Decision ‘08

No Crisis In Social Security? Tell That To The Trustees

One of the odder political transformations of recent times has been the newfound disdain the American left has for the notion that Social Security is in trouble. One needn’t look far for the reason - as Paul Krugman neatly explains here, it’s because the notion of privatization had gained traction, so the natural response was an Alfred E. Newman-esque sticking of the head in the sand - what, me worry? There’s no crisis…

Well, the progressives have won the battle, but lost the war. It’s inconceivable, in today’s time of great market turmoil, that anyone will turn to privatization anytime soon, but there IS a crisis, and it’s quite real. Today the trustees of Social Security and Medicare issued a grim warning:

Trustees for the government’s two biggest benefit programs warned Tuesday that Social Security and Medicare are facing “enormous challenges,” with the threat to Medicare’s solvency far more severe.

The trustees, issuing a once-a-year analysis, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.

…The first year that payments will exceed income for Social Security will occur in 2017, just nine years from now, reflecting growing demands from the retirement of 78 million baby boomers. Medicare is projected to pay out more than it receives in income starting this year.

“The financial difficulties facing Social Security and Medicare pose enormous challenges,” the trustees said in their report. “The sooner these challenges are addressed, the more varied and less disruptive their solutions can be.”

Treasury Secretary Henry Paulson, one of the trustees, warned that the country was facing a fiscal train wreck unless something is done.

“Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity,” Paulson said in releasing the new report. “Our nation needs a bipartisan effort to strengthen both programs for future retirees.”

Unfortunately, I have grown accustomed to the thought that there will be no Social Security for me. Part of me says that’s ridiculous, something will be done, something HAS to be done. The far more likely outcome is that, rather than no benefits, workers of my generation will receive vastly reduced benefits that kick in at some ridiculous old age that I’ll be more than lucky to even live to. Krugman writes in the article I linked above as if 30 years were centuries:

…[B]y law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

Now, to Paul Krugman, 2042 may sound a long way away (actually, the SSA now says 2041 - Krugman’s article is four years old - I could have found dozens of more recent examples from ‘progressives’, but Krugman sums up the whole ignorant slant admirably, and besides, I love kicking Krugman), but if all goes as planned in my career, I will be eligible to start drawing benefits in 2038. That’s if the age for full benefits is not pushed out (and it will be). So I can look forward, after a lifetime of payroll taxes (and the level of payroll taxes will increase, you can bet your life), to some 3 years of checks, if nothing is done, or more likely, checks that are much smaller, proportionally, then today’s retirees get, because they’ll have to lower that, too.

Whoopee! Thank God there’s no crisis…

32 Responses to “No Crisis In Social Security? Tell That To The Trustees”

1 Jacques Distler Says:
March 25th, 2008 at 10:16 pm
Medicare is, indeed, in trouble. This is not news to anyone who has been paying attention.

But the chicken-little schtick about Social Security is getting tired. The actuarial balance in the SSA Trust fund is improving, not worsening.

To quote Krugman:

This is the thing that’s supposed to get steadily worse as time goes by, as the 75-year window contains ever fewer years in which the baby boomers are in the work force, paying payroll taxes, and ever more years when the boomers are out of the work force and collecting benefits.

In fact, however, the actuarial balance has been improving rather than worsening. It’s now better than it’s been since 1993. What this tells us is that projections made in the mid-to-late 1990s were, in the light of subsequent revisions, way too pessimistic.

Moral: Social Security’s financial problem is relatively minor. It doesn’t deserve the emphasis it receives from most pundits.

Rather than going full-bore, attempting to radically reform Social Security (where only a minor adjustment — e.g., a small rise in the cap on payroll taxes — is necessary) you might devote yourself to the much harder, and much more urgent, problem of fixing Medicare.
2 Fred Says:
March 25th, 2008 at 10:35 pm
“When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time”

There is no “trust fund.” And if Paul Krugman thinks there is, we should ask him in what bank he thinks it’s being kept in. When the SSA benefits start to exceed payroll tax revenue then taxes will have to be raised to pay for this added burden or other programs will have to be cut or SSA benefits will have to be lowered. And that’s coming in only a few years. The “Trust Fund” is an accounting device used by the federal government. It’s the equivalent of you saying your left pants pocket has a surplus and your right pants pocket has a debt. In other words, when the Social Security Administration says its federal I.O.U.s are savings it can call on to pay its liabilities we should realize that all of us are the source of both the SSA and the federal government’s income. It’s only that one is slightly more direct than the other.
3 Jacques Distler Says:
March 25th, 2008 at 11:19 pm
So, shall I sell my holdings in Treasury Bonds, because the Federal Government is going to default on them, too?

If not, why do you think it will be politically possible to default on the Treasury Bonds held by the SSA Trust Fund, but not on those held by other entities (me, various State Governments, the Chinese, …)?

If your argument is that the National Debt is just a form of deferred taxation, that is true. In which case, you should, at all costs, avoid voting for Republicans.
4 Mark Says:
March 25th, 2008 at 11:41 pm
Jacques, I fail to be relieved by quotes from Krugman when the trustees themselves warn of an impending meltdown.

We can all agree that Medicare’s problem is the bigger, but Social Security’s is possibly the more calamitous…The link from Krugman you quoted contains no solutions, just a “see - it’s not as bad as we thought - so let’s continue to do nothing” attitude.

The bottom line is this: more retirees and fewer workers equals big trouble. I don’t see how you can avoid that. It may be trouble in 30 years, 50 years, or a hundred years, but it’s still trouble…
5 Jacques Distler Says:
March 26th, 2008 at 12:02 am
We can all agree that Medicare’s problem is the bigger, but Social Security’s is possibly the more calamitous…

“Possibly,” but only if some scenario that you haven’t spelled out takes place.

Do you (like Fred) expect the Treasury to start selectively defaulting on US Treasury Bonds? Something else?

The bottom line is this: more retirees and fewer workers equals big trouble. I don’t see how you can avoid that.

The bottom line is that the period of time over which Social Security is projected to stay in the black is lengthening, not shrinking.

Yes, if absolutely nothing is done, and current projections hold, it will start to slip into the red towards the end of the (mandated) 75 year projection period.

No one disagrees (certainly not Krugman) that something must be done to ensure that Social Security is still solvent in 2093. But what is required to ensure that is a minor correction, not a major overhaul.

It may be trouble in 30 years, 50 years, or a hundred years, but it’s still trouble…

Can we stick to the 75 year window that the Trustees are required to project for? It doesn’t make sense to project farther into the future than that. The people who will retire 75 years from now haven’t even been born yet.
6 too many steves Says:
March 26th, 2008 at 5:45 am
Do what YOU can to protect yourself: plan as if Medicare and Social Security will not be available when you are old enough to retire. I cannot imagine a scenario in which any politician of any party will ever have the stones to address these programs in a forthright way.
7 Ryan Says:
March 26th, 2008 at 5:51 am
“quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.”

Seems to me that that’s probably not just Krugman thinking that the Trust Fund could last forever. On the merits, I agree with Jacques: the amount of changing we need to do in order to fix Social Security is pretty small. Raise the cap a bit, push the retirement age back a couple years, etc. The problem is an order of magnitude smaller than a lot of people believe it is.

As for Medicare… well, that one’s a disaster. We are going to have to do something and I’m not sure very many people have great solutions. Part of the problem is figuring out exactly why health care costs are so dang high and how we can lower them. I, for one, support more government involvement, but I’m not of the usual liberal belief that that will dramatically lower costs. Nor do I believe conservatives have it right when they talk about things like tort reform, which would be a drop in the bucket. Such is my pessimism.
8 DBrooks Says:
March 26th, 2008 at 7:57 am
It has been said about Krugman that he has predicted 15 of the last 3 recessions. His economic commentary is invariably political in nature, politically biased, that is. Why anyone would take his advice as gospel is beyond me. Equating a non-existent Social Security “Trust Fund” to Treasury Bonds is not an accurate comparison. The US Congress is unlikely to ever legislate the payouts on US Treasury Bonds, or to change the parameters of those payouts. If Social Security was an investment “option,” no one but a fool would choose it given even a rudimentary list of today’s alternatives. “Raise the cap a bit”–in other words, further tax those who would likely invest that money in much more sensible places than Social Security. What that describes is nothing more than wealth transfer, which is not the purpose of the Social Security sytem.
9 Ryan Says:
March 26th, 2008 at 8:52 am
Yes, it really is too bad we don’t have Social Security invested in the market right now. All those old people are getting majorly screwed over.

And the Trust Fund is essentially made up of Treasury bonds. Equating them isn’t the least bit inaccurate.
10 mikebdot Says:
March 26th, 2008 at 9:10 am
“The bottom line is this: more retirees and fewer workers equals big trouble. I don’t see how you can avoid that. It may be trouble in 30 years, 50 years, or a hundred years, but it’s still trouble…”

Wow, sounds an awful lot like Al Gore talking about global warming. Better get out the straightjacket!

And, for the record, I know we probably ought to pursue SOME method to rectify the possibility that social security will only pay out 73% of the promised benefits in 2042, but privatizing 1/3 - 1/2 is something I would describe as “possibly the more calamitous” solution, even over doing nothing at all.
11 Jacques Distler Says:
March 26th, 2008 at 10:21 am
Again, I’ll point out that I linked to the SSA’s own estimates of the magnitude of the problem. It would require a 1.7% rise in payroll taxes (whether through raising the cap, or some other means) to keep Social Security in the black through 2093 — as far into the future as their forecasts project.

What I would like to know is: why are “conservatives” exclusively fixated on “saving” Social Security, but are content to entirely ignore Medicare, which is in much bigger trouble?

In some quarters, the reason is pretty clear: some people want to dismantle both programs. Medicare is going to implode all on its own, and so requires little attention. Social Security, however, requires “help” to be driven over the precipice.

Now, I’m sure no one chiming in here is that duplicitous, so I’d like to hear your reason for obsessing over Social Security’s non-crisis, while ignoring Medicare’s very real crisis.
12 peter Says:
March 26th, 2008 at 12:52 pm
On a somewhat different topic, I think that McCain has a much better plan for the foreclosure problem than Clinton or Obama (no role for the government vs. setting up a government fund to bail out homeowners).

In my view, taxpayers should not be obligated to provide funds for people who borrowed more than they could afford. People ought to be accountable for their own decisions, and setting up the expectation that the government is there to bail you out if you over-extend yourself is a dangerous precedent.
13 Fred Says:
March 26th, 2008 at 1:29 pm
Look, an SSA award letter is a piece of paper that says that the part of the federal government known as the SSA owes you money every month, a US savings bond is a piece of paper that says the federal government owes you money. They are 2 separate debts that the federal government owes. They don’t cancel each other out. If your brother owed you $1,000 because you helped him pay for his car and another $1,000 because you helped him pay off his credit card, what would your reaction be if he took you aside and said not to worry about being paid back because he’s going to use his credit card debt to you to pay off his car debt to you?

When the SSA revenue exceeds the SSA monthly debts the federal government will have to pay the difference. At first it will be by redeeming federal bonds, but so what? It’s simply an indirect way of paying the SSA shortfall, which is coming soon.
14 Fred Says:
March 26th, 2008 at 1:38 pm
Actually, the last paragraph should read “when the SSA revenue falls short of the SSA debts the federal government will have to pay the difference.” Sorry about the mistake.
15 too many steves Says:
March 26th, 2008 at 4:16 pm
Fixing SS is easy: increase the input, decrease the output. If you don’t accept that solution then you probably believe it is a retirement system rather than a simple welfare/transfer-of-wealth system.
16 Jacques Distler Says:
March 26th, 2008 at 6:05 pm
On the merits, I agree with Jacques: the amount of changing we need to do in order to fix Social Security is pretty small. Raise the cap a bit, push the retirement age back a couple years, etc. The problem is an order of magnitude smaller than a lot of people believe it is.

Which is not to say that we shouldn’t do anything about the projected shortfall. Rather, that what’s required (if we act now, rather than 20 years from now) is some very modest tinkering.

As for Medicare… well, that one’s a disaster. We are going to have to do something and I’m not sure very many people have great solutions. Part of the problem is figuring out exactly why health care costs are so dang high and how we can lower them.

Precisely so. You can’t reform Medicare, without tackling the healthcare system as a whole. But admitting that the healthcare system need fixing (and, no, tort reform and medical savings accounts do not constitute a “solution”) is the last thing many conservatives will ‘fess up to.

Yet another reason to distract attention away from Medicare.
17 too many steves Says:
March 26th, 2008 at 6:21 pm
Much of the problem with the healthcare system is too much government not too little.
18 Mark Says:
March 26th, 2008 at 7:04 pm
Peter, the notion of government bailing out homeowners is worth it’s own post (soon), so I won’t address it here.

Jacques, I’m not ignoring Medicare’s disastrous predicament. My original point was that liberals have drastically changed their tune on Social Security (after all, it was Al Gore who spoke of the lockbox, not a Republican). Why? Because privatization was gaining momentum.

As to Ryan’s comment re: having the funds invested right now, yes, if you take a short term look at the market, things are grim at the moment…but of course, Social Security by definition takes a long-term view, and it’s hard to argue that stocks consistently outperform most other investment choices (broadly invested, of course, not concentrated in a few high-fliers that may crash and burn) in the long run. The smart market play at the moment is to sink tons of money IN the market, while it’s depressed and assets can be had on the (relatively speaking) cheap…

I don’t have any wonderful magic wand solutions for Medicare, either. I like the idea of private health savings accounts, but that won’t surprise any of you. That is because, while it enforces a sort of rationing on the health care system, at least it is the consumer who is in charge of the rationing (there would be far less frivolous doctor’s visits, that’s for damn sure). Government takeover of health will put the decision on rationing into the hands of faceless goverment committees. And Ryan is correct - anyone who thinks putting more health care under government control will lower costs is smoking something of a rare purity and toxicity…
19 Mark Says:
March 26th, 2008 at 7:05 pm
Pardon my atrocious use of “it’s” rather than “its” above…
20 too many steves Says:
March 26th, 2008 at 11:02 pm
I did some damage to my right thumb recently while skiing. In an intense snowstorm I was thrown off my feet by a pile of powder I did not see and snapped my thumb as I attempted to break my fall. Once I was in the lodge and was able to look at the thumb it was obvious, by comparison to my left thumb, that something was wrong: the end of my thumb was pointing to the left. When I moved it - to see how bad it was injured - it snapped back into place and felt ok, albeit a little sore. I drove home (3 hours) and when I showed my lovely wife she insisted that I go to the hospital to have it examined.

So, off we go and ultimately I see a nurse practitioner, have the thumb x-rayed (from may different angles) and a doctor reads the x-rays. I meet with the doctor who says nothing appears to be broken but that I should see a hand specialist within the next seven days.

The next day I make the appointment with the hand guy and go see him a few days later. He says that from my description it sounds like I subluxated the upper joint in the thumb, but he is confident I didn’t do anymore than strain the muscles and ligaments. He recommends occasional ice and Advil for any pain. He estimates the recovery will take several months (hands and fingers are notoriously slow in healing).

For all this healthcare I paid nary a dime. If I had to pay out of my pocket for all that care, at a market rate, I would have sucked it up and stayed home.

That is, in part, is the problem with healthcare in America today.
21 Fargus Says:
March 26th, 2008 at 11:26 pm
When exactly was privatization gaining momentum, Mark? Was it perhaps when every speech Bush made about the subject swayed more people from his opinion? I should want all of Bush’s policies to gain such momentum.

Wait, they already have!
22 Fargus Says:
March 26th, 2008 at 11:28 pm
tms, what about the people that would use your rationale to ignore serious illnesses? Is that a net positive because money is all that matters? Or is it, as could be effectively argued, a net negative since preventative care would likely cost less than responding to a health crisis? Every health problem is not a subluxated upper joint in the thumb.
23 Mark Says:
March 26th, 2008 at 11:53 pm
Oh, I admit privatization never was popular with the general public, no argument there…but it was making considerable headway in the corridors of power and amidst the chattering classes for a brief period.

What’s my proof? Well, how can you prove such a thing? Still, that’s my take (this blog is a place for occasional opinions as well as facts, after all)…

As to your criticism of tms, I don’t buy it. Obviously, serious illnesses need to be treated. There will always be emergency care, no matter the system. Preventive care is a wonderful thing, but personal responsibility plays a part, too. I’m a type-2 diabetic, and it’s 100% my fault. I gained a lot of weight when I quit smoking (I smoked more than a pack a day for 18 years), and I’m not disciplined enough to lose it.

Should the taxpayers have to pay for my neglect? Absolutely not…but I have no FINANCIAL incentive (plenty of health-related and common-sense incentives, of course) to lose the weight because I have truly sweet medical care with ridiculously low co-pays on both doctor visits and prescription drugs - medical care that is 100% provided by my employer.

Now, if my health-care funds were deposited into a private health savings account of finite value, I would eat through those funds in a heartbeat with my regime of prescription drugs, never mind the doctor’s visits and lab work. I would have an ENORMOUS financial incentive to get in shape to go along with the common-sense and health incentives. Would I do it? Maybe I would, maybe I wouldn’t…but there are a lot of people like me out there, and SOME of them would. And you gotta start somewhere…
24 Jacques Distler Says:
March 27th, 2008 at 1:32 am
It might be illuminating to stare at the data in this table, when thinking about healthcare in this country.

Another thing to note: while Medicare costs are rising rapidly (and a full-blown funding crisis is only a decade or so away), they are rising less rapidly than our overall spending on healthcare. That is, while neither the public nor private sectors has been able to control spiralling healthcare costs, the private sector has done a measurably worse job of it.
25 Fargus Says:
March 27th, 2008 at 5:28 am
Mark, you’re talking about Rudy Giuliani’s infamous “incentive to wellness.” But by couching everything in financial terms, you fail to account for the fact that, in a very real sense, wellness is its own incentive. If I worked in a coal mine for 40 years, it’d be my fault for developing mesothelioma. After all, I knew the risks when I decided on that profession. But with government-sponsored health care, I’d have no incentive to not have mesothelioma. Except that I don’t want to have mesothelioma. It’s ridiculous to expect me to believe that people are all of a sudden going to hurt themselves a lot more because they think the treatment will cost less. People, in general, don’t like to be hurt or sick. Wellness is its own incentive, separate from how much treatment costs or doesn’t cost.
26 too many steves Says:
March 27th, 2008 at 5:34 am
I’m not arguing that people should avoid necessary care for monetary reasons, in my example the care I sought and received was unnecessary, medically, but there was no incentive for me not to seek it. I did get peace of mind from it. The point is that the cost in the system is the result of artificial measures such as legislated coverage and no direct financial relationship between the supplier and consumer of healthcare services. Aside from the time lost sitting in a waiting room, there was no additional cost to me of my doctor visits.

Look at Jacques referenced chart: note the disparity between expenditures on healthcare and longevity; we’re not getting as much bang for our buck. Reading much more into this data is an error of oversimplification and mistaking correlation for causation, but I would argue there are likely many other factors affecting longevity in humans than just raw healthcare spending, but the data make a very clear case for more detailed analysis.
27 Jacques Distler Says:
March 27th, 2008 at 8:14 am
Look at Jacques referenced chart: note the disparity between expenditures on healthcare and longevity; we’re not getting as much bang for our buck. Reading much more into this data is an error of oversimplification and mistaking correlation for causation, but I would argue there are likely many other factors affecting longevity in humans than just raw healthcare spending, but the data make a very clear case for more detailed analysis.

You can follow the link that I provided to the OECD data, and look at other measures (infant mortality rates, say) of healthcare outcomes. They tell a similar story.

The US does lead the world in MRI scanners/million population, though. (But not, ironically, in CT scanners/million population — go figure.) The orthopædic surgeon whom I went to see, here in Austin, to follow up my operation for a broken wrist, sent me out for an MRI scan. I was nonplussed to learn that her (group) practice had an MRI scanner in the office. Very convenient, but it’s hard to imagine a more grotesque waste of money.
28 Fargus Says:
March 27th, 2008 at 11:00 am
I understand we’re not getting much bang for your buck, but tms, you’re missing one key thing:

People are not experts on health, even their own. You had no incentive to not seek care, but that’s an after-the-fact rationalization. For you, seeking care and not seeking care would have netted you the same, since the care didn’t affect your condition. But in general, people don’t know whether a condition is something they should worry about or not, and even if it’s not, often the peace of mind is worth the time and monetary investment.

Example. I’ve always had good vision and have never needed glasses. About 2 weeks ago, a blurry spot popped up in the vision of my right eye, and I didn’t know what to do about it. I went to two different optometrists and paid a copay of $30 each time, and the final diagnosis was that it’s a condition that has no treatment and should go away by itself in a few weeks. Should I have avoided care, nothing likely would have changed in my physical condition, but it was worth that $60 for me not to spend the next few weeks worrying about whether this was glaucoma, an onset of blindness, an early symptom of a brain tumor, etc. Sure, I have insurance, so I didn’t have to pay the full amount, so like you said, there was not as great an incentive to avoid care as otherwise. But even though I didn’t get treatment out of the doctor’s visits, they were not devoid of value.
29 peter Says:
March 27th, 2008 at 2:15 pm
My doctor once told me that if you have a cold and go to the doctor for a prescription, it should go away in a week. If you stay home and don’t bother with the doctor, then it should go away in seven days.
30 Mark Says:
March 27th, 2008 at 7:18 pm
Fargus, I mentioned there are other incentives than financial - but financial incentives are powerful, powerful stuff. Your dismissal of them as insignificant in the face of wellness shows very little relation to the world I know, where people drink, smoke, eat excessively, drive like maniacs, and get too little sleep, so they can get up to do it all again.

But when you’ve got no money, you’ve got no money…
31 Ryan Says:
March 27th, 2008 at 7:27 pm
I’d like to see some analysis of how people’s health behavior reacts to changing incentives. I have a suspicion that people without health insurance still choose to behave irresponsibly. That may be due to other factors - like general poverty, lack of education, whatever - but I’d like to see someone try and control for things like that and come up with an answer. Has that been done? Does anyone know?
32 Fargus Says:
March 27th, 2008 at 9:45 pm
Mark: I wasn’t dismissing financial incentives. Never once said that. Only that there are other, more powerful incentives when you’re talking about health.

Ryan: That study’s been done. It’s called Backyard Wrestling and can be yours for $9.99.