A Birthday Gift from Paul Krugman
Posted by Thomas Firey
I turn 41 this summer (thank you for the condolences). Along with the well wishes of family and friends, I received an unexpected gift from NY Times writer Paul Krugman: this column in which he bashes people who are critical of Social Security in its current form or who worry about its ability to deliver expected benefits.
At first glance, the column hardly seems like a gift: it’s long on nastiness, short on thoughtfulness, and misleading (all Krugman standards, sadly). But it offers such a poor defense of the Social Security status quo that I suspect readers will be more skeptical of the program after seeing the column, not less. Hence, Krugman’s gift.
He writes:
Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.
OK, 2037 — no worries. Except that, as I said, I turn 41 this summer, which means I’ll turn 67 and qualify for full Social Security benefits in mid-2036. The very next year, the Social Security trust fund will be exhausted, according to the “intermediate” scenario contained in the most recent Social Security Trustees Report, available here (see Section IV-B and Appendix E). The program will still pay out some benefits — but less than 3/4s of what it now promises. So what happens then? That’s not a good question if you’re my age or younger.
But suppose you’re not my age or younger. Suppose you’re 10 years older than me, and will have collected 10 years of benefits by 2037. Don’t feel smug — you’ll be asking “So what happens next?” when you’re 77. That’s not a good question at your age, either.
In fairness to Krugman, the Trustees Report considers different Social Security cost scenarios, the most optimistic of which projects that the trust fund will not be fully exhausted over the 75-year period the report considers. Krugman says there’s a “significant chance” this will be the case, but my (admittedly quick) skim of the report suggests it’s more just a “chance.”
One quick aside about the 2037 exhaustion date: when Krugman wrote this column in 2005, the intermediate scenario projected that the trust fund would last until 2042. In five years’ time, that date has grown 10 years closer. Not good.
Krugman writes that, if the trust fund does run out, Social Security can maintain its benefits using money transferred into the program by Congress from elsewhere in the federal budget. In fact, Congress will have to directing money from elsewhere in the budget to Social Security much earlier than 2037. According to the Trustees, sometime in the next decade (2018 under the intermediate scenario, 2020 under the optimistic scenario, and 2014 under the pessimistic scenario), the amount of money Social Security pays out in old-age benefits each year will be greater than what the public pension program takes in in payroll taxes. (The Disability Insurance component of Social Security is in even worse shape, according to the Trustees.) To cover the difference, Congress will have to begin paying off the treasury bonds that currently comprise Social Security’s trust fund in order to provide the promised benefits. (In fact, Congress will have to do that this year because, as a product of the recession, Social Security obligations are greater than revenues. Hopefully, the economy will rebound and give the program a few years’ respite before transfers become an annual necessity though the pessimistic scenario predicts no such respite.)
Krugman is unconcerned by these transfers, dismissing those who worry about them are engaging in “three-card monte.” His column doesn’t acknowledge that these transfers would need to occur at a time when Congress will be scrambling to cover other growing costs: similar deficits in Medicare, obligations to the ever-growing federal debt, and Medicaid’s increasing burden on federal and state governments. I worry that future taxpayers will not be amenable to having so much of their tax money directed to retirees (who refused to reform Social Security when they could have done so at relatively lower cost) rather than to government services for current taxpayers.
Krugman ends the column criticizing the proposal to reduce Social Security’s cost by raising the age at which retirees become eligible for full benefits. As part of an adjustment that began in 2002, retirees must now wait until age 66 to receive full benefits; beginning in 2021, the age requirement will slowly be raised until it reaches 67 in 2027. (Retirees will still be able to take reduced benefits at 62.) Some have suggested raising the full-benefit age to 70. Krugman says this would be unfair:
America is becoming an increasingly unequal society — and the growing disparities extend to matters of life and death. Life expectancy at age 65 has risen a lot at the top of the income distribution, but much less for lower-income workers. And remember, the retirement age is already scheduled to rise under current law. So let’s beat back this unnecessary, unfair and — let’s not mince words — cruel attack on working Americans.
There is something to what Krugman says. From 1980 to 2000, life expectancy for the poorest decile (i.e., 10% of the population) of the U.S. population increased from 73.0 years to 74.7 years, while life expectancy for the wealthiest decile increased from 75.8 years to 79.2 years. (More recent CDC data on life expectancy — if race is used as a proxy for income — raise questions as to whether this trend is reversing, but let’s assume it persists.)
But inequality in Social Security benefits exists whether the eligibility age is 66 or 70. Because Americans are required to participate in Social Security, and because all Americans become eligible for full retirement benefits for the rest of their lives at a single threshold age, then the longer-lived wealthy will receive more in benefits than the shorter-lived poor no matter what that threshold is. This is the product of having a one-size-for-all public pension plan (with lousy benefits). The way to escape this inequality problem is through Social Security choice.
As I wrote at the beginning, Krugman’s column should leave thoughtful and informed readers more concerned about Social Security, not less. He couldn’t have given me a better present.
cato-at-liberty.org
------------
(A 0.25% percent increase in the average rate of economic growth - over the rather *low* assumption of only 2% growth that Social Security's actuaries used for their projections, would mean that they can project NO SHORTFALL at all in S.S.'s funding... not in 2035, not in 2050.)
Only over the period of the projection. Not forever. They would still be an eventual shortage as long as life expectancy keeps going up.
And economic growth's help in avoiding shortages is reduced by the indexing of the scheme for wages. Economic growth isn't a simple answer to all ills here, esp. since the nominal figure in the "trust fund" isn't really the important problem, the cost of the program is. |
