The American Spectator

In a recent column looking at the arguments advanced by opponents of Social Security reform, I stated that “it’s nice to know [reform opponents] have no new tricks up their sleeves.” Since then, however, reform opponents have proven to be a bit more ingenious — if not also disingenuous. Although some of the arguments they’ve recently made were pulled out of the ol’ closet labeled “Scare Tactics,” they have managed to invent some new ones. Here’s a rundown:

Transition Costs Will Hurt Economic Growth. Reform opponents complain about the cost of transitioning from the current system to a system of personal accounts. A recent article in CNNMoney echoes critics’ complaints:

Borrowing that much over ten years is not unprecedented, nor is it economically detrimental. In fact, if you look at budget data from the six ten-year periods between 1983 and 1997, you’ll notice the amount we borrowed ranges from a low of $1.8 trillion (1988-1997) to a high of $2.1 trillion (1985-1994). With the exception of a brief period from 1990-1991, these sixteen years were a time of strong economic growth. Interest rates on treasury bonds declined during this period, real private investment more than doubled, and over 35 million jobs were created. The economic argument against borrowing for personal accounts is similar to the one made against Bush’s tax cuts. It also holds about as much water.

Administrative Costs Are Lower Under The Current System. This one is recycled from the last time reform was debated back in 2001. Typical is the argument the Center for Economic and Policy Research advances: “On average, less than 0.6 cents of every dollar paid out in Social Security benefits goes to pay administrative costs. President Bush’s Social Security commission estimated that under their system of individual accounts 5 cents of every dollar would go to pay administrative costs.”

However, the question the Center avoids is what are we getting for that low administrative cost? Based on what the current system would be able to pay out in benefits years from now, the answer is a negative return on our money. Apparently, reform opponents have not realized that there is little point in low administrative costs when one is getting nothing for it. Chances are most people would trade that in for a system with higher administrative costs and higher returns. And since personal accounts will be voluntary, no one will be forced to incur those administrative costs.

Public Opinion Is Against Personal Accounts. The AARP recently tried to disseminate this notion via disinformation. A “survey” conducted for AARP by Roper Public Affairs revealed that 43% of respondents favored personal accounts, while 47% opposed them. This was a case of the devil being in the details. The survey polled only people age 30 and older, leaving out the 18-to-29-year-old population that tends to favor personal accounts. Furthermore, the question on personal accounts informed the respondent that the amount the “average worker” could invest would be “about $750 per year.” Thus, there is no way to know if the respondent dislikes the idea of accounts or thinks the accounts would be too small. In short, the AARP’s survey is the polling equivalent of garbage.

The fact is, opinion on Social Security reform varies considerably with the type of question being asked. More technical questions tend to dampen support for reform. Back in December Fox News/Opinion Dynamics asked the relatively simple question: “Do you think people should have the choice to invest privately up to 5% of their Social Security contributions, or not?” Sixty percent of respondents said people should have choice.

Individuals Won’t Really Have Much Control Over Their Personal Accounts. Paul Krugman tried this argument recently:

Who does Krugman think he’s kidding? If reformers were proposing a free-for-all, he’d be criticizing them for exposing people to huge amounts of risk. Further, reformers have never “changed their story.” They have been up front about the limits on what can be done with personal accounts.

Even some conservatives buy into this line of thinking. Writing in the Weekly Standard, Irwin M. Stelzer states:

Yet just because individuals won’t be completely free from government interference doesn’t mean that they will not be freer than they are now. (The same goes for Krugman’s argument about “trusting the people”: reformers trust the people more than do the backers of the current system.) As I noted last week:

In an ideal world we would be free from government meddling. But rejecting a reform that makes us freer because it does not make us totally free is to make the perfect the enemy of the good. Surely Stelzer is not in favor of that, is he?

Even When The Trust Fund Runs Dry, Benefits Will Still Be More Than They Are Today. Reform opponents often claim that when the Social Security trust fund runs out in 2042, Social Security will still have enough revenue to pay 73% of benefits, and that amount will still be more than what beneficiaries receive at present. Some pundits, like Kevin Drum, almost sound enthusiastic about this:

On the contrary, benefits will continue to be paid forever. They won’t be as generous as we’d like, but they’ll still be higher than they are today.

While Social Security will continue to pay benefits when the trust fund runs out in 2042, it is important to understand exactly what this means to beneficiaries. Although it will still be more than what we receive today, there is no way around the fact that for beneficiaries in 2043 it will be 27% less than what they were receiving in 2042.