Social Security Scares
The New York Times
March 5, 2004
OP-ED COLUMNIST
By PAUL KRUGMAN
The annual report of the Social Security system's trustees reveals a system
in pretty good financial shape. In fact, it would take only modest
injections of money to maintain that system's current benefit levels for at least the next 75 years.
Other reports, however, appear to portray a system in deep financial trouble.
For example, a 2002 Treasury study, described on Tuesday in The New York Times,
claims that Social Security
and Medicare are $44 trillion in the red. What's the truth?
Here's a hint: while even right-wing politicians insist in public that they
want to save Social Security, the ideologues shaping their views are
itching for an excuse to dismantle the system. So you have to read
alarming reports generated by people who work at ideologically driven
institutions - a list that now, alas, includes the U.S.
Treasury - with great care.
First, two words - "and Medicare" - make a huge difference.
According to the Treasury study, only 16 percent of that $44 trillion shortfall comes
from Social Security. Second, the supposed shortfall in both programs
comes mainly from projections about the distant future; 62 percent of the
combined shortfall comes after 2077.
So does the Treasury report show a looming Social Security crisis?
No.
Social Security's problem, such as it is, is a matter of demography:
as the population ages, the number of retirees will rise faster than the number
of workers. As a result, benefit costs will rise by about 2 percent of G.D.P.
over the next 30 years, and creep up slowly thereafter. By comparison,
making the Bush tax cuts permanent would reduce revenue by at least 2.5
percent of G.D.P., starting now. That - combined with the fact that
Social Security, unlike the rest of the federal government, is currently running
a surplus - is why the Bush tax cuts are a much bigger problem
for the nation's fiscal future than the Social Security shortfall.
Medicare, though often lumped in with Social Security, is a different program
facing different problems. The projected rise in Medicare expenses is
mainly driven not by demography, but by the rising cost of medical care,
which in turn mainly reflects medical progress, which allows doctors to
treat a wider range of conditions.
If this trend continues - which is by no means certain when we are considering
the very long run - we may face a real long-term dilemma that
involves all medical care, not just care for retirees, and is as much moral
as economic. It may eventually be the case that providing all Americans
with the full advantages of modern medicine will force the government to raise
much more money than it now does. Yet not providing that care will
mean watching poor and middle-class Americans die early or suffer
a greatly reduced quality of life because they can't afford full medical
treatment.
But this dilemma will be there regardless of what we do to Social Security.
It's not even clear that we should try to resolve the dilemma now. I'm
all for taking the long view; when the administration makes budget projections
for only five years to hide known costs just a few years further out,
that's an outrage. By all means, let's plan ahead. But let's set some limits.
When people issue ominous warnings about the cost of Medicare after
2077, my question is, Why should fiscal decisions today reflect the possible
cost of providing generations not yet born with medical treatments not
yet invented?
The biggest risk now facing Social Security is political. Will those who hate
the system use scare tactics and fuzzy math to bring it down?
After Alan Greenspan's call for cuts in Social Security benefits, Republican
members of Congress declared that the answer is to create private
retirement accounts. It's amazing that they are still peddling this snake oil;
it's even more amazing that journalists continue to let them get away
with it. Yesterday in The Wall Street Journal, a writer judiciously declared
that "personal accounts alone won't cure Social Security's ills." I guess
that's true; similarly, eating doughnuts alone won't cause you to lose weight.
Why is it so hard to say clearly that privatization would worsen, not
improve, Social Security's finances?
Should we consider modest reforms that reduce the expenses or widen the
revenue base of Social Security? Sure. But beware of those who claim
that we must destroy the system in order to save it.
E-mail: krugman@nytimes.com
Copyright 2004 The New York Times Company
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