As I mentioned earlier in the week, Republicans Call for Most Oppressive Government, I’ve been listening to the audio version of Matt Taibbi’s 2010 book, Griftopia. And although I think it is a great book, there were two things in it that really stood out as being totally wrong. It’s five years later, and I would guess that Taibbi has since been educated on the topics. They are both bits of conventional wisdom that usually get taken as fact without any thought. As a result, it is a good idea to go over them and discuss them. Taibbi is very much a liberal, and if he thinks these things are true, there are doubtless a lot of other liberals who don’t even think to question them.
Social Security Trust Fund
At one point in the book, he was talking about the rise in the payroll tax. It touches on one of my own favorite articles, Reagan’s Legacy: Tax Cuts for Rich, Tax Hikes for the Rest. Taibbi was talking about how Alan Greenspan headed the commission that recommended raising the payroll tax. But then the extra money didn’t go to social security. It was just loaned out to the federal government for deficit spending. Well, yeah; so what?!
I hear people make this argument all the time: there is no trust fund! It’s just a bunch of worthless paper! This just isn’t true. No one would say such a ridiculous thing about an investor who had a lot of money invested in treasury bills. They would say such a person was a prudent investor. They would call someone who stored cash under their bed a loon, yet that is what they are expecting with Social Security. The extra money that the Social Security Administration (SSA) was taking in had to be stored somehow. What were they supposed to do?
The payroll taxes went up in 1984, as a result of the Social Security Reform Act of 1983. If the SSA had invested the money in gold, it would have done well that year because gold was at an all time low. But for the money taken in in 2012, the trust fund would have lost almost 40% of its value. Looking at the long view, if all the trust fund were invested in 1980, it would now be worth 37% less. The Social Security trust fund is invested in a mix of treasury securities. But if you just look at 30-year securities, you see that they have done much better than gold.
And clearly: the SSA wouldn’t have been holding actual gold. It would have been holding “worthless” paper that said that it owned gold. It could have been holding on to actual cash, but there are two problems with this. First, it is worth a whole lot less now because of inflation. And second, there isn’t enough cash to do this. In 2011, there was $2.6 trillion in the trust fund. There is only $1.2 trillion in circulation. You can’t just have trillions of dollars sitting around because there aren’t trillions of dollars in existence. And if there were, it would be very bad. Money is supposed to be moving around. If it isn’t, it is indeed “useless.”
Taibbi also claimed that Greenspan was wrong to say that it didn’t matter if the international value of US currency went down. Okay, on this one, Taibbi is half right. It does matter because we live in a global economy. Just the same, the vast majority of what we spend our money on is stuff that is right here in the US: houses, food, healthcare. There is a downside when the value of the dollar goes down. But there is also an upside. Taibbi doesn’t talk about this at all. And that is a very big problem.
What most people need are jobs. When the dollar is too valuable, it makes imports too competitive. That means that Americans are put out of work because the things they make cost too much. There is obviously a balance that we want to achieve. But certainly over the last several decades, the problem has been that the American dollar is worth too much, not that it is worth too little.
What’s especially bad about this is that Taibbi is making the argument for the rich. If you have a lot of money, the more each dollar is worth, the better. But most people do not have a lot of money. In fact, most people live paycheck to paycheck. Their biggest concern is that they will lose their jobs. Making our steel and lumber and cars more expensive to export is not good for such people.
Matt Taibbi is a really smart and knowledgeable guy. If, after researching the 2008 financial crisis, he still manages to push two very tired, very wrong conservative talking points, what hope has the average American of understanding what’s really going on? Both of these points are commonly made on Fox News and the crazy editorial page of The Wall Street Journal. The decades long conservative disinformation campaign has been highly effective. We really need to push back against it — hard. I think Matt Taibbi needs to write a book about both these things to atone for his sins.