Social Security Is Running Out of Time

24:14And I think the situation we're in now is basically a frightening polar opposite. So everything is worse, if you think about it. Our fiscal situation is worse than it was now in terms of that our debt as a shared GDP is at near record levels. Deficits are the highest they've ever been outside of emergency times. This impending problem with Social Security and Medicare, interest payments, all of those things, everything is worse now. But even more importantly, our political situation is so much worse. So we have, and you brought this up, and I think it's probably the single biggest threat to where we are right now, the loss of trust in our institutions, in our systems, in our promises, and in each other.

24:55And if you look at the levels of polarization and what they create, it creates the opposite of what allows us to get to a reasonable fiscal compromise. So in order to have a big debt deal, and I should put out some numbers right now, in order to just stabilize our debt as a share of GDP, or let's say, let's bring the deficit from 6 % of GDP where it is now to 3%, just cutting it in half. Not balancing the budget, cutting it in half. 3 % would have historically been considered a lot. Huge, huge. We would have been deeply concerned about 3%. The problem is that getting to balance is so far out of the realm of possible that if you put it as a fiscal goal right now, we will quit immediately.

25:34It's like saying I'll run a marathon as soon as I hang up this phone. It's not going to be possible. We used to talk about let's go big. Let's fix this. Let's go big. Unfortunately, now the slogan is let's go incremental. So we've got to do this part by part. But just getting to 3 % of GDP is$10 trillion in savings over the next decade. And frankly, the largest savings deal we've even had in the past over a decade was$1.5 trillion. So$10 is huge, balancing the budget at$18 trillion, inconceivable. But in order to do something, something that would improve it, there are a couple of things you need that I think polarization render absolutely, well, hugely challenging, perhaps impossible.

26:14I hope not. But you need to focus on policy instead of politics. We have two parties that are at war with each other, and they are looking for every political opportunity. Nobody is willing to do good policy if it's terrible politics. And the debt is not great politics. We have to change that. Two, it's about a long-term improvement. not an immediate improvement, and we become more and more short-term oriented as a country, everything is about the immediate. Everything is certainly about the next political cycle. Nothing is about the next generational cycle or the long-term health of the country.

26:47So we need good policy focused on the long-term. We have the opposite. But we also need compromise, which is like a bad word in many circles at this point because things are so polarized. And finally, we need hard choices. And we are in an era of free lunch promises. Everybody has their various free lunches. They work at the ballot box. And until we have people who are willing to say, like, we actually understand we need to make some hard choices, we're going to have to fix Social Security and Medicare, we're going to have to raise taxes, we are going to have to look at defense procurement and healthcare waste, every single thing, until we have leaders willing to talk about that instead of kind of trying to one-up each other with free lunch things, It's going to be really hard to put together even a smallish debt deal, even a go incremental debt deal.

27:35But nonetheless, we really have to. Otherwise, these economic, national security, and intergenerational threats only continue to grow. I think you may have known the late Herb Stein, America's wittiest economist. He was on the Council of Economic Advisors. He wrote a column for many years in the Wall Street Journal, now taken from us sadly. But he had, among his many contributions to witty economics, was what he called Stein's first law of economics. And Stein's first law of economics was, if something can't go on like this forever, it will stop. So we're on a trajectory that can't go on forever.

28:08It will stop. What does stopping look like? So, and one of our co-chairs, Liam Panetta, always says this in a slightly different way, but we will make these changes. We have to make these changes. The question is whether it will come from leadership or come from crisis. And there are a lot of ways that this could play out. In fact, it already is playing out in the invisible frog in the boiling water or the slow burn. We are already worse off than we would have been because of these fiscal changes. Our economy is slower. We are poorer. We have fewer chances. We are less prepared for global cyber attacks.

28:48We have lower health insurance. Like all of these things are in many ways a result of not having the fiscal flexibility in our budget to have done things we would otherwise have done. And it's left our economy weaker. But I think the bigger concern, of course, is what does this look like if you can see a crisis unfolding? And there's so many scenarios. In fact, we run a lot of these scenarios and we do kind of virtual simulations of them. Perhaps the one that most people talk about and worry about is if there are a few treasury auctions that just aren't strong. So the U.S. government goes to issue new debt, and people just don't want that debt.

29:25And in order to lure them to buy it, which we have to, and the U.S. has the first claim on any investment dollar, it will get that if it needs it. Interest rates start to go up. But the problem is, just like the credit card teaser rate, we already have so much debt that if interest rates, say interest rates were one percentage point higher than they're projected to be, that would lead our interest payment bill to be$320 billion more every single year. That's like starting a whole new program just from one percentage increase. And we've already seen that rates can go up by that much or more. So you could have something like that.

30:03And there's a technical issue, which is when the U.S.'s borrowing costs exceed our growth rate, it's known as R versus G, and that's projected to happen in about four years, then you get yourself in a debt cycle where in order just to borrow, to pay off your borrowing, the interest rates will go up enough that it will increase the level of borrowing you need and you can't catch up. So the scenario for an individual is, wait a second, interest rates are getting more expensive. My credit card, my auto loan, my mortgage, anything you're borrowing for is becoming prohibitively quickly. It was becoming prohibitively quickly.

30:39That's pushing up inflation. And hopefully we don't get back into where we were just a few years ago when it was at 9.1%. But inflation is likely to keep going up, which pushes higher interest rates. So you get yourself in a very difficult cycle. This has happened in many countries around the world where we are all poor and at greater risk because of this. Everything you say, as powerful and true as it is, it's kind of dreary, if not depressing. And people don't want to hear it. And so they refuse to believe that it can be true. It's a little like the debate over climate change. If what you're saying is true, that's very upsetting.

31:13I don't want to be upset. So I refuse to believe that it's true. When you talk to people in the halls of Congress, do you find acceptance of the message of helplessness or do they just rebuff you and say, this can't be true. It's too terrible. I don't want to believe it. You know, it is dreary. It is a dreary topic and it's really hard. Nobody wants to hear the message of we have to start paying for things and then some when the other message is, hey, here's a huge tax cut. We've got a new program for you. We promise never to fix Social Security and Medicare. we're just going to wish it into solvency.

31:47And so it's hard with a jury message, but honest one, to compete against all the false political promises. What we're finding in Capitol Hill, it's honestly different than it used to be. He referenced back when we balanced the budget and it was the Clinton administration worked on that. In other words, bipartisan budget deals. And it was just a different time. Bush, President Bush led and started getting the whole discussion going. Everybody got to a point where they knew we had to do something, and they worked together. And like we said, everything was on the table, and they compromised. It's not like that on the Hill these days.

32:21I guess I break the groups into those who get it, those who talk about it, and the deniers. And the true believers, there are a bunch of them. We work very closely with these groups, and they're bipartisan folks, and they really want to put forward a Social Security plan. They want to put forward a deficit target of 3%. There's a big bipartisan effort to do that. They endorse a fiscal commission. They want to get going on this. And they understand it. I talk with them behind closed doors. They really understand the issue. And they're even willing to admit that their party has played a role in creating it.

32:57And that's really helpful, looking in the mirror and saying, okay, this isn't just the finger-pointing exercise of it being the other side. But, David, that group of people is shrinking. It is shrinking quickly. The people who understand this issue and are willing to talk about it honestly is much smaller than it used to be. We still have people who will go and create angry tirades about the importance of the debt. Or, you know, if there's a debt ceiling vote, they'll talk about how awful it is and threaten not to raise the debt ceiling, which is a terribly dangerous idea. But they end up not making any choices.

33:30And let me just give one example. There's a pledge out there, a no new taxes pledge. OK, and this is on the Republican side. There's there's problems on the Democratic side as well. Republican side, a lot of people have signed a no new tax pledge. If you want a smaller government, which I am completely, you know, that makes sense as a political independent. I sort of respect both views of government, but it makes sense to want a smaller government. The way you get there is cutting spending. It's not cutting taxes. It's cutting spending. You can cut taxes and then you need to cut spending by even more.

34:05But those who have signed this no new tax pledge, over 90 percent of them have also voted to increase spending. You can't increase spending if you're not willing to increase taxes and have a smaller government or a more responsible government. But those are some of the people who are out there yelling the most loudly about how bad this issue is. So you have the true believers, you have the talkers, and then you have people who just pretend it doesn't even matter. And there was people may remember MMT, modern monetary theory. Don't worry, we can just keep on borrowing and we can print money. And luckily, well, not luckily, because inflation was a terrible experience to go through and it's still too high.

34:45But inflation at least kind of put that false argument to bed. But there'll be others. There's always the free lunch. There's always the right now. There's the don't worry. We can grow our way out of it. AI will fix all of it. there's always something easy to hang on to so their deniers is a growing growing faction of congress absolutely and i would say and i'm sure you've seen this too members of congress are fewer and fewer of them are really focused on the deep policy issues than we used to have and that's a trend that really concerns me for fiscal issue but for many other things as well well the activists the most excitement in the two parties we've got one party where the people who are most energized excited say i'm not interested in any issue unless the answer is blame it on immigrants and in the other party, the people who are most excited and energized and say, I'm not interested in any problem unless the answer is blame it on billionaires.

35:32And this is one problem where the immigrants are actually part of the solution because America's bad habit of allowing people to work here illegally means they get taxed and get nothing in return or get very little in return. And on the billionaire side, maybe you can tax them some more, but not very effectively and not without other consequences. So you've got the parties organized around systematic refusal to cope with what this fiscal problem is driven by and commitment to fantasies that it's the immigrants or the billionaires who are at fault. Fantasy. Fantasies is exactly what this is about.

36:08First, what really concerns me about that point, which is so true, is that almost all the answers are punitive. Like, I don't like a group. I want to do something against the group. The only tax policies that Democrats really want to talk about are very, very high income earners. And it seems less fiscally driven. I mean, that can be part of the solution, but it seems less fiscally driven and more punitive. And when it comes to immigration at the federal level, immigration is absolutely a net plus to the budget and to the economy, less so at the state and local level. But at the federal level, it is.

36:42and there are all these falsehoods that are put out there about immigrants collecting all these benefits which again is true at the state level in many areas but on things like social security they're a net plus and we've seen the cbo has scored a 500 billion dollar loss because of lower immigration the children of illegal immigrants can go to school immigrants use uh roads some of them get arrested and have to use jails but they don't get they don't get so very much in the way of social benefits they don't get social security they don't get medicare they don't get medicaid contrary to false report.

37:12They may get emergency rooms if they have to go to an emergency room, but they don't get regular Medicaid payments. Absolutely. At the federal level, the net is a positive gain. And at the state level, it is not. And there are real costs associated with it. We should not minimize that. But I just think the story isn't told sort of accurately in its nuance. And that's all a result of the problem that you were talking about, which is nobody has a cohesive story for how they'd fix the problem or is willing to really address this head on. The problem is so large, there is no way to do this without higher revenues.

37:45No way at all. And the problem is driven by spending growth, and in particular, in our mandatory spending programs, healthcare, and retirement benefits. And you cannot not fix these programs. Promising not to touch Social Security and Medicare is absolutely reckless, and it's gotten us to this point where we're going to be doing this at the last minute. The problem is each party has now adopted the free lunch kind of myths of each other's side. So Democrats say no tax increases except for the top 2 % or 1%, right? That's not going to fix it. And Republicans, Trump has changed this party so that Republicans, you can find only a handful of them who are willing to be honest about the need to fix Social Security and Medicare.

38:29So both sides have taken the irresponsible pages from each other's playbooks, and now nobody's really talking about full-fledged plans. I honestly think every member of Congress should be willing to put out or endorse a budget that would get us, say, the fiscal goal should be 3 % deficits within 10 years. Every member of Congress should show how they would get there because there's very few of them who have a plan. They're taking so many things off the table that they've rendered it impossible, and that perpetuates this myth that we're telling voters about what is realistic. Well, two members of Congress who have signed something that is about revenues are Elizabeth Warren and Bernie Marino, the Senator from Ohio.

39:08They have just published an op-ed, and I think they have a legislative proposal to raise the cap on Social Security. You pay Social Security taxes up to, I think, about$185 ,000. And after that, any additional dollar, I hope you'll know the figure better than me. But above$185 ,000, you continue to pay a Medicare tax, but you don't pay a social security tax. What do you think of that idea? Would that make any difference? Is it at least an act of symbolic leadership? Yeah, your numbers are correct. It's just under 185. You stop paying taxes for social security, but still do for Medicare. And I think it's absolutely one of the ideas that should be considered and probably will be adopted.

39:47So that payroll tax cap is, first off, if we're fixing social security at the last minute, which we already are, it is easier to get money into the program quickly through revenues than through savings of benefit alterations, because those have to be done gradually. And so lifting the payroll tax cap, that could happen pretty quickly and that could get revenue in right when the program is insolvent or hopefully before. I think there's broad-based support for lifting the payroll tax cap. Here's the rub. It used to be that if we did that, it would fix the entire shortfall. Now we're talking about closer to half, a little bit more than half of it, not the entire program.

40:24So there's still more things we're going to have to do. And we know what they are. We've got to look at how we would change the benefit formula. And I think most people would agree. We can look at savings at the high end, but we should not touch any benefits for the people who depend on the program. If you worked a full lifetime, you should not retire in poverty. We've got to talk about raising the retirement age. I find it crazy when people say that we shouldn't think about that for younger workers, because the life expectancy was 62 when the program started and the retirement age was 65. Today, retirement age is only 67.

40:57It's gone up very gradually. And life expectancy is into your 70s, 80s, and 90s and growing. So we know we'll have to make alterations there. We're going to have to do kind of a basket of things, but lifting the payroll tax cap is absolutely one of them. The only other thing I would say, David, we're going to need more revenue. We need it to bring down our budget deficits. We need it for other needs. AI is clearly going to create disruptions in our economy. We're going to need an updated social safety net that's going to help people with the transition. All sorts of needs are out there. Before we raise trillions of dollars for any one need, we should also think about it comprehensively.

41:37If we're raising, say,$2 trillion, what's the best, most important need for it? Is it to make sure that everybody gets their promised Social Security benefit? Or might there be some people who are fine and don't need the full promise. People starting this year, the richest couples will be getting$100 ,000 out of Social Security a year. Many people, including us, have suggested we don't need benefits that are that high, given that it's really a program that's supposed to create insurance against under-income in your retirement years. So I think we do want to think about where the best use of new resources.

42:14Most of the times when I go talk in the public, If I don't say anything about means testing benefits or slowing the growth for people who are the most well-off, somebody in the audience will raise their hand and say, I don't need my Social Security. I'm lucky to be secure. I give a lot of talks at senior citizens' homes, and they're really interesting. People almost always say, I'd like to give it back to the program as long as I knew that it were going to be there to strengthen the program for my kids and grandkids. So there's a lot of willingness to be part of the solution out there, which is one of the things I find encouraging, that when you talk to citizens, they're more, we're all in this together than our politicians are.

42:52The solution that most peer democracies have fallen back on as a way to generate revenue with the least disruption to productive economic activity is a value-added tax of some kind. I think just what every other peer democracy has one, and it's been periodically discussed in the United States, but it never seems to go anywhere. Is that part of the answer? Actually, maybe go back a little slower. What is a value-added tax, and why is it less harmful than other taxes? So value-added tax, or a VAT, comes when every portion of creating something is taxed, and ultimately the tax is on consumption. Right now, the bulk of our tax is on income.

43:28and as my great economics teacher, Jim Himes, always used to say, you want to tax what you want less of, not what you want more of. And we want to think about things that don't dissuade income. I'm not too worried about that. Our tax rates aren't too high, but you still want to think about what's okay to tax and consumption is generally a better tax base. A value-added tax also has ways where it's enforced pretty easily, so there's not a lot of leakage out of it. There's one tangential issue, which is there are big questions about whether AI is going to be inflationary or deflationary. I think that whatever that turns out to be will have an impact on whether it's a good time to put a VAT into place.

44:10You don't want to do it when inflation is already high. I want to think about that. But that is definitely one of the big taxes that's talked about. Another is a carbon tax, which is a different form of consumption tax. And a third is we lose about$25 trillion in revenue over a decade because we have so many tax expenditures, credits, deductions, tax breaks. And if you even just put a haircut on them, limited them as a share of your income, we could save trillions of dollars. We could generate trillions of dollars of revenue from that. So I think those are the three big ones I hear about, a VAT, a carbon tax, or a tax expenditure cap of some sort.

44:46I think they're all important things to consider along with lifting that payroll tax cap that you mentioned. I think a lot of the AI people will sometimes say we're about to have such a massive productivity boost that none of this will matter and maybe maybe maybe on the other hand i mean it's hard to it's hard to project productivity back into the past the most statistics that we have are products of the post-1946 era but the industrial revolution delivered a lot of productivity gains and over decades they became very important but they weren't overnight the steam engine didn't save britain britain's fiscal situation overnight.

45:23It took a couple of generations to pay off the Napoleonic Wars, even with the Industrial Revolution. Same thing in the United States with the Civil War. It took a while to pay that off, even with all the extraordinary technologies of the late 19th century. Maybe this is a miraculous, unique, never before in history technology, but maybe it's more like the steam engine, which is a big deal, but not a miracle drug. Yeah. I mean, who knows with AI? There should be humility for all of us. I happen to be somebody who's both incredibly optimistic and incredibly pessimistic. I think it's going to be a transformative change to the way we do just about everything, and that will have productivity increasing effects, but I also think it's going to have a lot of negative effects.

46:03But just to think through what happens if AI does boost the economy in a lot of ways, it's going to shift all of this revenue from labor to capital. Capital is already taxed much lower than labor is. We need to change our policy of tax, of how we tax. We have not seen our lawmakers leading in any of the ways to think about what policies should be adjusted because of this. It would put certainly a number of people out of work, at least for some amount of time. That's going to be a huge drain on our social safety net system. We know that that's going to be effect. We also know that if that happens, interest rates will go up.

46:36The natural rate will be higher than it has been in Detroit. It will be higher than it's been before. And so we'll see effects on interest rates, which will lead to higher interest payments. And finally, the downside, the dark underbelly of AI, national security risks, huge cyber risks, which we're hearing warnings about all the time right now, disinformation, all of those things go against higher efficiency. So we may have huge booms in some areas, but huge new costs in other areas. Bottom line, though, it is nothing that anyone should assume will definitely happen or certainly, as you said, will happen quickly enough that, I mean, even if that were the case, we could still easily have a fiscal crisis before that all went into place.

47:18It's just always one argument for why you don't have to do the basic mathematical budgeting changes of pass a budget, make sure you're paying for what you spend, and if your debt is too high, figure out a way to bring it down, which is exactly what we should be doing. What can responsible citizens as individuals do to make a difference with this problem? So and this is this is what a lot of the politicians say. Frankly, I'm really frustrated with our political leaders because they should be leading on this. And it's hard to expect voters or citizens to understand why this problem, which, as we said, sort of it's hard to see.

47:53It's hard to touch. It's hard to feel. But is there affecting every single thing? It's hard for voters to understand that if you don't have political leaders both making the case that this is important and these are the kinds of realistic things we have to do to improve it. But we're not seeing that kind of leadership right now. And so the best thing that any voter, any citizen could do is actually just tell their politicians that they care about the issue. I honestly, if I hear somebody on C-SPAN saying something good about it, call their office and say thank you for having talked about it because they get approximately zero calls saying I care about the deficit and debt.

48:27And if they even heard from a few people that it mattered, those of them who know that it does, that will be the nudge in the right direction. The big ask, of course, is go to vote and pay attention to who is willing to improve the situation and who is promising unpaid for tax cuts and spending increases. And I know there's a lot. It's a crowded and important agenda right now. I understand that it's not everybody's top choice, but make it part of those choices, because there is no way we can do any of the things that people are worried about, whether it's national security, whether it's their children, whether it's social programs to help with income inequality.

49:04Any of those things are at great risk because of our just unstable and dangerous fiscal position. So no matter what you care about, you need a strong fiscal foundation. Anything voters can do to either cast a vote that way or at least kind of share that it matters is what our political leaders need to hear. But it is on them. They also need to lead. They need to pass budgets. They need to make choices. And they need to be more honest than they have been about these issues. Maya McGinnis, thank you so much for joining me today on The David Trump Show. David, thank you.

49:44Thanks so much to Maya McGinnis for joining me today. This week's book is A Place of Greater Safety, a novel about the French Revolution by Hilary Mantel, which I chose to honor the French National Day of July 14th marked this week. You may recognize the name of Hilary Mantel as the author of the Wolf Hall trilogy of novels, made into a popular TV drama set in the reign of King Henry VIII of England. A Place of Greater Safety was written earlier. It was published in 1992, but it was actually written when Mantel was a very young writer in her 20s in the 1970s. She couldn't get the book published at that time, but when greater acclaim came her way, she was able to revise it and publish it in 1992.

50:24A Place of Greater Safety tells a richly complex story about the interlocking lives of three friends who became architects first of the French Revolution and then leaders of the Reign of Terror of 1793-94. The men were Georges Danton, Camille Desmoulins, and Maximilian Robespierre. Mentel imagines them as friends, intimate friends, with shared ideals, and there's a kind of also some homoerotic romantic longing of Camille de Moulin to Georges Danton. Again, that is her imagination. And she brings into the story the women in their lives. Georges Danton was married twice, the second time after his first wife died.

51:00Camille de Moulin had love affairs with a mother and a daughter of the same family. And Robespierre had a romantic but never consummated love affair of his own. These three men begin, as I said, as idealists, as public-spirited people, imagining a better world for France, imagining a way forward for France, away from the medieval past into some kind of more modern future, away from the monarchy, away from repression toward freedom, dignity, equality. And they end up as architects of this terrible nightmare of the French reign of terror that becomes the prototype for revolutionary violence for the next 200 years.

51:37In the end, there will be a power struggle among the three men. Maximilien Robespierre will emerge on top, and he will send his friends Danton and Desmoulins to the guillotine in April of 1794, before Robespierre in his turn loses power and is sent to the guillotine himself in July of 1794, bringing the terror to an end, at least as the terror is conventionally dated. The novel asks us or invites us or demands of us to think, how do people of good intentions end up doing such terrible things? How does public spirit turn into revolutionary violence? This is a question that has haunted the world ever since and plays especially in the American mind.

52:16It is a remarkable fact about the American Revolution that almost all the architects of the American Revolution, almost all the founding generation, once they were past the actual battles and wars of the revolution itself, lived peaceful lives. Alexander Hamilton died in a duel. One other founding father, George Wynn, a signer of the Declaration of Independence, was poisoned by a grandnephew in pursuit of a legacy. But otherwise, a remarkable absence of violence and a complete absence of state violence, of regime violence against the people who made the regime. But in France, it was quite different.

52:47The new regime turned on itself. The revolution devoured its children, in a famous phrase. And the person who had the highest hopes and highest ideals for the revolution, Maximilian Robespierre, became the bloodiest of them all. It's a shocking problem and one that, as we watch the evolutions of radicalism in our own time, continues to speak to us. Why does idealistic radicalism so often turn to revolutionary violence? Here is how Mantel's answer is say, you know, there are all kinds of historical explanations, inflation, war, but the story begins and ends with people. And we have to go into the minds of these people to see how did they justify to themselves the terrible things they were doing, not only to the country that they led, but to their closest innermost circle of friends.

53:33there's a interesting irony in the title of the book a place of greater safety it's a kind of mysterious question because wouldn't we all want a place of greater safety than france during the reign of terror and what is explained to us in the novel is the only place of greater safety is the grave that is the only place where human beings can be free of the terrors of the revolutionary changes they themselves initiate and bring to often such bloody and tragic climaxes and conclusions and such self-defeating endings. Because as we all know, the French revolution ended in a tyranny worse than that of the Bourbon monarchs, that of Napoleon, which put France at war with all of Europe and convulsed the continent for a quarter of a century.

54:13That's it for this week's David Fromm show. Please, if you enjoy the program, subscribe to us on whatever platform you like, share it with your friends. As ever, the best way to support the work of this program, if you're minded to do that, to support the work of all of us at The Atlantic is by subscribing to The Atlantic. I hope you'll consider that. That is it for this week's program. See you next week on The David Fromm Show. Bye-bye.

54:55This episode of The David Fromm Show was produced by Nathaniel Fromm and edited by Andrea Valdez. It was engineered by Dave Grine. Our theme is by Andrew Edwards. Claudine Abad is the executive producer of Atlantic Audio, and Andrea Valdez is our managing editor.