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:

It 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.

Posted by Sebastian Holsclaw at January 28, 2005 3:28 AM