it...well then, please point me to your equally screen laden article on cutting Medicare/Medicaid while lowering rich folks taxes. Oh yeah, you couldn't be bothered with one. Case in point.)
The Energy bill point is hilarious. So, the Dems actually spent years trying to get something through a Congress that is dominated by the opposition. The opposition does nothing. Finally, few right-wing dems get bought...and the lack of a policy is the Dems fault? Wonderful. Love the logic, kid.
Finally, I love your assumptions. "In exchange for wage and health insurance for workers displaced by trade,...". Wow. You've interviewed the Reps and know they'd increase displaced worker bennies? Against every precident of their policy? That's some damn fine reporting! Could you tell us your sources?
Or are you blowing smoke out your posterior to just rant?
I can boil down your column to save trees and ink.
"The Republicans own all houses of Govt. Policies I don't like are coming out of the Govt.
Its the Democrats fault."
Steven Pearlstein: Your comments come straight out of the Democratic talking points. And, by the way, Krugman's point wasn't Krugmans -- Democrats have been saying it for decades now. And its a good metaphor for why they are not in power. There is no proof -- none -- that by somewhat lowering the INCREASE in benefits for the rich and, to a lesser extent, the middle class, that political support for Social Security will melt away. And in the real world, one has to trade off risks. I suspect that risk is a lot less than the risk that the system will run out of money before too long, so something has to be done. Raising the payroll tax rate is not a good idea, except to increase the income cap, which is what many of us have suggested. So you have to tinker with the benefits somewhat, including increasing the retirement age slowly and even reducing future benefit INCREASES above inflation for wealthier people. One of the fallacies you make, along with most of the Democratic establishment, is that people now and in the future will view Social Security the same way they have in the past, ignoring the huge changes that have gone on in household wealth since 1935. You, like they, are simply stuck in a rut of repeating all sorts of old arguments. Same old, same old. What you propose for the Democratic Party is that they just keep saying the same things over and over and over again until people are finally convinced. As a marketing strategy, that's laughable.
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Fairfax, VA: I tend to agree with your take on the Dem's current action/inaction. However would the Dems ever have any success putting forward ideas this early in the term?
Seems like it would make more sense to wait till the leadup to the midterms to put forward major parts of their platform. Will political victories or failures this early in the term really have any effect on their goal to gain more seats?
Steven Pearlstein: This needs to be an ongoing process that starts in the grass roots of the Democratic Party. The Democratic leaders in Congress are very stuck in their mindset, stuck in the games-playing that goes on in Washington. They haven't learned how to be a minority party and use the freedom associated with that to come up with and push new ideas that challenge the ruling party and eventually prevail. They are sitting there assuming that the public liked it better when they were in power and they just have to whine about everything and criticize everything and say the sky is falling and people will finally come to their senses. Guess what: it ain't gonna happen.
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Fairfax, VA: Do you agree with Paul Krugman's assertion that the President's recent plan to cut social security benefits actually falls mostly on the middle class and not the wealthiest?
Steven Pearlstein: No, it was very intellectually dishonest. All he was really saying is that, for rich people, Social Security benefits are a small part of their post retirement income. In truth, any cut in benefit will fall mostly on the middle class because the middle class gets most of the benefits. Its sophistry, really. And like the Dems, Krugman assumes in his analysis that the money will be there to pay 100 percent of future benefits, which cannot be assumed. That's why we're having this conversation in the first place. I have in front of me an analsys which suggests that the decline int he replacement rate for a typical American household under "progressive" indexation will be about the same as the decline in replacement rate if nothing is done to Social Security and benefits increases are "cut" simply to reflect the amount of money available.
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Laurel, Md.: One issue I didn't see mentioned in today's column is Medicare. Unlike Social Security, which only needs Cola's to keep up with inflation; Medicare expands because of the QUANTITY (not just price) of medical care demanded.
Is any politician at any time going to stand up and say that the taxpayers just can't afford to keep seniors alive and kicking into the indefinite future?
Steven Pearlstein: This is another area where the party out of power could do something useful, tackling the whole health care problem, which the Bush administration has largely ignored. Medicare is a big part of that, but in fact you really can't fix Medicare without fixing the health care system.
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college park, md: a reader writes: "but then we hit the hard limit of energy production peak and the price of energy spikes, driving down economic activity"
From my point of view, our ever mounting personal, as well as our national debt and budget deficits pose a much greater obstacle to our nation's economy than energy prices. would you agree?
Steven Pearlstein: I suppose. In some sense, the energy problem is really a subset of that larger problem.
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Charlottesville, VA: Great column today, but please amplify on one of your major points, namely, Why oh why can't the Democratic leadership see that a reasonable, well-thought-out plan to "save" social security should be--to coin a new phrase--a slam dunk for them? After all, those most affected are (or used to be) their natural base. Am I missing something?
Steven Pearlstein: What you are missing is the ridiculous inside-game mindset that afflicts both parties on Capitol Hill -- that you don't concede anything when you have the other guy on the run, that if you step up to the table, you give credibility to the idea that Social Security needs fixing, that once the Democrats concede anything, the Republicans will take that welch on any concessions on their side and make the Democrats share the blame for benefit cuts, thereby taking away their best election issue. Notice that nothing in what I say has anything to do with helping citizens, and eveything to do with positioning themselves for the next election. And as long as you believe, as both parties do, that the most important thing you can do for voters is make sure the evil people in the other party don't get into power, all this makes perfect sense.
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Treasury Bonds: Speaking of the Zero risk bonds, have you noticed Bush had a really cute lie in his Press Conference? These are "worthless IOUs" when they back the Social Security Trust Fund, but are "backed by the full faith and credit..." when talks about his carve out private accounts as a risk free fund option.
A thing cannot at once be two contradictory things. By definition, a lie. Provable. Transcripted.
Other than Froomkin, not one so called journo at the Post has written about this. Comments? (Maybe you can find a way to blame the Democrats for this?)
Steven Pearlstein: I am fascinated by the fact that people sit around keeping score about what we write about and not write about. First, I think you are wrong on the facts. Second, your question sort of implies that if only the press would do its job and expose the Bush hypocricy and lying, then the political system would do its job and throw these guys out of power. This is just so much hokum. The national press corps is no friend of George Bush, just as it was no friend of Bill Clinton. And the problem is not with the messenger -- its with the Democrats message, despite their preference to cling to the past.
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Columbia, MD: Mr Pearlstein, I wonder why the income range for Social Security hasn't been expanded to be inclusive of incomes well over the 80-90K it is presently set at. Frankly, I think it makes no since whatsoever that incomes over this amount are not included as taxable for Social Security purposes. What do you think?
Steven Pearlstein: I agree, and have written so several times. It ought to be gradually raised to about $150,000 in today's dollars.
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Alexandria, VA: The Democrats keep saying that Bush's progressive indexing plan will hurt the middle class. But I though Bush said at the press conference that Congress needed to work out the details.
Why don't the Dems simply offer a plan that doesn't hurt the middle class?
Steven Pearlstein: Well, you can't slow the increase in benefits (this is the dreaded benefit "cuts") without slowing them for the middle class, because the middle class is so big and gets most of the benefits. The rich don't have enough skin in the game, relative to their incomes.
The middle class has a choice here: reduced benefits in some fashion (higher retirement age is a reduced benefit)or pay more into the system. Now Dems will try to complicate it all by bringing in the Bush tax cuts, but that is really a separate point. Using general tax revenues to subsidize Social Security, given the huge budget deficit we have now, is just stupid. This program can be reworked to be self-sustaining and more progressive, and Democrats are the ones voters trust to do it. But they'd rather play political games.
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Cute. Like some facts for your rant?: Or are facts to difficult?
1. SS is not going to "run out of money", even in the false worst case numbers the Admin promotes (where they base the stock market on huge economic growth, and the FICA money on low economic growth...another lie you journos find to boring to discuss). Worst case scenarios on doing nothing = 75-80% of benefits paid out of incoming revenue streams. Which is better than the Bush plan.
2. Again, what "Rich"? SS tops out FICA taxes in the upper middle class. Please explain how the "Rich" are touched at all, other than in losing their retirement pocket change?
3. Lesser extent Middle Class? Are you mad Carstairs? The middle class is the primary group hosed over, by definition. These are the folks paying the bulk of the taxes (i.e. the opeople who's total income, not some small portion are taxed), but without enough income to go it alone in retirement.
4. You're right, there have been huge changes in household wealth since 1935...for the top 20%. For the bulk of the population, there have been very few changes in household wealth distribution. Some fiddling small change in a 401k doth not an investment mogul make, just as my having bought an Armani at Filenes doesn't make me a fashion designer. And about the top 20%, see #2.
Your comments come straight out of the Republican talking points. As informed comment and reporting, that's laughable.
(PS - Still waiting for that source list on the radical change in Republican displaced worker policy.)
Steven Pearlstein: Republicans oppose displaced worker policies. But the President and big business desperately want their free trade treaties. Sounds to me like we ought to see if we can strike a deal. Everyone gives up something to get something -- as opposed to the Democrat's current strategy of refusing to give up anything and get nothing, like they did with drilling in Alaska.
I never said Social Security would run out of money, if you read the transcript of this entire talk. I said they would not be able to pay full benefits, which by your language would require a benefit "cut" of 20-25 percent. And what do you know -- that is probably greatrer a cut that the middle class would get under the Pearlstein plan, which would actually increase benefits for hte poor and lower them for the rich, while requiring the rich to put more money in the system. But hey, why try to move the system in that direction when you can simply stand pat and defend the status quo, which is the Democrat's preferred position.
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Minneapolis MN: It seems people are too focused on the potential growth of private accounts when it comes to Social Security. I believe the real issue people need to understand is the debt that will be incurred by these accounts. This administration has already increased the national debt from 5 trillion to almost 7.5 trillion. Private accounts would add from 3-5 trillion onto this debt (depending on time frame used). Who manages their money or budgets like this? I certainly do not.
Steven Pearlstein: Look, there is not going to be any borrowing for private accounts. No way, no how. Even a sizeable number of sensible Republicans agree with that. That's a dead issue, except for Democrats, who want to keep it alive to score political points.
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It ought to be gradually raised to about $150,000 in today's dollars. : Why should income be treated differently to begin with?
If I was Joe Stalin in America, it'd all be taxed the same whether you sweat by your brow, receive dividends, or merely mill around like the lillies in the field.
Please. Don't thank me.
J.S. for Dictator
Steven Pearlstein: Actually, that's probably not a good ideas, as much as it would satisfy your sense of fairness. This is a social insurance program, supported by a payroll tax, not a general income tax for general government use. In that instance, your principle should be applied: all income treated the same.
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Now Dems will try to complicate it all by bringing in the Bush tax cuts, but that is really a separate point.: Wrong again. Where does the money come from to pay the Treasury obligations? General revenue.
So the tax cuts are appropriate. basically, the Reps are taking regressive FICA taxation, and borrowing against it to finance upper income tax cuts.
Steven Pearlstein: Ah, here is the favorite Democratic gambit, to link every issue back to the Bush tax cuts.
Conceptually, you are just flat out wrong about general revenues being used to pay for Social Security. General revenues are used to pay back the money that the Treasury borrowed from the Social Security Trust fund, masking the true extent of the budget deficit. The money originally came from people who paid payroll taxes -- that was the prevenance of the money.
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Minneapolis MN: You say There is no proof -- none -- that by somewhat lowering the INCREASE in benefits for the rich and, to a lesser extent, the middle class, that political support for Social Security will melt away. Really? What about so called welfare reform? There was great acclaim for this when the economy was hot (under Clinton)and jobs were growing. Now that job growth is anemic there seems to be no coverage of how the very poor are suffering in this country. And yes I am in the top 5% of wage earners and would pay more in taxes to help them.
Steven Pearlstein: Your paying more wouldn't help them at all -- it would simply reinforce a cycle of poverty and dependency that had been developing over decades as more and more money was thrown at the problem, to no effect. Welfare reform worked -- not perfectly -- but it worked. We need to deal with the problem of child care better, and the Republicans are AWOL on that. But bringing back welfare as we knew it is just a dumb, dumb idea. Save your money for the local Community Chest.
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Alexandria, Va.: Do you think that the AARP has a vested interest in ensuring that there is a class of persons (retirees) still beholden to Congress to get their monthly checks? After all, you need someone to lobby for. It seems that private accounts hit AARP where it hurts-their constituency.
Steven Pearlstein: Actually, private accounts (which I don't support) or even benefit "cuts" (which I do, as long as they are progressive)won't affect many current members of AARP, because they would be phased in later. And this is one of the problems with the way Washington works. The AARP may be perfectly rational in demanding that the current Social Security system be maintained and if money is needed, young workers should be taxed to pay for it. But the AARP doesn't represent the country. That's why we elect members of Congress, to balance the various interests. If the elected members of the Democratic Party takes the same approach to Social Security as the AARP, which is selfishly looking out for the interests of its members and itself as an organization, then there is something wrong with the Dems position. The AARP doesn't care about young workers, nor should it. But Members of Congress should.
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Minneapolis: You say-What you propose for the Democratic Party is that they just keep saying the same things over and over and over again until people are finally convinced. As a marketing strategy, that's laughable.
DOES WMD ring a bell. This is exactly the tactic the Bush Administration used on WMD and Social Security. Now he has people believing that SS is in a bigger crisis then Medicare. Unfortunately this tactic seems to work in this country.
Steven Pearlstein: Lying works in the short run sometime, but not in the long run. The next time Bush tries to tell people about the threat of weapons of mass destruction, nobody will believe him. And, in fact, when he cried wolf on Social Security and said it would run out of money, people didn't believe him, which is why he's on the ropes as far as Social Security is concerned.
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Minneapolis: If you do not borrow to fund private accounts how do you pay for them?
Steven Pearlstein: You divert money from current payroll taxes, and reduce benefits even further. But that is a tough sell too. Which is why private accounts are probably dead and why Democrats need to take the opportunity to back Bush into a corner with a progressive plan to make Social Security solvent again.
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Steven Pearlstein: Thanks, folks. That's all for today. See you next week.
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