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Wait And See

Krugman's latest, though a very strong effort within the current Social Security frame, reminds me to point out that I don't think this frame is a good one for liberals. Arguments about the size of the "trust fund" and its sustainability decades hence only re-enforce the truly pernicious notion here that an infinite (or, for all intents and purposes near-infinite) time horizon is a good way to think about this issue. The reality is that we're living in the year 2005. The federal government budgets itself on an annual basis. I happen to think that's a bad idea and we should use a longer planning cycle. But since a new congress comes in every two years, everyone understands that it would be nonsensical for the congress taking office in 2005 to pretend it can make commitments about what congress will do in 2011. So a two-year appropriations cycle would, realistically, be the longest feasible approach.

With Social Security, though, we're being asked to plan on a 75 year time horizon. This is just silly. There's no financial problem now. Whether or not a problem ever arises and what the nature of that problem is depends in large part on something (productivity growth in the decades to come) that no one has any idea how to predict. So why try to predict it? Why not treat Social Security like everything else, something to be budgeted for on a short time-horizon so that we can recalibrate as the situation changes and new information comes to light. If it does, in fact, appear to be true in the year 2012 or 2022 or 2042 that making the numbers balance requires either a change to the benefit formula or a change in the tax rate, then that would be an excellent time to change them. Why try to make guesses now?

Shift to another large federal program -- the Department of Defense. How much do you think we should spend on the Army in 2056 and are current income tax receipts compatible with spending that much money? Obviously, it's a stupid question. No one would even think to ask it. They'll figure it out in the 2050s.

December 12, 2004 | Permalink


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» Letting Social Security Go from Andrew Olmsted dot com
Possibly because he senses that any changes in Social Security will go in directions he wouldn't prefer, Matt Yglesias is now advocating doing nothing about the program, at least for now. While I think that Matt's analysis sidesteps some rather... [Read More]

Tracked on Dec 12, 2004 8:29:11 AM

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Tracked on Dec 12, 2004 9:53:25 AM


Right, but we aren't promising anything to anyone in 2050; as of now, we are promising certain enumerated benefits to workers like you and me for that time period.

Posted by: Kimmitt | Dec 12, 2004 3:51:37 AM

Fair enough. For now, though, I'd argue that the costs of debating in this frame are less than the costs of trying to change it. (Righties shreiking that we're dodging the issue and it proves their phanstasm social security apocalypse is real.)

Posted by: some guy | Dec 12, 2004 5:53:55 AM


You don't do the Dems any favor either, by framing the debate in tired clichés more advantageous to the administration's argument, and focus group-tested on their Fox News viewing base.

How about framing the argument in terms of substantive data, real numbers and clarity (Krugman), versus the convoluted, partisan, Lawrence Kudlow Doctrine (Brooks) minus the $1 trillion dollar price tag?

Keep in mind, we're headed for a dismal holiday shopping season (already preceded by a Wal-Mart warning on profit estimates), a revision (upward) of the target price of a barrel of oil and production reductions by OPEC, not to mention the precarious state of a falling dollar.

This will be the backdrop for Americans, as the Republicans make their case to gut Social Security and bet it all on the market.

Posted by: thatcoloredfella | Dec 12, 2004 6:42:03 AM

Pick some things the left is not good at:

Figuring out effective talking points

Hammering chosen talking points

Demonizing the opposition

Framing issues

Reaching undecided/wavering people with our message

Was the left always this bad at these things?

Posted by: Maggie Orin | Dec 12, 2004 6:49:54 AM

One thing that could be done now is to raise the income ceiling on those who pay into the system. It won't happen of course, since it would serve to end some of the fear-mongering that seems to be used to run the show these days.

Posted by: TomChicago | Dec 12, 2004 7:59:14 AM

Is ElBaradei a marked man? The Bush Administration is looking to ouster IAEA director Mohamed ElBaradei for his questioning of pre-war U.S. claims in Iraq and his perceived "softness" on Iran. All those that dare question US policy, pay a price. Truth and history are irrelevant.

More info: www.politicalthought.net

Posted by: Igor | Dec 12, 2004 8:49:25 AM

This argument seems to hinge on the idea that the social security problem will develop on a smooth, gradual basis, but if the current process of dealing with the issue are any indication, the federal government is going to keep putting bandaids on the issue until the internal bleeding is way too much for a bandaid to help. And then we have a patient dead on the table who might have been saved by a more invasive surgery.

To extend the metaphor, private accounts are probably the equivalent of opening the patient up and sewing a cat into the peritoneal cavity.

This logic also assumes that certain economic adjustments are easy to reverse. Even though the Bush tax cuts came out of the blue, reversing them requires the government to 'raise taxes,' not 'restore taxes.'

The neoconservative model is a long term model bent on reducing the size of the government to a level where social welfare programs like social security are a simple impossibility, the equivalent of a janitor trying to buy a ferrari. In the neocon world, 2075 looks dangerously like 1929, minutes before the depression. If I remember my history at all, a huge problem leading to the depression, one of many, was borrowing money to buy stocks. The stocks bottomed out, and everybody is suddenly in debt with no capital to show for it. And of course, that model seems dangerously close to the private account model, as an increasing deficit is nothing more than borrowing.

Minimalizing the long term prognosis of social security seems risky at best. It'll be much easier to stop a train of destruction long before it hits full speed.

Posted by: Garrett | Dec 12, 2004 8:55:08 AM

So there was this guy who jumped off the Empire State Building. As he was passing the 40th floor another guy leaned out and asked, "How're ya doin'?" The first guy replies, "So far, so good!"

Posted by: Dick Eagleson | Dec 12, 2004 9:04:24 AM

You are right, Matt. Think short term. In the long run, we're all dead.

Posted by: janeboatler | Dec 12, 2004 9:41:24 AM

Matt is right. In twenty-five to fifty years we will, in all likelihood, be on the other side of the hydrogen economy, so it's almost useless to atempt precise forecasts, except to say the market -- and government coffers -- typically do very well in periods of paradigm shifts and infrastructure change. I think there may be a big opportunity here for the middle class if we can stop being contrarian about this. Click the trackback (or my name) for more.

Posted by: poputonian | Dec 12, 2004 10:04:57 AM

I agree we must resist the Republican propaganda that there is a "crisis" that requires a massive fix and a radical new plan - a crisis that just happens to be falling as the Republicans control both houses of Congress and the Presidency.

But I don't know if I agree that foreseeable challenges to social security can and should wait until the need for change presses down hard upon us. People make long-term economic decisions all the time on how to finance their retirements - what funds to invest in, what percentage of my pay I want invested, etc. I think in this particular area we would all agree it would stupid to say that we are going to put off all the important decisions until the day we actually retire.

I understand it is somewhat different with social security because it is a pay as you go system rather than an investment plan. But still the long term health of the system will require some politically dificult changes, and it may be prudent to make those changes now rather than wait.

If we need a gradual increase in the retirement age, for example, that will have to be phased in. We can't wait until it is needed immediately and then say: all you retired people from 65-70, you are hereby unretired, or tell people who are just a year or two short of retirement that they are now 6 or 7 years short of retirement. As people near retirement age, they begin to make plans - selling their businesses, sometimes their homes, cashing in some assets. They need to be given reliable advance notice about when they can expect to retire.

Posted by: Dan Kervick | Dec 12, 2004 10:09:14 AM

I think the flaw in the argument is that individuals do plan a certain amount of their retirements in the long-term. So for instance, the retirement age - one of the most important factors in its cost - cannot just be changed at the drop of a hat, but to be fair has to be adjusted over a longish period.

Posted by: Andrew Boucher | Dec 12, 2004 10:10:58 AM

As for frames, I think Democrats should say they have a modest and responsible plan to secure social security, while the Republicans have a radical plan to subvert it. Generally speaking, I think it would be a good idea politically to describe Republicans proposals with terms like "radical", "extremist", "subversive" at every turn and let that image build up and stick in the public mind, the way "flip-flopper" was used against Kerry. They should define their own plans as "pragmatic", "prudent", "sound", etc.

Posted by: Dan Kervick | Dec 12, 2004 10:19:36 AM

Dan is right; it's the framing of the discussion. I think "destructive of SS" might be added to his list along with "radical, extremist and subversive".

Posted by: janeboatler | Dec 12, 2004 10:38:53 AM

Let's not lose track of the fact that the low to middle income earners have been paying a disproportionate share of the nations tax burden for 15+ years now. This, because the excess FICA withholdings have gone to the general fund in return for government bonds. Those bonds must be repaid. And that repayment must come from high income tax payers, not from the low to middle income tax payers. It is this repayment that the Bushies are trying so hard to avoid. They are deadbeats, in other words.

Posted by: Vaughn Hopkins | Dec 12, 2004 11:35:11 AM

but we aren't promising anything to anyone in 2050

Defense-wise, we are most certainly promising future generations that their country won't be invaded and occupied; more importantly, we are promising the more affluent among them that the world will be more or less safe for commerce.

Old-age benefits are only different in that the variables, such as life expectancy, are easier to model than the state of the world fifty years from now. But that predictability is an advantage, a freebie, not a reason for declaring a crisis.

Posted by: son volt | Dec 12, 2004 11:43:08 AM

Wouldn't the best model for Social Security be having the coming year's FICA rate set in about June of the previous year, based on the need for funds to pay that coming years outgo? Of course, first the billions of dollars in bonds that FICA "loaned" to the general fund would have to be repaid - preferably by having a zero FICA tax rate until those are all repaid.

Posted by: Vaughn Hopkins | Dec 12, 2004 12:02:28 PM

This entire argument is beneath you, Matt. Social Security's raison d'etre is to be there when people are old; as such, any discussion about SS at all must be about long-term solvency.

I know it's fun and cool to find wacky, inventive ways of looking at problems, and congratulate yourself on not being one of the sheep. But sometimes, you have to do a reality check.

Posted by: bobo brooks | Dec 12, 2004 12:10:00 PM

The political viability of the program is NOT that it is a short term regressive tax bandaid to irresponsible fiscal policies (which it is), but some kind of "pay in pension system"-- the very justification for the kickout of collecting the tax at $85 or $90 thousand per annum (which, of course, it is not).

If we concede that this is a "problem that can be solved year to year", the program is ALREADY politically dead.

To be honest, given how irresponsible Americans are fiscally in the macro, as compared to, say, the Swiss or even the Japanese, maybe we SHOULD gut social security in exchange for mandatory private investment (social security and medicare are already most of our government spending, and will only get worse)... but of course, you won't see Bush TELLING us that this is his game. That would involve an concept alien to Bush called "opening your mouth and not lying".

Well, its his game. And Matt has just given an excellent means, for the short term, to sell it philosophically.

Posted by: the talking dog | Dec 12, 2004 12:36:25 PM

Defense-wise, we are most certainly promising future generations that their country won't be invaded and occupied; more importantly, we are promising the more affluent among them that the world will be more or less safe for commerce.

Right, but we aren't promising them to any arbitrary degree of specificity, unlike SS benefits.

Posted by: Kimmitt | Dec 12, 2004 1:38:38 PM

Matt, your argument invites criticism on the basis of short-sightedness -- practically begs for it, in fact. A more defensible position would be to say "we're going to make a small correction now, and continue to look at the SS forecast every few years, and as long as we do this, SS will remain solvent."

Posted by: Hamilton Lovecraft | Dec 12, 2004 2:00:11 PM

Actually, in the short term, I don't know why SS defenders aren't pointing to the less than stellar, in fact suck, performances of private pension funds right now. Set up to allow a corporation's workers to benefit from the great opportunities in the market, they are all -- GE, GM, IBM -- suffering massive shortfalls. Best story, of course, is United, which somehow passed all the pension fund regulations and suddenly is 8 billion dollars in the hole.
This has not been a good four years for private pension funds. At all.

Posted by: roger | Dec 12, 2004 3:25:42 PM

If you want to think in terms of the here and now which seems to me to be correct as well, why wouldn't you suggest a payroll tax cut? We are taking in a surplus now and spending on general expenditures. That does indeed create a situation where poorer people are financing the government through payroll taxes. And as you say, this year's Congress can't obligate a future Congress to pay back those borrowings. The future Congress can simple cut benefits to the point that SS is balanced and then can just rollover the debt that has accumulated.

Posted by: Chad | Dec 12, 2004 3:37:11 PM

Gee Matt, just look at what a dismal failure SS has been for the last 70 years. All that long-term planning is clearly the reason.

Posted by: ScrewyRabbit | Dec 12, 2004 9:42:15 PM

Here's a challenge to all Social Security privatizers. If you believe that investment in stocks is the salvation of social security, then propose to do it now with the current trust fund. (See the complete post at http://www.ofbyandfor.org/node/view/1010)

Posted by: Russ Abbott | Dec 12, 2004 10:01:23 PM

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