Yelling at the Kids on the Social Security Lawn

Mark O'Brien is gearing up to start kicking kids off the grass which he expects to be growing soon in his own yard. On his newspaper blog, which seems to get even less editorial attention than his column, O'Brien is now endorsing the right-wing extremist, Marco Rubio (R-Teabagger) for governor U.S. Senator because "he favors raising the retirement age for people now 55 or younger. He also would change the way benefits are calculated."

O'Brien is a nice enough fellow on a personal level, but he's 61. He's as good as got his. He wants you to vote so you don't get yours. He'll make a terrific crabby old man.

The really sad thing about this endorsement by Mark is that he is manifestly clueless about the macro economics of the Social Security system. Which makes him an easy mark for the "decades of scare-mongering about Social Security’s future from conservative ideologues" as Pulitzer Prize winning economist Paul Krugman put it at the beginning of the last election cycle.

The Social Security system is not in crisis. Not even close. Another economist, Prof. Jason Furman, summarizes the facts:

• The Social Security actuaries project that in 2018, Social Security’s trust fund will hold $5.3 trillion in assets, in the form of U.S. Treasury bonds. Starting in that year, Social Security payroll tax collections will not be sufficient to cover the cost of all Social Security benefits, so the Social Security system will start to use a portion of the interest the trust fund earns on its bonds to cover the remaining benefit costs. The rest of the interest the trust fund earns will be reinvested in the trust fund. The actuaries project that as a result of these interest earnings, the trust fund’s assets will increase by another $1 trillion in the decade after 2018 and reach $6.6 trillion by 2028.
• Treasury bonds are the world’s most secure investment. They are the instruments that investors large and small, at home and abroad, turn to for safety, secure in the knowledge that the United States has never in its history defaulted on its bonds.
• The notion that the Treasury bonds which the trust fund holds are nothing but paper IOUs that may not be honored does not withstand scrutiny. Failure to honor Treasury bonds would result in a U.S. government default, and that likely would trigger an international financial crisis. As the New York Times editorialized on January 10, “If the trust fund’s Treasury securities are worthless, someone better tell investors throughout the world, who currently hold $4.3 trillion in Treasury debt that carries the exact same government obligation to pay as the trust fund securities.”
• The Social Security Trustees, a group that includes Treasury Secretary Snow and other Cabinet officials, project that the Social Security trust fund will be able to pay full benefits until 2042. At that point, the trust fund will be exhausted — that is, all of its bonds will have been redeemed. The Congressional Budget Office projects the trust fund will be able to pay full benefits until 2052.
• When the trust fund is exhausted, the Social Security system will not be “bankrupt.” It will continue to collect both payroll taxes and the income taxes levied on a portion of Social Security benefits. With these revenues, it will be able to pay about 70 percent of benefits according to the Social Security Trustees, and about 80 percent of benefits according to CBO.
• Finally, if one believes that Social Security faces a crisis in 2018, then converting part of Social Security to individual accounts would accelerate that crisis. According to the Social Security actuaries, the major individual account plan proposed by the President’s Social Security Commission (which is reported to be the principal plan the President is considering) would advance the date at which Social Security’s benefit costs exceed its non-interest income from 2018 to 2006. In other words, under that plan, Social Security would have to rely on interest from the trust fund to pay benefits starting next year.
  
  Furthermore, according to the actuaries, that plan would increase the federal debt by $10 trillion by 2030, an amount equal to 28 percent of GDP, substantially increasing the volume of Treasury bonds that the government has to finance.

As another economist explained recently, crisis-mongering about the Social Security system is "manufactured cynicism" which politicians too often use as a bogeyman to scare voters. Politicians exactly like Marco Rubio.

Social Security's surpluses have in fact helped to create an economy rich enough to support the retirements of the Baby Boomers, as well as the eventual retirements of their children and grandchildren. While we might choose in the future to adjust benefits and taxes, there is no reason to believe right now that the system is in trouble, either in the short term or the long term. And the headlines to the contrary are inaccurate and irresponsible.

The truth is that the compact between generations is being honored. To see that, we need only ignore all the scare-mongering, look at the facts, and realize that Social Security is working as it should.

As economist Richard DuBoff puts it--

Social Security is simply another claim on society's resources and production. Its future viability depends on how large the labor force will be, what fraction is employed, and how high the productivity of its workers will be--in other words, on how fast the output of goods and services grows in future decades.

The nation surely does face a long-term total budget deficit challenge -- arising mainly from chronic unrestrained military spending, corporate welfare, the infamous Bush tax cuts for the rich, and Wall Street bank rescues. But that is a very different problem and it requires very different solutions. Furthermore, it would be stupid to cut spending now in the midst of a deep recession.

Even if Social Security were truly facing a crisis -- and, as most economists say, it's isn't -- the simplest and most effective fix long has been obvious: eliminate the income cap on the Social Security tax and investment income.

Now, however, we're talking about walking on Mark O'Brien's lawn, again.
corrected 4-17