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December 17, 2004

Matthew Yglesias Is Good Today...

Here he is on the Social Security "crisis":

TAPPED: December 2004 Archives: ...how overwhelmingly important it is to keep the "there is no crisis" message front and center in the Social Security debate. Most of the young people I know -- including myself until very recently -- have been taken in by a decades-long effort on behalf of privatizers into believing that Social Security is in "crisis," and that if we do nothing the system will "go bankrupt" before we retire, meaning that the system will somehow collapse and we won't get any benefits.

If you approach the issue from inside that frame, then no amount of cavailing about benefit cuts or "risky" stock market transactions is going to get you anywhere. A smaller benefits package and a stock portfolio that may or may not pay off looks like a really good deal compared to a bankrupt pension plan that gives you nothing. Once you understand that even if we do nothing whatsoever to fix Social Security and the Trustees' overly pessimistic predictions come true, the system will still have enough money to pay my generation more in real terms then current retirees get, everything looks different. Bush is offering us a guarantee of lower benefits and $2 trillion in debt to forestall the possibility that benefits will need to be lowered sometime in the 2040s. That's a terrible deal in a straightforward way. But only if you try and see the truth: There is no crisis. If you can't make people see that, everything else becomes pretty irrelevant.

Posted by DeLong at December 17, 2004 03:05 PM

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Yes, there is no Social Security crisis. There is scarcely a problem. The idea that we need to solve an minor economic problem at significant sacrifice today that may emerge 38 or 48 years from now is merely an attempt that has long been in the works to finish with the New Deal legacy of Social Security.

There is a surplus in Social Security. Payroll tax revenue is more than needed to meet the needs of retirees, so the surplus grows. Want a bigger surplus? Raise the payroll tax cap from 87,000 dollars. But the idea of going to debt for hundreds of billions of dollars now to provide a provide a private invesment plan that may may may be helpful 38 or 48 or 88 years from now, only makes sense if we wish to finish with a system that along with Medicare has transformed the lives of retirees in a wondrous way. Tes, there is no crisis in Social Security. We have all sorts of access to private investment accounts now, and corporations are rapidly making sure there is more access as defined benefit pension plans are changed to defined contribution plans. Social Security is the ultimate support for so many who have needed and will need such support.

Posted by: anne at December 17, 2004 05:36 PM

I think the central problem with government in this country is a mismatch in time scales between political accountability and legislative impact. Political accountability only extends over a few years, legislative impact can go over decades. We can see this unfolding before our eyes here: social security privatization is designed so the negative impact won't be felt in actual people's pocketbooks for a few decades, when pretty much all of the politicians who are responsible for it will be safely out of office. What to do about this I don't know.

Posted by: Kuas at December 17, 2004 06:37 PM

The argument I'm seeing is that one can always raise taxes to fix the problem, therefore, it is not a crisis.

Interesting. From that perspective, it seems to me, a crisis is impossible. We can always reallocate wealth in any situation, therefore, no situation could be called a crisis.

Posted by: Anonymous at December 17, 2004 07:12 PM

The arguments you've been overlooking are:

1) given the distant date at which accumulated Soc Sec contributions are unable to cover 100% of the promised benefits, the situation can't honestly be called a crisis

2) given the relatively gentle way in which benefit coverage drops off, the situation can't honestly be called a crisis

3) given the relatively minor adjustments--such as raising the retirement age, increasing the payroll cap, modifying the indexes used to determine increases in benefits over time, etc.--to the program needed to push the distant sub-100% benefit coverage many years further into the future, the situation can't honestly be called a crisis

4) given the greater urgency of the Medicare program, and the greater challenge it poses, the Social Security situation can't honestly be called a crisis without robbing us of the ability to adequately describe the Medicare situation

5) given that the economic assumptions that make private accounts look desirable would also push the sub-100% benefit coverage too far into the future for even the most dedicated actuary to be concerned, the situation can't honestly be called a crisis

6 given that the economic assumptions which are being used to justify the "crisis" talk about benefit coverage would more or less wipe out the proposed benefits of the private accounts, the private accounts can't honestly be called a reponse to a crisis

Wrong solution to the wrong problem at the wrong time.

Posted by: Ottnott at December 17, 2004 10:15 PM

Is this so-called ss crisis not in fact a way to raise the domestic savings-rate in order to rebalance the trade deficit?

Posted by: Pancho Villa at December 18, 2004 08:03 AM

Good points all Ottnott, but I would modify #3. Because there is an existing economic and demographic projection that shows a fully funded Social Security Trust Fund with exactly no changes in benefits, retirement age or payroll tax. It requires no "relatively minor adjustments", it totally avoids the minor tax boosts so dismissively derided by the ever brave Anonymous.

This projection is hidden in plain site within the pages of the Annual Report of the Trustees of Social Security. Which is to say that it has been endorsed by the signatures of three Bush cabinet members. It is called the "Lost Cost Alternative" and its economic numbers are being totally thrashed by reality. It called for 2.8% growth in 2004, 2.1% growth in 2005, and 1.9% growth longterm. Well the first number has been left in the dust, try 4.0%, nobody is predicting growth will dip to 2.1% next year, and 1.9% is totally reachable. And that is all it takes.

Privatizers need to present a model that doesn't require numbers better than that. And if they can't my long term motto will have been justified: If Privatization is Possible it won't be Necessary, if Privatization is Necessary it won't be Possible.

(man I wish this site rendered href tags as live links, because it sure doesn't in Preview)
"2004 Report: Economic Assumptions under the Three Alternatives"
"Trust Fund Ratios under the Three Alternatives"
"The Three Alternatives Explained"

To which we can compare the NYT article where the Administration explicity backs numbers way higher than even the "optimistic" Low Cost Alternative
"White House Predicts Slower Growth in 2005" http://nytimes.com/2004/12/18/business/18econ.html , an article whose title is pretty damn ironic for an Administration that publicly backed 2.1% as an optimistic number in an offical US government publication which they are still relying on to sell privatization: "2004 Trustees' Report" http://www.ssa.gov/OACT/TR/TR04/trTOC.html

Posted by: Bruce Webb at December 18, 2004 08:16 AM

I think Yglasias just made the point in the American Prospect that Bush's Social Security "crisis" is based on a projection of 1.6% yearly labor poductivity growth over the long term which he somehow proposes to remedy with a privatization scheme that depends on 6-7% yearly stock market gains over the same long term. We have not just an amateur in the White House -- but an all-time amateur.

Denis Drew

Posted by: Denis Drew at December 18, 2004 09:47 AM

Denis, that is why they are so frantic on this, their window of opportunity is narrowing, because the 2005 Annual Report is due out March 30th. Once you undertand that early years have outsized impacts, the following sequence has to result in a substantial pushback of the date under the Intermediate Cost Alternative (now 2042)

Predicted Actual
2004 2.7% 4.0%
2005 1.8%
2006 1.9%
2007 1.9%
2008 1.8%
2009 1.8%
2010 1.7%
2011 1.7%
2012 1.6%, which is then set as the longe range rate.

The impact of the 4% 2004 growth will be huge in and of itself. But there will also be a ripple effect on the numbers down the list. In particular I don't see how they can press the number for 2003 below 3%, it would just look too raw, which leaves you with the difficulty of ratcheting down the numbers and maintaining that 1.6% that allows you to declare a crisis to begin with, without it looking like you are predicting an economy in free fall. And you don't sell a stock based privatization plan based on a 66% slow down in productivity growth over the next eight or so years.

The 2004 Report was launched and didn't create a single ripple through the political world. Even though its economic numbers were and remain ridiculous. The 2005 Report is going to be much different. People will be taking a hard look at these number sets.

Posted by: Bruce Webb at December 18, 2004 11:38 AM

In particular I don't see how they can press the number for *2005* below 3%,

Preview is your friend.

Posted by: Bruce Webb at December 19, 2004 12:24 AM

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