Social Security Crisis on Infinite Earths

Yglesias seems to be on a one man “there is no social security crisis” crusade. Now, it's true that no one is going to perish in a mangled, fiery, blood-soaked heap of runaway social security next week, or even next decade. But let me say a couple things. (There will be MUCH MUCH MUCH more in coming months).

First, we are approaching something very like a comprehensive fiscal crisis. Check out Jagadeesh Gokhale's and Keith Smetters's paper on the “Fiscal Imbalance” or “FI.” The FI is “current federal debt held by the public plus the present value of all projected federal non-interest spending, minus all projected federal receipts.” A sustainable fiscal policy has an FI of zero. The estimated FI is about $47 trillion. That's real money. To get the gravity of the problem, think about this: Holding other options fixed we could wipe out the FI if we (pick one):

— raised federal income tax collections by 70.1%.
— raised payroll tax collections by 96.7% [!].
— cut discretionary spending by 107.8%. [Impossible!!!]
— cut Social Security & Medicare outlays 45.9%.

(This stuff is above is neatly packaged in Shaviro's Regulation paper.)

Clearly, a real solution will be some combination of spending cuts, small tax increases (big raises can cost more is distortion than they bring in in revenue) and Social Security and Medicare reform. It is just not possible to correct the massive FI by tinkering around the edges of the major entitlement programs until they really are in a genuine crisis.

Second point! This is way more important. The case for social security reform by no means depends on the existence of a crisis. Social Security as it exists is extremely bad public policy. A reform package like Cato's is both a practical and moral improvement. It eliminates the budgetary burden of social security over the long haul. It places retirement largely outside the fickle, unstable and risky context of politics. It meets a demand of justice in expanding and strengthening property rights over the fruits of one's labor. It meets a demand of justice by creating a system where people internalize responsibility for their own long-term welfare. It meets a demand of justice by broadening the class of stakeholders in a healthy, stable, high-growth market liberal order.

That's the argument for social security reform. If there wasn't even a prospect of a crisis, if the current system was infinitely sustainable in fiscal terms, we still ought to adopt something like the Cato plan on grounds of justice.

Summary: (1) all the “there is no crisis” noise irresponsibly evades the broader looming fiscal crisis in which social security outlays figure massively; (2) even if no crisis loomed, we should still switch to a system of personal accounts on grounds of justice; (3) In the face of “no crisis” arguments, proponents of reform should place Social Security in the larger economic context, and then move on to the abundant practical and moral merits of the reform proposal. Don't allow the independent moral case get lost in crisis vs. no crisis minutiae.