How Obama Will “Save Social Security” (Please!?)

by Will Wilkinson on July 8, 2008

Yglesias splits hairs:

[A]s the headline writers put it on the front page of The Washington Post “Candidates Diverge on How to Save Social Security”. Because in headlineland, saving a program and destroying a program under pretext of saving it are just two different ways of saving it.

I think Matt should simmer down. And the point of his intransigent thirdrailism just isn’t clear to me. Most Americans think of Social Security as a system that delivers checks in old age. The system as currently constituted can’t keep delivering those checks indefinitely. Now, a system of personal accounts of the kind successfully established by many successful, wealthy, liberal societies much like our own, such as Sweden or Australia, is a demonstrably successful way of keeping the checks coming. For all but those who fixate on the fake redistributive optics of the status quo system, this would amount to “saving Social Security.”

Anyway, I have a dream that President Barack Obama will decide to privatize Social Security, because it’s the sensible and moral thing to do. Democrats will be extremely confused for a couple months, but then will decide that this is in fact the greatest idea ever. Roles will reverse and Republicans will enlist the AARP and Jonathan Chait to kill it in a repeat of 2005, but their hearts aren’t in it, and they lose. Obama’s successful Jason Furman-lead transformation of the Social Security system is incredibly popular with the younger voters who put him into office and and sets him in such a strong centrist position that he completely crushes Romney in 2012. Are you listening Barack?

Anyway, it’s going to happen sooner or later. And we’ll probably keep calling it “Social Security.”

Viewing 19 Comments

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    I printed out your paper to read but I want to pose this question. Why in the world would we put so much effort into fixing the part of our federal budget that is in the least amount of trouble? The three parts, of course, are the General Fund, Medicare, and SS. The General Fund has been in deficit for half a century or so, medicare runs out of money in 10-15 years and SS is solvent for at least 30 and that number tends to stay constant or grow as we move along.

    So again, why do we want to spend effort and invest money from the General Fund into the only government budget line that is likely to pay for itself or at least be 30 years away from needing extra cash? This confuses me mightily. Stealing from the payroll taxes to pay for our bad general fund accounting seems clearly immoral and not at all sensible. But I'll go read the paper and see if I change my mind.
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    KJ, I don't get it. It's an easy problem to fix, so we ought to fix it. Medicare is a lot more convoluted, and harder to deal with. So your idea is we should wait to fix the easier problem until after we've solved the harder problem?
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    Yep Will - KJ is right. Fix the hard problems now. It'll take a while to do so but time is running out especially for Medicare.
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    Why the heck are you guys acting like it has to be either/or rather than both?
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    Ok, good point. But my understanding is that to turn SS into private accounts it will take a huge infusion of money from the General Fund because if you use a portion of the current money collected from payroll taxes and put them into private accounts then you need to make up that money that would normally go to pay current retirees and other beneficiaries. To switch to private accounts would be very expensive and I don't see how we can do it, even if it is a good idea, when we are so far in the hole in other areas.

    If we spent the same amount of energy talking about the General Fund deficit and also separated it out from the other two sources of funds, we might actually concentrate our political efforts on the real financial problem: our federal taxes are too low for what we spend or our spending is too high for our federal taxes. Pick your poison but I'd prefer we'd concentrate on that. If politicians and pundits want to balance the budget then they shouldn't do it on the backs of programs that have pulled their weight from the start and will continue to pull their weight for at least the immediate future.
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    "The system as currently constituted can’t keep delivering those checks indefinitely."

    Why not? To fix it requires a modest upward adjustiment in the cap, of the type proposed by Obama. By contrast, privatizing Social Security would be devastating when we have stock market declines of the type we're experiencing now, and even in the best of circumstances would greatly increase administrative costs.

    Many people attack regard libertarians as heartless. I don't think that's the problem. I worry more about their stupidity.
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    So you think all those countries that have dealt with the demographic instability problem by shifting to personal accounts are stupid and doomed? Look out Sweden! You sound like one of those conservatives who talk like people will be dying by droves if we had Canadian health care.
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    Why the heck are you guys acting like it has to be either/or rather than both?

    It is DEFINITELY either/or. Major changes to the philosophy of Social Security would definitely be the biggest political of the 21st century thus far. It would instantly suck all oxygen and attention away from any other reform effort. If you want to add carve-out private accounts to Social Security, you'd better be resigned to that being the only reform of your presidency. .Even if it doesn't "cost" much in budgetary terms, it would cost a great deal in "political capital".

    That said, some new sort of program to encourage/mandate private savings (universal 401Ks or whatever) does seem fairly likely. This will actually be easier to pass if you *don't* sell it as a reform of Social Security, but rather as a good idea on its own terms.
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    the biggest political of the 21st century thus far

    biggest political fight, I mean.
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    I wouldn't say they're "stupid and doomed," but they are certainly deciding to take a risk of lower returns in exchange for a chance at higher ones.

    You appear to regard Social Security "reform" getting killed in 2005 as regrettable. I would point out that had the changes outlined been implemented in 2005 or 2006 (private accounts as a carve-out to part of the guarantee), the system would be in worse today than it actually is since it has remained outside the distress of the stock market.
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    JoshA's last comment gets at the crux of the argument for many liberals.

    Social Security is a guaranteed benefit (leave aside the notion that benefit levels can be changed through legislation). Personal accounts provide non-guaranteed benefits (it depends how the market does).

    Philosophically, many liberals believe that the benefit levels must be guaranteed by law. Otherwise we are subjecting people to the risk that when they retire, there won't be enough benefits to give them the needed support.

    It is plain to see that returns from private accounts will be more volatile than returns from Social Security as it is now. Reasonable people can disagree about whether the higher mean return justifies the higher volatility, but there's the disagreement.

    Of course, another side of the argument is the opportunistic notion that liberals can really punish conservatives and weaken them by pushing hard on this argument, because SS is so popular. This helps liberals achieve other goals by reducing the overall political capital of conservatives.
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    Disassembling Social Security in any manner will tarnish the legacy of FDR's New Deal I & New Deal II. It will be difficult for Democrats to admit that he instituted any system which is incapable of maintaining itself in perpetuity, and Republicans will tear it apart so gleefully that they could easily screw things up worse than they were before. So, in a way, I agree with Yglesias. It is an either/or.
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    the system would be in worse today than it actually is since it has remained outside the distress of the stock market.

    I'm curious as to your view of the stability of the Social Security Trust Fund, such that the stock market can tank and America's banks and lending houses can lose $1,000,000,000,000 in value on paper without having any effect on it. I know the Dow Jones ain't the home team, after all, but doesn't a crippled U.S. economy suggest that the future of Social Security might be poor, too? How is the national pension going to be a better investment than the nation it pensions off?
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    Social Security solvency is an incredibly easy problem to fix, and instituting private accounts is the most convoluted way to go about that fix. The easy fix is -- gradually raise the retirement age, offer less generous indexing of benefits, and raise the payroll tax and/or the max income that the tax is applied against.

    Social Security is an annuity program. With the death of private, long-term pensions, they are the only guaranteed annuity stream most Americans have. Privatizers would like to turn it into a retirement savings program. Americans are by no means short of retirement savings options. They are worthwhile endeavors, but if anything, we need to be simplifying and consolidating the ones that are already out there. Transforming Social Security from one into the other is not only unnecessarily complicated and require far more administration than traditional SS ever has, but it also invites the SSA to function, effectively, as a sovereign wealth fund. This would not be a welcome development.
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    "Social Security solvency is an incredibly easy problem to fix ...The easy fix is -- gradually raise the retirement age, offer less generous indexing of benefits

    Just because a solution is easy to type into a blog comment doesn't mean it is easy to implement. Boomers nearing retirement are not going to vote for additional increases in the retirement age. Neither will they, nor the current retirees, vote for reduction in indexing.
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    Given that we do not have a direct democracy, they don't have to vote for such things. Their representatives will. Obviously, neither those options nor raising taxes are popular, but they are all politically palatable to the extent that their impact is relatively concentrated to a few politically unpopular (i.e. wealthy) classes of citizens. The Social Security vesting age, for instance, was ALREADY raised in the mid-1990s (though only taking effect now) by the 104th Congress, and there was no major political backlash to doing so.
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    It was the Social Security Amendments of 1983 which slightly increased the full retirement age for Boomers and those born later. Early retirement age of 62 was not changed.

    Political backlash in 1983 was minimal because the first Boomers were still 27 years from retirement. Furthermore, AARP was not nearly as powerful 25 years ago as it is today.

    Increasing the retirement age of Boomers is a much riskier proposition for politicians today. They're not going to do it until all other options have been exhausted. Means testing as a means of reducing social security liabilities is a much easier option for politicians, IMO.
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    Professor Coldhart,

    If the US economy does badly over the next century, wage growth will be low and benefit growth will be low. If the US economy does well, wage growth will be higher and there will be more payroll tax to take from people in 2050. For various technical reasons, the offset isn't perfect, but the system is sustainable possibly with minor benefit cuts or tax increases.

    If you want to argue that a defined contribution scheme would be even better, you can go ahead, but it is correct to point out that higher returns have to be traded off with higher volatility.

    Will,

    I thought you accepted social insurance arguments in principle. Here we have a defined benefit scheme with low administrative costs and widespread support from the payors/beneficiaries. If expected retirement income will be lower, that is a price most people are willing to pay to reduce risk. What's so terrible?
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    I am a great believer that All income be taxed at same rate. I mean isn't that fair?Jeez You would think it would be a no brainer.

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