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Let's Be Honest About Social Security |
Current rating: 0 |
by Mark Weisbrot and Dean Baker
(No verified email address) |
20 Mar 2005
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Even looking into the science-fiction future of the Social Security Trustees' 75-year planning period, the projected shortfall is less than what we fixed in each one of the decades of the '50s, '60s, and '80s. In other words, according to the president's own numbers, Social Security is financially stronger today than it has been throughout most of its history. If we use the projections of the nonpartisan Congressional Budget Office, it's even better: Social Security is rock-solid for nearly half a century.
So this attack on Social Security has nothing to with the solvency of the program. |
Polls can provide important guidance for politicians, but there are times when it is foolish and dangerous to rely on a temporarily misinformed public for a political compass. The current debate over Social Security provides one of the most compelling examples in modern history of the pitfalls of poll-driven political strategy.
On Thursday two leading Democratic strategists, James Carville and Stanley Greenberg, publicly took their party to task for their ''just say no" approach to President Bush's proposed privatization and benefit cuts. ''To say there is no problem simply puts Democrats out of the conversation for the great majority of the country that want political leaders to secure this very important government retirement program," they warned. ''Voters are looking for reform, change, and new ideas, but Democrats seem stuck in concrete."
Stuck, indeed. The more appropriate metaphor would be that they are holding their ground and refusing to surrender to a president who is once again manufacturing a ''crisis" for a political purpose. And why should they do otherwise, when this strategy is clearly working?
Let's start with the facts. According to the numbers President Bush is using, Social Security can pay all promised benefits for the next 37 years without any changes at all. Even if nothing were done by 2043, the program would still pay a higher real (adjusted for inflation) benefit than what people receive today.
And even looking into the science-fiction future of the Social Security Trustees' 75-year planning period, the projected shortfall is less than what we fixed in each one of the decades of the '50s, '60s, and '80s. In other words, according to the president's own numbers, Social Security is financially stronger today than it has been throughout most of its history. If we use the projections of the nonpartisan Congressional Budget Office, it's even better: Social Security is rock-solid for nearly half a century.
So this attack on Social Security has nothing to with the solvency of the program. Nonetheless last week, a Quinnipiac University poll found that respondents, by a 49 to 42 percent margin, believed that Social Security would not be able to pay them a benefit when they retire. But this is a ridiculous idea, based completely on misinformation. It is even more far fetched than the notion, which also commanded a majority before the invasion of Iraq, that Saddam Hussein was responsible for the massacre of 9/11.
That myth was at least theoretically possible, although completely unfounded. In the case of Social Security, there is no dispute about the facts. There are just a few cheap verbal and accounting tricks that have been used to convince the public that Social Security faces serious problems. These are easily refuted. Look how fast President Bush stopped using the word ''crisis" to describe Social Security, when the Democrats hit him with the truth.
They should hit him just as hard when he says ''there is no trust [fund]." Or when the president or anyone else claims that Social Security runs into trouble in 2018, or when the baby boomers retire (most will be dead before Social Security faces any problems). Or when they make other arithmetically impossible claims: for example, that future stock market returns will be the same as in the past, when they are projecting that future economic growth will fall by one-half.
Democrats could also point to a whole set of urgent problems that are not 50 years away but banging on the door right now. We already pay twice as much per person for healthcare as compared to other developed countries, which manage to provide universal health insurance. These costs, including prescription drugs, continue to spiral out of control. Our federal debt is also growing at an unsustainable rate and, measured as a share of our economy, is approaching a 50-year record.
The strategy of standing up to President Bush on Social Security is working. The same Quinnipiac poll showed that 59 percent of Americans disapprove of the way the president is handling Social Security, with only 28 percent approving. It makes no political sense to capitulate and pretend that this attack on our nation's most successful and popular government program is actually an attempt to insure its solvency. Even in politics, there are times when honesty is the best policy.
Mark Weisbrot and Dean Baker are co-directors of the Center for Economic and Policy Research and co-authors of ''Social Security: The Phony Crisis."
© 2005 Boston Globe
http://www.boston.com/news/globe/ |
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Increasing Income Volatility Undermines Case for Eliminating Stability of Social Security |
by Daniel Gross
(No verified email address) |
Current rating: 0
20 Mar 2005
|
Judging by the polls, President Bush's plan to transform Social Security from an insurance program that guarantees a minimum income into something more closely resembling a 401(k) investment program isn't going very well. A poll published by The New York Times on Wednesday showed that only 30 percent of Americans approved of the way Mr. Bush was handling Social Security. Partisan politics are doubtless at work. But economics could help explain the public's reluctance, too.
Volatility - the degree to which the value of an asset deviates above or below the general trend - is a concept with which investors are familiar. Some stocks can prove more risky - or more rewarding - than others because they rise or fall by a greater degree than the market as a whole, while others tend to track the overall market's performance closely. But the concept of volatility is less well understood when it comes to income. As we learn more about income volatility in the information age, some scholars say, Social Security - an insurance program designed for the industrial age - may be even more essential.
Income volatility has long been a hallmark of the American economy. Compared with those of workers in other developed countries, the earnings of Americans tend to bounce around drastically from year to year. And that's not necessarily bad. "People don't realize that income volatility and income mobility are the same thing," said Peter Gottschalk, professor of economics at Boston College and a pioneer in the study of income volatility. People who start out at the bottom of the income ladder frequently wind up at a higher rung.
Conversely, just because you earn $300,000 this year doesn't mean you'll be making that much 10 years from now. The economist Joseph A. Schumpeter, who coined the term "creative destruction," described the upper strata of society as a hotel in which the guests are always changing. Income volatility is the mechanism through which guests check in and check out.
After mining data from the Panel Study of Income and Dynamics, a database produced by the University of Michigan that tracks the incomes of the same families over a 40-year period, scholars have concluded that incomes are much less stable - i.e., much more volatile - today than they have been in the past. "There has unequivocally been general upward-trend income volatility since at least 1975," said Bruce A. Moffitt, the Krieger-Eisenhower professor of economics at Johns Hopkins University, who, with Professor Gottschalk, wrote one of the first papers on income volatility in the 1990's. "It accelerated in the 1980's, turned down in the early 1990's, and then accelerated into the end of the 1990's."
According to a measure of volatility constructed by Jacob S. Hacker, a Yale political scientist, which tracks the five-year moving average of family incomes, income volatility rose 88 percent between 1978 and 2000.
"The problem in the past few decades," Professor Moffitt said, "is that volatility has risen while real incomes haven't risen." What's more, income volatility has grown significantly for those who can afford it least. A series of articles last year in The Los Angeles Times, written by Peter G. Gosselin, who worked closely with Professor Moffitt and other scholars, reported that in the 1970's, income for middle-class Americans tended to fluctuate by 16 percent a year. But in the 1980's and 1990's, middle-class incomes fluctuated an average of 30 percent. For those whose earnings placed them in the bottom fifth, income volatility rose from 25 percent in the early 1970's to 50 percent in recent years.
Because of other longstanding trends in the economy, strong income volatility can wreak greater havoc now than it did in the past. "The old view among economists was that income volatility didn't affect consumption much," said Raj Chetty, an economist at the University of California, Berkeley. It was generally thought that when families' incomes fell sharply and unexpectedly, they would borrow, tap into savings or send a second adult (frequently a mother) into the work force rather than sharply reduce consumption. But, Professor Chetty said, "that no longer seems to be the case today."
Why? Many families already rely on two incomes. What's more, fixed commitments have risen as a percentage of total income. In her book, "The Two-Income Trap," Elizabeth Warren, a bankruptcy specialist at the Harvard Law School, found that the typical American household in the early 1970's spent about 54 percent of its income on big fixed expenses - home mortgage, health insurance, car, child care - with the rest left over for discretionary spending. By the early part of this decade, however, the typical family was spending 75 percent of its income on these large fixed costs. "They're spending much more of their income on things that can't be cut back quickly," said Professor Warren. "If you lose income suddenly, you can't decide to sell off one bedroom or decide to cover only half of your family" with insurance.
THE factors that functioned as internal shock absorbers for families have weakened. And so, too, have external buffers. Over the last three decades, the percentage of workers covered by defined-benefit pension plans and employer-provided health insurance - guarantees that provide ballast for fluctuating incomes - has declined. Add this to the trend of rising volatility - especially for people in the lower and middle income levels - and it's easy to understand the reluctance to transform a government program that guarantees seniors an income.
"Social Security provides a vital kind of insurance," Professor Hacker said. "The real issue lurking behind this debate is whether we should have a program that provides the bedrock protection against economic risk."
Daniel Gross writes the "Moneybox" column for Slate.com.
Copyright 2005 The New York Times Company
http://www.nytimes.com |
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