Social Security "Crisis" Cliffs Notes

Economist Brad DeLong gives us a simple rundown of the Social Security "crisis" and how it compares to the "real" problems we face.
Social Security Talking Points

• The projected long-run Social Security Trust Fund deficit ranks no higher than fourth in urgency and in size on our list of fiscal problems.


• Bigger fiscal problems include:
  
  
  • The current $600 billion a year General Fund deficit.
  
  
  • The long-run problems of finding financing for and controlling the growth of rapidly-rising Medicare and Medicaid spending.
  
  
  • The need to make sure that the General Fund has the resources to meet its commitments without undue strain after 2020--when it will no longer be able to borrow from the Social Security Trust Fund.
  
  
• If our current General Fund deficit is like having an impaired driver who has just crashed us into a tree, and if the Medicare-Medicaid problems are like a melted transmission, and if the post-2020 General Fund is like having no brake pads left, then our long-run Social Security deficit is like a slow tire leak.


• If our Social Security problems are neither extraordinarily urgent nor extraordinarily large, why is the Bush administration so focused on them?
  
  
  • Possibly because of incompetence: George W. Bush and his inner circle simply do not understand the magnitude and importance of the federal government's other fiscal problem.
  
  
  • Possibly because of ideology: it is for some reason important to undermine the successes of FDR's New Deal.
  
  
  • Possibly because of capture: just as the principal aim of the 2003 Medicare Drug Benefit bill as it was written was to boost pharmaceutical company profits, so when the Bush Social Security proposal emerges we will see that its principal aim is to boost Wall Street profits.
  
  
  • Which of these is really the most important reason? I don't know. Your guess is as good as mine. Certainly the public rationales the Bush administration has offered for the "reform" program it has not announced are extremely thin.
  
  

What Should Be Done to Fix the Social Security System?

• Minor adjustments--the kinds of things that you do to fix a slow leak in a tire:
  
  
  • Pump in more air--raise Social Security taxes a bit (perhaps by applying the FICA tax to all earned income, rather than exempting income over $90,000 a year from the tax).
  
  
  • Patch the leak--raise the retirement age as life expectancy increases.
  
  
• Make these minor adjustments automatic and ongoing:
  
  
  • We will have good and bad news in the future, and will be making further adjustments--both up and down.
  
  
  • This Congress and George W. Bush have demonstrated an inability to make economic policy in the national interest--whether it's the train wreck of their budget deficits, the sinkhole of their corporate tax bill, the car crash of their steel tariff, or the current vastly exaggerated cries of "crisis, crisis."
  
  
  • It's time do with Social Security policy what Congress long ago did with monetary policy: adopt the Federal Reserve model.
  
  
  • Seven Governors of the Social Security Trust Board appointed for fourteen-year terms with the advice and consent of the Senate.
  
  
  • They then elect a Chair.
  
  
  • Their responsibility is to adjust the retirement age (and, within narrow limits, the payroll tax rate) in order to keep the Social Security System solvent in expectation.

So, Social Security is at best forth on the "crisis" list. As for DeLong's four reasons for Bush's fixation on Social Security; I vote for the two in the middle:

• Possibly because of ideology: it is for some reason important to undermine the successes of FDR's New Deal.


• Possibly because of capture: just as the principal aim of the 2003 Medicare Drug Benefit bill as it was written was to boost pharmaceutical company profits, so when the Bush Social Security proposal emerges we will see that its principal aim is to boost Wall Street profits.