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Paul Krugman and His Acolytes: Social Security is the Thinnest Girl at Fat Camp

John on August 25, 2010 at 12:59 pm

Liberals are concerned about cuts to social security. So some are openly seeking better talking points to defend the program (they should start a list serv or something). In fact, a chain of concerned lefties led me to Krugman’s post on this topic: Ezra Klein led me to this re-post by Kevin Drum, which led me to the Daily Howler which led back to Paul Krugman. Here’s the core of Krugman’s argument which everyone else is stage diving off of:

there are two ways to look at Social Security. You can view it as a stand alone program, in which case payroll tax revenues and the trust fund accumulated out of those revenues are at the center of the story; or you can view it as just part of the federal budget, in which case the relative size of retirement benefits and payroll tax receipts has no special significance ; benefits are just one federal expenditure, payroll taxes just one source of federal revenue.

These views aren’t contradictory; which one you want to emphasize depends on what question you’re trying to answer. If you want to know when Social Security, per se, will have a crisis, requiring either benefit cuts or new funding, you want to take the standalone view. If you want to think about the broad direction of the federal budget, you want to just fold Social Security into the total.

But here’s what you can’t legitimately do: you can’t switch views in midstream. You can’t say that Social Security is just part of the federal budget, so the trust fund is meaningless; then say that because there’s no real trust fund, Social Security is in crisis when payroll receipts fall short of benefits. Either you adopt the integrated-budget view, in which payroll taxes and retirement benefits have nothing to do with each other, or you focus on dedicated financing, in which case the trust fund has to count too.

First, notice that Krugman is not saying that the idea that the trust fund is a mythical beast is dishonest. On the contrary, he says this is one valid way to look at the situation. This is significant, because it seems to get lost in the links almost immediately. The Daily Howler portrays this take on the trust fund as part of a dishonest campaign by conservatives. But again, Krugman says this is a fair way to look at things.

I think where most conservatives would disagree with Krugman is in saying the other way of looking at it, i.e. the trust fund is real and fully stocked up, is equally valid. That may be true on paper, but it won’t help the treasury come up with the money in a crisis. Even Democrats understand this. It was really the same argument they made against privatization. Don’t put the money in the market because, if the market collapses, we won’t be able to meet our obligations. Fair enough, but if we continue putting money in the treasury and America reaches a point of unsustainable deficits we would have the same problem.

Whatever the intentions for it were at its inception, Social Security has been run as a pay-as-you-go enterprise. Young workers come into the workforce and pay benefits of those who’ve left. I can tell you from personal experience working for the agency for more than a decade that there is awareness at senior levels this is what is really going on. Official statements may continue to make it sound as if SS is an independent agency with a Scrooge McDuck sized trust fund (around 2.5 trillion), but even the people who work there know it’s fiction.

But rather than continue to argue the point, let’s just take Krugman at his word and choose view #2, i.e. Social Security is just part of the overall federal budget and the trust fund is a paper fiction. Remember, he says there is nothing wrong with this view. In turn, I’ll concede his point that, if we choose this view, it is not fair to harp on the fact that receipts to SS are no longer keeping up with outlays (as of this year) as a sign of the apocalypse. Fine, but I still think it’s reasonable to note that the budgetary cash cow is no longer giving milk as of this year. That might not represent a crisis but it is certainly news, especially when we have record deficits to contend with already.

The real problem is that Krugman (and his acolytes) are doing something equally unfair on the other side of the argument. If we’re going to put aside the trust fund myth and the idea that Social Security is an independent budget item, let’s go all the way. That means that Social Security is just one part, albeit a big one, of a broader social net of unfunded liabilities which threaten to swallow the entire budget well before current college grads retire:

Now it’s true that the Social Security portion of this chart, if you were to break it out separately, would show a relatively slight increase over time. In fact, if it were the only entitlement we had to deal with it might be manageable. However, as the chart shows it is not the only entitlement we have to deal with. And since Medicare is jumping up so sharply, any concurrent increase in the cost of Social Security (say by 25% over the next few decades) is a burden we can’t afford.

Since liberals are seeking a simple way to explain the social security situation to voters, let me offer them a useful analogy. Imagine a family with a runaway health insurance bill. Suddenly they get word that there will be a 25% increase in the cost of cable TV. The kids say, hey, we can handle a 25% increase. And indeed that would be true if it were the only increase the family was facing. But the parents look at the whole picture and conclude it is time to cut back on HBO for the sake of the broader effort. In this context we can see Kevin Drum’s argument for what it really is, a lightly disguised version of every child’s final argument “But you promised!”

To sum this up, let me just restate Krugman’s argument back to him. There are two ways to look at this. One is that Social Security has a huge trust fund and we have nothing really to worry about in our lifetimes. That’s the way chosen by Harry Reid and Barack Obama. The other path is the integrated-budget view which most conservatives would say you must eventually accept. If you do so, it is dishonest to pretend that Social Security is still somehow isolated and not one of many unfunded liabilities which loom over the US Treasury like the sword of Damocles. What is truly illegitimate is pretending the entire budget is not facing a crisis because of the full complement of unsustainable social programs.

If Krugman really wants the right to stop fretting about significant (but potentially manageable) increases in Social Security outlays, he should start dealing honestly* with the utterly unsustainable growth in social spending as a whole. That’s true not just at the federal level, but the state level too where public service retirement commitments are similarly unsustainable. Until that day comes, money is fungible and every dollar counts. The contrary argument, the one Krugman’s acolytes are looking for, would sound like this if they were honest: Social Security is the thinnest girl at fat camp. Good luck selling that to voters who are looking to trim the fat this November.

*No, Obamacare doesn’t count as dealing with it. This expansive new entitlement will almost certainly wind up making the matter worse, just as it has in Massachusetts where the program has weighed heavily on the state budget.

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