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January 19, 2005

Yes, There Is No [Social Security] Crisis, But...

Yes, there is no Social Security crisis. And, yes, whatever Bush proposal makes its way out of the administration must be opposed root and branch--Andrew Samwick and Kent Smetters could design a Social Security privatization scheme that would be an improvement over our present system, but they're not in control.

But there is a long-run Social Security problem--and a reasonable probability that there will be a big long-run Social Security problem--even though it ranks fourth on our list of fiscal problems. And there is a long-run health spending crisis. And there is a short-run deficit crisis. And there is a medium-run where-are-the-resources-to-pay-back-Social-Security crisis.

There is a fiscal crisis--there are lots of fiscal crises, some of them self-generated by the Bush administration. It's just that the fiscal crisis is not a Social Security crisis:

Social Security: There Is No Crisis - : BlogPAC, a collection of Democratic bloggers and blog readers, is joining the battle, with an online media campaign that refers to the attacks against Social Security's solvency as "fraud". >"Fact is, There Is No Crisis," said Markos Moulitsas. "And there is no projected crisis anytime in the near future. Or far future."

"We want to provide tools for citizens to engage in the political process on this critical issue," said Matt Stoller "President Bush's consistently fraudulent claims need to be rebutted by the American people, and that's what's going to happen with thereisnocrisis.com."

Chris Bowers promised bloggers would, "fight Bush's attempt to destroy the most successful program in the history of the United States."

The new website -- www.ThereIsNoCrisis.com -- gives "the netroots the tools necessary to protect the integrity of Social Security," according to Tim Tagaris. "The blogosphere has officially jumped into the mix."

"The Bush administration is using strategic lies to scare people into supporting a phase-out of Social Security. They are telling the public that there is a "crisis" and that Social Security is going "bankrupt." This is a lie," wrote Dave Johnson. "This is a strategic lie designed to lead the public down a path toward accepting their phase-out plan."

Matthew Yglesias explained the potential of the new effort by noting that, "the interlinked nature of blogs has already caused a great deal of new information to come to various people's attention (including my own) and, I think, enhanced everyone's understanding of the issue."

BlogPAC.org was borne from those who spend their times online and embrace participatory media and politics, we will use online tools and technologies to further the cause of progressive politics in our nation. BlogPac is, indeed, the first PAC to wage politics entirelyonline. Blogpac intends to distribute and sell downloadable materials, bumper stickers and encourage grassroots groups to engage in local activism on their own."...

Posted by DeLong at January 19, 2005 08:19 AM


Prof, you are, of course, completely right, but from a political standpoint, let's not create too long a list of crises and trouble ourselves too much on where social security fits in.

We have a simple argument: "fool me once, shame on you, fool me twice...won't get fooled again." If George Bush says something is a crisis, that is, by itself, almost enough reason to know there isn't. The political argument should really be this simple: the same people the brought you a phony WMD crisis in Iraq are now bringing you a phony Social Security crisis. They screwed up once; let's not let them do it again.

And then, as a footnote, we might note that if an when George Bush, Dick Cheney, Karl Rove, and Tom DeLay aren't running the American government, then we can talk about improving and augmenting social security, but not as long as these lying phonies and their manufactured crises control political power in washington....

Posted by: howard at January 19, 2005 09:11 AM

I suggest a simple rule. For every post where you discuss the Social Security "problem", you spend 10 posts on the current unsustainable budget deficit and 5 posts on the trade deficit. Throw in two or three posts on the dollar fall and emergence of the euro as a rival currency.

That seems about the right ratio for a reasonable evaluation of the current importance of problems. For you to keep harping on Social Security while the budget deficit expands as far as the eye can see is like worrying about your 401k contributions when you are bleeding to death from a sucking wound.

Posted by: Hektor Bim at January 19, 2005 10:53 AM

Stop with the NPV calculations for a minute and take a real look at SS. At the moment SS is a very cost effective program for providing disability and old age insurance at a reasonable level (lifts nearly all seniors out of poverty, is not outrageously generous). There are few changes on the payout side that arguably improve the system. Direct means testing is a less elegant way than simply taxing benefits to make payouts more progressive. Raising the retirement age seems unfair to manual laboreres and exacerbates the problem that poorer retirees tend to draw benefits for shorter times. Private defined benefit pensions are disappearing making the security provided by the current SS system relatively more important.

On the revenue side SS has a couple problems. The tax base is narrow and regressive so that poor workers pay 12% of their income to finance a system which consumes only 4.5% of GDP. The cutoff and exemption of unearned income make the system as a whole less progressive and financially predictable than it could be. At the moment the regressive tax base is generating a surplus which is unfairly used to lower income taxes for the wealthy. However over the next 50 years expenditures are projected to grow from 4.5% of GDP to 6.5% and the program will slide from 20% overfunded to 20% underfunded.

In the interim however, the program will see a 20-30 year period where it is funded 80% from dedicated revenues and 20% from general fund revenues used to redeem and pay interest on trust fund bonds. Under the optimistic projection of the trustees this period extends indefinitely, with the interest on SS bonds matchingup remarkably well with the short fall in dedicated taxes. This optimistic projection has generally proven to be the most accurate in the past, so it is not sheer fantasy to assume that it will again; moreover modest tinkering with the program (especially the contribution cutoff and or the formula for SS bond interest rates) could easily tune the balance to ensure that result. The first job for critics and "reformers" is to explain why that is not a morally or economically desirable outcome.

Contrast the situation with SS with two genuine problems- the high cost of health care and the general fund deficit, both of which genuinely threaten American prosperity and it is clear that SS does not have a problem in any sense that should engage policy makers or the American people. If nothing is done to SS for the next ten years it will still be generating a surplus and project to be solvent for another 30 years. Follow the current course for health care and deficits and by 2015 most income tax revenue will go to pay interest on the debt and health care will unavailable to many more Americans and unaffordable to nearly all with grave consequences for our international competitiveness.

Posted by: economaniac at January 19, 2005 12:00 PM

"And there is no projected crisis anytime in the near future. Or far future."

Two observations...

(1) Twenty five years from now, 2030, is beyond the far future??

By that point income taxes will need to have risen by 22% from today's level just to cover the cost of the Social Security trust fund -- redeeming all those bonds and all.

Then taxes will have to rise another 13% to cover the cost of the *other* trust fund that everybody forgets, the HI-Medicare trust (that other 2.9% of payroll tax).

So by 2030 we will have incurred a 35% increase in income taxes from today's level as a portion of GDP just to pay the benefits that are being paid **by the trust funds**.

Then there is Medicare SMI, which going to take another 28% income tax increase from today's level.

Grand total: A 63% increase in income taxes from today's level just for those two programs.

So say the SS and Medicare Trustees.


Of course, voters are going to have to decide whether or not they want to incur that 63% tax increase (and more beyond it) well **before** 2030.

What if they decide to cut the size of that increase by reducing benefits instead? As they did in 1983? Will pre-2030 still be beyond the far future??

(2) Of course, the economic justification and political root and foundation of SS for 65 years has been that it made everyone **richer** by providing all with positive returns -- big positive returns.

But from now forward it makes everyone poorer with negative returns -- an **historic change** that no Demcratic defender of the status quo has yet been honest enough to even acknowledge.

The fact that no defender of the status quo has the nerve to address this **change** to negative returns and call it good (!) -- while so many spin the malarky that private accounts may provide postive returns that just aren't high enough! -- shows how they know it **is** a problem right now. Not in the far future.

Twenty years of SS making everyone poorer will make it as unpopular as its years of making everyone richer made it popular. Same politics there.

Now combine (1) and (2), and a good while *before* 2030 we have people being asked to vote a 22% income tax increase on themselves to support a program that they know is making them **poorer** , on top of another 40% income tax hike for Medicare.

And the result is ... No Problem! ;-)

As the saying goes, denial ain't just that river in Egypt.

Posted by: Jim Glass at January 19, 2005 03:12 PM

There is no crisis. There is no crisis. There is no crisis.

"The receptive powers of the masses are very restricted, and their understanding is feeble. On the other hand, they quickly forget. Such being the case, all effective propaganda must be confined to a few bare essentials and those must be expressed as far as possible in stereotyped formulas . . . only constant repetition will finally succeed in imprinting an idea on the memory of the crowd." --Adolf Hitler, Mein Kampf-- (Thanks to Billmon for serving up this quote.)

We suspect that Mein Kampf is required reading for the Bush administration and a copy sits on everyone's night table. Bush has already gained ground with his message - there is a crisis - and it will take the same type of simple and direct counterpoint to defeat it. "The receptive powers of the masses are very restricted, and their understanding is feeble." So here it is in a nutshell:

There is no crisis. Bush lied about WMD and he is lying to you now.

Yes, I know, this is not good grist for intellectual analysis and discussion but we can save that for the next administration, as Howard pointed out.

Posted by: Dubblblind at January 19, 2005 03:31 PM

As long as you raise taxes on someone, there is no crisis (for the rest). The crisis is a matter of perspective.

Posted by: observer at January 19, 2005 03:53 PM

Who cares if there's a crisis or not? Why not argue the merits of reform instead of this red herring over the semantics of the word crisis. There IS a problem, whatever the magnitude, and it should be addressed, and furthermore the problems that do exist reveal inherent flaws in the program.

Too many people are confusing by what they THINK Social Security does vs. what it actually does. They also mistakenly assume that supporting reform is tantamount to being an evil neo-con corporate overlord who wants to fill the streets with starving seniors.

Social Security isn't some benevolent largess for the poor, as many people seem to think. It directly transfers payments from the young working poor to the retired aging wealthy. There is no means test. It has no explicit mechanism for providing aid to the very poor! The biggest benefit checks go to the wealthiest retirees who have contributed the most to the system. The smallest checks go to the poorest. At the end of the day, the very poor who have been poor all their lives are still very poor under the SS regime.

SS was sold to the public as a pension plan, and it is supported by most of the public today as a welfare plan. It is an inadequate implementation of both.

The wildeyed paranoia and hatred of all things not endorsed by Democrats is hampering the discussion of social security.

Why not address the philosophical and practical flaws in the system instead of calling Dick Cheney names?

Try this: What is the purpose of Social Security?

Is it to provide welfare to destitute seniors? Then let's just provide welfare to destitute seniors and let the rest of the population keep their 12.4% (soon to be more) lifetime earnings, stimulating our economy and creating more wealth in the process for everyone.

Is it to provide a nice pension plan? Some say yes, after all the biggest checks go to the biggest contributors ie. the richest, yet in order to "SAVE" Social Security for the very poorest, proposals abound to raise the taxes on these working poor and give them less in the end. If you want to force people into a pension then by all means do so. A nationally enforced IRA that requires 12.4% of your income would work marvelously. Or perhaps, like with car insurance, proof of membership in a private pension plan...

The bottom line is that there are myriad better solutions to all the problems you think Social Security tries to address. Let's abandon partisanship and fighting over semantics of "crisis" and identify what is wrong with SS and what we can do better instead.


Posted by: joeblow at January 19, 2005 04:04 PM

Don't let Bush or Thomas fool you. Bush is going to work hard over much of this year to enact a privatization plan for Social Security.

Of course, we don't know what they are thinking. But we must assume the worst. We must keep up the attack.

We must insist NO PRIVATIZATION.

Posted by: Paul Siegel at January 19, 2005 04:16 PM

Pension? I don't have no stinkin' pension.
I don't have no stinkin 401k.
I live from check to check.
If there is no SS when I retire at about age 70, I will turn to crime.
So joeblow, far from a welfare system what you really have, ny boy, is a crime prevention system.

Posted by: Jim A. Sherman at January 19, 2005 06:26 PM

Joeblow misses the point. Social Security is precisely what the name indicates: a security system so that after retirement most people aren't forced to work to maintain their economic status, or least work as hard. By doing this, you reduce worker desperation and improve their overall bargaining power with employers as a whole.

Posted by: Mandos at January 19, 2005 07:28 PM

So joeblow, far from a welfare system what you really have, ny boy, is a crime prevention system.

Social Security is precisely what the name indicates: a security system so that after retirement most people aren't forced to work to maintain their economic status

One more time:

Why not just put destitute old people on welfare like everyone else who is destitute? If we abolished SS and let people keep that 12.4% throughout their life, many many more people would retire without need of assistance. Those who are foolish or unlucky could go line up at the welfare office like everyone else who can't feed themselves. Why the special program?


Posted by: joeblow at January 20, 2005 12:54 AM

Jim, you are all tangled up there between cash dollar numbers and %GDP numbers. When you write:

"Grand total: A 63% increase in income taxes from today's level just for those two programs."

then it looks to me as if you mean a 63% increase over 25 years, ie about 2% compound, which is about the rate of increase of income, but this is not at all clear from what you're saying.

There is an increase in the proportion of GDP which goes to retirement savings, but it is an order of magnitude smaller than 63 percentage points. Similarly, the "22% income tax increase" that you're talking about is also not a 22 point increase in the basic rate of income tax, which is what it looks like on the face of it.

I think that there are three things you're doing that make the calculation look a bit confused.

1. Taking percentages of percentages; the "63% increase" is a change from 8.5% to 13.8%. This is not exactly wrong, but is a cheap showman's trick for making numbers look big.

2. Starting from a base under which Social Security takes up a *negative* proportion of general fund revenue (because it currently has a surplus which is lent to the general fund).

3. Assuming with no very obvious justification that the entire cost has to be met from the personal and corporate federal income tax base of 3Q04. This means, for example, that you have effectively put a "lock box" around dividend taxation and inheritance tax, and implicitly assumes that the accelerated depreciation provisions introduced in 2001 will still be in place in 2030 and still reducing the corporate tax base, despite the fact that they have already expired. In other words, this calculation is dependent on our believing that the Bush first-term tax cuts are more durable than Social Security itself.

Posted by: dsquared at January 20, 2005 02:09 AM

Why not just put destitute old people on welfare like everyone else who is destitute?

I suppose we will get there. What a sense of dignity after a lifetime of work.
Why is there a resistance to a plan that helps people live without special attention?
What makes you think that all people are as smart or well invested as you?

If we abolished SS and let people keep that 12.4% throughout their life, many many more people would retire without need of assistance.

Or maybe they would just go on more vacations or get a bigger TV or a fishing boat or lose it all in the stock market.

Those who are foolish or unlucky could go line up at the welfare office like everyone else who can't feed themselves.

How freakin' kind of you.
It wouldn't occur to me that a person with your views would be so generous with welfare. What a prince.

Why the special program?

Because it's fair.
Because as business forgets about workers again and we move into the "your on your own decade" it is more fair and important than everr that people have some bare minimum safety net. Because the corporations and executives they serve make huge profits, spend like royalty, care little for their workers and are quite happy to manipulate their stocks and assetts to stteal even more money from those unlucky enough to invest or count on those investments at the wrong time.

aren't you lucky you didn't try to retire in 2002 witha s&&tload of say, ENRON stock as your nestegg ?

Highschool dropout

Posted by: Jim A. Sherman at January 20, 2005 08:23 AM


Those were some intelligent points, in my opinion. I often get the feeling, reading these blogs on SS, that most folks just enjoy the debate, and don't really understand the issue very clearly.

Including me.


Yours were even better. When people start discussing percentages of percentages, all is lost. And you are correct that each debater includes his own assumptions in his presentations, many of which are probably wrong, just by the law of averages.

Here are a few variables to churn into the mix.

1) a nuclear dirty bomb
2) double digit inflation for 10 years, along with increased COLA's
3) prime rate of 22%
4) $400 billion/yr quagmire in middle east for a decade
5) Further medical advances, increasing life excpectancy for baby boomer.
6) Further income taxes or increases likely
7) Further outsourcing of high end jobs
8) Stock market correction(s)

Any three of these could cause our political reality to tilt on it's axis by 24% of 67% or so (that would be about 12%)

Here are a few things I think we can count on..

1) the low enders will want the high enders to pay more taxes
2) the high enders won't want to
3) the vast majority will never understand the current system, let alone any changes to it.
4) all of those will still have strong opinions.

Posted by: observer at January 20, 2005 10:53 AM

"Jim, you are all tangled up there cash dollar numbers and %GDP numbers..."


The SS and Medicare Trustees say that their cash needs from general revenue will increase, as a percentage of GDP, by 5.33 percentage points by 2030 over today's level.

That means general revenue will have to increase by 5.33 points of GDP. And that means income taxes will have to increase by 5.33 points of GDP to supply that revenue.

(Unless one wants to come up with a VAT, or *really* up the admission prices to the national parks, or use some other alternative to raise the same revenue).

Today federal income taxes are 8.5 points of GDP.

An increase of 5.33 points from there = 5.33/8.5 = 62.7%.

That doesn't look too tangled to me.

Posted by: Jim Glass at January 20, 2005 05:02 PM


It may make sense to you, but I doubt it means anything to the rest of us.

First of all, you are using a number (5.33) that incicates an accuracy of a hundredth of a percentage point. Bear in mind this is two and a half decades into the future.

If you know ANYTHING about significant digits, you would just use an ESTIMATE of 5% and call it good. But no, you use 5.33%, which convinces everyone reading your post that you are 100.00 percent full of it.

If you want people to comprehend your point, then use sensible assumptions, logical estimates, and state your point clearly. Quit blowing smoke up our asses with your 100th of a percent accuracy bullsh**.

Posted by: observer at January 20, 2005 07:51 PM

Yes, Jim, that's what I meant by "percentages of percentages".

If we used the same method of calculation for the change attributable to Social Security alone rather than throwing in Medicare, you would have had to have said that "taxes will have to increase by -344%!", which throws into rather sharp relief why this is a bad way to summarise this kind of movement.

Posted by: dsquared at January 21, 2005 12:02 AM

Bottom line,

Government can not be counted on to SAVE anything for us. Right now, billions more per year are being paid in than are going out. Are they being saved?

If you don't know the answer, you are not up to speed. The excess is being spent as we speak. It is "borrowed", i.e. replaced with bonds (IOU's) and spent as General Funds.

Posted by: observer at January 21, 2005 01:34 AM