Thursday, February 26, 2009

Leave Social Security Out of the Conversation

Earlier this week, I discussed President Obama's announcement that he plans to cut the deficit in half by the end of his first term, specifically addressing whether this suggested that he might foolishly enact contractionary policies that would undo any good flowing from his stimulus package. Happily, it appears that he is not going to make that mistake and that his talk of deficit reduction is in part genuine (carefully chosen tax increases and spending cuts that would not be contractionary) and in part political (reassuring deficit hawks in both parties that he is not going to permit the national debt to increase without limit). Continuing in my recent pattern of mixing optimism and pessimism, I must unfortunately note that Obama appears to be putting Social Security unnecessarily in danger as part of his effort to sound fiscally "responsible."

In his address to Congress on Tuesday night, Obama mentioned Social Security only once:
Now, to preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security ... .
This might well be viewed as a throwaway line in the midst of a long speech that dwelled quite appropriately on other issues, but it might also suggest something less benign. First, Obama adopted the damaging habit of conflating Medicare and Social Security, suggesting that both are in serious trouble. That is false. Even the (deliberately?) pessimistic deficit projections that suggest long-term catastrophe indicate that Social Security is a very small part (~15%) of the problem, while Medicare is in trouble not because it is a big, bad government program but because (as Obama indicated) health care in general is in serious trouble in this country. (I discuss at some length the relative importance of Social Security and Medicare in long-term deficits here.)

Second, there is good reason to believe that this was not a throwaway line. The NYT reported earlier this week that "President Obama is eager to seek a bipartisan solution to ensure the long-term solvency of Social Security," and he is apparently trying to put together some kind of effort to "solve" the long-term issues facing Social Security. With George W. Bush's proposed privatization thankfully off the table, the theory apparently is that now is the time to do something about Social Security that Democrats can support.

Even if we assume for a moment that something must be done to "fix" Social Security, the idea that this is a good moment to do so is simply incredible. We know that Social Security has intense ideological support and just as intense opposition. We just witnessed how opponents of the stimulus bill brought out some of the most fatuous arguments ever seen to oppose the bill and saw that Obama's willingness to water down the bill had no impact on his ideological opponents. The notion that it would be a good use of the very limited resources (and even more limited attention span) of Congress to throw Social Security open for debate defies logic. (Somehow, there is little comfort in Sen. Lindsey Graham's comment that “I know he’s sincere about wanting to do something about entitlements generally, health care and Social Security. And I want to help him.” We heard that prior to the stimulus bill circus as well.) Even if Social Security had a pressing problem, it would be exceedingly treacherous to try to get anything done in the current environment.

Fortunately, there is no pressing problem. Social Security's projected long-term financial shortfall may or may not turn out to be real. Even the annual forecasts by the system's Trustees show that under very realistic assumptions, the trust fund will never be depleted. (While some call this the "optimistic" forecast, the underlying assumptions that produce that outcome are actually quite prosaic.) If a shortfall does ultimately develop, the worst case under current law is that thirty or forty years from now benefits would have to be cut 20-25% from levels that will be much higher than today's. Even cuts of that size could be phased in after we were sure that they had become necessary.

More generally, Obama's willingness to put Social Security on the negotiating table is another example of how his desire to seem open-minded exposes him to unnecessary political risks and puts a good program in unnecessary danger. He is trying to fix education, the environment, energy, and health care. (Oh, and there are a couple of wars to think about as well.) All of those really are pressing problems. He would do himself and everyone else a favor if he would simply stop talking about Social Security.

-- Posted by Neil H. Buchanan