Thursday, June 06, 2013

Group Blame and Social Security

-- Posted by Neil H. Buchanan

Every year, when the Social Security trustees issue their annual report, I cringe.  It is painfully predictable what will happen next: Newspapers will run articles talking about "Social Security's imminent collapse," politicians on both sides of the aisle will talk about the need to either "shore up the system" (Democrats) or "stop fooling people" (Republicans) and "end this Ponzi scheme" (the most uninformed idiots), and people besotted by the "magic of Bowles-Simpson" will claim that everyone must get serious about fiscal responsibility.  And every year, people like me will end up writing pretty much the same things, trying to debunk the hype.

This year, everything played out as usual, although it does seem that even the most avid players were all but mailing it in.  My Verdict column today begins with a familiar argument: There are actually three long-term forecasts from the trustees, all based on conservative economic assumptions, and one of them shows no depletion of the trust funds for over fifty years.  That is true, but I honestly no longer think that anyone will ever be convinced by that argument.  The clever framing of the "mid-range scenario" as the always-appealing middle path is obviously too powerful to overcome.  Other arguments, however, seem increasingly promising, as I will discuss momentarily.

For the last few years, I have been incubating an academic article about Social Security, analyzing the system from the perspective of intergenerational justice.  In some ways, it is logically absurd to talk about Social Security in isolation, because its separate status within the federal government is entirely a legal fiction -- a legal fiction that is an absolutely essential part of its political viability, but that is irrelevant to any meaningful inquiry about social or economic justice.  Even so, there is so much loose talk about how "Social Security cheats young people," or "Greedy geezers are impoverishing our children and grandchildren by lavishing Social Security benefits on themselves" -- arguments that actually show up in scholarly papers, not just in political hackwork -- that it is important to respond to the silliness of those arguments.

I have recently revved up my efforts to complete this long-gestating paper, having presented arguments from it to a graduate student seminar last month in Vienna, and to a panel at the Law & Society Association in Boston last weekend.  In both cases, I received extremely helpful feedback.  Among all of the excellent comments, however, perhaps the most interesting were those from younger scholars.  Bubbling barely below the surface is the accusation that "you older people" have harmed "younger people" through the Social Security system.  The basic idea is that the Baby Boomers have broken the system, stealing from their children without any hope that those younger people will ever receive a dime when they retire.  In other words, as ridiculous and transparent as the "greedy geezers" meme is to those of us who actually study the system, that notion resonates with many younger people.

In my Verdict column, therefore, I expand upon two important arguments that I (and others) have made in the past, but which I now think are a much more essential part of the conversation.  The first is to emphasize -- again and again and again -- that "depleting the trust funds" is NOT the same thing as "the system going broke," and certainly not the same as Social Security being forced to cease operations.  Even though the trustees (and the better newspapers) do carefully say that the system could continue to operate after the trust funds are depleted, with reduced benefits, far too many younger people hear, "Social Security's trust funds will be emptied in 2033," and think, "Well, I'm not retiring until 2050, and Social Security will be gone by then."

Even if people understand that the system can continue past the depletion date of the trust funds, however, they will have heard that the system will automatically pay lower benefits -- in the latest mid-range scenario forecast, 77% of otherwise-scheduled benefits.  The second important argument, therefore, which even fewer people understand, is that Social Security's benefits are scheduled to increase (in inflation-adjusted terms) into the future, so that a 23% cut in the future will be taken from a higher scheduled benefit level than current retirees are receiving.

I have made that argument in general terms in the past, but in today's column I present a telling numerical example.  I look at two middle-class people with equal incomes, one of whom retires this year, and the other of whom retires in 2047 (born in 1980).  Even after a 23% cut, it turns out that the younger person's Social Security benefits will actually be (again, adjusted for inflation) only two percent below the older person's current benefits.  Two percent, not 23%.  Neither person, moreover, is going to receive benefits that would count as luxurious (in a way that would be worthy of the line from Grandpa on "The Simpsons": "I'm old.  Gimme gimme gimme!"), because we are talking about total benefits of less than $15,000 per year.

The disinformation with which many young people have been bombarded, in other words, is easily disproved.  Even if left completely unchanged, the Social Security system will continue to provide benefits forever, at levels that will (at worst) provide post-Boomers with the same modest retirement security that their parents and grandparents received.

A larger point that I am developing for my new article, and which I offer in abbreviated form in today's Verdict column, essentially boils down to a question of "group blame."  Powerful political forces  are trying to convince younger people to undermine their own long-term interests by participating in the dismantling of Social Security.  To do so, they give young people a target for their anger: Baby Boomers.  Blame your parents!!  Certainly, that is an argument for which there is always an eagerly receptive audience.

As I point out, however, most of the parents (and non-parents) in the Baby Boom are victims of the same economic forces that are harming their children and grandchildren -- and that, not coincidentally, are responsible for Social Security's shakier-than-necessary finances.  This leads me to think about the broader nature of group blame.  In my earlier scholarly work on intergenerational justice, I conclude not only that there is no coherent definition of a generation, but that even if there were a good definition, generational justice is a meaningless concept.  The only important issue is distributive justice, because generations group rich and poor together in ways that mask the truly important economic distinctions in society.

That argument is even more true when we move from describing social conditions to laying blame.  One twenty-something in Vienna asked me if it was not the Boomers fault that the rest of the U.S. federal budget is out of balance, pointing in particular to the unfunded wars in Afghanistan and Iraq.  Certainly, post-Boomers were not in the position to be blamed for those blunders.  Boomers did that.

Describing the common factor among those who propagated those errors as "all Baby Boomers," however, is -- upon even a moment's reflection -- absurd.  Most Baby Boomers did not benefit from the wars, and certainly most of them did not participate in the decision-making that led to it.  We might just as well say that the blame lies with people whose last names have one or two syllables (Bush, Cheney, Rice, Rumsfeld) as to say that the Baby Boomers did it (even ignoring that at least two of those four are not even Boomers).

The provocative version of my argument, however, is not that there is no useful way to lay group blame.  It is, instead, that we need to understand who benefits from the current system, and who controls it, in deciding how to identify who is really to blame.  Who is it, for example, that Obama is trying to please with his endless attempts to be "the only grown-up in the room," and with his adoption of the conventional wisdom about deficits -- which led, among other things, to his decision to create an anti-deficit commission (over Republican objections), and to put two deficit hawks in charge?

It is not the broad interests of Baby Boomers (or any other age group) that drives the discussion in Washington, but the specific interests of the economic elite.  The political system is run by and for the super-wealthy, as we know from (among many other facts) seeing how Republicans toy with changing their positions on everything EXCEPT tax increases on the wealthy.

Social Security is only one (not especially large) part of this, but it is more than a symbolically important part.  The divide-and-conquer strategy among those who really run the show has been specifically designed to turn post-Boomers against Boomers.  There is no coherence to that argument, and it is a distraction from the real issue of the economic elite versus everyone else.


The Dismal Political Economist said...

It has never been clear to many of us on the Economics/Finance side just why the Social Security System needs to have a Trust Fund anyway. A private organization does not have an infinite life, so a defined benefit retirement plan (which is what SS is on the benefits side even as it is a defined contribution plan on the payments into SS, hence the source of much of the difficulties here) sponsored by a private organization must have sufficient contributions to build up a fund that could pay the promised benefits even if the sponsoring organization ceases to exist.

But government has an infinite life. There is no rationale for building a Trust Fund because government will always be present to provide benefits. So one solution is that when the Trust Fund is exhausted (if it ever is) is to simply have payments into the SS system each year equal to the benefits to paid out each year. Make SS pay-as-you-go. Conceptually this is relatively simple. In the fourth quarter of each year the SS system estimates the benefits requirements for the coming year, and SS payroll tax rates and/or income limits are set so that the required amount will come into the SS system.

Any shortfall from an inaccurate estimate could be made up out of borrowing from the government, to be paid back the following year, and any surplus could go against the following year’s requirement. If a projected shortfall were a short term event, with a surplus projected a few years later the SS could borrow to meet the shortfall and then pay back the debt with a future surplus, thus not raising tax rates or income limits at all.

Such a policy would take SS out of the political arena. It could be considered to be fair in the sense that while today’s workers are paying retirement benefits to those who came before, they would be doing so with the knowledge that when their time came to retire the work force at that time would be paying their benefits.

Mr. Buchanan is correct in that the current work force does believe the spin that SS will go bankrupt and that when they retire they will get nothing, even though this is impossible under the current system. They will never be convinced otherwise. Having a pay-as-you-go system would restore their faith. For reasons pointed out in Mr. Buchanan’s post, we know with almost certainty that defined benefit plans are just not workable. It is too difficult to forecast benefit requirement and rates of return on Funds for a 10, 20, 30 year or longer period. Social Security is not the problem, it is the concept of a defined benefit plan. So if it is broken, which a defined benefit pension system is, fix it. It’s really not that hard folks.

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