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The Economists Who Missed the Housing Bubble Are Coming After Your Social Security

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Dean Baker
TPMCafé (Talking Points Memo), February 13, 2009

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Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economists in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.

The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

Similarly, if they had been fortunate enough to accumulate any substantial amount of savings in a 401(k) account, they just saw much of this wealth vanish with the plunge in the stock market. The median late baby boomer household (ages 45-54) has a net worth of just over $80,000 including the equity in their home. This means that if they took all of their savings, they would have less than half of their home (assuming a median price $175,000) paid off, and nothing else.

The median household among older baby boomers would be doing a bit better. With a net worth of $143,000, this household could have most of their home paid off, but nothing else. And of course, half of the population has wealth less than the median, so they would be less well-prepared for retirement.

In short, the vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them. And now President Obama is apparently prepared to appoint a commission that will attack these only remaining pillars of support.

It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble. The incompetence of such economists has inflicted enormous pain on billions of people around the world. However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm.

My guess is that this task force will not be very popular except at the Washington Post and on Wall Street.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.