Social Security

At the age of 16, Congressman Paul Ryan (R-Wis.) suffered the death of his 55-year-old father. Because of his father’s early death, the government made survivor payments for a few years to Paul Ryan’s family — including for Paul Ryan himself, for the two years until he turned 18.

The death of Paul Ryan’s father probably cut government spending on Ryan’s family, since his father never got to collect a dime in retirement benefits despite paying into social security for many years, and since retirees typically collect at least a decade’s worth of benefits. Thus, the Ryan family got no special breaks.

But the liberal magazine The American Prospect, and liberal blogs like Crooks and Liars, Firedoglake, and Daily Kos, are using Ryan’s father’s early death against him, falsely accusing him of hypocrisy. For example, a Daily Kos diary attacks Ryan as an “evil hypocrite” in a post entitled, “Entitlement-hating Paul Ryan collected Social Security benefits until he was 18.” Never mind that Ryan’s recent budget proposal doesn’t in fact seek to abolish entitlements, much less get rid of Social Security, and doesn’t seek to reduce the survivor benefits he once received. It merely seeks to cut the rate of growth of exploding Medicare costs by eventually giving its recipients vouchers they can use to shop around for medical care.

Not all Daily Kos diaries reflect the views of Daily Kos as a whole, but this one does, since it was briefly featured on the top of the front page of Daily Kos, and was listed as a “recommended” blog post in the sidebar on the right side of Daily Kos’s main page in recent days. 282 Daily Kos readers have commented in response to it, seemingly all agreeing with its hateful sentiments.

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Chipotle boasts that it offers “food with integrity,” but the popular restaurant chain may want to consider an addendum in light of its recent actions: “so long as the federal government doesn’t get involved.”

The chain was forced to fire over 600 employees from its 50 Minnesota restaurants last month — about half of its employees in the state — in light of an audit conducted by U.S. Immigration and Customs Enforcement (ICE). Says one Minnesota paper,

The investigation of Chipotle began several months ago, [Chipotle communications director Chris Arnold] said, when ICE asked to see work eligibility documents. The company was not told why it was singled out for review. ICE then provided Chipotle with a list of employees whose documents might be invalid, he said.

Chipotle tries to screen new employees, but some provide false documents showing they are eligible workers, Arnold said. In cases where employees insist they have the proper documents, Chipotle has sought to give them extra time to produce the identification, he said.

“We have asked ICE whether they would allow a 90-day period to resolve discrepancies, and they have told us that they absolutely would not,” Arnold said.

Not only is ICE denying Chipotle the 90-day period to clear up documentation issues with its employees — an allowance that is “standard practice,” according to the Service Employees International Union (SEIU) — but it is actively increasing the size and scope of its investigation of the restaurant chain. Earlier this month, ICE announced that it would also be auditing the 60 Chipotle locations in Virginia and Washington, D.C.

Robert McGoey, a co-coordinator of the rights-based organization Denver Fair Food, suspects that Chipotle will eventually be audited in every state due to its 80 percent Latino employment. Similarly, a February 11 article in The Nation reveals that John Morton, the head of ICE, says it “plans many more mass firings.” This tactic fails to meet the organization’s goals, made explicit in the same article:

The ICE website says it targets employers “who are using illegal workers to drive down wages … [those] likely to pay illegal workers substandard wages or force them to endure intolerable working conditions.”

At Chipotle, however, as in every other sanctions target, ICE never improved conditions. Wages remain the same. In fact, although Morton boasts ICE collected $7 million in employer fines during 2,740 audits, those who cooperated in firing workers were given immunity. The only people penalized were workers.

It seems that Chipotle is being targeted on the basis of its largely Latino demographics, rather than any abuse of undocumented workers in the workplace. While wages are unlikely to improve in a market in which “there are nearly five unemployed workers competing for each available job,” ICE’s failure to leave improvements in its wake was virtually guaranteed when it targeted a fast-food chain with above-minimum wages across the board. According to a report from the Immigration Policy Center published on February 9,

[Concerning] Chipotle, labor leaders who criticized the firm for the way it handled layoffs in the wake of the ICE audit say the company is “definitely above the bottom tier” in its overall treatment of workers. Even though the chain is non-union, the SEIU’s Nammacher said Chipotle pays above the minimum wage and offers some basic benefits. “They’re an above-board corporate player,” he stated.

Not only is Chipotle a poor target for an organization seeking to root out “intolerable working conditions” (Chipotle is even known for its practice of paying higher food costs in order to better the compensation of supply-chain employees), but ICE’s impacts harm the very individuals whose interests the organization purports to be acting in. According to a 2009-2010 report from the Human Rights Immigrant Community Action Network,

ICE’s new workplace enforcement strategy of auditing employment files, allowing employers to fire undocumented workers en masse – also dubbed “silent raids” – has deepened the economic and humanitarian crisis in many communities across the country, making workers further vulnerable to labor rights violations and other forms of abuse.

The study details several cases in 2009 and 2010 in which ICE audits — intended to publish “bad apple” employers — did anything but.  ”In each of these cases, rather than hold the employer accountable for existing labor law violations and abuses, ICE’s I-9 audits triggered massive layoffs leaving thousands of families in crisis and more vulnerable to abuse.”

SEIU president Javier Morillo described the effects of this practice on undocumented workers, stating that “They are pushed out of jobs where they are being paid above the table.” He added, “They pay taxes, Social Security taxes, etc. They are being moved, many of them, to precisely the bad employers that pay cash, that pay less than minimum wage.”

The deeper that one delves into ICE’s actions, the more that the government organization’s actions seem inconsistent. According to the organization’s website, “ICE’s primary mission is to promote homeland security and public safety through the criminal and civil enforcement of federal laws governing border control, customs, trade, and immigration.”

It’s unclear, however, how the organization’s recent moves against the employees of Chipotle are in any way consistent with its stated ends of promoting security and safety. It is similarly unclear that Chipotle was abusive  in its dealings with the undocumented workers that it unknowingly employed.

What is clear, however, is that ICE’s actions threaten the very employees whose working conditions it claims to defend.

According to a new poll, the average American thinks that 25 percent of the federal budget is spent on foreign aid (or, more accurately, government-to-government transfers). They would like it cut to about 10 percent.

The actual figure is under 1 percent.

As Aid Watch’s Laura Freschi points out, that means most Americans want to increase government-to-government transfers ten-fold from current levels while also cutting them in half.

That most people think like this is a major reason why cutting the federal government’s $3.5 trillion budget is so difficult. The issues that people get worked up about tend to be small potatoes, in budgetary terms.

Besides transfer payments to other governments, earmarks are another lightning-rod issue. But even if earmarks were abolished entirely, that’s only about 2 percent of the budget. It would put the smallest of dents in spending.

Entitlement spending is the single largest driver of current and future deficits. That’s where the battle is. Aid spending and earmarks are not threatening to bankrupt the country. Social Security and Medicare are. And those programs are extremely popular. No politician with an eye on 2012 would be willing to cut them.

The government has made promises it can’t possibly keep. But most people refuse to believe that. So they don’t. As a guarding mechanism, they instead make grand assumptions about how much things like transfer payments to other governments and earmarks cost.

Government spending reform is not an option. It’s a necessity. Reforming Social Security goes a long way here. The most sensible reform would be to privatize it. To see why, one needs to understand the economics of Social Security.

First: What is saving? When we buy stocks, bonds, and CDs with our money, we call it “saving.” In the economics sense, when we save, we abstain from consuming resources today. Businesses use the saved resources to produce more for tomorrow.

Suppose an economy produces a stock of corn. We can either consume it or save it. The saved corn is planted and makes more corn next year. This is saving and investment, in the economics sense. Here’s the link between “saving” and saving: I decide not to spend all my money consuming corn. Rather, I buy a bond from a farmer. I am “saving.” In doing so, I also leave corn on the shelf of the supermarket. This is saving.

The farmer buys the leftover corn using the money from the bond I bought. He invests by planting the corn. In a year, it becomes more corn. He sells it to the supermarket for money which he uses to repay me for the bond, with interest. Now I have the money, and I can consume more corn or save again.

This corny story is an analogy for gross domestic product (GDP), the measure of all final goods and services produced within a nation in a year. It includes all the corn, cars, soda, etc. produced by a nation. The saved portion of GDP becomes investment. Investment creates more GDP in the future.

So is Social Security saving? No. Those paying in today don’t consume it or save it. The government receives the money, but they don’t leave it in a personal account; they transfer it someone else who uses it to consume resources. In other words, the government takes corn from you and gives it to your grandma. Now she can consume it. There’s no real saving because no corn gets planted to make more corn tomorrow.

If there’s extra money in Social Security, government takes it and buys corn to consume itself, e.g., to build corny missiles. It gets replaced with a government IOU, Treasury bonds (aka higher future taxes). Not only is this not saving, but the corn missiles mean there is even less corn for individuals and businesses to consume and invest too.

Identically, imagine you “save” $1,000 of your income, but buy a new TV instead of depositing it with a bank. Since you’re “saving” and not a scheming politician, you write an IOU to yourself, promising to repay yourself $1,000 with interest. Is this “saving” plan stupid? It is. This is Social Security.

If Social Security were privatized, people would deposit their income with a bank. People actually save resources that businesses can invest. We, as true savers, get more resources in the future.

“Lockbox” proposals are equally flawed. In this instance, government doesn’t reach its hand into the cookie jar. It keeps the extra cash stowed aside. This is like putting money under your mattress. Once it’s out of circulation, it serves no purpose. Less money in circulation relative to real GDP means the average price level goes down (deflation). The Federal Reserve would just print more money to offset this.

Remember, the purpose of actual saving is to allow you to consume more in the future — not today. Social Security retards this process whereas privatized Social Security means actual saving. If people defer consuming some corn (GDP) today with a bank that lends it to someone to invest, then there will be more corn (GDP) tomorrow. This is the economics of Social Security.

Here’s a letter I sent to Politico:

Editor, Politico:

The title of your November 10 article, “Panel leaders propose Social Security cuts,” is inaccurate. A cut is when spending goes down. Social Security spending will go up if Erskine Bowles and Alan Simpson’s recommendations are enacted. They would increase spending at a slower rate than under current policy. But it would still increase.

An increase is not a cut. Not even in Washington.

Ryan Young
Fellow in Regulatory Studies
Competitive Enterprise Institute

This issue keeps showing up over the Internet, so it makes it an easy story to address: Most government pension programs are unsustainable. As I’ve mentioned recently, the French in particular don’t want to accept the economic reality of their government pension system, and have shut down their country as a result. However, it is now being reported that there are only five countries whose pension systems can survive (No, the United States didn’t make the list).

Ignoring the moral issue against the government providing pension benefits, basic arithmetic is all that is necessary to explain why these pensions will result in long-term bankruptcy for any country.

For example, if young citizens pay into a government program to pay retirees, yet simultaneously older citizens demand longer vacation time, fewer work hours, prevention against employment termination and a young retirement age, eventually all the revenues coming into the program will not pay all the beneficiaries.   To exacerbate the problem, these programs often create the terrible result of increasing unemployment for the young people who need to fund the system.

It would be one thing if the politicians were responsible with the money, but Public Choice Theory explains why that is unlikely to happen. Bureaucrats simply fund projects with revenue generated from the pension plans, rather than holding the money in trust. The result is that the politicians get elected for the projects they vote to fund, and over time there is no more pension to pay retirees.

The great irony is that the politicians themselves often retire with gold-star pensions before their constituents realize their own pensions are insolvent.  Sadly, the French will soon learn that throwing a nationwide tantrum won’t change the economic reality.

As if one needed to be more cynical about politics, The Daily Caller just reported that “President Barack Obama is urging Congress to act quickly on a measure that would provide a $250 payment to seniors.”

The effort comes in response to news that the Social Security Administration, for a second straight year, will not add a cost-of-living adjustment (COLA) to the checks it sends out. Last year, Congress authorized a one-time $250 payment for Social Security recipients.

So despite a federal deficit as far as the eye can see, we’re now going to give Seniors $250 checks?  The very reason why there was no cost-of-living adjustments is because there was no increase in the cost-of-living. Moreover, Seniors fall within a demographic bracket that is much wealthier than younger individuals. Consequently, this is nothing other than a wealth transfer payment from poor young people to older wealthier people. How can that be justified?

Lastly, with an election coming up this November, how else can this proposal be described other than, “Support me and I’ll give you $250.” Can our economic policy get much worse?

Image Credit.

1. A young Arab-American in California found a tracking device on his car and removed it. A couple days later, the FBI showed up at his door. They asked for their tracker back and told him, “You don’t need to call your lawyer. Don’t worry. You’re boring.”

2. Mark Zuckerberg talks to Slate about Facebook’s solution to the “audience problem.”

3. The Social Security Administration is reporting that 72,000 dead people received a total of $18 million in stimulus payments.

4. Daily Beast correspondent (and self-proclaimed libertarian) Tunku Varadarajan slams Forbes for naming Michelle Obama “the most powerful woman in the world.” (Varadarajan is a former Forbes Opinion editor.)

5. Reason TV presents “3 Reasons Obama’s Education Vision Deserves an F.”

Richard Morrison, Jeremy Lott, Greg Conko and Michelle Minton bring you Episode 85 of the LibertyWeek podcast. We put the big vote on health care front and center, while also touching on protests over immigration and legal challenges to the EPA’s greenhouse gas rules. We wrap up with a discussion of WWF’s Earth Hour and its scrappy competitor, Human Achievement Hour.

Megan McArdle points out a delicious piece of partisan hackery.

Back in 2005, President Bush proposed privatizing Social Security. This was one of his few good ideas. But because of poor salesmanship, it was less than popular. Nothing came of it. Rather than press on, The New York Times urged him to cave in, in accordance with the peoples’ wishes.

This year’s health care bill is similarly unpopular. Now The New York Times is urging President Obama to press on, against the peoples’ wishes.

Go read her whole post. It’s great.