POAC XIV: Social Security insolvency

This one, at first blush, looks like it will make up for the aberrant relative coherence of POAC XIII.

POAC, for those keeping track, is the Project for an Old American Century. The name is a play on words poking fun at the Project for a New American Century--a conservative group.

Somebody at POAC wastes his or her time writing nonsense political apologetics.

Here's the supposed talking point:

Social Security is going to collapse and republicans will save it by privatizing it.

Bush's Social Security reform plan wasn't a privatization plan. The Bush plan proposed placing a small portion of workers' payroll deductions in a "private" account belonging to the individual. The money would still go to the government, which would in turn invest the funds according to a number of options. The plan was not presented as an idea to save Social Security per se, but as a big step in the right direction. The idea was a forced investment/savings plan.
As for the collapse of Social Security, it's an inevitability given the structure of the system. The population is graying, and the workforce is not going to keep pace even with illegal immigration (Poor immigrants place a drain on the system they might otherwise benefit).

The collapse of the system is not imminent, but the rampant growth of other entitlement programs may speed Social Security's demise. Social Security will be forced to cut benefits, or the government will have to cut other services to provide for retirement benefits.

But let's not get too far diverted from POAC's attempt to show that Social Security isn't in trouble.

A memo written by an aide to Karl Rove, about how to sell Social Security privatization. The public, says Mr. Wehner, must be convinced that "the current system is heading for an iceberg."..."For the first time in six decades, the Social Security battle is one we can win."
President Eisenhower called Texas oil millionaires "stupid" for wanting to abolish social security

Two URLs. I'll take them in order, as is the custom at BBB.

1/11/05 - The Iceberg Cometh

By PAUL KRUGMAN New York Times [L]ast week someone leaked a memo written by Peter Wehner, an aide to Karl Rove, about how to sell Social Security privatization. The public, says Mr. Wehner, must be convinced that "the current system is heading for an iceberg." It's the standard Bush administration tactic: invent a fake crisis to bully people into doing what you want. "For the first time in six decades," the memo says, "the Social Security battle is one we can win." One thing I haven't seen pointed out, however, is the extent to which the White House expects the public and the media to believe two contradictory things. The administration expects us to believe that drastic change is needed, and needed right away, because of the looming cost of paying for the baby boomers' retirement. The administration expects us not to notice, however, that the supposed solution would do nothing to reduce that cost. Even with the most favorable assumptions, the benefits of privatization wouldn't kick in until most of the baby boomers were long gone. For the next 45 years, privatization would cost much more money than it saved.

Ah, the inimitable Paul Krugman. Professor of Economics at Princeton and all-around shill for the Democrats.

Krugman worked from a document commonly known as the Wehner memo. The Wehner memo was written as "not for attribution" but the press doesn't pay attention to stuff like that if they get the memo from somebody other than the one who wrote it. Thus, there was plenty of attribution.
Krugman used a single quotation in the memo, referring to the administration representing Social Security as "heading for an iceberg." Krugman tells the reader that the administration's plan is to present an "imminent" problem with Social Security. In other words, the administration wants to fool people and thus trick them into supporting Social Security reform. But how does the memo actually read?

We will focus on Social Security immediately in this new year. Our strategy will probably include speeches early this month to establish an important premise: the current system is heading for an iceberg. The notion that younger workers will receive anything like the benefits they have been promised is fiction, unless significant reforms are undertaken. We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course. That reality needs to be seared into the public consciousness; it is the pre-condition to authentic reform.
(Wehner memo, at "The Dubya Report")

If you think that the memo makes sense, you're right. But maybe if we just use the "heading for an iceberg" part and imply that Wehner was intimating that Social Security was headed for an imminent collapse we can gin up some opposition to the plan ...
Back to Krugman.

Krugman asserts that the private accounts under Bush's plan would require the government to borrow money.

That's partly true. The money that workers put in their own accounts would not go directly to Social Security beneficiaries and into the Federal Government's slush fund--the government spends Social Security deductions just like any other tax, promising to pay it back later; that was why Al Gore when he ran for president in 2000 was promising to put Social Security in a "lock box" so that the federal government couldn't touch the funds.

Since the federal government wouldn't be able to borrow as much from Social Security, it would have to borrow from somewhere else.

Krugman's shorthand turns that into "borrowing for privatization."

But Krugman's obfuscation aside, the big problem with his column is that it doesn't present any sort of alternative for addressing Social Security's problems. And the Congressional Budget Office unquestionably recognized problems.

In the coming decades, society's changing demographics and the accompanying demands for goods and services are likely to create a significant economic challenge. However, there is not a lot of time to prepare.

They almost make it sound like we're headed for an iceberg.

Changes to the Social Security and Medicare programs would be best accomplished sooner rather than later because future beneficiaries would have longer to prepare, because those changes could be less drastic, and because they could enhance economic growth.
(CBO)

Donald Luskin, writing for National Review, pointed out that Krugman expected an iceberg of sorts in 2010:

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.

(National Review Online)

A successful reform of social security will enable the system to accomplish its fundamental goals while stimulating the economy enough to sustain the needed benefit levels. The Bush plan began to address the problem in a sensible manner. The Democrats shot it down for the sake of politics.

Not to oversimplify the problem. The Social Security problem doesn't really have an easy fix.

CBO: "Social Security Reform: The Use of Private Securities and the Need for Economic Growth"

So, summarizing the first URL provided by POAC, Krugman's case against the Bush plan was flawed and insincere with respect to its denial of a big problem with the program--at least if Krugman was serious about what he wrote back in 1996 (yes, Social Security was "fixed" under Clinton in 1999, but without addressing the system's fundamental flaws).

URL #2.

We're sent to Snopes.com (a good source, for once), with an affirmation that President Eisenhower said that a political move to eliminate Social Security would be stupid and result in bad times for a political party that favored the move.

This URL is irrelevant--a shockingly frequent occurrence at POAC. The Bush privatization plan did not remotely approach a call for the end of Social Security. It did try to encourage individuals to take an active part in retirement planning by making voluntary private accounts a part of the existing system. Not doing anything to fix Social Security before it can't keep it's commitments would be truly stupid.

Remember the congressional Democrats giving themselves rich applause for maintaining the status quo on Social Security during Bush's 2006 State of the Union address?

Final summary: An incoherent stinker by the POAC crew.