The Liberal Establishment Was Wrong
June 11, 2001
Part of growing up is being able to admit when you are wrong. There are a lot of political pundits around Washington right now who really should be showing some maturity. The reason is simple – they came up with a clever lie, which didn’t work.
Back in 1998, the projections for the federal budget flipped. After showing deficits for as far as the eye could see, the projections suddenly showed surpluses for as far as the eye could see. The Republicans immediately started yelling for tax cuts. Then President Clinton came up with his clever lie. In his State of the Union address, he proclaimed that we must “save Social Security first.”
The untruth in this statement, as all serious policy analysts know, is that Social Security didn’t really need to be “saved.” The projections from the Social Security trustees show that the program could pay all scheduled benefits for 37 years into the future, with no changes whatsoever. Even after that date, the program would always be able to pay retirees a larger real (inflation adjusted) benefit than what current retirees receive, even if this was less than their full scheduled benefit.
While the fact that we are projected to enjoy longer lives in the future than we do now poses problems for Social Security, this has been the case ever since the start of the program. In fact, at no point in the forties, fifties, sixties, or seventies was Social Security ever as strong as it is now. Given these facts, it was a serious exaggeration to say that Social Security needed to be saved.
Regardless of the facts, the bulk of the liberal-progressive establishment joined the President’s war cry. They were convinced that they had an effective strategy to defeat tax cuts targeted for the rich. And for at least a few years, it apparently worked.
But the politics only went so far. Apparently, not enough people really believed that President Bush’s tax cut was going to destroy Social Security, or least not enough to get Al Gore into the White House (although perhaps enough to get him elected).
Now that President Bush has gotten his tax cut through Congress, it’s time to give up the game. It’s not just a question of honesty, it’s a matter of preventing the fiction from becoming a reality. Every public opinion poll shows that Social Security is a hugely popular program. There is no way that the public would ever support privatizing the program, unless it was first convinced that Social Security really was in crisis. After all, if the program isn’t going to be there anyhow, no one would be losing anything by jumping on board the private account bandwagon.
If President Bush’s effort to privatize Social Security is going to be defeated it will be necessary to tell people the truth about Social Security. The liberals who have been warning that the tax cuts would derail Social Security will have to acknowledge that the tax cuts have no direct impact at all on Social Security’s finances – the system has a separate account. The tax cuts could only matter if they prompted the federal government to default on the bonds held by the Social Security trust fund. Such a default would certainly be unnecessary in any foreseeable economic future, there is no projection that shows the budget situation in the next thirty years even getting as bad as it was in the sixties and seventies, much less the high deficit era of the eighties – a period in which the possibility of defaulting on debt was never even raised in public.
Furthermore, a default on the bonds held by the Social Security system would be politically unimaginable. The government would presumably still be paying off the bonds held by banks and rich individuals. It would also presumably be paying all its other bills, including congressional salaries. While the nation will be somewhat older on average in twenty or thirty years, it will not have gone senile. It is not going to elect people to Congress who would causally default on money borrowed from the nation’s most important social program.
In short, the basic facts are clear. There is no real threat to Social Security except the politicians who want to dismantle it. The scare tactics didn’t stop the tax cut. It’s time to grow up and tell people the truth about Social Security.
Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.