Courtesy of Roger Lowenstein in The New York Times Magazine.
It's a long article, but well worth the read. I have to admit I was fairly ignorant about the details of this debate, relying mostly on my instinctive distrust of anything George W. Bush supports, an instinct that has never failed me. Still, I learned a lot in this article. I've excerpted some parts below for the time or motivation deficient, but I strongly suggest reading the whole thing. This is a particularly important debate for my generation, as we're the ones who will be screwed.
The upshot of the whole thing is that most of the projections offered by the White House and their supporters as evidence of a looming "crisis" are very pessimistic projections, and more importantly, they're projections, not facts. They are taking guesses as to what the economy might look like in 75 years and presenting them as the gospel truth. And even in doing that, they're lying about a lot of it, and exaggerating about the rest.
The underlying logic of their plan is simple: If we reduce the money that the government gives to the poor and elderly, people will save more money over their lifetime to offset the loss. Does this seem likely to you? If you ask me, it defies common sense.
In the end, I simply don't trust the wealthiest among us, who have consistently demonstrated their desire to make life very easy and profitable for themselves while ignoring the rest of us, to "reform" a system designed to help the poor. It's easy for them to emphasize the potential long-term benefits of their plan because they won't experience the short-term losses. As Lowenstein points out, "We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow?"
The campaign is potentially self-fulfilling: persuade enough people that Social Security is going bankrupt, and it will lose public support. Then Congress will be forced to act. And thanks to such unceasing alarums, many, and perhaps most, people today think the program is in serious financial trouble.
But is it? After Bush's re-election, I carefully read the 225-page annual report of the Social Security trustees. I also talked to actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is.
Although prudence argues for making a fix sooner rather than later, the program is not in crisis, nor is its potential shortfall irresolvable. Ideology aside, the scale of the fixes would not require Social Security to abandon the role that was conceived for it in 1935, and that it still performs today -- as an insurance fail-safe for the aged and others and as a complement to people's private market savings.
--snip--
Social Security does not provide, and was not meant to provide, a satisfactory retirement on its own. The average stipend for a 65-year-old retiring today is $1,184 a month, or about $14,000 a year. About half of Americans also have private pension plans, but for two-thirds of the elderly, Social Security supplies the majority of day-to-day income. For the poorest 20 percent, about seven million, Social Security is all they have. Even those figures understate the program's importance. According to an agency publication, "Income of the Population 55 or Older: 2000," 8 percent of elderly beneficiaries were poor, but a startling 48 percent would have been below the poverty line had they not been receiving Social Security. Charles Blahous, the White House point man on Social Security, publicly criticized this calculation as "mindless," and the Social Security agency no longer computes the figure.
--snip--
Proponents hail the plan for forcing savings on the government. But the diversion of money into individual accounts would save the government nothing, since it would have to borrow to offset the loss of the diverted dollars. The individual accounts represent a transfer, not a savings.
The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. That cut would mean a savings for the government. This is a political choice; we can always save money by reducing benefits. But it's important to stress that the savings result from cuts, not from the decision to privatize.
--snip--
In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck.
So it is notable that all the current proposals to privatize involve the economically inferior option of individual accounts. But privatization advocates aren't motivated solely, and perhaps not even primarily, by economics. Glenn Hubbard, Bush's former top economic adviser, wrote in Newsweek that an "obvious objective" of privatization is "to advance the president's ownership society agenda."
--snip--
Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.
