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Special Report

The most disingenuous of the relatively new tactics the opponents of Social Security reform have contrived is the "There Is No Crisis" (TINC) argument. Dean Baker and Mark Weisbrot were among the first to popularize this argument, with their 2000 book, Social Security: The Phony Crisis. In 2001 Paul Krugman picked up the torch and has been carrying it ever since. There is even a TINC website set up by BlogPac, a project spearheaded by a host of radical left-wing bloggers.

Of course, some of this is just rank opportunism. In a recent editorial panning personal accounts, the New York Times editorialist stated "the claim that Social Security is in crisis" is "essentially bogus." How the Times can change! Back on July 7, 2001, in an editorial bashing the Bush tax cut, it wrote:

The ballooning deficits of [the 1980s], however, will be dwarfed by the ones that arrive when Social Security and Medicare go into the red. Delving into their trust funds now would bring that financial crisis, usually assumed to be a decade away, several years closer.

It followed that up with this gem on September 9, 2001:

…by rescinding some of the tax cuts affecting the wealthiest 1.8 percent of taxpayers before they take effect in coming years, Congress could free up at least $1.25 trillion over 20 years -- enough money to shore up Social Security and pay for other high-priority items, like a prescription drug program for the elderly, more spending for education or even some sort of Social Security individual accounts. [Italics added.]

So when there is a tax cut to undo, not only does Social Security face a crisis, but personal accounts might even be a good idea!

Yet it requires more than a charge of hypocrisy to reveal the errors underlying TINC. So let's take a look at the TINC variations:

Not A "Crisis," Just A "Problem." Washington Post editorialists recently wrote that Social Security "is less a crisis than a problem." Like all reform opponents who parrot that line, they never define the difference between a crisis and a problem. One might think that a system whose surplus will begin declining in 2009, that will begin taking in less in taxes than it pays out in benefits in 2018, and will cost taxpayers about an extra $25 trillion over 75-years is a system headed for a crisis. But reform opponents have "answers" for that too:

The Trust Fund Means Social Security Is Fine Until At Least 2042: Mark Weisbrot recently made this argument in the Washington Post:

The disappearing trust fund: Some people say that Social Security will run into trouble in 2018. But this is like saying that Bill Gates will be strapped if he works only part time. He will still have $40 billion in assets, enough to keep him living well for a long time.

Similarly, the Social Security trust fund will have more than $3.7 trillion in today's dollars in 2018. Combined with payroll tax revenues, that is enough to cover promised benefits until 2042, the trustees' report says.…

"But the trust fund is only holding I.O.U.'s -- just pieces of paper!" Another canard: All bonds are I.O.U.'s. Those "pieces of paper" are backed by the full faith and credit of the U.S. government, which has never, ever defaulted on its bonds.

What Weisbrot neglects to mention is that the money to pay off the bonds in the trust fund will have to come from the taxpayers. In short, the taxpayers will have to fork over more than $5.4 trillion to pay off the bonds the trust fund redeems between 2018 and 2042. But reform opponents like Weisbrot ignore the effect that paying off the bonds will have on taxpayers, and simply point to the trust fund and say, "See, Social Security is solvent for many years!" (To see how surreal this can get, go here.) It is important to realize that the trust fund is a future liability for taxpayers, because most of the other variations of TINC assume it is an asset.

Improved Demographics And Higher Productivity Will Solve The Problem: Kevin Drum tried this approach:

Robert Gordon, a respected economist at Northwestern University, recently took a fresh look at long-term economic trends. His conclusion? The trustees are continuing to be far more pessimistic than the evidence warrants. His projections, based on recent increases in national productivity as well as more reasonable estimates of immigration, show an economic growth rate for the next two decades that's nearly a percentage point per year higher than the trustees' projections.

If you plug Gordon's more realistic numbers into the model that the trustees use to project the health of Social Security, it turns out that the program is solvent for the rest of the century. In other words, Social Security needs no changes at all. Everyone alive today, young and old, will be covered in full when they retire. Surprised?

However, plugging in Gordon's numbers does not mean Social Security will take in enough in payroll taxes to cover benefits for the next century. In an email, Drum informed me that, yes, his projections still relied on the bonds in the trust fund. In other words, even with better demographics and productivity, taxpayers will still have to come up with extra money to meet Social Security's benefits.

It's also instructive to read what Professor Gordon concluded about his predictions: "In the end, this exercise in crystal ball gazing is a humbling experience….Neither economics nor statistics provides much guidance about the measurement of uncertainty in making these forecasts, and part of this uncertainty concerns how much of the past to use in making future projections." In other words, let's not be too confident about any projections.

topics:
Taxes, Education, Economics, Social Security, NATO, Immigration, Medicare