Wall Street Journal - “Spring Planting”

I have pounded the table on numerous occasions regarding the Wall Street Journal’s reporting of Federal Reserve policy. In particular I have been critical of articles by Jon Hilsenrath. Jon’s writing and reporting have been excellent. My problem has been that he clearly has been projecting the words of Ben Bernanke into his reporting. He has done that without appropriate attribution. For me this is dis-information. If Bernanke has something he wants to say, let him say it so all can read, understand and critique it. Leaking his thoughts on policy toward QE2 was a way of Bernanke using the press to shape public opinion on monetary policy. The cozy relationship between the WSJ and the Fed facilitated the implementation of the policy. Call that a “snow job”. A big one.

I believe we have another example of this today. The WSJ has a front page article by Damian Paletta titled: Insolvency Looms as States Drain U.S. Disability Fund.

This is an excellent article that I would put on the 'must read' list when this issue of entitlements in America is discussed. But I’m convinced the article was functionally planted by Washington Inc.

It’s quite possible that the WSJ article will be the basis for policy choices that are adopted by our legislators over the next year or so. If you accept that the story was a plant, the question(s) to ask are who planted it and why?

That thing that we know of as Social Security is made up of two distinctly different programs. The OASI (Old Age Survivors Insurance) and the DI fund (Disability Fund). Even a cursory look at the dynamics of what is generally referred to as OASDI (combined) shows that the immediate problem facing SS is the Disability Fund.

The WSJ article describes in detail just how far the DI side of the equation has fallen out of whack. DI is an accident and needs to be fixed. So the Journal did ‘us’ a service with the story. Right? I think wrong. The plant article sets up a “solution” to SS. Fix up DI and don’t touch OASI.

The DI fund could be patched by (I) tighter availability requirements (II) small (relative) increases in payroll taxes and (III) some contribution to the DI operating expense from the general budget.

However, a quick fix on DI is just a mask for the much larger problems that are brewing at the Retirement Fund. The SS Trust Fund forecast benefits payments for the combined OASDI as follows:

DI Benefits 2011-2019………$1.4T……16%

OASI Benefits 2011-19….......$7.1T……84%

We are going to put a patch on 16% and ignore the 84%.

My conclusion that the WSJ story was planted is based on the following from the article:

"Beatrice Disman is in charge of the Social Security Administration's New York region, which oversees operations in Puerto Rico. She said…………………."

Ms. Disman does not talk to the WSJ. Ever. Her boss does not have the authority to permit her to talk to the Journal either. The Press Office at SS does not let the WSJ talk to staff employees. The decision to allow Ms. Disman to speak with the WSJ was made at the highest levels of SS. In my opinion this interview was granted with express consent of Stephen Goss the Chief Actuary at SS.

My guess is that this story was his idea. If that were to be the case then even Mr. Goss would not have done this without the blessings from the White House. Those blessings (and urgings) would have come from the current budget director Jack Lew. I doubt even Mr. Lew would have initiated this without a nod from the President. That is the way Washington works. When people “willingly” talk to the press they do it with an objective in mind. And that means that every word is scripted. (the "Who")

The Retirement Fund is truly a political third rail. No one wants to touch it. The DI is not such a hot potato. When American learns (thanks to the WSJ) that the folks in Puerto Rico and other states are milking the DI system there will be no opposition to some “fixes”. The end result will be that all the politicians will be able to say that they were responsible for saving SS when in fact all they have done is kick the can down the road on the much larger issue of the retirement entitlements. That's the "politically desirable" short-term solution. (the "Why")

To be sure the DI needs a fix. But if that is done without touching the OASI it will be at our country’s long-term peril. And that is exactly what I think the Journal’s article portends.

I wonder if the folks at the Journal understand that they are getting dangled on a string. I think they do. I’ll ask them, but I’m not expecting a reply.