December 30, 2001

silhouette3.JPG From the desk of Mindles H. Dreck:

No Help on Social Security


This is the title of the New York Times' 12/27 editorial on Bush's Social Security Commission. It is a fitting title for the Times' coverage of the issue.

The problem is not so great that it cannot be solved with some modest changes in the benefit structure, retirement age and an infusion of revenues. But when the stock market boomed in the 1990's, many experts began beating the drums for a government-sponsored system of private investment accounts to replace Social Security. In response, President Bill Clinton proposed allowing workers to supplement but not replace Social Security with separate retirement accounts subsidized with part of the federal budget surpluses that were projected to arrive throughout the coming years.

...During the presidential campaign, Mr. Bush was always vague about whether benefits would have to be cut in order to finance his privatization plan. His commission, headed by former Senator Daniel Patrick Moynihan of New York and Richard Parsons, the chief executive-designate of AOL Time Warner, makes at least that much clear.


Let's paraphrase: "The problem is not so great that some tax hikes and benefit cuts won't fix it. And people can save on their own, as long as its outside the existing plan. But Bush's plan involves benefit cuts." Am I missing something?

According to the Times "changes in the benefit structure" that result in less total benefits don't equal "benefit cuts." Saving outside the plan is fine as long as the current amount of social security reserves invested in special government obligations remains the same.

Here's another precious bit:

In the 1980's a Social Security commission helped lead to bipartisan steps to extend the system's solvency
Just to clarify, the 1983 amendments after the Greenspan Commission raised taxes and cut benefits. Look for yourself.

Social security macroeconomics are pretty simple (micro- is a lot more complicated). It takes money in from the workforce and either redistributes it to the currently retired or saves it up in a "reserve" for future retirees. The reserves are important because of the increasing ratios of retirees to workers (note: on linked chart "2005 should be "2025"). Three factors can improve Social Security's condition, listed here with policies that would create the desired effect:

1) Increased taxes on the working: increase the tax rate or build the tax base through payroll growth, birth rates or immigration

2) Decreased distributions to the retired: increase the retirement age, decrease payout amounts, limit eligibility....or establish a maximum age (!)

3) Increased rates of return on reserves: invest them in something with better return potential than government IOUs but less certainty, e.g. bonds and stocks

Stripped of partisan positioning, the political debate should be about how to equitably distribute the pain of the first two, and deal with the potential uncertainties of the third. According to the times, only item 1 and decreased distributions to the wealthy are "bipartisan" or "consensus building". If true, this confirms what the Times has been denying all along. Social Security is no longer a "savings and retirement plan", it's a bread & butter welfare state program for redistribution of income. How much less "lockbox" baloney would we have to endure if we just admitted that?

Why we shouldn't be looking into the relatively painless option of increasing the rate of return beats me. For some reason, the Times thinks raising taxes and cutting benefits are a no-brainer and increasing returns is off limits. Could it be because it can only happen outside the Treasury?

Also, the reason the system is now projected to bust in 2038 instead of 2017 (as predicted a decade ago) is because economic growth has increased the tax base through increased payrolls. This is the surest way to get out of this problem. The Times has neither publicly considered this fact, nor acknowledged the incredible progress made so far. It may be too pro-corporate for the Times to say so, but pro-growth policies are the best way to increase the solvency of Social Security.

Once again, we receive no help from the Times, only limited choices and partisan puffery dressed up as analysis.

Posted by Mindles H. Dreck at December 30, 2001 11:53 AM | Technorati inbound links