Questionable Attack on Krugman re: Social Security

By D. Cupples |  The Washington Post's Ruth Marcus accused economist/writer Paul Krugman of severely downplaying problems with our Social Security system -- to the point of taking a "Don't-worry-be-happy" attitude.  It seems that Marcus misunderstood what Krugman actually said in his recent column.

Krugman doesn't say that Social Security isn't a problem (see his column).  He just thinks it's not an imminent-enough "crisis" that we should outright panic at this point -- and that privatization (which would be disastrous) should remain off the table.

Krugman further asserts that our nation has bigger, more pressing problems at this moment. That's not an unreasonable statement, given our nation's other problems.  For example:

- Our national debt is  $9+ trillion;

- We're fighting the war in Iraq, which has cost nearly $500 billion so far;

- Some politicians are itching to start a (costly) war in Iran;

- Some states are running out of water;

- Medicare is in trouble;

- 40+ million Americans lack healthcare coverage;

- Contractors are driving up healthcare and defense costs (some via fraud).

Contrast those truly immediate crises with the state of Social Security.  The most recent Social Security Trustees' report predicts that-- if we don't tweak the system --Social Security's trust fund assets will be gone in 2041, i.e., 30+ years from now (see report highlights). 

The Trustees' report suggests two possible (and simple) solutions:

1) Raising the Social Security tax from 12.4% to 14.35%, or

2) Cutting benefits by 13%. (see report conclusion)

Another possible solution: increase the SS tax for higher income earners.  In 2007, we paid SS tax only on the first $97,500 of annual salary, meaning that someone with a $500,000 salary paid the same SS tax as someone who made $100,000.

The upshot: Social Security's problems are solvable; thus, there's no cause for a frenzied panic. It would become an imminent crisis if certain politicians manage to stir up enough panic that support for privatizing Social Security grows.

First, privatizing would cost major money: 1) to set up the accounts, and 2) to pay fees to managers that would administer private accounts. Every Social Security dollar spent on such fees is one less dollar for Americans' retirement.

In 2005, President Bush himself estimated (or mis-under-estimated) that setting up and running private accounts would cost $754 billion just between 2009 and 2019 (Washington Post).  That’s 20% of Social Security’s estimated $3.7 trillion shortfall for the year 2079 (GAO report).

Vice President Dick Cheney thought costs would be even higher, telling Fox News that under Bush’s plan, the government would borrow money to set up the accounts, costing “trillions more after that" (Senior Journal).

Second,  investing Social Security money in private accounts is risky, because no one knows what securities markets will do. Ask the thousands of people who lost their kids' college funds when the tech-stock bubble popped.    

One popular argument is if they're stupid enough to invest in another Enron or Worldcom, they deserve to lose their retirement funds.  Play to the end of the tape: if a bunch of Americans get bilked out of their retirement funds (again), thousands might end up on the streets.  The only choice would be to kill them off or spend tax dollars supporting them. America would not kill or allow its 80- and 90-year-olds do without food and shelter.  Thus, we taxpayers would end up paying for them.

The only people who would be guaranteed benefits from a privatized Social Security system are the Wall Streeters that would administer the private accounts.  Haven't they received enough of America's money?

Krugman is right to warn against the frenzied panic that some ideologues intend to create in order to push their privatization agenda.

Related BN-Politics' Posts:

* Another Attack on Social Security Coming?

* The Social Security "Crisis" of 2008

* Govt. Contractors: Driving up War's Costs?

* Contractor Fraud: Driving up Healthcare Costs?

* Private Insurers Milking Medicare

See Memeorandum for other bloggers' comments:  Heading Right, Captain's Quarters, Crooked Timber, Blue Crab Boulevard and The Bullwinkle Blog

Comments

[Tano]

Whoa.

Sorry, but this is a totally dishonest, or perhaps just massivly uninformed post.

Privatization is NOT an issue. That was pretty soundly defeated two years ago.

Krugman is NOT on the scene these past weeks trying to protect against privatization. He has thrust himself into the debate because he has visciously mocked and ridiculed Barack Obama for proposing one of the tweaks you mention above - eliminating the salary cap of 97,500 subject the payroll tax.

Obama's proposal is to make the most regressive of taxes into a somewhat more progressive tax, and thus extend the life of the Trust Fund indefinitly. It is not a panic response, but one that seems quite sound, and very progressive.

I love Krugman for many reasons, but on this issue he seems demented to me.

[D. Cupples]

Hey there,

Thanks for the comment. I didn’t comment on Krugman’s criticism of Obama; I commented on Marcus’ criticism of Krugman. Marcus says that Krugman says that SS has no problems at all. I disagree. In the penultimate paragraph of his column, Krugman said this:

"...But Social Security isn’t a big problem that demands a solution; it’s a small problem, way down the list of major issues facing America, that has nonetheless become an obsession of Beltway insiders."

When he says "small problem," I suspect that he means its fixable and doesn't have to be done this minute (or else). I think he is reacting against panic that could renew privatization talks because of the following paragraphs (starting about half way down his column – after the Tim Russert quote):

“How has conventional wisdom gotten this so wrong? Well, in large part it’s the result of decades of scare-mongering about Social Security’s future from conservative ideologues, whose ultimate goal is to undermine the program.

“Thus, in 2005, the Bush administration tried to push through a combination of privatization and benefit cuts that would, over time, have reduced Social Security to nothing but a giant 401(k). The administration claimed that this was necessary to save the program, which officials insisted was “heading toward an iceberg.”

“But the administration’s real motives were, in fact, ideological. The anti-tax activist Stephen Moore gave the game away when he described Social Security as “the soft underbelly of the welfare state,” and hailed the Bush plan as a way to put a “spear” through that soft underbelly.

“Fortunately, the scare tactics failed. Democrats in Congress stood their ground; progressive analysts debunked, one after another, the phony arguments of the privatizers; and the public made it clear that it wants to preserve a basic safety net for retired Americans.

“That should have been that. But what Jonathan Chait of The New Republic calls “entitlement hysteria” never seems to die. In October, The Washington Post published an editorial castigating Hillary Clinton for, um, not being panicky about Social Security — and as we’ve seen, nonsense like the claim that Social Security is a Ponzi scheme seems to be back in vogue.”

No, I wasn't dishonest, though I might have misinterpreted Krugman's words.

Deb