Social Security: Beware of the Panic Peddlers
'A deficit of $700 billion to as much as $1.3 trillion annually by 2030.' A scary thought. But let's take a closer look.
Purveyors of doom have set their panicky sights on the federal Social Security system. They claim that a "demographic time bomb" of retiring baby boomers will hurl the nation into bankruptcy within the next few decades.
The good news is that their predictions have no more scientific foundation than those of Nostradamus. The Social Security system faces no crisis and will need only minor adjustments, if any.
The bad news is that they have succeeded in convincing most of the public and the news media to treat their fantasies with respect. How do they do it?
The old entitlements trick
Sleight of hand is key. One technique is to lump Social Security and Medicare together under the rubric of "federal entitlements." The price of medical care has been growing at an unsustainable rate for decades. So it is easy to project disaster onto Medicare's future, although this has nothing to do with Social Security and little to do with demographic trends.
In fact, the growth of Medicare spending is driven by the costs of the private health care system. So what the critics are really saying is that, if the costs of the private medical care system continue to grow at the same rate as they have been growing for the last 30 years, health-care spending will eventually eat up most of our national income. This makes a good case for reforming the private health care system, although it says nothing about Social Security and not very much about Medicare.
If you were fooled by the "entitlements" trick, you're not alone. Paul Krugman, a distinguished MIT economist, was completely suckered in by Pete Peterson's latest book, "Will America Grow Up Before It Grows Old? How the Coming Social Security Crisis Threatens You, Your Family, and Your Country." He swallows Peterson's claim that "the combined Federal cost of Social Security and Medicare, expressed as a share of workers' taxable payroll, is officially projected to rise from the already burdensome 17 percent in 1995 to between 35 and 55 percent in 2040." Is it really so difficult to distinguish between two distinct government programs with completely separate funding sources?
Mr. Peterson is a Wall Street investment banker who heads up the Concord Coalition, which has been leading the charge against Social Security since 1992. Even when the Coalition does distinguish between Social Security and Medicare, there are other ways to play games with the numbers. In a recent full page ad in The New York Times, it asserts that "if we don't reform Social Security it could be running an annual deficit of $700 billion to as much as $1.3 trillion annually by 2030."
A scary thought, but let's take a closer look. Here it is essential to keep in mind that this is not primarily a dispute about forecasts or the assumptions underlying them. These numbers are taken from the annual report of the trustees of the Social Security trust fund. They both assume that the next 34 years will be the worst in American economic history. However, the higher forecast is so unlikely - the economy slowing to 0.8 percent growth, with unemployment averaging 7 percent over the whole period - that it is not used in policy analysis.
What about the $700 billion figure? That still sounds big, but wait: The doomsayers have forgotten to take inflation and economic growth into account. A dollar in 2030 is not the same as a 1995 dollar. That $700 billion turns out to be less than 1.5 percent of GDP - about the same as the increase in military spending from 1976 to 1986.
The vanishing trust fund
Another ploy is to pretend the hundreds of billions of dollars the Social Security trust fund has put away for the baby boomers' retirement don't really exist. In a recent debate before the National Conference of Editorial Writers, pro-privatization economist John Goodman dismissed the trust fund's assets, held in government bonds, as mere "pieces of paper." This will be unpleasant news to banks, private pension funds, mutual funds, and individual investors who have trillions of dollars in such "pieces of paper."
These are just a few of the devices used to persuade an unsuspecting public their Social Security benefits won't be there when they retire. This brings the panic peddlers halfway to their goal, since it will be much easier to cut benefits or privatize the system if most people don't believe they have any stake in the outcome.
Meanwhile, Wall Street is salivating at the prospect of skimming off tens of billions in commissions a year if the system is privatized. And quietly buying influence, too, to make their dreams come true. Only the fear of making the government's most popular and successful program a campaign issue has kept it off the front burner in Congress. When the election is over, watch out.
*Mark Weisbrot is research director at the Preamble Center for Public Policy and a research associate of the Economic Policy Institute in Washington.