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December 23, 2004

The Fly Bottle Plays Social Security Three-Card-Monte

Will Wilkinson plays Social Security three-card-monte with us. He starts out by saying that Matthew Yglesias is wrong in claiming that there is no Social Security crisis:

The Fly Bottle: Social Security Crisis on Infinite Earths: Yglesias seems to be on a one man "there is no social security crisis" crusade. Now, it's true that no one is going to perish in a mangled, fiery, blood-soaked heap of runaway social security next week, or even next decade. But let me say a couple things. (There will be MUCH MUCH MUCH more in coming months).

How is Matt wrong? Wilkinson doesn't say--instead he says that we are facing a "comprehensive fiscal crisis":

First, we are approaching something very like a comprehensive fiscal crisis. Check out Jagadeesh Gokhale's and Keith Smetters's paper on the "Fiscal Imbalance" or "FI." The FI is "current federal debt held by the public plus the present value of all projected federal non-interest spending, minus all projected federal receipts." A sustainable fiscal policy has an FI of zero. The estimated FI is about $47 trillion. That's real money. To get the gravity of the problem, think about this: Holding other options fixed we could wipe out the FI if we (pick one):

-- raised federal income tax collections by 70.1%.
-- raised payroll tax collections by 96.7% [!].
-- cut discretionary spending by 107.8%. [Impossible!!!]
-- cut Social Security & Medicare outlays 45.9%.

We are indeed facing a comprehensive fiscal crisis in the General Fund. But Wilkinson makes no mention of the triple origin of this crisis: (1) runaway health care spending on Medicare and Medicaid, (2) the Bush tax cuts, (3) failure to plan for the repayment by the General Fund of its debt to the Social Security. Why not mention the origins of our comprehensive fiscal crisis? Because it would lead to the question, "Why is Bush dinking around with Social Security, then?" And the answer--because he's incompetent--is not one Wilkinson wants to plant in people's minds.

Clearly, a real solution will be some combination of spending cuts, small tax increases (big raises can cost more is distortion than they bring in in revenue) and Social Security and Medicare reform. It is just not possible to correct the massive FI by tinkering around the edges of the major entitlement programs until they really are in a genuine crisis...

As I said, the intellectual equivalent of three-card-monte. Try to make people think that the big problem is under the "Social Security" cup when it is not.

Stop using sleight of hand and come back to the reality based community,, Mr. Wilkinson. At least we can hold our heads up and look at ourselves in the mirror without being ashamed.

Posted by DeLong at December 23, 2004 11:41 AM


I don't buy that Bush is incompetent here.

If you're going to rob a bank, and there are four banks in town, three of which have gone broke and one is still solvent, which one do you rob?

A competent bank robber will chose the solvent one.

Posted by: Kuas at December 23, 2004 11:52 AM

In your game of three card monte, do you look for a queen or a six? Who loses, then?

Posted by: cloquet at December 23, 2004 12:01 PM

Apparent Bush strategy, short version

if it don't need fixin' you got to break it first

Posted by: David at December 23, 2004 12:30 PM

"And the answer--because he's incompetent"

I'm used to this, the kind of thing liberals say who still want to lunch with their Republican friends and colleagues. However, Wilkinson still has a strong point about the General Fund crisis and the practical possibilities of addressing it. Practical = politically possible.

Paul Krugman was addressing the issue stridently in 2000, and especially in 2002. My second thought as the planes hit the towers was "There goes Social Security." It is probably too late to save it now.

Posted by: bob mcmanus at December 23, 2004 12:56 PM

The scary thing is that Wilkinson's willingness to support "small" tax increases places him to the left of the entire Republican party, and he's still way to the right of reality.

Posted by: Brian S. at December 23, 2004 01:06 PM

And Medicaid also. At least half of the Medicaid payments go to take care of elderly in nursing homes. Medicare does not cover ordinary custodial care in nursing homes. You pay out of your pocket until you spend all your money.

Then when you have nothing left (although survivors are allowed to keep your house until you die, when it must be sold to reimburse Medicaid for what it paid) Medicaid is charged for your nursing home care.

Medicaid is breaking the budget also, so as costs go up restrictions will get tighter on who will qualify and what will be paid for. (Remember the story about the little girl whose nursing care Alabama was taking away? That was a Medicaid cost control rule kicking in. Expect more and more of this.)

Yes certainly, let us be stalwart and face the necessity of keeping the army in Iraq for ten more years. We're the great superpower, the world's largest economy.

Posted by: pragmatic_realist at December 23, 2004 01:50 PM

Why bother attacking libertarian children at Cato? They're relatively harmless, and too easy a target.

Posted by: Joe S. at December 23, 2004 02:15 PM

Jesse Taylor (I think) said it best (approximately): "Saying that there's an impending fiscal crisis because of Social Security and Medicare is like saying that the major causes of mortality are lollipops and death."

Even granting Wilkinson's libertarian hooey about how restoring taxes to 2000 levels will be revenue-negative, he says we have to cut Social Security and Medicare outlays. That does NOT mean cutting Social Security, since Medicare is the one whose price will blow up. Wilkinson has just skipped a step. I'd hope philosophical training would be better than that.

Incidentally, I don't think Wilkinson has any stake in Bush's competence--I think he just doesn't like Social Security on ideological grounds.

Posted by: Matt Weiner at December 23, 2004 06:04 PM

Hi Brad, The larger point of my post, as you know if you read it, and would have noted if you had a sense of argumentative decency, was that even in the absence of any kind of crisis, there would still be good reasons to move to a system of personal accounts. The issue simply doesn't turn on whether or not there is a crisis.

[Go read your title. Then go read your piece. Then come back. From what you wrote above, you should have begun: "There is no Social Security crisis. There is a huge General Fund crisis--driven by exploding health care costs, the Bush tax cuts, and the debt the General Fund owes to Social Security. But even though there is no Social Security crisis, privatizing Social Security is still a good idea."

That would have been a way to begin that put your cards on the table. You can still do so. Just because Bush is banging the "Social Security is bankrupt!" drum doesn't mean you have to do so too. You do have free will.]

I think we should ALSO massively cut discretionary spending (including defense) and do something radical about medicare/medicaid. Bush's drug benefit was incredibly ill-advised. I am not in favor of further tax cuts.

Now, it happens that social security reform is on the table. That could also help with our long term budgetary problems. Social security reform is a live issue. Something is going to be proposed. If it is a plan like the Cato plan, am I for it or against it? Because I think there are extremely strong independent practical and moral reasons to have a system of personal accounts, I'm going to argue in favor of a system of personal accounts. If it will have a salutary long term effect on our budget woes, and I believe it will, that is well worth mentioning, even if it is not the primary reason to support the plan. (This all of course depends on the details of the proposal. There are many possible systems of personal accounts that I would not defend.)

How is that three-card monte, Brad? If this is a debate you can win on the merits, then there should be no reason to impugn your opponents' motives. Right?

Posted by: Will Wilkinson at December 23, 2004 08:47 PM

Oh . . . And nowhere in the passage you quote at the beginning, or anywhere else in my post, did I say that Matt is wrong. Indeed, the bit you excerpt is pretty clearly a statement of qualified agreement. So your post exhibits a lack of either honesty or basic reading comprehension.

[Ah. This is interesting. So you believe that Matt is right: that there is no "Social Security crisis"? And Bush and company are being their usual mendacious selves in claiming that there is?]

Posted by: Will Wilkinson at December 23, 2004 09:11 PM

It seems to me that "privitization" is simply a means to provide a "floor" under stock prices i.e a vast amount of money chasing a finite number of equities.

[The argument on this is twofold: first, that those who invest their SS contributions in stocks will still make out very well (almost certainly); second, that higher stock prices will be good for the economy--that businesses will issue more shares, that debt/equity ratios will fall, and as a result firms will become less cautious and more entrepreneurial because they'll no longer be as close to the edge of missing a bond covenant as they used to be. I'm not sure what I think of this argument.]

Posted by: David Sucher at December 23, 2004 09:23 PM

Will, no one is going to perish in a mangled, fiery, blood-soaked heap of runaway social security next week, or even next decade. But... First, we are approaching something very like a comprehensive fiscal crisis" does not sound like qualified agreement with Yglesias' point. Not at all. Because not even the most dedicated Social Security Chicken Little is claiming that anyone is going to perish in a blood-soaked heap of etc. next week, or even next decade.

Compare--person A says, "Our business is in crisis because Division X is losing money." B says, "There's no crisis in Division X." C says, "While it's true that no one's going to die in Division X, there's definitely a lot of money being lost and we need to cut X loose." C hasn't really agreed with B at all--A and B weren't arguing about whether anyone would die. And C has strongly suggested that B was wrong, since he's made fun of B's statement and then said something very close to the negation of what B said. In fact, he's subtly changed the subject--which is basically what Brad accused you of doing. So I don't think there's a failure of reading comprehension here.

And, as Brad points out, Social Security is pretty much beside the point in the FI crisis. It's even beside the point in the "Social Security and Medicare" crisis, since Medicare accounts for so much more of the imbalance. It's fine that you oppose Social Security on libertarian grounds (well, you're wrong, but nothing wrong with that), but Brad is right--the post you wrote doesn't sound like the one you're describing here.

(And I realize that I misread this sentence: "big [tax] raises can cost more [in] distortion than they bring in in revenue." It is true that they can. But the big tax raises that ought to be on the table--rolling back the Bush cuts--won't; otherwise the cuts wouldn't have dropped revenue. So the fiscally responsible would do well to think about some big tax raises.)

Posted by: Matt Weiner at December 23, 2004 09:46 PM

Will is the typical think tank libertarian on this issue. Just because SS is on the table doesn't mean it is time to fuss with it.
Republicans are stealing the desk chairs off the Titanic, the libertarian parasites are grabbing a few on some self-serving rationalised basis, and the democrats are too timid to oppose anything.

Posted by: bigfoot at December 24, 2004 12:27 AM

Pick any card you want, now that the spell of the sixes has been broken here.

Posted by: cloquet at December 24, 2004 08:28 AM

And broken at other places.

Posted by: cloquet at December 24, 2004 08:34 AM

Holding other options fixed we could wipe out the FI if we (pick one):

-- raised federal income tax collections by 70.1%.

-- raised payroll tax collections by 96.7% [!].

-- cut discretionary spending by 107.8%. [Impossible!!!]

-- cut Social Security & Medicare outlays 45.9%.

So spake Will Wilkinson. This sounds not like "three cards monte", but as something utterly, utterly ridiculous. Those are breathtaking lies.

FI sounds like a totally bogus concept. I can only guess what it entails, but if I may guess the idea is that if the current law obliges us to some expenditures in the future we have an imbalance unless we have cash for these expenses at this very moment.
Not a single insurance company operates with FI defined in that manner.

Posted by: piotr at December 24, 2004 12:01 PM

What is this? Am I the only one old enough to remember that the Social Security Trust Fund balance has not always been included in the federal budget? Reagan included it to ameliorate his budget shortfalls. It's been there ever since. If Clinton had taken it out as he should have we would not have had a surplus in the late 90's. Get your facts straight people.

Posted by: Norma Oldham at December 25, 2004 09:17 PM