January 28, 2005
Frustrations With the Social Security Debate
I have a few deep frustrations about how the Social Security debate typically plays out.
1. Is it a pension program or a safety net program? It seems that whenever I have the debate, the Social Security advocate will adopt whichever position is orthoganal to what I’m talking about—often flipping back and forth in the same conversation. It I talk about how bad a return Social Security is on investment its I’m accused of wanting to throw old people out on the street. If I talk about how stupid it is to pay $10-15 billion per year to rich and upper-middle class people its status as a universal pension system.
2. We can't break our promises to the retired. That's nice rhetoric. No one is proposing that we do that. All of the proposals have phase-in periods. The implication of this charge is that having made a specific social security promise to one generation, we are now obligated to make that promise or better to all future generations. We aren't. We can choose to admit that we made promises slightly too grand and for future generations we are going to be scaling back to a real safety net that only kicks in when you are approaching poverty. We can ask 25 and 30 year olds to plan for their own retirement. This isn't about breaking promises. It is about not making stupid ones. Waiting until 30 years from now is far more likely to lead to broken promises of some sort than anything we do now.
3. The trust fund and assets. Loans by one branch of the federal government to another aren't assets. They may be promises to pay of some sort, but when it comes down to it cashing them out doesn't help the economic situation one bit. If there are T-bills cashed to pay Social Security liabilities these will be paid for by taxes. If there are not T-bills cashed to pay Social Security liabilities, they will be paid for by taxes of the exact same amount. Pretending that everything is fine just because the Administration has bonds is silly.
4. Social Security isn't the Problem. So what? Missile defense isn't THE problem either, but drastically cutting it might not be a bad idea. This often comes in the form of "Medicare is a Worse Problem". That is undoubtedly true. It is also much harder to solve. In fact I haven't heard a single really good proposal to solve any of the many problems that plauge Medicare. There are a number of highly equitable changes that could be made to Social Security now to make it much cheaper for taxpayers in the future. The fact that farm subsidies should be ended or that Medicare is a problem or that the tort system is ugly doesn't change that.
I would also like to draw attention to an excellent post at the FlyBottle. I hope he will forgive me for quoting almost the whole post:
Posted by Sebastian Holsclaw at January 28, 2005 03:28 AMIt is now clear to me that the forecasting debate works by choosing your favored assumptions about growth, aging, immigration, etc., extrapolating into the future, and then arguing either that we are "headed for an iceberg" or that there is no iceberg, or at least there is no iceberg that can't be evaded with marginal tinkering.
However, the fact remains that no one knows what the growth rate is going to be in ten years. No one can tell you whether there will be a huge jump in life expetancy due to technological innovation in 20 years. No one can tell you whether President Jeb Bush will usher in a new era of mass immigration. Maybe those fascistic millenials will have six kids per pair!
Whatever the case may be, whether or not social security-as-we-know-it is sustainable depends on a lot of what we don't know and can't know. We can and should try to see what the future will look like if certain trends continue, given various different assumptions. Yet, we don't know how to assign probabilities to the assumptions or to the possible futures. It is likely that some unpredictable exogenous factor will render any such assignment moot.
But frustrations about the futility of the forecasting debate point to a deep flaw in the design of social security: the system is fragile. Brittle, even. The fact that the projected sustainability of social security is so sensitive to fairly small changes in growth rates, demographic change, unemployment rates and is a sure sign that it is extremely poorly designed policy.
Advocates of status quo-ish approaches are stuck arguing that the future's going to thread the needle of conditions under which the system is viable. Now, I don't know, and neither do they, whether their favored forecast will become reality. But it remains that a well-designed institution should be robust under a broad range of future conditions. Our PAYGO system just isn't. Small differences in the rate of growth, rate of increase of life expectancy, and so on, shouldn't make or break the system. Of course, there is no system that can reliably withstand dramatic changes in any variable. But we should at least aim for a system that is fairly adaptive and robust against moderate changes in growth, population, employement, and aging.
Perhaps you should talk about other attempts at Privatizing Pension Systems in other countries as an example? How did the British or Argentinians fare in that attempt? What is the difference between their Systems and BushCo’s?
Posted by: Aldous at January 28, 2005 03:42 AMYes, Sebastian, there are idealogues on both left and right. But I have spoken to few people — liberal or conservative — who wouldn’t support at least exploring some form of means testing.
Let’s start with the stuff we can forge some kind of consensus on and then debate the merits of the forecasts. Besides, I haven’t seen many forecasts of any sort that panned out except by accident.
Fortunately, there is time to have those sorts of discussions, but it is economically unsound to try to push through a program that will be highly divisive socially based on political philosophy rather than any kind of economic consensus.
Posted by: Seth at January 28, 2005 07:41 AM1)To understand the worth of social security, one has to imagine things before it. Without Security, parents become dependents of their children much more often when they retire. That dependency constitutes a economic drain on those families. It may bring warm fuzzies to those who look at it from the family values end of things, but lots of things look good when you don’t actually have to experience them yourself. It is economic security not only for the old, but the young, allowing mobility not possible in previous eras.
2)What’s your basis for making your judgments, Sebastian? The Rhetoric of the Republicans often takes comfort in those places where conclusions are not clear, so when Bush’s forecasts are revealed to be based on supremely pessimistic assumptions about our future economy, instead of arguing for use of more moderate assumption, you essentially say we can’t know, so why don’t we agree with Bush’s opinion on Social Security anyways? It’s a fallacy of ambiguity Check out the factcheck.org article on this.
Conservatism propagated honestly doesn’t bother. But when people are this willing to cynically manipulate the facts and the system in order to get their policy, I start having real problems. In a democracy, that is the most subversive thing our government can do, the thing that will edge it towards tyranny. You guys seem to forget that there is moral and ethical dimension to leadership.
3)Talk to your people, I’ll talk to mine. Raiding the SS trust fund is my idea of a fiscal crisis in the making. Besides, this new social security system is the ultimate raid, carving out 200 billion dollars a year for ten years, with a return so small and for so few even George Will hasn’t the heart to support it. This functions better as an attack on the integrity of the system than any improvement on it.
4)Look, Nobody’s saying we do nothing. Raise the retirement age and the tax rates to compensate for rises in life expectancy. With those simple fixes, we don’t have to screw around with an expensive boondoggle of a makeover, and we can move on and address a much more dire problem. I mean, that’s this administration’s problem. It’s priorities are more political than practical.
Posted by: Stephen Daugherty at January 28, 2005 08:26 AMSebastian -
Very good piece. It’s good to see an article where facts are not enslaved to dogma.
Stephen -
The left is not going to get any traction on this issue as long as they continue to argue that nothing is wrong. I went to a large, liberal East Coast school, and I can’t think of a single student there who thought Social Security would be around for us when we retire. The expectation is that either it will be something new and different, or we’ll be fending for ourselves. The professors - liberal to a man - agree that something has to be done. I have said it before and will say it again: until and unless the Democrats have a counterproposal that does something for the future of Social Security, they will keep losing this debate.
Stephen
Raising the retirment age is a good idea, but I doubt it will get past the AARP and the liberal establishment. Raising the rates is a bad idea. You can tax the young to pay for the old at any rate you want, but it is unjust and bad for the economy.
Chops is right. The Democrats need to come up with a workable counter proposal. They can’t just continue to deny the problem.
Posted by: Jack at January 28, 2005 09:54 AMChops-
The left is not arguing nothing is wrong. What it’s arguing is that Bush is using unreasonably pessimistic forecasts and out of context, undependable information to scare people into a plan which makes even Republican nervous. He’s making a crisis out of a distant problem to foist bad policy on us. We have other proposals. You guys have just been drinking your own party’s Kool-aid too long to notice.
Jack-
They’ll sooner see a rise in rates and retirement age than they’ll go along with Bush’s fiasco in the making.
until and unless the Democrats have a counterproposal that does something for the future of Social Security, they will keep losing this debate.
I don’t think we’re losing. Many Republicans are jumping ship or offering their own alternatives to Bush’s plan.
Our counter-proposal is, we’ve got 50 years to hash this out. If you want to debate it, fine. But don’t try to shove this piece of crap plan down our throats.
“We have other proposals.” Really?
The wait 50 years approach is foolish because if benefit cuts or large tax increases are necessary it is better to space them out over the long term rather than jump them on people all at once.
Posted by: Sebastian Holsclaw at January 28, 2005 12:44 PMChops
You have a good point, the Democrats will loose as long as they don’t come up with a perposal.
I would love to see one from them. Then maybe both sides could come up with a solution that will actually work.
The Democrat proposal had better be the following if they want any credibility with the people:
1) Means test benefits
2) Eliminate the ceiling on income from which FICA premiums are deducted.
These are the only small changes that can be made now to deal with the problem 40 years out without
1) adding a few trillion to the naitional debt
2) increasing taxes on average income workers
3) raising retirement age or cutting benefits.
This plan also returns SS back to its original intent when first proposed in Congress, i.e. an insurance program against poverty.
Posted by: David R. Remer at January 28, 2005 04:58 PMRon-
It is disingenuous to say Democrats don’t have proposals. They doubtlessly do. Only trouble is, we’re not in charge, and the Republican party won’t pass the Democratic solutions typically. Their people explain the absence by saying the Democrats just complain.
This is nothing more than the conservative equivalent of talking like a person present isn’t there. One wonders what their feelings about that will be when the shoe eventually ends up on the other foot.
Posted by: Stephen Daugherty at January 28, 2005 08:56 PMStephen, Ron does hint at a very valid point. If the Democrats don’t publicize a better alternative, and I mean quickly, they will lose the opportunity to capitalize on Bush’s attempt to gut the system. It appears to me there is a leadership void in the Democratic Party at this time.
To pass up an opportunity to demonstrate to Democrats and Independents alike that the Democrats have a better plan, is strategically and tactically a huge, huge blunder. Is the Democratic Party in such disarray that they can’t take advantage of this moment while the topic is hot and while the public is skeptical of Bush’s plan?
Posted by: David R. Remer at January 31, 2005 12:36 AM
