Social Security Scaremongering
Washington Post, December 13, 1999
For decades now a convergence of interests that are uncomfortable with our Social Security system has brought to the public a symphony of misinformation and disinformation, embellished with occasional straight-out lies. This well-financed and unrelenting effort began to bear fruit a few
Most of the deception is carried out through verbal or accounting trickery, by manipulating the official numbers-that is, the projections published each year by Social Security's Trustees. It is easy to create the impression of impending doom, for example, by pointing to the retirement of the baby boom generation (beginning in 2008), the expected doubling of the elderly population by 2035, and so on.
But these dire warnings shrink to irrelevance as soon as one takes into account the other side of the equation: namely, the growth of the economy. It turns out that the system is sound without any change at all for the next 35 years. To cover the next 75 years, if one takes such projections seriously, would require additional revenues of less than one percent of our national income.
All this is just the voice of the official numbers. But unfortunately these, too, are not insulated from the powerful influence of Social Security's adversaries. To see how this influence plays out, we need to look at the fine print.
Last week a technical panel of experts charged with advising the Trustees on economic and demographic projections presented their recommendations. The panel was headed by a former Reagan administration official who has made no secret of his desire to cut entitlements for the elderly. The newspaper accounts, including an editorial in this paper, highlighted the panel's recommendation to raise projected life expectancy, which would make the program's finances appear much worse. Meanwhile very little attention was paid to a more important and curious recommendation: the panel actually lowered their estimate-as compared to their forecast four years ago-for the growth of wages and productivity.
This is a startling result, since in the last four years the U.S. economy has seen exceptionally strong economic growth. Productivity and wage growth have also shot up. One could choose to ignore these years as a fluke, but certainly there is nothing in the record to warrant lowering these economic projections.
In the four years since the last panel met, real wages actually increased at more than twice the rate that the panel had projected. If real wages continue to grow at the same pace as they did in the last four years, the Social Security system would be completely solvent for the next sixty years, with no changes whatsoever.
If the Social Security trustees just used the same wage projections advocated by the 1995 panel, adjusted for some measurement changes by statistical agencies, the system would be fully solvent for the next forty years, even assuming greater longevity. Furthermore, with higher wage growth, the modest changes needed to support the system into the indefinite future would be easily affordable. In short, using any remotely realistic projection for the growth of wages and the economy, the Social Security system will be solvent way into the stratosphere of America's science- fiction future.
There are other anomalies in this latest panel's report. For example, the productivity growth forecast by the panel is very slow compared to other industrialized nations. If we are to believe these projections, then 21st century America is going to be a fairly poor country compared to the nations of western Europe. This should give the experts some cause for wondering where we are going wrong.
Nonetheless there is every reason to believe that the panel's recommendations will be accepted, unless there is serious public dissent. Politicians and lobbyists will then use the new numbers to tell people that we have to raise the retirement age, cut Social Security benefits, or just privatize the system altogether.
There are some important lessons here. First, the process of generating and presenting these numbers is far too vulnerable to political manipulation. The seventy-five year planning period used by the Trustees is absurdly long. Given the vast uncertainties in the assumptions-for example, the range of population projections for 2075 varies by 160 million people-it is all too easy to come up with some kind of financing gap somewhere down the road. This gap, however small relative to future income, is then magnified by Social Security's powerful opponents into a "crisis" that undermines public confidence in the program.
Finally, it is clear that any shortfall that Social Security may have in the future can only result from a very dismal economic performance. So the next time you hear a politician or Wall Street executive say that Social Security needs to be "fixed," just ask them to fix the economy instead.