The system isnt going bankrupt. To hype the alleged Social Security crisis, pundits have said, for years and years, that the program will be going bankrupt in the future. (According to Krugman, the CBO now puts that date at the year 2052, when the SS trust fund runs out.) But understand: Even when the trust fund expires, the system will not go bankrupt:
KRUGMAN (12/7/04): The system won't become bankrupt at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits.Even when the trust fund expires, payroll taxes will still be providing lots of revenue—enough to pay four-fifths of promised benefits. This is not what most people think of when they hear the word bankrupt.
[T]here is a long-run financing problem, Krugman notes. But the ubiquitous use of the bankruptcy metaphor badly disguises the actual facts. However, the result of this propaganda campaign is evident in the SS debate. Huge percentages of young people believe SS wont be there when they retire. Under current arrangements, this notion is nonsense. Why do so many young people believe it? Largely, because they have heard the grossly misleading bankruptcy metaphor over the course of their lives.
The financing problem isnt that large. Under current arrangements, there will be a future revenue shortfall in the Social Security program. But it's a problem of modest size, Krugman notes. How much additional revenue will be needed to proceed with no change in benefits? Krugman cites a recent CBO report:
KRUGMAN (12/7/04): The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's...only about one-quarter of the revenue lost each year because of President Bushs tax cuts—roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.How deep is the Social Security crisis? Just how large is the financing problem? The program is solvent until the next century if we supply new revenue equal to only one-fourth of Bushs tax cuts!
The facts involved here arent hugely complex. Social Security isnt going bankrupt, and it can be made solvent through the next century with modest infusions of new revenue. Every citizen should know these facts. But very few citizens do know these facts—which brings us back to the Washington press and its role in the SS debate.
Why dont citizens know these facts? It isnt like these facts are deep secrets. Krugman has discussed them before; so have other budget experts (we recommend a book below). But your pundit corps rarely discusses these facts; instead, they repeat and promote the bankruptcy crisis model. Why does your press corps behave in this way? We dont have the slightest idea. Could it be their Millionaire Pundit Values?
Once again, Krugman has laid out simple facts. As citizens, its your duty to know them. But if recent history serves as a guide, we all know what will happen next. How will the press corps handle those facts? Go ahead—settle back in your chairs and watch our Big Storeboughts ignore them.
READING ASSIGNMENT: There are even books on this topic, although Big Press Corps Pundits eschew that book learnin. (Why read books—that takes time—when you know the key spin-points?) We recommend Social Security: The Phony Crisis, by Dean Baker and Mark Weisbrot. The book came out in 1999—but all The Storeboughts have forgotten to read it. You can go these scribes one better. You know what to do; just click here.
STILL PUZZLING ABOUT THAT FREE MONEY: Meanwhile, weve continued to ponder that pleasing construction in yesterdays Washington Post editorial (see THE DAILY HOWLER, 12/6/04). According to the editorial, the net transition cost should be zero if we set up private accounts as part of SS. This seemed like a new claim to us. But David Brooks had made a similar presentation the previous day, appearing on ABCs This Week. He discussed these so-called transition costs with a skeptical George Stephanopoulos:
BROOKS (12/5/04): First of all, we're not going to increase the debt. The government already has liabilities. What we're doing with, by privatizing Social Security and with these so-called transition costs, we're acknowledging the debt the government has already promised, so we're not actually in real terms increasing the debt. The second thing which is crucial and I think we've been talking about the Republicans—Those silly markets! At any rate, Post editors made the same presentation the following day. According to the editors, if we spend $2 trillion to set up private accounts, well eventually get the $2 trillion back in an offsetting cut in future Social Security payments. It may cost us $2 trillion up front, but the net transition cost is zero. Brooks agreed with this pleasing idea. We're not going to increase the debt, he said, disdaining the so-called costs.
STEPHANOPOULOS: Well, wait, but you are increasing the debt by the cost of the private accounts. This is one to three trillion dollars.
BROOKS: Yeah, but the transition—but the government has already promised that years out. It's just we're bringing it up front and acknowledging it. And the question is whether we increase the deficit in accounting terms, whether that causes the markets to panic, which is a real concern.
Wed like to see Krugman address this claim, which may become a new, pleasing spin-point used to pimp private SS accounts. But by our lights, the Post seems to have purchased a bit of bad logic—something the press corps routinely does when GOP budget proposals are floating. For simplicity sake, lets suppose the government spends $2 trillion setting up private accounts, then docks those workers $2 trillion in benefits when theyve retired. Does that mean we have our so-called transition costs back? It seems to us that we dont have them back. Yes, we wont have to spend that $2 trillion in future years paying full SS benefits to holders of those private accounts. But uh-oh! In effect, well have to spend the money another way—setting up private accounts for younger workers at that time. In other words, the payroll taxes of those younger workers wont have to go to the aging geezers. But their payroll taxes wont revert to the government; instead, theyll go into their own private accounts. In short, there really is a one-time start-up cost if we transition to private accounts, and we dont see how the government gets it back. Private accounts may be a brilliant idea. But there are real costs in setting them up.
Is our reasoning correct on this point? Wed like to see Krugman address this point too. In recent decades, GOP budget proposals have always been accompanied by grossly misleading, free money spin-points—and the press corps has typically swallowed them whole. Is this the latest free money claim—this claim that there are no real costs in setting up the private accounts? Here at THE HOWLER, we still arent sure. Nor will we be holding our breath expecting Big Pundits to tell us.