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Benefit Cuts: Arts of Magnification, Minimization, and Intimidation

Intimidation (“How Dare You Demand Special Consideration!”)

Seems like the enemies of Social Security and Medicare will pull out every trick they know to achieve their goal.  Today an otherwise astute economist told a reporter that disabled Vets had to take a cut in their benefits just “like everyone else”, in a scold, as if they were asking for special consideration. They said that they had already made sacrifices for their country and gave the answer that it is unfair to change the terms of the contract after you have already finished your side of the deal. She was firm, and insisted that there would be no carve outs for special groups. Did she miss the Gene Sperling memo?

A few weeks ago White House economist, Gene Sperling, was all over Reddit promising that the chained cpi would have special protective carve outs for the vulnerable: For Vets and disabled folks, and for the very elderly who would experience the deepest cuts from their Social Security benefits. (Then it turned out that every group is vulnerable because all are going to be hurt by cuts under the chained CPI.) Broken promises?


In an non-fact based Op-Ed in the NYTimes, Rattner claimed that a 1,ooo dollar benefit would hardly be hurt at all by the chained cpi. His graph showed the increasing impact of the chained cpi cut over a ten year period. So what’s the problem? The graph did not show how the cuts would  aggregate to 3% of benefits at ten years, 6% at twenty years and 9% at thirty years. And, the Social Security benefit cut needed to be multiplied by 12 to present the total of the cuts per year, and then compounded, over a specific period. That is what is wrong. And account for inflation through COLA. He made the numbers look small by only looking at a small looking number. The real impact of the chained cpi is larger. More like this:

Chart of SSI under CPI

Magnification (Exaggeration)

In the same non-fact based Op-Ed in the NYTimes, Rattner claimed that unfunded liabilities owed by this generation extended to “almost 60” Trillion dollars.  He alleged that cumulative debts including the current deficit and future Social Security and Medicare unpaid for benefits meant that cuts had to be made: “now! now! now!” His numbers reflect the multiplication of a coefficient representing a guessed-at, actuarial gap in future projected revenues and benefit payments, over the almost infinite horizon of 75 years. No wonder his graph shot skyward at a 45 degree angle. He wrote as if there were no future revenues, production gains, wage increases, and maybe even a scrapped FICA cap so people like him can pay their fair share of taxes. Social Security would be perfecto if deadbeats earning more than 113K per year had to contribute their fair share to the Trust fund.

Medicare will require price controls to bring healthcare costs down, but beneficiaries of Medicare are not the problem, high prices are.

This is a graph of medical spending on retirees. Not bad. Most of the rise is due to “other factors.” And recent spending is down:

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