06/10/2013 11:29 am ET Updated Aug 10, 2013

Just Who's Delusional Around Here?


The Washington Post has an editorial this AM -- "Deficit delusion" -- that echoes some of the points I made here just the other day (this is from what I wrote, not the WaPo):

...even with recent, significant improvements in the fiscal picture, we are not out of the fiscal woods.

In this biz, you need to be a CDSH -- cyclical dove, structural hawk -- and in that regard, the deficit is coming down to fast now when the sluggish recovery still needs fiscal support and going up later when it shouldn't be, as shown in the figure here. So there's be mindful of the SH part of that acronym above.

[This post generated a number of good questions/critiques in comments to which I'll respond later, time permitting. Basically, folks want to know what's wrong with being a CDSD...]

The WaPo's ed board make a similar argument today but they went badly wrong in two places.

First, they write:

It is not equitable to continue transferring net resources from young to old, especially when so many of the latter are well-off compared with many of the former. [my bold]

What?! How can a national paper with the depth of resources as the Post write this?? At least run it by Ezra's team first. Absent Social Security benefits, 44 percent of the elderly would be poor; with it, 9 percent are poor (see figure here). Most beneficiaries get two-thirds of their income from the program. Monthly benefits amount to about $1,300/month, and the typical (median) beneficiaries income is around $25,000. (See EPI's recent piece on these and related points.)

And, for the record, the spending cuts we've made--all on the discretionary side of the budget -- so far have whacked poor kids (e.g., sequester cuts to Head Start) and poor elderly (e.g., Meals on Wheels) -- not exactly a transfer of net resources from young to old.

Yes, there are wealthy, elderly people who do not their Social Security benefits to get by, and I've advocated tweaking the bend points in the benefit formula to reflect that (a better way to go than means testing, btw). But the fact is that too many retirees depend on this income to get very far toward solvency down that path (for example, reducing the top bend point by a third, from 15% to 10%, would close well under 10% of the long-term insolvency gap).

I really wonder if the problem here is that too many people writing about this issue are reflecting on their own finances and assuming everyone's as well off as they are. If the WaPo wants to restore some credibility on this issue, they need to get real about the economic vulnerability of most retirees and start emphasize raising the "tax-max" -- the salary cutoff for payroll taxes -- as part of the fix here.

The second problem with the piece is the last sentence: "the best time to start negotiating... is still now." The reason -- and it's a sensible one -- people make that case is because the sooner you achieve fiscal sustainability, the less you're vulnerable to interest rate spikes, which grow proportionately to the size of your public debt.

But because the opposition is uncompromising in its refusal to add new tax revenues to the deal, the only way to get there is through spending cuts. And since they generally want to protect defense, that once again means gunning for the economically vulnerable (block granting SNAP/Medicaid, vouchers for Medicare -- that's what they're bringing to the table, WaPo!).

Here's how I put it over the weekend:

This is neither the time nor the Congress with which to make fiscal deals that will be in the nation's economic interest. The improving budget picture and especially the slower growth of health care spending (since that, along with reduced revenue collections, are where the fiscal pressures are coming from) give us some breathing room.

That breathing room must be used to help the public, if not the policy makers, understand both the long-term fiscal challenges and the solutions that fix it without breaking critical parts of the safety net and retirement security.

This post originally appeared at Jared Bernstein's On The Economy blog.