Tuesday, February 15, 2011

There Is No Crisis

I wanted to post this partially in response to a great comment debate we were having a few weeks back. It cannot be said enough, that social security is not in a crisis. A massive write up by Mark Miller of Reuters:
Why do reporters parrot misinformation about Social Security? It’s probably done in the name of balance and a centrist approach. Trouble is, the center on this issue has been pulled so far right that the Beltway consensus portrays Social Security as a program in crisis and a main driver of the federal budget deficit.

But the consensus is wrong, and so is much of the reporting.

The latest example among many: National Public Radio’s story on Feb. 9 claiming that Social Security has hit a tipping point. Why “tipping?” Because the program has gone cash-flow negative. NPR quotes alarmed politicians who express dismay that Social Security is taking in less than it spends — but that’s no surprise at all.

Social Security’s actuaries have long projected that the program would shift to a cash-flow negative status as boomer retirements accelerated. It happened a few years earlier than projected due to job loss in the Great Recession, which reduced Social Security payroll tax collections and also prompted a higher-than-expected number of benefit applications from unemployed older workers.

Yet NPR lets Sen. Lamar Alexander (R-TN) get away with this:
“It’s very significant that this year, Social Security has more money going out than coming in,” says Lamar Alexander, a member of the Senate GOP leadership team. “And it’s very significant that in the next 10 years, Social Security will add a half-trillion dollars to the deficit. Social Security would be a good place to start when dealing with these mandatory entitlement programs that are 57 percent of our budget.”
No challenge or analysis required on that one, it seems.

Question: how, exactly, does Social Security add a half-trillion to the deficit?

Answer: the program will be drawing down the Social Security Trust Fund (SSTF) to pay out expected benefits – over a period of years. The SSTF holds a $2.5 trillion surplus accumulated under the 1983 Social Security reforms, which boosted payroll taxes and the retirement age. But Social Security’s trustees don’t have that money sitting in a piggy bank somewhere. It is invested, sensibly, in one of the world’s safest investment vehicles — U.S. Treasury notes. So, the SSTF now starts redeeming some of those notes to pay out benefits.

Enemies of Social Security like to flip this upside down, describing it as irresponsible Federal government borrowing, for which we must now pay the piper. But there’s nothing more-or less-irresponsible about the existence of SSTF bonds than any other federal debt obligation.
The whole article is worth a read if you have the time.

Social Security cuts were kept out of the state of the union, but as Chris Bowers notes there's no question that plenty of people in the White House are getting aroused at the thought of fucking with the most popular government program in the history of the United States. He also points because of Social Security's popularity, that any deal would be negotiated with the Republican congressional leadership in secret, similarly to how they did the tax cut deal.

Regardless of anything else, the Reuters article is a good sign, because I can't remember the last time a mainstream news organization called out bullshit like this. Well done.

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