There is no Social Security crisis

I generally agree with Kevin Drum, but he periodically says things that make me think he lives in an alternative universe. For instance, here's what he thinks would happen if we implemented recommendations of a commission to "save" Social Security:

Even Republicans agree that privatization is off the table right now, which means that a bipartisan commission might very well come up with an acceptable set of tweaks that would balance Social Security's books. And there's a genuine upside to this: at a fairly low cost it would take Social Security off the table for good. No more endless whining from Pete Peterson and the Washington Post editorial board. No more Republican kvetching about Social Security bankrupting America. No worrying about yet another privatization plan rearing its zombie head the next time a Republican is in the Oval Office. No more polls showing that more kids believe in UFOs than believe they'll get a Social Security check when they retire. And Barack Obama would get a very nice post-partisan fiscal responsibility feather in his cap.

Sane Republicans agree that privatization is off the table, but sane Republicans are largely leaving the party. So a commission will be stacked with the dregs of wingnut Republicanry.

i-b1a8ddc6f7b065f55b573d878766af2f-samuelsonunit.jpgFurthermore, we already did this. Alan Greenspan led a commission in the '80s that suggested changes that would save Social Security forever by soaking lower income workers. Congress implemented the commission's recommendations. And Social Security is fine. Depending on this or that, its massive surplus might possibly run out 40 years from now. However, as Mike the Mad Biologist has pointed out, "the Social Security Board of Trustees has predicted that Social Security will be insolvent in 30-38 years every year for the last fourteen years."
So when Kevin Drum says that a commission's recommendation would take Social Security off the table forever, I have to wonder if he's been asleep for the last 30 years.

There is no crisis, and Republican whiners can suck on it.

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When Mike made that post, I pointed out that he was wrong, but it must have been caught in the spam filters.

The "crisis" does seem to be overplayed, but that doesn't mean there isn't a problem. First, the 30-ish year date is really the wrong one to look at, but We'll ignore that for now and go right to this supposed "Samuelson unit". The predicted insolvency date since the beginning of the decade has been:

(2000) 2037
(2001) 2038
(2002) 2041
(2003) 2042
(2004) 2042
(2005) 2041
(2006) 2042
(2007) 2041
(2008) 2041

So much for the Samuelson unit.

(search "Social Security Board of Trustees" to find the numbers yourself)

I should have mentioned, the reason Mike got it wrong was that the NY Times made a stupid graph. They seem to have plotted the number of years of solvency from the date of the article (2007), not from the date of the prediction.

Strike that, I made a mistake with my second post. First post is still right.

Dude, those same numbers are shown in the chart in the blog. Time until insolvency in your own example rises surprisingly regularly. Not perfectly monotonic, but close enough that I think it's fair to call those estimates consistently pessimistic. Which is fine, but argues against using them as a basis for soaking working Americans to avert a crisis that doesn't exist and very likely never will exist. If the SSA of 2020 still thinks Social Security will be insolvent around 2040, we can look at small tweaks, but eventually, we'll get past the demographic bulge of the boomers, and the system will start running a surplus again. Chances are, we'll get through the bulge without any Social Security changes, or with small tweaks that last a few years. No crisis now, maybe none ever.

However, there's good cause to worry about whether Medicare will still have funds to spend in 2020, so let's focus on that. Solving that challenge means controlling medical costs and perhaps raising FICA taxes to put more money into the system. Comprehensive healthcare reform will also help, by getting people the preventive care they need before entering Medicare and by making health insurance much more rational for all involved.

"Time until insolvency in your own example rises surprisingly regularly."

What an "regular" increase... 2041 was predicted in 2002, 2041 is predicted in 2008. That's a whole 0 years increase after 6 years. If the "Samuelson unit" was valid, you'd expect a 6 year increase over that time. I agree that the 2041 prediction is probably overly pessimistic, but my point is that Mike's Samuelson unit is invalid.

After a couple submission errors, the second part of my comment got swallowed by the interwebs.

If you go further back in time, the date doesn't steadily get closer, but I think a valid argument can be made that the precision and accuracy of the predictions should get somewhat better as we get closer to the actual date, whatever that is.

The predictions aren't perfect, but that doesn't mean that there isn't a problem or that we shouldn't make changes now. Smaller changes now will prevent us from having to make larger changes later on. I, personally, would start by making the Social Security tax progressive, or at least less regressive.

Then again, if you look at 2001 rather than 2002, you get an increase of 4 years in 7 years. Cherrypicking data won't help your case. There's a clear trend when you do the proper thing and examine all the data; it looks to be a linear trend with random noise around it. I'm not saying the slope is 1, and it could be curvilinear. Long-term, it's sure to be curvilinear. The expected Social Security spending isn't constant. It rises as the boomers retire, then falls as the boomers start dying off. If the slope is 1/2, then the trend would predict insolvency around 2060 (just eyeballing it). If that's past the boomer peak, then insolvency won't ever happen.

For which value of "insolvency?"

If you're talking about the mythical Trust Fund, it's nothing but IOUs against the General Fund -- the same General Fund that's been running in the red since Eisenhower was President. At some point, there has to be actual input into the system.

Now, unlike your usual over-$100K-per-year "don't tax me" type, I'm quite willing to accept the implications of this. If reducing my personal expectations (rather soon now) is what it will cost to give my grandchildren a chance of growing up in a country with a better economy than Somalia's then I can work with that.

If it takes a means test (excluding me and Bill Gates Junior) from drawing benefits, I can work with that, too. I'm not impressed by the "people are retiring at later ages" nonsense, either. Yeah, I expect to keep working after 66 despite coming from a short-lived family; I have a desk job. However, the fact that John Glen was able to be a space tourist in his 70s doesn't make going down into the mines any better for some dude who's had black lung disease since he was half his current age.

And none of that crap makes it any better that a stupidly regressive tax generates 40% of the Federal tax revenues while kleptocrats bitch about paying part of the rest -- all the while making it disproportionately expensive to employ American workers.

Forget who's bitching about FICA. Fixing that bureaucratic abortion would be good for the people in this country who actually work up a sweat while making a living.

By D. C. Sessions (not verified) on 06 May 2009 #permalink

I agree that the deficit is worrisome, but I don't see why we should patch it up by raising payroll taxes or by breaking our promises to retirees. People paid into the system, and they deserve what they paid for. Clinton balanced the budget and ran a surplus briefly, and we can do that again without messing around with Social Security or Medicare.

Ronaldo: Yep, Matt's wrong. He's pretending the government will go bankrupt, or will forego bankruptcy by taking money paid into Social Security and pretending it doesn't exist. Neither will happen. Yes, Social Security income is treated as part of the General Fund, but no one takes that seriously. It's an accounting trick, and no government will ever feel free to take that money and run.

So yes, Social Security will stop running a surplus in a decade, but that surplus has been set aside for use in paying down the deficit that has been predicted. The charts Matt uses are just wrong, focusing on time until the surplus income ends rather than time until the saved surplus is all spent. He's also ignoring demographics. By the time the saved surpluses are spent, the largest workforce in US history will be paying into Social Security, and we will probably be running surpluses again.

Even if the money coming in as of 2040 does not meet all Social Security obligations, no one thinks that "Social Security is toast." It'll pay out 75% of what it would otherwise pay. Matt and I will still have it as a source of retirement income, along with our personal savings and any employer-sponsored pensions. The U.S. government won't go bankrupt, and if it does, we're all doomed anyway.