Saturday, November 17, 2007

Krugman on social security: I think he's wrong

Well, it's not that he's wrong by the numbers, it's that he's being politic.

I think he's right when he says the GOP attacks on social security are ideologically motivated and deceptive, and I agree that Obama has shown he's not ready to be president by falling for that ploy.

On the other hand, he's being tricksy when he deemphasizes the (small) rationalist part of the GOP attack on social security.

First Paul's blog post today, with emphases mine:
Long-run budget math - Paul Krugman - Op-Ed Columnist - New York Times Blog

... Start with the current position. Last year, federal spending on Social Security, Medicare, and Medicaid was 8.5 percent of GDP, equally divided between Social Security and the health care programs. Dismal long-run projections, like those of the GAO, have this total rising by 10 percentage points of GDP by mid-century.

So, how much of this is a Social Security problem? Pundits like Tim Russert love to point out that in its early days Social Security had 16 workers paying in for every retiree receiving benefits. But this is irrelevant; looking forward, we’ll see the worker-beneficiary ratio fall from about 3 to 2 as the baby boomers retire. This will raise the percentage of GDP spent on Social Security from about 4 to 6 — that is, a rise of about 2 percentage points of GDP, which is a small fraction of the entitlements problem. See, for example, this chart from my NY Review of Books piece on the subject.

What’s more, Social Security has already been strengthened to deal with this rise. In 1983 the payroll tax was increased and adjustments made to the retirement age, so as to build up a trust fund. According to the “intermediate” projection of the Social Security trustees, this trust fund will be exhausted in 2041 — but they also present a more optimistic scenario, based on economic assumptions that don’t seem at all outlandish, in which the trust fund goes on forever.

This brings us to the claim that the trust fund doesn’t exist, because it’s invested in government bonds. The full explanation of why this is sophistry is here.
I followed Paul's link. These are his words from that document (emphases mine):
...The lesser problem is that if you say that there is no link between the payroll tax and future Social Security benefits - which is what denying the reality of the trust fund amounts to - then Greenspan and company pulled a fast one back in the 1980s: they sold a regressive tax switch, raising taxes on workers while cutting them on the wealthy, on false pretenses. More broadly, we're breaking a major promise if we now, after 20 years of high payroll taxes to pay for Social Security's future, declare that it was all a little joke on the public.

The bigger problem for those who want to see a crisis in Social Security's future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it's just part of the federal budget: there can't be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it's hard to make the case that it will be central.
So, is it plausible that Greenspan & Co pulled a fast one in 1980, and that our government can break a major promise?


Of course it's plausible.

That's where Paul is being politic. I respect him for that - there's no alternative in today's world.

Still, by his own words, it's only if you assume an honest and responsible government that we face a health care funding crisis; if you assume a corrupt, stupid and sleazy government, one only half as bad as our current regime, we do face a general budget crisis.

We can attack that crisis by defunding social security (the GOP plan, though motivated more by ideology than budgetary sanity), or by limiting what we spend on health care (a rational alternative, or by inventing a new, vastly cheaper, health care system (the optimists proposal).

Or, we could slow the progression of the physiologic Alzheimer's process by 10%. That would enable delayed retirement and it would substantially reduce future health care costs. It would resolve our pending financial crisis.

Anyone for investing in Alzheimer's disease research?

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