Jeebus Preserve Us from the Incompetent Fools of the Washington Post!

Is America's Social Security system now in a long-run funding crisis? The answer to this question is "no." It's more likely than not that Social Security revenues will have to be raised a bit or benefits cut a bit relative to current law or both in the next fifty years, and almost certain that one or the other or both will have to be done in the next century. But it is a long-run problem, not a crisis. And it is--relative to the scale of other things that have gone wrong--not a large long-run problem.

Back in the 1990s was there good reason to think that America's Social Security system was in a long-run funding crisis? No: back then we did have a more pessimistic view of what long-run productivity growth was likely to be, and thus the long-run Social Security shortfalls made themselves visible more quickly and were larger in magnitude, but it was still a problem--not a crisis.

Is America's entire budget--Social Security plus Medicare plus Medicaid plus defense plus all other spending plus the Bush tax cuts--in crisis? Yes.

Ruth Marcus of the Washington Post demonstrates that she has not taken the time to think issues through enough to grasp these three points, and so makes a fool of herself. It raises once again the question of why they bother to print the Washington Post each day, and makes me ask once again why oh why can't we have a better press corps? But I am going to outsource this one to Mark Thoma:

Economist's View: Ruth Marcus Tries to Show Her Beltway Badge of Seriousness: Ruth Marcus shows two things... she hasn't a clue about Social Security financing... she has no problem at all presenting a distorted picture to rationalize her clueless position.... [T]here's been so much written that it's hard to believe that anyone who isn't being willfully ignorant could be unaware of the true magnitude of the problem....

[H]ad Ruth Marcus included this quote from Paul Krugman's 2005 piece in her editorial (or quotes from other pieces of the vast amount Krugman has written about Social Security after 2001), it would have changed the interpretation of the quotes she includes in her article. Here, Paul Krugman explains why the future of Social Security was at issue at that time:

Four years ago, I and many other economists urged policymakers to think about the future cost of Social Security benefits, not because we thought there was anything wrong with Social Security itself, but because we regarded the future costs as a compelling reason not to cut taxes even if the overall budget was in surplus.

Keep that quote in mind, i.e. that the worry was that the Bush tax cuts would eat away at the accumulated Social Security surplus, as they did, as you read Ruth Marcus' desperate attempt to justify her doom and gloom about the future of Social Security.... [A] lot of the article is just quotes from Krugman from 2001 or earlier (she even reaches back to 1996 at one point) as she tries to turn his concern over the effect tax cuts would have on the surplus, and hence our ability to meet future obligations, into more general concern over a potential crisis in the Social Security program even though that isn't what he was saying (and note the first quote also includes Medicare)...

See also:

http://commentisfree.guardian.co.uk/dean_baker/2007/11/the_crisis_that_isnt.html

http://www.prospect.org/cs/articles?article=hold_that_tax

http://economistsview.typepad.com/economistsview/files/Krugman.NYRevBooks.SeniorMoment.html

Comments

[save_the_rustbelt]

Tom Brokaw says the print edition of the WaPo will be gone in 10 years.

Time to start the betting pool? Pick the exact date WaPo ceases to publish.

[jim]

Well the incompetents are sure not limited to the WP. Just take a gander at the pundits who populate TV, MSNBC, CNN, not to mention Fox, and virtually all of them seem to compete only to find which one is the sillier or stupider, or more confused and ignorant about the subject at hand. Olbermann on MSNBC is about the only sane one, and that isn't saying that much (he is also too shrill for most Americans). Since Americans get their canned "thinking" mainly from TV and not the written media, these ignoramuses are far more dangerous than the writers for the WP.

[jim]

Well the incompetents are sure not limited to the WP. Just take a gander at the pundits who populate TV, MSNBC, CNN, not to mention Fox, and virtually all of them seem to compete only to find which one is the sillier or stupider, or more confused and ignorant about the subject at hand. Olbermann on MSNBC is about the only sane one, and that isn't saying that much (he is also too shrill for most Americans). Since Americans get their canned "thinking" mainly from TV and not the written media, these ignoramuses are far more dangerous than the writers for the WP.

[Tano]

Sorry, but I dont understand Thoma's logic, nor yours.

He states that Krugman was arguing against the Bush tax cuts - that it would be a foolish thing to do because it would leave us "unprepared for the deluge".

Well guess what? We lost that argument. Taxes were cut. Either Krugman was wrong back then - by claiming that cutting taxes would leave us unprepared for the retirement deluge, or he was right, and we are unprepared.

We all understand that the "crisis" is not in SS itself, but rather in the general fund that has to pay back all of the money borrowed from the trust fund.

How does that make it less of a crisis? Fine, it is not a SS crisis, but a Federal budget crisis, but the botttom line remains - tax dollars are going to have to be raised in order to fully fund SS benefits.

Given that, why are so many progressives opposed to ideas like Obama's, that will start to raise those tax dollars with one of the most progressive taxes imaginable? One that falls exclusively on those making more than 100K (or in some itereations, more than 200+K)?

If we dont do that, then it seems pretty clear that in a decade or so, when increasing percentages of the Federal budget are going to paying back the Trust Fund, that we will either have to slash discretionary programs or raise taxes. What are the odds that we can pass a tax increase then that is in any sense as progressive as the Obama plan is now?

[Lee A. Arnold]

Tano, in what year do the Bush Tax Cuts sunset?

[howard]

tano, in addition to Lee Arnold's comment, this is the point: we do have a fiscal crisis looming. we do not have a social security crisis looming.

there are plenty of people who would be happy to use the fiscal crisis as an excuse to destroy social security, which is why it matters that we describe these things correctly.

but i actually wanted to post to comment on a related matter: what are the odds that ruth marcus is aware that she has exposed herself as a propagandist and a fool? she undoubtedly knows that "blogs" exist, but has she troubled herself to bookmark any? does she attempt to read and keep herself informed?

apparently, she knows how to use google (or nexis or lexis or whatever it is) to look up and decontextualize paul krugman quotes, but is she aware that a large number of highly educated readers are - even as we speak - sneering at her ignorance?

my guess is she isn't, that what she thinks is "sometimes i get criticized by the left, sometimes i get criticized by the right, so i must be doing something right, and anyhow, donald graham keeps signing my inflated paycheck."

[Emma Anne]

"Given that, why are so many progressives opposed to ideas like Obama's, that will start to raise those tax dollars with one of the most progressive taxes imaginable? "

(1) Because if you give money to Republicans, they immediately spend that and a bunch more. We already did raise the amount SS took in over what it was spending. The Repubs spent it all on fun things like wars and told us that there was no trust fund - just a file cabinet full of IOUs. Fool me once . . .

(2) Social Security is not at all urgent. Medical costs are.

[piotr]

I think that one should start with a definition of "Social Security Crisis". I would propose "A fiscal problem that would be best solved either by changing the Social Security contributions, or the way the contributions are invested or the way the benefits are paid".

If we have a fiscal problem that would be best solved by ending an unnecessary war, or by controlling medical inflation in some manner (Maupassant suggested free booze for the seniors), then this is not a Social Security crisis.

One could say that if we extapolate two trends from the last two decades: the growth of GDP and the growth of executive pay, in 50 years our corporations will have no funds for payroll, investments, materials, R&D, nothing except for executive pay. So we have Social Security crisis. (That would be wrong, IMHO.)

[Tano]

"Tano, in what year do the Bush Tax Cuts sunset?"

Sorry Lee, I had other plans for that money.
Like universal health care.

Emma responds to my question:
"Because if you give money to Republicans, they immediately spend that and a bunch more."

Emma,
If Obama gets to implement his plan, that would be because he is the president. The Congress almost certainly will remain Democratic after the next election. So what is with this "giving the money to Republicans"?

If Obama is elected, and serves two terms, then we will control that money right up until the time that the Trust Fund starts to be tapped.

[Bruce Webb]

"I think that one should start with a definition of "Social Security Crisis". I would propose "A fiscal problem ..."

But is there a fiscal problem at all? I would instead propose that we define the 'problem' in terms of the specific assumptions that underly it. There seems to be little understanding that Social Security financing long-term is contingent on small changes in initial conditions. The differences between the two models that matter, (Low Cost and Intermediate Cost) are relatively minor in the short run but outcomes start to diverge widely in less than five years. Will Social Security need a minor change in the next 50 years and a certain one in the next century as Brad suggests? Well that will be totally dependent on whether the economy returns something closer to outcome I or outcome II as seen in Figure II.D7 of the 2007 Report (you may need to scroll a little)
http://www.ssa.gov/OACT/TR/TR07/II_project.html#wp106217
Figure II.D7.-Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions
Outcome I does not require some outlandish set of economic numbers, if the economy grows more or less like it did in 2006, or even if it slows somewhat to ultimate 2.8% Real GDP this one is in the bag. And note in particular what happens after 2060 under outcome I, the tail starts pointing up.

Is a Low Cost outcome guaranteed? Well no. Will the actual outcome be closer to Low Cost than Intermediate Cost? Well I suggest yes, no one has made a determined case for Intermediate Cost numbers, no can explain why 2.0% Real GDP is a reasonable MEDIAN projection for growth going forward. Plug 2.4% average Real GDP (low by post war standards) and things change dramatically. Plug in 2.8% Real GDP in the out years and the problem vanishes altogether.

Numbers matter in this debate, which oddly enough explains why opponents of Social Security rarely use them, their arguments just don't survive encounter with the numbers in the data tables, and the end result is a debate long on concept and short in numeracy.

[Emma Anne]

Tano - I sadly predict that after eight years or so of Democrats getting the economy back in shape, the lure of tax cuts and macho allure will cause the Republicans to once again be put in charge of things. I hope it is not so, but if history is repeated . . .

When that day comes *I* want a strong, popular safety net in place that it will be hard for Republicans to destoy in their eight years or so. Leaving them a big lump of money that is supposed to be saved for the future is like leaving some nice fat chickens for the foxes to guard.

Clinton did what you are recommending. He got rid of the deficit and put things on a secure financial footing. How did that work out for us?

[Tano]

Emma,

I dont understand your points. Well, to be precise, I do understand them, and agree with them - it is your conclusion that I dont understand.

If we raise revenue for SS through Obama's tax increase (eliminating the salary cap), and even if it just continues to be lent to the federal government in exchange for T bills, then we emerge in 2017 with a Trust Fund that is sufficient to sustain SS indefinitly.

At that point, if the Republicans take over, what can they do? Wouldnt we be in a far better position then, under that scenario, where SS was solvent permanently, to resist any attempts by them to mess with the system?

The efforts against SS rest on two facts. That the system will have greater expenditures than income beyond 2041. And paying back the Trust Fund will need new federal budget revenues beyond 2017.

Obama's plan eliminates the first issue. The second issue remains whether we implement Obama's plan or not. So how can it be an argument against Obama's plan?

[Barkley Rosser]

Tano,

The problem with your suggestion is that raising the cap alone is not what will happen. Remember, Republicans will fight any tax hike tooth and nail, including with filibusters in the Senate. That means that if Obama, or any other Dem prez, wants to raise social security taxes in any way, they will need Republican support. What will buy that? Benefit cuts and some sort of privatization, which are not needed and threaten the long run security of the program. Best to leave social security alone and deal with deficits elsewhere in the budget, with lots of better candidates available on both the spending and tax sides.

Now, there is this hard reality that because so much of the public has been sold this phoney bill of goods about "social security crisis," it may well be that this awful deal, which Dem Senator Kent Conrad and GOP Treasury Secretary Paulson, are trying to push through and Entitlements Commission (which will end up talking about social security but not medicare or medicaid), may be the only way to pass any tax increase.

[Emma Anne]

"If we raise revenue for SS through Obama's tax increase (eliminating the salary cap), and even if it just continues to be lent to the federal government in exchange for T bills, then we emerge in 2017 with a Trust Fund that is sufficient to sustain SS indefinitly."

I half-bought that argument once, grudgingly, in 1983 or whenever we all had our SS taxes boosted. Two years ago Republicans explained to me that these T bills are just a file cabinet of IOUs and there is no trust fund. As I say, "fool me once."

More to the point: when it is time to trade in those T-bills, if there isn't enough revenue to pay benefits, taxes will be raised or money will be be borrowed to cover the benefits. If there *aren't* any T-bills, and there isn't enough revenue to pay benefits, taxes will be raised or money will be be borrowed to cover the benefits. Same result either way, except under the first plan I pay twice, because of Republicans aforementioned predilection for spending any money that is lying around on fun wars.

There was this one other idea about a lockbox, but that was laughed off the stage. And the Repubs would have jimmied it open at the first opportunity in any case.

[Tano]

Barkley,

Privatization is not on the table. If there is a president Obama, and a Democratic congress, there is no way that privatization, even a little, would be granted in exchange for Republican support.

If, under the worst case scenario, we cannot get sufficient GOP support to reach 60 votes without something like that, then the whole effort fails and you get what you want - the status quo.

But that has costs too. It leaves the issue unresolved for so long as these 2041-like predictions are out there. And that will mean constant GOP pressure for less progressive solutions, and constant erosion of support for SS from young people who see their retirement as insecure.

I would rather solve the issue once and for all.

[Eli Rabett]

Jujitsu anyone? Assume that Krugman is right, and Obama (and advisors) know it. OK the big problem is fiscal, the Bush tax cuts go away in 2011, but how to get revenue now and get it from those who had a free ride in the past seven years. . . .Money is fungible.

[Eli Rabett]

Jujitsu anyone? Assume that Krugman is right, and Obama (and advisors) know it. OK the big problem is fiscal, the Bush tax cuts go away in 2011, but how to get revenue now and get it from those who had a free ride in the past seven years. . . .Money is fungible.

[Eli Rabett]

Jujitsu anyone? Assume that Krugman is right, and Obama (and advisors) know it. OK the big problem is fiscal, the Bush tax cuts go away in 2011, but how to get revenue now and get it from those who had a free ride in the past seven years. . . .Money is fungible.

[Eli Rabett]

Jujitsu anyone? Assume that Krugman is right, and Obama (and advisors) know it. OK the big problem is fiscal, the Bush tax cuts go away in 2011, but how to get revenue now and get it from those who had a free ride in the past seven years. . . .Money is fungible.

[Barkley Rosser]

Tano,

But, to get anything, Republicans will have to be brought along, at least enough to get a 60 cloture vote against a filibuster against a tax increase. They will at a minimum demand benefit cuts, which do not look needed, and many of them have privatization "on the table," contrary to what you say. They are hot for it.

Why not just wait and see? There is plenty of time to see if the intermediate projection (or worse) actually starts to come true instead of being just a colossal joke? Of course it would help if people understood the facts, such as that even after an "involvency" in 2041, people would still get more than 100% of what current retirees get in real terms. This is a crisis we need to do something about?

Indeed, there is massive ignorance on this last point. A survey I did with three colleagues (one a prominent public choice economist and Republican) found that out of about 250 upper level undergrad economics majors, not one knew that fact. Details of this survey from two years ago can be found at my website http://cob.jmu.edu/rosserjb, under the title "Student Ignorance about Social Security."