Paul Krugman laments the current political discourse:
Faced with a major public issue, such as the future of Social Security, one might think that the crucial thing would be to ascertain the facts. If I say “there is no crisis,” and you think there is, well, produce the evidence that shows that my arithmetic is wrong - not something I once said that you think proves that I’ve changed my mind. Making this a game of gotcha is just childish. But here’s the thing: this childishness infects a lot of political discourse.
As I say AMEN, let me also back up from the food fight that Brad DeLong noted in the comments as well as extend on something I started to say about something Paul wrote back in October 1996. Fairness dictates we take the time machine back to October 1996.
Yes – our graph shows total Federal debt (TFD) and the debt held by the public (DHP) both as percentages of GDP from October 1980 to October 1996. What we knew in the fall of 1996 is that we had gone through 16 years of General Fund deficits that we so large that TFD grew as a percent of GDP from around 33% to around 67%. It is true that the growth in the DHP to GDP ratio has stopped after the 1993 tax increase – the one every Republican voted against. But that only says that the Trust Fund surpluses were mostly offsetting (not completely in absolute terms even after adjusting for inflation) the General Fund deficits.
At first, I was pleased that the GOP nominee to challenge President Clinton was Senator Robert Dole as Dole had historically been a fiscal hawk. Could it be that the 1996 Presidential race would avoid the free lunch crap we had heard from the tax-and-borrow Republicans and the do-more-for-you Democrats (yes the latter is a slap at how Al Gore campaigned in 2000). But then Dole picked Jack Kemp as his running mate and promised tax cuts. It was then that I decided I could not cross party lines and vote for the free lunch party.
With this back drop, could we take a real look at what Paul said on October 2, 1996:
In this silly season politicians are once again promising that we can have it all - that we can cut taxes, spare every popular spending program from even the smallest cut and still balance the budget. Nobody really believes them; if the public is willing to indulge such fantasies, it is because it does not, when all is said and done, really take the budget deficit seriously.
That captured my concern with the Dole-Kemp tax proposal. It is also consistent with what Paul was saying in 2000 about both Bush’s tax cut with promises of more spending as well as my concern with Gore’s do-more-for-you and a tax cut too. Something had changed between 1996 and 2000 – it seems that inflation-adjusted total Federal debt had flat lined during Clinton’s second term so the debt to GDP ratio had started to fall. But Paul argued in 2000 that the bit of goods news was not enough for tax cuts and more spending. He was right.
So why does everyone think he changed his mind about Social Security. They often point to this:
Where is the crisis? Just over the horizon, that's where. Through a kind of sound-bite numerology, the political debate over deficits became fixated last year on the seven-year prospect; each party insists that its economic program will balance the budget in the year 2002. Neither will, but that is beside the point. Responsible adults are supposed to plan more than seven years ahead. Yet if you think even briefly about what the Federal budget will look like in 20 years, you immediately realize that we are drifting inexorably toward crisis; if you think 30 years ahead, you wonder whether the Republic can be saved.
OK back in 1996, we may have thought that the Trust Fund reserves would eventually be depleted by some year such as 2032. The only real significance of this expected depletion date is that this is the date that DHP equals TFD. And Paul’s point was that if we kept running huge Federal deficits, that the debt to GDP ratio (however measured) might be much higher than 67%. Guess what, TFD is currently near 67% despite the good years in the late 1990’s. But that’s because of Bush43’s fiscal fiasco that Paul was warning about over seven years ago. OK, the date of Trust Fund depletion has now been pushed back to 2046. This is the big inconsistency that folks are hammering Paul about? I’m sorry, but the hammering is both stupid and childish at the same time – with all due respect to my kids who are much smarter than this.
Cross posted from Angry Bear
ReplyDelete"Interestingly I followed up on a lead from a poster named Thacker at EV and read some from the 1991 Report. Paul was perfectly correct to be alarmed in 1996. Not knowing what the future would bring, he was looking at a projection that over a five year period had taken depletion from 2041 (91 Report) back to 2029 (96 Report) and increased the payroll gap from 1.08% to 2.19%. Moreover the projection got worse in the 1997 Report with a gap up to 2.23%.
Krugman was right to be concerned then based on what he knew then. Krugman is right to not be concerned now based on what he knows now. It's not hard. It is however numeric.
Somehow the concept that 1996 is not 2007 is just too much for certain people to wrap their minds around."
(And I have to say that I disagree with Dean's policy of using CBO projections, it just muddies the waters and makes direct comparisons about what Paul said and says more difficult. The official date from the Trustees' Report for Depletion is 2041. While my personal opinion is that the correct date is actually 'Never', I still think we are better served speaking apples to apples and not Trustee apples to CBO oranges)
Bruce
ReplyDeletegood point.
but speaking of cross posting: why does it matter (very much) WHAT date the Trust Fund reaches "depletion"?
all it does is change the date that SS goes back to fully pay as you go. the baby busters get their dollar a week tax raise a little earlier or later, but they don't suffer any real injustice.
if the Trust Fund (the big one, not the ordinary one year buffer) had any purpose, that purpose was to make the Boomers pay a more equitable share of their own retirement. That purpose has been accomplished, and while I understand the point of keeping the accounting separate, it doesn't really matter to the Boomers where their money went. It would matter to the Busters...a little bit... but since they will collect their benefits anyway, without overpaying for them in any real sense...as against some kind of "generational equity" sense... they really don't have much to complain about. And in spite of the fact that the payroll tax payers are a different set of people than the income tax payers, the high end income tax payers will find a way to pass their costs on to the workers/customers... so in the end we are not talking about anything that amounts to very much.
In a way the problem is the SS surplus. In the early 1980s we raised the SS tax to create a surplus that would be drawn down to finance the baby boomer bulge. That was a valid policy and in and of itself it has worked. But we have used the SS surplus to finance either and/or tax cuts and other expenditures rather then setting it aside to be used as needed by the demographic bulge.
ReplyDeleteNow we are faced with the issue running from around 2010 to 2040 that this surplus will no longer be available to finance either lower taxes or other expenditures. Social security is not the problem, rather the issue is how do we deal with the problem that we no longer have the SS surplus to play with.
Both Krugman, and his critics are ignoring this real problem.
Anonymous said...
ReplyDeleteThat sounds like you agree that it is a budget problem, correct? So why is it portrayed as a SS problem? If the treasury has to pay the maturing debt it can do what it does with all debt, reissue bonds. If for some reason we have reached the treasury debt saturation point, congress can feel free to raise taxes or cut spending. No need to blame it on the one program that collects it's bills, pays it dependent and does it on a sound fiscal footing.
We may have a budget crises be we most certainly don't have a social security crises.
Anon. A good question and one I am set to answer tomorrow, a long day of post Thanksgiving noshing, drinking and football having come in between. But exactly would would 'setting it aside' mean in context? Where could those excess dollars have been parked with the same balance of yield, safety and predictability?
ReplyDeleteThe whole notion that the trust fund surplus has 'stolen', ' diverted', ' looted' is buying in to a Right talking point. More tommorrow
Anon - if I set up a 401(K) to provide for the retirement of myself and my wife, are you saying that's a problem. Now if the wife runs up the credit cards at the malls today, I'd call that the problem. Is my financial responsibility a cause of the wife's excessives? No - repoman has it right!
ReplyDeleteAnon.
ReplyDeleteEven if the overly pessimistic projections of the SSA Trustees are right, the problem period is not 2010 to 2024. According to the intermediate projection, the fund will start running a deficit, thereby having to cash in securities to pay for pensions, in 2017. The deficit should reach a maximum around 2030 when the last of the baby boomers finally retire. Although the deficit will get smaller, it will continue until the securities owned by the trust fund are all cashed in around 2041, the date of the supposed "insolvency."
Of course, if the low cost projection is what happens, and recent history has been better than it, the size of the surplus begins to decline in the next year or so, but never reaches zero. It gets to its lowest point, still remaining positive, around the dread year of 2030, after which it just starts to expand again forever.
Barkley
anon
ReplyDeletejust want to chime in here and say that of course the trust fund has been spent. what do you think happens to the money you put in the bank.
it just sits there and gathers interest by immaculate conception?
i'm not even sure that paying it back is a problem, because it could be just a matter of swapping debt for debt. depends if the chinese still love us.
This discussion is beginning to take on a Yogi Berra characteristic, "It's deja vue all over again." Anon, you seem to have answered your own question, though you don't seem to have stated the question clearly. Krugman is arguing that the call to arms to "save" social security is a canard. The ulterior motives of those who so argue are a whole other discussion. Your point about the general budget deficit only supports Krugman's position. The social security surplus funding during the past 25 years has created a Trust Fund the purpose of which was to supplement future social security pay-roll taxes when they no longer are equal or greater than social security payments to recipients. That surplus and that Trust Fund werenot intended, in law, to bail out successive administrations' profligate general budget activities. If current government general budget spending were reasonable and productive future generations would have no issue paying back the monies owed to the Fund. What is reasonable and productive is everything that the George Bush administration has not been doing. Talk of "just so many IOUs" is just so much BS.
ReplyDelete