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Wednesday, November 28, 2007

The Ruth Marcus Obsession with the Social Security Crisis that Does not Exist

Ruth Marcus of the Washington Post is at it again, trying to portray Social Security as a system in need of immediate fixing. But, as these responses by Dean Baker, Kevin Drum, and Paul Krugman make clear, Marcus is doing her best to elevate a second-tier problem (if it's even that) to the crisis, first-tier level. It appears that having taken a position on Social Security that is wrong, i.e. that it is a system headed for "crisis," she is incapable of admitting her errors and instead continues to defend the indefensible. She says it's irresponsible not to attack the problem now in her guise as one of the "Very Serious People," but the irresponsibility is coming from those, like herself, who are promoting a crisis that doesn't exist.

Here's Dean Baker:

More Social Securty UFOs at the Post, by Dean Baker: Ruth Marcus is on the warpath again arguing that those who don't want to jump in line on the SS crisis train are being irresponsible. Read it and weep.

A couple of quick points are in order.

To claim unanimity of forecasts agree with SS trustees is simply false. The trustees assume that productivity growth will be markedly slower over the longterm horizon than its post-war average. They also assume that immigration will slow sharply from its rate over the last decade. Both assumptions make the projections for the program look considerably worse. One need only step over to the non-partisan Congressional Budget Office's website to find more positive projections on these variables.

The second key point to keep in mind is that the idea that taking steps earlier rather than later makes things easier means that it is better to either raise taxes on a cohort that has seen 30 years of wage stagnation or to cut their retirement benefits, even though most have accumulated little for retirement other than their SS. Even the trustees project that the typical worker will have a wage that is about 35 percent higher in 2040 than what workers earn today. Only the Post would argue that it's better to raise taxes and/or cut benefits on much poorer workers today than to risk the possibility that we may have to raise taxes or cut benefits on the much wealthier workers of the future in order to cover the greater cost of their own retirement (they are projected to live longer also -- that's the real problem. We're so cruel to our children.)

Kevin Drum next:

Social Security Again, by Kevin Drum: Why are Ruth Marcus and the Washington Post so obsessed with demanding that we all address Social Security's long-term problems right this instant? It's a mystery. Truly a mystery.

Here's what they need to think about. The most common solutions to Social Security's eventual shortfall are (a) a small tax increase, (b) a small reduction in the rate of growth of benefits, and (c) a small increase in the retirement age. Question: are there any advantages to implementing any of these solutions right now, rather than, say, ten years from now?

I'd say no. The advantage to waiting is obvious: projections of Social Security's solvency are uncertain, and waiting gives us more data. Why try to project 40 years in the future if you don't have to? Better to wait and see what direction the economy actually heads.

Balanced against that, there really aren't any advantages to acting sooner. Social Security is currently running a surplus, so increasing payroll taxes today does nothing except increase the size of the trust fund a meaningless exercise at best, and a positively harmful one at worst. We might need to raise taxes in the future once Social Security starts running a deficit, but raising them now does nothing at all to change either Social Security's future obligations or the source of its future funding.

As for ideas (b) and (c), what's the point of locking ourselves into them now? If we wait ten years, not only will we know more about the real shape of the future funding problem, but we'll still have 25 years or more to gradually introduce any changes we think we need. Do we really need to give beneficiaries more than 25 years notice that they might have to retire one year later than they think? Or that after they retire their benefits are going to increase at a slightly slower rate than the law currently requires? I don't see the point. 25 years is plenty of warning for changes as small as the ones we're talking about.

Bottom line: 2017 is a better time to deal with Social Security than 2007. Raising taxes now doesn't accomplish anything, and if it turns out that we need to reduce benefits we can do it in 2017 just as well as we can do it today. For now, we should put Social Security on the back burner and instead spend time worrying about healthcare costs, nuclear proliferation, and global warming. Those are problems that really do need to be addressed right away.

Krugman's turn:

The Social Security obsession, again, by Paul Krugman: By any reasonable standard, Social Security is at most a second-tier policy issue.

There are various ways to make this point. One is to compare the fiscal problems of Social Security, such as they are, with those of the rest of the federal government. The Social Security trustees estimate the 75-year financial shortfall of the program at 0.7% of GDP. That compares with a general fund deficit – the federal deficit outside of Social Security – of 3.3% of GDP last year (that is, not even taking into account future demands on Medicare and Medicaid.) Social Security, in other words, is in much better financial shape than the rest of the government.

Another illuminating comparison is to look at the sources of projected growth in entitlements spending. The last Congressional Budget Office long-term budget projection had Social Security spending rising from 4.2 percent of GDP now to 6.4 percent by 2050, a 2.2 percentage point increase – and Social Security, remember, is currently running a surplus to prepare for that eventuality. Meanwhile, Medicare and Medicaid spending are projected to rise from 4.5 percent of GDP to 12.6 percent, three times the Social Security increase – with negligible pre-funding.

As a result, Social Security fades to insignificance in any realistic discussion of entitlements problems. Medicare’s unfunded liabilities, as estimated in the trustees’ reports, are seven times those of Social Security. The unfunded liabilities of Medicare Part D alone are twice those of Social Security.

If you’re seriously worried about America’s long-run fiscal prospects, then, you should talk a lot about the general fund deficit and the problem of rising health care costs, and hardly at all about Social Security. But that’s not how it works in DC these days.

How obsessed are Beltway types with what is really a minor problem? Here are two snapshots:

First, from commenter “Low-Tech Cyclist” at Brad DeLong’s place:

The WaPo has a subset of its unsigned editorials where it comments on what it calls “the ideas primary.”

Five of the last seven Ideas Primary editorials have been on the Social Security ‘crisis.’ There have been 15 editorials in this series. One has been on global warming - the greatest crisis of our era - and two have been on our greatest domestic crisis, the lack of universal health care and the upcoming crisis in the Medicare trust fund.

Second, from Jon Chait:

One of the oddities of the entitlement hysterics is that they are far more obsessed with the minor problems of Social Security than with the massive problems of Medicare. Indeed, if you look closely at their dire proclamations, they inevitably follow the same pattern: They begin with an ominous summation about entitlements–thus lumping together Medicare with Social Security–then swiftly proceed to demand that Social Security be shored up forthwith.

Russert’s recent harangue at the Democratic presidential debate was a classic example. He began by warning of the crisis faced by “Social Security and Medicare” but proceeded to ask no fewer than 14 questions about Social Security, and zero about Medicare. It’s as if he began fulminating against crime in the greater New York area and then immediately began demanding a large new police deployment in Chappaqua.

Look, I know this is very embarrassing to those who have been walking around thinking that hyping the Social Security issue makes them Very Serious People. But the facts are the facts – and the Beltway obsession with Social Security reflects ideology and fashion, not the real problems facing America.

Update: Brad DeLong comments:

This morning Ruth Marcus writes:

Social Security: Five Myths and a Slur: [The claim that] "Social Security is only a big deal to people who hate the program and want to see it destroyed -- or to their ignorant dupes"... is worse than a myth. It's a slur -- on responsible people, Democrats and Republicans, who may differ about the Social Security cure but agree on the diagnosis and on the need for treatment.

This reads like a lame reply to what Clive Crook wrote last week at the Atlantic:

On an important point, [Democrats] are right: no great fiscal crisis lies in wait for social security... tweaks will be enough to deal with it.... A fiscal crisis is indeed looming over the next few decades – but its cause is Medicare, not social security. For the US, the real fiscal enemy is not the ageing of the population, but the relentless rise in healthcare costs.... [Any exclusive] focus on social security reform [is] both ill-conceived and, no doubt, deliberately misleading...

Indeed, today Ruth Marcus gives a lot of ground, no longer hiding from her readers the fact that:

The [Social Security] shortfall is small, and it's a lot smaller than the Medicare shortfall.... Social Security isn't the biggest budgetary challenge...

Indeed, by my count Social Security needs to take a number and get in line, being only the fifth-most serious budgetary shortfall, behind:

  • Medicare hospitalization
  • Medicaid
  • Medicare drug benefit
  • The Bush 2001 and 2003 tax cuts

But ... Ruth Marcus lacks the ovaries to state that Social Security is only fifth in magnitude of our budgetary shortfalls...

    Posted by on Wednesday, November 28, 2007 at 09:18 AM in Economics, Politics, Social Insurance, Social Security | Permalink  TrackBack (0)  Comments (57)

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