The hottest sport these days in Washington is seeing how many incorrect or misleading statements about Social Security you can get in one column. All the major media outlets are fully on board, anxious to convey any misinformation that reflects badly on the program. And there are plenty of deep-pocketed funders like Wall Street investment banker Peter Peterson who are happy to finance the effort. Hence we are seeing a plethora of pieces decrying the high-living seniors who are getting fat on their Social Security checks.
The latest contestent to enter the fray is Republican political strategist Mark McKinnon with a column in the Daily Beast. Let's play along.
Mckinnon starts by warning that the United States could end up like Greece or Portugal, abandoned by the credit markets and forced to beg international organizations to buy our debt. Very nice -- this one always gets lot of points with political pundits. Of course it is not true. The United States has its own currency, that means it can never be like Greece or Portugal.
Next we are told that life expectancy has increased by 15 years since 1935 when the program was established. This is true, but mostly irrelevant. Most of this increase was due to a reduction in infant mortality. That means more retirees, but also more workers. Some of the increase was due to the fact that more people live to the point where they retiree. Only a small portion of the increase has been attributable to people living longer after they retire. And much of this gain has been eaten by the increase in the normal retirement age from 65 to 67 that is already in current law.
It is also important to note that in recent decades that most of the increase in life expectancy has gone to those at the top with the bottom half of wage earners seeing very little improvement in life expectancy. The increase in the normal retirement age to 70 proposed by McKinnon would actually leave lower-income workers who start collecting benefits at this age with fewer years of retirement. It is also important to note that these workers are the ones most likely to be have physically demanding jobs where working later into life may be difficult.
McKinnon then tells us that, "those hard-earned dollars you pay into Social Security today are paid out to somebody else tomorrow." Yeah, this pretty much true, but has nothing to do with the time of day. If you buy a bond from General Electric they are likely to spend the money. I suppose we can expect Mr. McKinnon to express outrage that GE spent the money it borrowed, but that is the way a modern economy works. People pay their taxes to Social Security, some goes to pay current benefits and some goes to buy government bonds, what exactly is the problem?
He then tells us that Social Security is short of cash. I suppose that this can be true in the same way that Bill Gates may occasionally be short of cash if he or his servants have not paid a visit to the ATM machine recently. Social Security holds more than $2.6 trillion of government bonds in its trust fund. McKinnon seems to think that there is some big problem with using this money for paying Social Security benefits. Of course this is why it is there.
McKinnon also envisions that we can fix Social Security for all time and complains that the 1983 fix only kept the program fully funded for 54 years. Actually, as long as we have a democracy we cannot fix Social Security for all time. In 40, 50, or 60 years the people alive at the time will structure Social Security in the way that they think makes the most sense. Odds are that they will not care a great deal about what the Congress thought was a good retirement system in 2011, just as we don't care too much about what people thought Social Security should look like back in 1951.
Finally, it is worth noting that the even the worst horror story highlighted by McKinnon probably wouldn't be too scary to anyone who understands the numbers. Even if we did nothing for the next 26 years and the Social Security spending and cost numbers followed exactly their projected path, the shortfall projected for the late 2030s would be less than 1.3 percent of GDP. By comparison, the increase in annual defense spending from 2000 to 2010 was 1.6 percentage points of GDP. While this sum is far from trivial, it certainly did not wreck the economy. In short, even this disaster story hardly looks like much of a disaster.