-- Posted by Neil H. Buchanan
The Trustees of the Social Security system released their 2010 annual report last week, perfectly timed for my return from a brief hiatus from FindLaw. In my column this week, therefore, I discuss the annual report, as well as the completely predictable commentary on the report from those who have long targeted Social Security for cutbacks or worse.
The annual report itself contains nothing but good news: Despite continuing economic stagnation, the depletion dates for the Social Security trust fund under the Trustees' three forecast scenarios are unchanged from last year's report (2029, 2037, and never). Moreover, under the intermediate scenario, tax revenues are now forecast to cover 78% of scheduled benefits, up from the 76% predicted a year ago.
(There is also very good news about Medicare, with its annual report showing that that system's trust fund will be in the black through 2029, a 12-year increase from last year's estimate of 2017, thanks to the health care bill passed earlier this year. For those Republicans who continue to claim that "ObamaCare" was an example of a big government spending program that will be a fiscal disaster, this is bad news -- or it would be, if they cared at all about facts.)
After discussing the meaning and implications of the 2010 numbers -- and explaining why those numbers in no way amount to an impending crisis -- I spend the balance of the column explaining why it is not a good idea to address potential future financing problems (problems that we may or may not ever face, if we do nothing now) right away, even though many commentators say that it is better to act sooner rather than later.
I offer two reasons for inaction today. First, opening up Social Security for a "simple" long-term, phased-in fix is incredibly dangerous, because its opponents (and others who are duped by the anti-Social Security public relations juggernaut) will mobilize to legislate much larger (and entirely unnecessary) changes to the system Second, changing Social Security's taxes and benefits now will further undermine trust in government, especially among the young. Here, I will offer some further thoughts on the latter argument.
One of the depressing realities about the politics of Social Security is that the system's opponents have succeeded in convincing the majority of post-Boomers that the system is a rip-off. Not just a rip-off, but a complete rip-off. Young people do not merely think that the system is a bad financial deal -- even though it is a very good deal for all but those with the highest incomes. Young people do not merely believe as a matter of certainty that future benefits will be cut -- even though that is not at all certain. (That 78% figure is merely the level to which benefits could be cut, under one set of assumptions, if the system does not have any other sources of revenue from 2038 onward.) In fact, the majority of young people even claim to believe that they will not receive any money at all from Social Security. None. I provide a link to a USA Today article from last month, describing the results of a recent poll: "Three-fourths of those 18 to 34 don't expect to get a Social Security check when they retire." They evidently believe that it will be gone by then, because it will go bankrupt and be dissolved. (We can thank confusion regarding the non-synonyms "insolvent," "bankrupt," and "liquidated" for that misunderstanding.)
What do you do when so many people are so pessimistic? One answer is to view that pessimism as a license to validate younger workers' worst fears. A deficit hawk is quoted in the USA Today article saying: "We could make changes and still have people collecting more in benefits than they're expecting to see." In other words, if they are expecting nothing, then they should be happy with any pittance that they receive. We could, under this logic, cut benefits by any amount (under 100%) that we like, and that would still leave people better off in their minds. They apparently would not complain, because they would have ended up better off than they currently expect.
That this preposterous argument is being offered by a major player in the Washington policy debate (an economist, not a politician) speaks volumes about the the debasement of our public discourse. There is obviously an enormous difference between a generalized sense that something might go wrong in the future -- the dark suspicion that one's elders are secretly working the system to the disadvantage of their children -- and the harsh reality of being told that one's worst fears are not merely worst-case possibilities. Could anyone seriously imagine that we could cut, say, 40% from scheduled future benefits from Social Security and have younger workers say, "Cool! That's better than we were expecting." You can bet that the response would, instead, be to call Social Security a bigger rip-off, because taxes would not be cut by 40%, too. Once we start down that road, we are obviously not going to make people happy by slightly out-performing their worst-case scenarios.
The more interesting question is whether there is a way to get younger people back on board with Social Security. This is essential, because the only thing that threatens Social Security's existence is politics, not economics (or demographics). The worry that Social Security will be gone in the future can be self-fulfilling, if enough people abandon the system in the mistaken belief that it is all a scam. So long as enough people support the system politically, it can continue to perform into the indefinite future, with at most minor fixes along the way.
Still, as the politicians like to say, "If you're explaining, you're losing." People like me spend countless hours trying to explain that the anti-Social Security hype is nonsense; and we have the facts on our side. Those who believe the nonsense simply believe that they are right, and nothing can convince them otherwise.
Now that public attitudes have swung so clearly against reality-based thinking, is there a way back? I continue to believe that explaining can be part of winning, which is obviously why I write about this topic so frequently. Beyond that, I think that one way to convince people that a bad thing will not happen is not to let it happen. As years pass, and the ground fails to swallow us up, it will become more difficult to maintain the belief that something awful is on the way. Not impossible, mind you, because it is always possible to claim that our next step really will finally send us over the edge of the cliff. At some point, however, people become cynical about those who cry wolf. If we do not give in to the claims that Social Security must be "saved," we can slowly rebuild confidence in the viability of the system.
As a final thought, we might also have some success by turning the tables. Young people do not like to feel that they are being duped. That is one of the psychological tools in the kit of the anti-Social Security forces. ("You're paying in, but you'll never get anything back. Don't be a sucker!") Given the facts, it seems possible to frame the anti-Social Security position as the thing that savvy people should avoid. "Don't let them convince you to dismantle Social Security, just to satisfy their anti-government lust!" Or something like that.
[In a future post, I will discuss an additional aspect of the question of how to get younger workers back on the side of Social Security. Specifically, I will describe how proposals to "fix" Social Security actually hit the younger generations hardest. ]
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5 comments:
How do you respond to Kotlikoff's claim that the US is essentially bankrupt right now? It doesn't strike me that his ax is political.
The simple answer is, of course, that Prof Kotlikoff is correct. But everyone knows that the significant problem is the medical component of the total SS entitlement package, so his claim and Neil's are compatible - a fact some would like to obscure.
It's unclear whether Prof Kotlikoff is one of those (to me, anyway - I don't know his politics). I do note that he presents the prospect of increased Federal taxes in a way that could reasonably be interpreted as inappropriately inflammatory. In his discussion, the "fiscal gap" is closed not by a combination of targeted spending reductions and targeted tax increases but solely by doubling the total Federal taxes (in GDP percentage) from current levels. He further describes the consequences of the six decades long "Ponzi scheme" as "dramatic increases in poverty, tax, interest rates and consumer prices" without adding the qualification that the essence of that scheme has been artificially low taxes, interest rates, and consumer prices together with increased income - and presumably wealth - disparity, AKA increased (relative) poverty. A less inflammatory - and IMO more realistic - way of expressing the same idea is that we may have to adopt the novel approach of paying the real cost of what we "consume".
Kotlikoff's "ax" is entirely political, and it always has been. Describing the U.S. as bankrupt is sophistry. The claim that the country is on an unsustainable course is, as the comment by Charles Wolverton notes, largely driven by worst-case assumptions about medical costs. In addition, it is based on the assumption that all economic policy (and a lot of individual behavior as well) will not change in the future.
Kotlikoff's less hyperbolic colleagues describe their calculations as a warning, not a prediction: If nothing were to change, the government would at some point be unable to pay it's bills. That's not actuaaly supported by the underlying analysis, but it's a much more honest way to describe what their analysis might be able to prove.
I wrote my first law review article about this very topic: 58 Tax L. Rev. 275 (2005).
The belief on the part of young people that Social Security will be bankrupt before they're old enough to retire is not new. I remember that many of my fellows believed that when I was young. This is something that the Social Security haters haul out once a generation to try to wreck the system.
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