Thirteen years ago, Dean Baker and Mark Weisbrot wrote a book, Social Security: the Phony Crisis. I just read it. The most amazing thing about the book is that nothing at all has changed. They could have written the book this year. I still hear people calling for Social Security privatization. I still hear people crying Chicken Little about demographic changes that will crush the economy. And every day now we hear about changing how the government deals with inflation. Yet all of these are at best minor issues and more often the opposite of reality.
Privatization
The call for privatization is perhaps the most evil aspect of the anti-Social Security crowd. This is not because it is the worst thing for the program. Rather, it is just that it is done as a way for private fund managers to skim a large profit off the retirement savings of all Americans.
As they point out in the book, the assumption is always that the stock market will do as well in the next 75 years as it did in the last 75 years. This is compared to Social Security estimates that the economy will grow half as fast in the next 75 years as it did in the last 75 years. In the long term, the stock exchange can only do about as well as the economy. Otherwise, it is just a bubble. So those pushing for privatization are painting a ridiculously rosy picture of the future.
In the end, if economic forecasts turn out to be better than expected, Social Security will do better than expected. And there won’t be any broker fees taken out.
Demographics
Baker and Weisbrot deal with the demographic issue in great depth. In fact, I had to learn some more advanced economics just to understand part of it. The truth is there is a major demographic shift in this country. Most of it has already happened. But the bottom line is that increases in per capita productivity dwarf the changing demographics. I’ve used the following graph before. It is taken from Baker’s blog Beat the Press:
Even assuming poor economic growth (1%), there is nothing to worry about.
Inflation
People have long been trying to destroy Social Security by slowly draining benefits to the point where it is useless. Baker and Weisbrot show that in general, senior citizens tend to suffer a higher rate of inflation because they consume more healthcare, which is going up in price faster than just about anything. But even more telling, they show that it isn’t possible for the CPI to be that far off. If it were, then back in 1960, the vast majority of Americans would have been living in poverty, despite the fact that almost 60% owned their own homes and 75% owned cars.
The weird thing about the whole discussion of Social Security is how it is taken as an ultimate truth that the program is in bad shape and must be cut. This is the Social Security Paradox that I’ve written about before: we may need to cut benefits in the future so let’s cut them now. Baker and Weisbrot show that this is all nonsense. What we need is to provide more social security (in its generic forms), not less. If you want to be involved in the fight, you really need to read this book.
