The President's new budget has been unveiled in stages, and there really isn't any news involved. It is being characterized as the "grand bargain" that he offered Speaker John Boehner a couple of fiscal crises ago taking into account all of the cuts and tax increases already done. And according to at least one analysis, this budget reduces the federal deficit over the next ten years more than does either the Democratic budget published by The Senate or the Republican budget of Paul Ryan's House budget committee. But at least one of the spending cuts in this deal is nothing more than misdirection regarding the deficit and the debt, specifically in the area of entitlements, and with regard to Social Security retirement benefits in particular. We have discussed this before, but the issue seems never to die, so here we are discussing it again. The essence of my problem with it is that it is a scam unlike any other, and the fact that Republicans like it should tell us something. The chained CPI as a measure of yearly benefit increases does decrease the deficit, but paradoxically, it does nothing to decrease the national debt. In fact, chained CPI increases the national debt if you take extra interest paid on what the country owes because it is being permitted to pay the debt back more slowly under this scheme than under the current one.
The way the chained CPI works is that it does not take increases in costs of living into account if there are reasonable, cheaper alternatives in the minds of those who make these decisions. So, for example, if beef twice a week is in your budget, the chained CPI may substitute chicken for the beef because chicken is cheaper, thus lowering your food bill and reducing the increase in your cost of living over the period in question by reducing the quality of the protein you eat, and of course, taken to absurd lengths it could lead to substituting dog food for the chicken. So the essence of the change to the chained CPI is that the same people who spend our tax money and in the past have borrowed that money from our Social Security Trust Fund whether we liked it or not will now decide how we should economize instead of increasing our benefits to accurately compensate for the increased cost of the things we buy. And the estimate of the savings involved could be up to a gross reduction in Social Security benefits of 6% over the next twenty years. That doesn't sound like much unless you consider that 6% of very little to begin with is even less adequate than it otherwise would have been. Still, that might be bearable on the premise that we retired people have to pay a portion of the cost of the past that we enjoyed, which was borrowed in our name as well as everyone else's, except... The problem with this plan is that it has the effect of deferring the national debt by reducing the amount of benefits received by us now, and that is so because while there is $2.5 trillion in the trust right now, just this past year the new contributions to the fund ceased to be adequate to pay benefits due. That meant that instead of the federal general fund being able to borrow what had been a surfeit of contributions to the Social Security programs every year, it had to start borrowing money elsewhere to pay out on the maturing bonds representing what it had borrowed from us in the past. Thus, the change in the cost of living increases we would otherwise have been entitled to is nothing but a reduction in the rate at which the federal government has to pay us what it required us to lend to it over the past thirty years. In other words, the Republicans have now been joined by our president in demanding the renegotiation of the terms under which they borrowed our life's savings so as to pay us back more slowly, thus requiring us to tighten our belts. It is not as if we are being asked to take something slower, rather it is our government giving us back what is ours slower, even though it promised not to when it borrowed the money in the first place.
So, you see the paradox. The chained CPI helps the feds today, but we have to pay for it later on...just what the Republicans accuse the Democrats of doing every time they want to increase the debt ceiling. The only sacrifice being required of anyone in this scenario is that being required of those who have the least to give. The federal government, on the other hand, just wants to keep on taking, only it wants to take more, and pay more for it in the end as it pays the debt back more slowly. Bluntly put, switching to the chained CPI looks good on paper now, but it only makes our long term problems worse by deferring, at least in some part, any real action to address them...the national debt in particular, but also including the political problems created by the need to continually increase the debt ceiling, and eventually, increase everyone's taxes. Sooner or later, there is going to have to be more revenue, and the chained CPI is the conservatives' way of making us Social Security recipients pay now so that it can be later rather than sooner...now.
Recently, I was having a conversation with my son, who has moved into his own apartment with his girlfriend. We were discussing the problem of living within one's means, and he was talking about how he is making good money, but it is just enough to put a couple of hundred dollars a month aside, and then only if the two of them are reasonably frugal and they both contribute. But his girlfriend has a tendency--rampant in youth generally in my experience, including my own youth--to buy what looks good: I-phones, new cars on time, lavish recreational activities and the like. I asked him if he could muster the self-restraint to live on his own on what he makes because he had suggested that he could carry them both, but just barely so, and his answer was no. In other words, in an ideal world he could manage, but in his real world, he was just as much a grasshopper as his girlfriend...not the ant that he would need to be. The conversation being had by our politicians is just like that, only there is no father involved to point out that everyone is going to have to change his habits if we are to manage on what we have. My point is that the chained CPI is just another form of profligacy, but it masquerades as austerity because it doesn't start to feel really bad right away as it's making our financial problems worse, but rather only in the distant future. The problem is that, just as we are experiencing today, the future does come, and then you have to deal with it. So, I would ask President Obama this question if I could get his personal attention long enough to do so. When are you and the Republicans going to grow up and stop lying to yourselves, and worse, to us?
Your friend,
Mike
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