The Times On Social Security

The Times editors continue to follow the Social Security debate; unfortunately, they fail to follow their own newspaper's reporting.  Their latest editorial tells us that "The administration has suggested that it would be justified in borrowing some $2 trillion to establish private accounts because doing so would head off $10 trillion in future Social Security liabilities."

However, a month ago Edmund Andrews of the Times told us that "nearly every leading Republican proposal on Capitol Hill acknowledges that private accounts by themselves do little to solve system's projected shortfall of at least $3.5 trillion...".

And today, Mr. Andrews says that "White House officials privately concede that the centerpiece of Mr. Bush's approach to Social Security - letting people invest some of their payroll taxes in private accounts - would do nothing in itself to eliminate the long-term gap."  Evidently, that is their story, and they are sticking to it.

The Times editorial cites the leaked Wehner memo making exactly the point that benefits must be cut as evidence that the Administration has been misleading the public.  Well, someone has been misleading, all right.  Unless the editors are inclined to provide a cite to back up their point, and print a correction to their reporter's two stories, we have to conclude that the misleading is coming from New York, rather than Washington.

The Times also rallies to the defense of the Social Security Trust Fund:

At a recent press conference, Mr. Bush exaggerated the timing of the system's shortfall by saying that Social Security would cross the "line into red" in 2018. According to Congress's budget agency, the system comes up short in 2052; according to the system's trustees, the date is 2042. The year 2018 is when the system's trustees expect they will have to begin dipping into the Social Security trust fund to pay full benefits. If you had a trust fund to pay your bills when your income fell short, would you consider yourself insolvent?

Well, Bush  said this, and who can argue?

By the year 2018, Social Security will pay out more in benefits than the government collects in payroll taxes.  And once that line into red has been crossed, the shortfalls will grow larger with each passing year.  We have a problem.

The Times editors then mount an impassioned defense of the Social Security Trust Fund, relying on a seemingly indefatigable strawman:

In suggesting that 2018 is doomsyear, the president is reinforcing a false impression that the trust fund is a worthless pile of I.O.U.'s - as detractors of Social Security so often claim. The facts are different: since 1983, payroll taxes have exceeded benefits, with the excess tax revenue invested in interest-bearing Treasury securities. (An alternative would be to, say, put the money in a mattress.) That accumulating interest and the securities themselves make up the Social Security trust fund. If the trust fund's Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities. The president is irresponsible to even imply that the United States might not honor its debt obligations.

Well, the President did not suggest that we would default, of course.  And critics agree that the promise to make payments to beneficiaries from the Trust Fund is backed by the full faith and credit of the United States.  Our point is not that such a promise is meaningless, or that the I.O.U.s are "worthless"; our points are (a) "a promise", however credible, is not a trust fund as any else understands the concept; and (b), beginning in 2018, the US will have to borrow from the public, cut other spending, or raise taxes in order to meet these payments.  These are precisely the choices that will be faced with the mechanism of the "Trust Fund".  The Heritage Foundation, as ardent as they are on the issue of privatization, explains this quite cogently in Myth 2 without calling the Trust Fund "worthless".

Now, rather than putting money in a mattress, if we had purchased British and German government bonds, for example, we would be relying upon British and German taxpayers to fund our benefits, rather than our own.  That choice was not made.  Consequently, calling this accounting mechanism a Trust Fund, however appealing that may be for political purposes, does not give it the economic significance of a conventional trust fund.

MORE:  Fine, I'm glidng past the $10 billion versus $3.5 billion question.  And the current Times piece presents the "Why is Social Security the crisis du jour?" question quite nicely.  Don't vex me.

Comments

[Patrick R. Sullivan]

"...critics agree that the promise to make payments to beneficiaries from the Trust Fund is backed by the full faith and credit of the United States."

Maybe some do, but this one predicts that if the SS special bonds were incinerated in a bonfire before the Army-Navy football game, the U.S. credit rating would improve.

[Dave Schuler]

Frankly, I'm baffled by all the kerfuffle. So we start to adjust spending priorities in 2018. We've adjusted priorities before and we will again.

[Robert P. Mitchell]

The NYTimes also had a good bit of reporting on Social Security in its Friday, 12/31/04 edition, which pointed out that one of the key assumptions behind the Social Security actuaries' estimates that the Trust Fund could make to 2052 before bankruptcy, is that longevity will only increase 4 years in the next 75 years (even though average longevity increased 30 years in the 20th Century). Any significant breakthrough in longevity exending lifespans beyond the projected 4 years would move up the bankruptcy point dramatically; and of course, we are spending far more on drug and other research now than we did in most of the 20th Century. Needless to say, Krugman and the NYTImes other editorial writers continue to treat the 2052 date as gospel, ignoring completely the 12/31 report.

[Dave Schuler]

Robert P. Mitchell:

Most of the increase in life expectancy in the 20th century was in reduced infant mortality and most of that through antisepsis. There isn't that much more to be gained by reduced infant mortality and the actual life expectancy of some who actually makes it to age, say, 20 hasn't changed enormously. Adding 4 years is a lot more than it sounds like.

[spongeworthy]

Oh really? And if people stop smoking and inner city youth stop killing each other? I agree that adding another four years not going to be as easy as the first four were, but let's not pretend it can't happen.

As far as readjusting spending priorities, isn't that a little convenient? What you're suggesting is not that you change your spending habits but that your children do. In order to avoid making hard choices now, you put the pain on your kids when, if you took the hit today, it would be less painful than the one your kids would take.

That's really what we're talking about here. I wouldn't mind if the generation that received the greatest benefit from SS were going to help us fix it, but that's not going to happen. So it's up to us, those who will be lucky to get our money back, to make the hard choices now.

[Greg F]

“Most of the increase in life expectancy in the 20th century was in reduced infant mortality and most of that through antisepsis. ”

The non-quantitative statement, “Most of the increase in life expectancy”, is not very useful. The numbers given here">http://www.infoplease.com/ipa/A0005140.html/">here indicate, compared to the 20 year old age group, that roughly half of the increase in life expectancy is due to “reduced infant mortality”.

[Chester White]

I keep pinging around the Web, posting this same damn thing, in the hopes somebody will learn:

THERE IS NO S/S TRUST FUND!

It's a bunch of government bonds owned by a government agency. In other words, one part of government promises to pay money in the future to another part of government.

It's exactly equivalent to me writing an IOU to myself with my right hand and putting it in my left pocket.

THERE IS NOTHING THERE, except the power of the government to raise taxes or borrow money. I hope that everybody under 40 can understand this, since they may not get anything for their tens/hundreds of thousands of dollars of contributions.

SOCIAL SECURITY SUCKS! Pass it on!