links for 2007-11-21
Floyd Norris on the Financial Sector

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: