Posted on 12/08/2004 9:27:14 AM PST by Conservative Goddess
[Several hyperlinks to supporting documents are missing from the article below. To access them, follow the URL to the web.]
KRUGMAN HOLDS BACK THE SOCIAL SECURITY TIDE (KRUGMAN SPIDERHOLE WATCH 5) Here's a fearless prediction: President Bush's vision of Social Security reform with private investment accounts will be enacted into law in his second term. It's in the bag.
What makes me so sure? Two reasons. First, I can see how much the liberal establishment fears it. And second, their arguments against it are utterly impotent.
Here's a case in point. On Tuesday, bellwether "angry liberal" pundit Paul Krugman dragged himself back from an urgently needed post-election mental health break to rail against Social Security reform in the op-ed pages of the New York Times. Krugman must see this as a battleground issue. But if this column is the best he can do, then he's not likely to be any more successful at using his column to turn back the tide of reform than using it to nominate Howard Dean, and when that failed, using it to elect John Kerry.
The core argument of Krugman's column is that Social Security is not in crisis, as he says the proponents of reform through private accounts claim it is. At most, Krugman argues, the system has small, distant and easily cured funding problems.
"Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. ...But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P."
Only a liberal could argue that raising taxes by more than half a percent of GDP for a hundred years is "modest." But even at that, Krugman strongly misrepresents what is actually a dire message in the Congressional Budget Office report. Yes, the report found that the system's shortfall between the present value of its revenues and the present value of its expenditures projected out a hundred years is indeed 0.54% of GDP. But the report states -- and Krugman ignores -- the fact that this very calculation means that, even with new revenues of 0.54% of GDP injected into the system, the system will end up exhausted: "at the end of the 100 years, the balance would be large enough to authorize paying one year's worth of benefits." After that, the report projects that there would be a mismatch between revenues and expenditures of more than 2% of GDP.
Even that is all based on the idea that the assets in the Social Security trust fund -- Treasury bonds being accumulated during the current years while system revenues exceed system expenditures -- will be there to pay retirement benefits in the future. Of course those Treasury bonds represent nothing but IOU's, in essence promises by the government to pay itself. The same CBO report that Krugman cites points out, correctly, that "Those trust funds are mainly accounting mechanisms and contain no economic resources."
As I was told by David John, Research Fellow at the Heritage Foundation, Krugman's belief in non-existent Social Security Trust Fund assets is typical of the unrealistic way academic economists approach real-world problems. "It's like the old joke: How does the economist escape from a desert island? First, assume a rowboat." It's worse than that, though: "Here, Krugman is assuming a luxury yacht."
Not a very rosy picture, is it? Yet Krugman chose to cite the CBO report because at least it paints a rosier picture than the Annual Report of the Trustees of the Social Security Trust Fund. The Trustees say the trust fund will run out in 2044 -- six years sooner than the CBO estimates. New Krugman Truth Squad member Victor Davis, writing on the Dead Parrot Society blog, notes that according to the CBO, the difference between the two reports is mostly in their underlying economic assumptions -- and CBO's are far more optimistic. CBO uses higher estimates for real wage growth, and lower estimates for inflation and unemployment, than the Trustees. How remarkable that Krugman -- perhaps the world's most relentlessly pessimistic economist, who has written for years about our "age of diminished expectations" and "depression economics" and how America is turning into a "banana republic" -- now finds it "more realistic" to look beyond "cautious projections."
This burst of economic optimism is all the more surprising considering that Krugman himself, in the past, has argued -- in his typically shrill style -- that the Social Security system is in crisis. For example, he wrote in the New York Times in 1996,
"Where is the crisis? Just over the horizon, that's where... In 2010...the boomers will begin to retire. Every year thereafter, for the next quarter-century, several million 65-year-olds will leave the rolls of taxpayers and begin claiming their benefits. The budgetary effects of this demographic tidal wave are straightforward to compute, but so huge as almost to defy comprehension."
If there is no crisis -- as Krugman claims now -- then what motivates those who seek Social Security reform through private accounts? Krugman says,
"They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success. For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it."
But whom, exactly, are these destroyers that Krugman is talking about? As Krugman Truth Squad member Jon Henke points out on the Q and O blog, Krugman himself once wrote in his Times column, "There is a case for reforming Social Security; there is even a case for privatization."
Social security policy experts have even longer memories. Economist Eric Engen, resident scholar at the American Enterprise Institute, reminded me that President Clinton's hand-picked Advisory Council on Social Security spent three years investigating reform options, and in 1997 recommended to Health and Human Services Secretary Donna E. Shalala two different plans involving private accounts -- plans which received the endorsement of the majority of the Council's members.
The best Krugman can do is pretend there's no crisis -- and impugn the motives of anyone who disagrees with his deeply conventional liberal wisdom. Because he has no defense against the best arguments for Social Security reform with private accounts.
The reality is that, crisis or not, the present system is inadequate and unfair. It denies Americans choice, control, and property rights in their own retirement savings. It sucks up the entire savings and investment capacity of tens of millions of lower-income Americans. It has a terrible implicit rate of return, compared to even the worst market investments. And it is unfair to minority members whose life expectancies are lower, and thus can expect fewer payments over a lifetime.
Reform of Social Security with private accounts is an issue that shows compassionate conservatism at its best. And the more the angry liberals like Krugman sputter and fume about it, the more inevitable I am convinced that it is.
Nothing Krudman writes is really worth responding to. He is in the NYTs tradition of ignore the facts but print our social agenda.
I'll believe the SS reform thing when I see it enacted. Even then, it won't be enough.
That must be the new Democrat talking point. Harry Reid said the same thing on one of the Sunday shows.
These may be only first steps, but they bode well for us and bad for the opposition. These are the camel's nose under the tent. These are also the BASIS for comparative studies that will DEMONSTRATE the failure of the socialists' programs.
Congressman Billybob
It is a start. Bring it on! (Meant in a good way, of course. If it happens, I'll enjoy seeing the early death throes of this kind of socialism.)
Instead of privatizing SS, perhaps a better tack would be to reinstitute the "loophole" cited in that article, and make it available to all Americans.
Surely, the left would have no objection to "choice"?!
It's gonna get pretty hard to bash corporations when 100% of working Americans are invested in them.
"Some Americans Already Have Privatized Social Security"
I'm one of them. Every time someone gripes about my "outrageous pension benefits" I tell them that my pension is funded by the same amount of money that my employer and I would be paying into Soc Security, with approximately ten times the benefits. Oh, and it's fully funded, too.
If enough people understood this, there would be mass lynchings on Capitol Hill.
CORRECT! And that's the beauty of 401(k) plans.....a lot of us already are invested.......
The committed liberals that I talk with can recite phrases like "corporations don't pay taxes, people do!" but they haven't internalized the reality yet. They still revert to arguing that we should tax corporations to pay for everything. These are educated, employed people....yet they still don't get it. We've got to educate the masses in addition to giving them a stake. A stake alone will not provide the epiphany they need. Sad, but true.
Excellent article.....thanks!
Krugman reminds me of Neidermeyer at the end of Animal House, standing in the middle of a riot yelling "All is well!"
That was Kevin Bacon.
What the hell was Reagan thinking when he allowed that through?
I've asked myself that about various provisions of Reagan-era tax law. There is some stuff in the tax acts of 1981, 1982, 1983 and 1986 that is anti-freedom.
That's starting to become evident.
The left isn't afraid of GW in specific or republicans in general, they're afraid of their own countrymen, specifically those that have rejected their Utopian vision (nightmare to the rest of us). And there's good reason to be afraid--there are a lot of us, our numbers are growing and we're motivated.
The Age of Aquarius dawned, reached its apogee, and is now setting, and that's where the fear really lies for the American Leftist--what will the new dawn bring for the Flower Children?
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