Why Is It So Acceptable to Lie to Cut Social Security Benefits?

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Friday, 15 October 2010 03:52

We aren't supposed to use the word "lie" in Washington, probably because the practice is so common, but let's just use normal English for a moment. NYT Roger Cohen devotes his column to a tirade against the French for their opposition to raising the retirement age. This opposition has taken the form of a general strike that has seriously disrupted the economy.

Cohen is a huge proponent of the increase -- he calls it a "no-brainer." This is fine, he is a columnist and this is his opinion. But how about getting the basic facts right? The headline and discussion in the article focus on a raise in the retirement age from 60 to 62. Cohen argues that this is necessary because life expectancy has risen 15 years since 1950.

Age 60 is not in fact the age for getting full retirement benefits in the French Social Security system. It is age 65. Age 60 is an early retirement age at which it is possible to retire with reduced benefits. It is comparable to the age 62 early retirement age in the U.S. system. Cohen is not alone in failing to make this point clear, but he certainly does raise this distortion of the debate to a higher level.

The 15 year increase in life expectancy is also deceptive. The implication is that the French expect to be retired on average for 15 years more than in 1950. Actually, much of the increase is due to reduced infant mortality rates. This does not directly affect the arithmetic of the retirement system. Much of the increase is due to more people living until retirement. This improves the finances of the retirement system. Only a portion of the increase is due to people living longer post retirement. (I don't have the breakdown for France, but here's the U.S. story.)

Cohen also includes the bizarre assertion that France has to raise its retirement age because "the Chinese don’t get the notion of retirement." Unfortunately this sort of junk is often used in arguments for cutting wages and benefits for ordinary people.

Is Roger Cohen a Neanderthal protectionist? Does trade make the world poorer? That is not standard economic theory. If it would have been possible for people to enjoy early retirement benefits in France at age 60 without trade with China, then it should be even more possible now that the French have the benefit of low-cost goods made in China.

Unfortunately Cohen's misrepresentations (we're being polite again) are the norm in this debate. Billionaire investment banker Peter Peterson routinely goes around saying that there is no Social Security trust fund. This blatant untruth should put Peterson on the top pedestal of the Economics Flat Earth Society. Instead, he is treated reverentially in elite DC circles and even wins himself invitations to the White House. 

The world is not getting poorer. Productivity is improving year by year. (France's productivity level is only slightly lower than the United States.) It is perfectly reasonable for a society to opt to take the benefit of higher productivity growth in the form of longer retirements.

This does have to be paid for, presumably primarily through taxes on wages -- in effect workers pay for their own retirement. In the United States, while Social Security cuts are talked about all the time in Washington's elite policy circles, polls routinely show that workers are actually willing to pay higher taxes to finance their retirement benefits, and that they prefer taxes to cuts. This is not a problem of people being childish. This is a problem where the elites have arbitrarily ruled out one of the key options.

Of course it is also possible to support a retirement system in part with more progressive taxation. In the United States, raising the cap (currently $106,000) on taxable wage income would go a long way to reduce the projected long-term shortfall in funding.

It is also possible to raise money from directly taxing those who have been the big winners in the current economy. A financial speculation tax could raise as much as 1 percent of GDP in the United States ($145 billion a year). This is twice the size of the projected shortfall in the Social Security benefits.

Financial speculation taxes are almost never discussed in the media even though they have been widely used. (The United Kingdom still raises 0.3 percent of GDP [$40 billion a year in the U.S.] from a tax that only applies to stock trades.) They are politically difficult because of the power of the financial industry in the United States and elsewhere.

But talking about cutting Social Security benefits, rather than raising financial speculation taxes, or other progressive taxes, cannot honestly be called making tough choices. It is making a cowardly choice. It is serving the interests of the rich and powerful at the expense of the vast majority of the population. That may be what politics is about, but it should be described accurately.