Special Report

There Is No Crisis! Huh?

The Democratic attack on Social Security reformers is a three-pronged: Hear no crisis, see no crisis, speak no crisis.

By 2.6.05

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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.

The 75-Year Shortfall Is Only $3.7 Trillion: In a recent article for the Sunday New York Times, columnist Roger Lowenstein attempted to paint reformers as inflating the long-term Social Security deficit:

Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, [Michael] Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion.

True, $3.7 trillion does seem tiny when spread out over 75 years. Except that $3.7 trillion is not the 75-year shortfall; it is the present value of the shortfall. I've explained this at some length previously, but in a nutshell what this means is that the federal government would have to invest $3.7 trillion right now to cover the 75-year shortfall. The actual shortfall is much closer to Tanner's number.

A Small Alteration Of 1.89 Percent of Payroll. Christian Weller of the Center for American Progress encapsulated this argument: "An immediate and permanent increase of the payroll tax by 1.89 percent would allow Social Security to pay all of its promised benefits for the next 75 years."

Here's how this works: Increasing payroll taxes 1.89 percentage points extends the date which the Social Security system begins paying out more in benefits that it receives in payroll taxes from 2018 to 2022. After 2022, the Social Security still has to redeem the bonds in the trust fund to pay benefits; it's just that it will then have enough bonds, when combined with the higher payroll tax, to keep paying full benefits for 75 years. However, it still means the taxpayer will still have to shell out extra money, averaging $360 billion annually after payroll taxes are no longer sufficient to pay benefits.

A Small Alteration Of 2 Percent of GDP. Paul Krugman painted this happy face on Social Security's insolvency about a year ago:

So does the Treasury report show a looming Social Security crisis? No.

Social Security's problem, such as it is, is a matter of demography: as the population ages, the number of retirees will rise faster than the number of workers. As a result, benefit costs will rise by about 2 percent of G.D.P. over the next 30 years, and creep up slowly thereafter.

Krugman is clever -- I'll grant him that. Two percent seems like nothing. However, 2 percent of today's GDP is about $238 billion. Thirty years from now, it will be in the neighborhood of $400 billion. Not exactly chump change.

Not surprisingly, the Democrats are now echoing the TINC line. Senator Byron Dorgan recently remarked, "If we let the president successfully convince people there's a crisis in Social Security when in fact there is no crisis at all, then shame on us." Yet it is a long shot at best that TINC will take root in the public mind.

Although ABC News tried to spin it, a recent poll it conducted along with the Washington Post showed that 25 percent of respondents felt Social Security faced a crisis, while another 49 percent thought it faced major problems. Reform opponents have a very long way to go to persuade Americans that reform isn't necessary. Chances are they will only shave a few points off those numbers.

Another indication that TINC won't gain much traction can be found at the TINC website. Websites managed by the big radical bloggers are usually filled with left-wing troglodytes who substitute snarky comments and gratuitous insults for serious debate. However, the comments sections at the TINC website are mostly empty. Apparently the left isn't too excited by the prospects for success of the TINC argument.

Perhaps that's all for the best. The public debate is best served by a discussion about how to fix the Social Security crisis, not by a hoard of sophists trying to bamboozle us into believing that it doesn't exist.

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David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.