Saving the Social Safety Net
Melissa Harris-Perry and her panel (which included Carmon Wong Ulrich, Dean Baker, Lisa Cook and Josh Barro) took on President Obama and his budget plan which includes ceding to the Republicans and their demand for chained CPI and explained why that proposal ought to be dead on arrival for Democrats who are concerned about the retirement security of average Americans.
This really was a welcomed change of pace from what we're generally treated to on the network, whether it be David Gregory asking just how much pain Democrats are willing to inflict on seniors, to the day after day drone on Morning Joe with Scarborough and his regulars demanding a pound of flesh from seniors as well, to Chris Matthews going after Democrats who don't want to go along with cuts to our social safety nets unreasonable.
It really would be nice to see their daytime lineup during the week, and Scarborough's three hour nightmare every morning filled up with conversations more like this one, but that's not likely to happen any time soon.
HARRIS-PERRY: The budget plan President Obama presented this week makes another push toward a grand bargain with an inclusion of an enticement to Republicans that had so far been off the table in the deficit battle, a proposal to take a scalpel to Social Security. His plan would limit the benefits paid to seniors by charting the calculation for inflation -- changing the calculation for inflation, to cut the growth of monthly Social Security payments in the future. So instead of tying the increases to the consumer price index, the President's budget would change it to a different calculation called chained CPI.
And while his budget exempts the oldest and the poorest of Social Security recipients, it would cause 65 year old retirees to lose more than a thousand dollars a year by the time they reach age 85, which far more of them are now going to reach.
House Republicans for their part, have refused to take the bait. But the plan has sparked resistance from within the President's own party as progressives launch an organized campaign against the proposal. So I mean, I mean I know what second term presidents are supposed do. They're supposed to touch the third rail that nobody else can. They're never run for election again. But this one has been tough.
ULRICH: Why are we picking on old people? Why are we nickel and diming our seniors who can't afford this? A thousand dollars a year, that can pay for prescriptions, prescription coverage that's not covered by the government, because in retirement, more than a third of your costs are going to be related to health care. $200,000 on average for seniors in their senior lifetime. It's crazy.
HARRIS-PERRY: And with baby boomers being where they are in their life cycle right now, we've got a lot of seniors, if everybody is going to stop smoking, even more old people, right, and so we know this is a huge population and I think part of the conversation has been, what are we going to do with all of these retirees, and this is one answer.
BAKER: You know, it really is outrageous I think, because the presumption is that somehow seniors have too much money. And you know, Josh actually wrote a nice piece on this a little while back. Our retirement system collapsed. We don't have defined benefit pensions any longer. Most people have little by way of savings. We know that a lot of people took a big hit on their homes with the collapse of the housing bubble. Social Security has been the one pillar of retirement income that's stood up. If anything we should looking into expanding it. So, I mean, this is just you know, the Washington Post loves this. But apart from the Washington punditry --
HARRIS-PERRY: But why do it. Why include it in the budget?
COOK: As an economist, this is attractive because of substitution bias. When you start buying close substitutes, prices change, you want to make sure that the increases are consistent with actual inflation and actual inflationary pressures. So in a sense, it's attractive. At the same time, I agree with you. Seniors need to keep spending. This is not a robust recovery. So any time we're taking money away from people who spend money, and that's what they do, their incomes aren't growing generally, they will -- the economy will suffer. So I think we want to be careful about how we're undermining spending that could take place --
HARRIS-PERRY: So this is less of an argument about the seniors and more of an argument about the ways in which they're spending on everything from prescription --
ULRIGH: And they're not spending in the same way that we all are. That's the thing. They have much less room to make adjustments like we do. The whole don't buy the beef, buy the chicken, it's crazy because so much more of their budget are on items they need to live, such as prescriptions or aid or health care, all of them.
BARRO: And I think this is an issue where there's a real elite mass disconnect, where people who are relatively wealthy think of Social Security as being something that's, you know, a safety net fallback, a small part of your retirement account. In fact, when you look at the assets of a typical near retirement, middle income household, about half of their assets are accrued Social Security benefits.
It swamps everything else. As Dean noted, pensions have gone away. People don't put much money in their 401K's and they tend to invest it badly when they do. So this is really the bedrock of people's retirement income. And I think people talk about Social Security as being this really broken system with lots of problems. But it does have a medium term deficit that needs to be fixed. But it's healthier than the other two main pillars of our retirement system.
HARRIS-PERRY: And given that the, you know -- the economic recovery, but even if we look at the absolute evaporation of wealth that occurred for people who basically ended up people having to eat their retirement accounts right, and take all kinds of sort of bad short term bad tax decisions in order to plug those holes, if you were 50 when this all started happening, you can't make that back up.
BAKER: We've done analysis of that. We've all come to pretty much the same conclusion. If you look at the 55 to 64, so near retirees, median wealth, including the equity in your home is about $170,000. What I'd like to compare that to, that's roughly the median house price. So we take someone right in the middle, they could take every penny they have, sell their car, their 401K, every penny, they pay off their mortgage. That means all they have is retirement is Social Security. If you take the group down, 45 to 54, they're at about $70,000. You know, maybe they'll be up there at $150,000 ten years out, but we're not looking at people, and these are at the middle, so half the people are below that. We're not looking at people having wealthy retirements.
HARRIS-PERRY: Right, so Social Security is not just the supplemental, it's not just the extra. It's what people are really living on, so when we make it chained CPI, just so the folks, in case they're not quite catching this, exactly how does that change? The CPI is about a basket of things that you would buy, right? It's like, imagine that you need to put a basket of goods together. How is the chained CPI different than that?
BARRO: What the chained CPI does is takes account of the fact that as prices change, people buy more of some things and less of other things. So if beef rises in price relative to chicken, CPI will adjust upward on average, chicken went up by x and beef by y. Chained CPI adjusts for the fact that people will buy less beef and more chicken because of the relative price change.
COOK: As if it's a substituion.
DEAN: It's important to note that seniors have different consumption patterns and we know that and suggests that seniors actually see a higher rate of inflation, and that's an experimental index. Everyone who is a proponent of the chained CPI, I go, why don't we do our labor statistics and construct a full elderly index. No! And they all go running away from me.
HARRIS-PERRY: I love that what you've said this morning. It's, what if we collected some data and answer these empirical questions? But no, absolutely not.