Krugman Ignores Failures of Social Security

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Krugman Ignores Failures of Social Security

by Ari Armstrong, December 8, 2004

According to the American Association of Retired Persons (AARP), "Social Security is the most successful program in our nation's history." Paul Krugman is impressed by the "system's historic success," calling it "a government program that works."

The obvious question is this: successful by what standard?

Unfortunately, neither AARP nor Krugman bother to tell us. I have argued that Social Security is instead the greatest fraud ever perpetrated on the American public. It is arguably the most ambitious program of legalized theft in the history of the country. So if "successful" means large or long-lived, then Social Security is a resounding success.

Krugman describes Social Security as "a modest amount of taxing and spending" that makes "people's lives better and more secure." A 12.4% tax on all income up to $87,900 is "modest" compared to what? It doesn't feel very modest to me: it feels like I'm getting crushed. (Because the Social Security tax is regressive, perhaps Krugman pays a lower percentage of his income to the tax than I do.) If my life is so much "better" because of Social Security, why will I be hounded by men with guns if I decline to pay it? Shouldn't individual workers, not national politicians, decide the "better" expenditure of earned income?

Astoundingly, AARP's letter to its members fails to mention even one reason why Social Security is supposedly good. The complete second paragraph of that letter offers the only pretext. It states, "Let's look at the facts. Social Security is the most successful program in our nation's history. It is a promise our country makes to working Americans and retirees. And a promise should not have an expiration date." Social Security is a "promise" in the sense that it is a mandatory transfer of wealth from workers to retirees. But how does the claim that it's a "promise" demonstrate that it's "the most successful program in our nation's history?" AARP simply makes two unrelated assertions, one vague and one patently false.

Furthermore, why should a "promise" to forcibly redistribute wealth "not have an expiration date?" To take another example, laws in the U.S. once "promised" slave holders they could keep their slaves. Was this a legitimate "promise?" AARP is trying to tap into the appropriately favorable sentiments regarding contracts, but without admitting the obvious fact that Social Security is not a contract but rather the initiation of physical force against workers.

But relax, Krugman encourages. There's little to worry about. The "crisis" is really only an invention by scare-mongers on the right. The problem we face is only -- modest. He reports "the trust fund will run out in 2052," and "even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits."

Krugman admits, "Still, there is a long-run financing problem. But it's a problem of modest size. The report [by the Congressional Budget Office] finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending -- less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts..."

Krugman misstates the CBO's analysis. The CBO's web page states, "Social Security is currently running an annual surplus. In 2003, total outlays (benefits plus administrative costs) equaled 4.4 percent of GDP, whereas dedicated revenues (Social Security payroll taxes and the income taxes that some recipients pay on their benefits) equaled 5.0 percent of GDP. CBO projects that at the end of the century, revenues will equal nearly 5 percent of GDP, about the same as today (see Summary Figure 1). Outlays, by contrast, will increase substantially in the near future with the retirement of the baby-boom generation. Annual spending will outstrip annual revenues starting in 2019 and will reach 6.1 percent of GDP in 2030 -- nearly 40 percent higher than in 2003. With life expectancy continuing to increase, outlays are projected to keep growing thereafter: to 6.3 percent of GDP in 2050 and nearly 7 percent of GDP in 2100." (Remember that GDP is expected to grow every year, so Social Security outlays will grow relative to GDP and even faster in absolute terms.)

What of the "trust fund" that so excites Krugman? The CBO explains, "Social Security's finances are often discussed in terms of the trust funds that are used in the federal budget to track outlays and revenues over the life of the program. Those trust funds are mainly accounting mechanisms and contain no economic resources." In other words, once "annual outlays for Social Security... exceed revenues beginning in 2019," the year given by the CBO, the "trust fund" can be recaptured only by raising general taxes, going into debt, or cutting other national programs.

Nevertheless, Krugman is correct that Social Security does not face a "crisis" in the sense that "all" that's needed to save it is to raise taxes, or, as Krugman delicately phrases the matter, "come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come." Scores of billions of dollars more in taxes every year should do the trick.

[December 9 update: The Rocky Mountain News points out in its "On Point," "In our Wednesday columns page, Paul Krugman returned from a New York Times sabbatical to attack claims of a Social Security 'crisis,' which he believes are the concoction of rightwingers hellbent on their usual mission of trying to destroy America. It turns out, however, that Krugman himself is part of this alleged rightwing conspiracy to mislead America. In the mid-'90s, after all, he declared Social Security akin to a 'Ponzi game' from which 'today's young may well get less than they put in' and warned of a 'crisis ahead' because the promises 'made to those now working cannot be honored.' We can understand a columnist hedging his bets. Yet Krugman is now so solidly on both sides of the Social Security debate that the word 'straddle' doesn't even begin to describe his position."]

Of course, Krugman suggests he wants to raise taxes on the wealthy. This is what AARP wants to do, too. Unlike Krugman, AARP offers a specific proposal: raise the taxable income to $140,000. The unstated assumption is that those who pay more taxes won't get more benefits. (The second unstated assumption is that imposing higher taxes on the rich is desirable.)

Unfortunately, conservatives have given Krugman an easy target. The conservative plan is so horrible that Krugman sounds sane by comparison. Krugman correctly writes, "Privatizing Social Security -- replacing the current system, in whole or in part, with personal investment accounts -- won't do anything to strengthen the system's finances."

Krugman writes about the advocates of mandatory, regulated accounts, "They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success. For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it."

Krugman's psychologizing is off-base. Conservatives aren't "disturbed" by the alleged "success" of Social Security" -- they legitimately see Social Security as a bloated entitlement that drags economic growth. Krugman accuses the right of telling ghost stories even as he demonizes the right.

But Krugman is correct that the conservative position is deceptive. The fundamental premise of Social Security is that every worker is too stupid to save for his or her own retirement, and therefore the national government must take 12.4% of the income of every poor and middle class worker and distribute the money directly to current retirees. Social Security thus undermines responsible financial planning and real savings. Conservatives see a problem with Social Security, but they're too cowardly to openly admit Social Security should be phased out. Thus, as Krugman suggests, conservatives pretend they want to "save" Social Security when in fact they want to dismantle the current system and replace it with mandatory, regulated accounts. But conservatives who support mandatory accounts have lost the moral high ground. If it's okay for the government to force workers to put their money into accounts, then what's wrong with forcing workers into a system of redistribution? The conservative position is so morally corrupt that many conservatives fool themselves about the realities of Social Security. The conservatives evade the central issue and leave Krugman sounding as though he makes economic and moral sense.

The common conservative argument in favor of mandatory accounts is that "benefits" can be maintained -- lo, even improved! -- by government force. The conservatives are trying to fight on the turf of the socialists. That's why, even though the Republicans own Congress and the White House, they're losing the argument about Social Security.

So let me state clearly what the conservatives are too corrupt to tell Krugman: it's none of the government's business how workers prepare for retirement. The national government should force workers to pay neither into a redistribution scheme nor into mandated accounts. Instead, workers should be left free to do with their money as they see fit. Krugman can plausibly accuse conservatives of obsessing about the "success" of Social Security -- because conservatives grant the fundamental goals of Social Security -- but Krugman cannot defend Social Security on its own terms.

Krugman claims Social Security makes "people's lives better and more secure." Well, whose lives does it make better? So long as the base of workers is increasing, retirees receive more in benefits than they pay in. So their lives are made "better" in this sense. But my generation is going to get completely screwed, because the worker base is shrinking relative to the base of retirees. Thus, my generation will pay more into the system than we'll ever get out.

Social Security adds security only to the lives of people who don't save for their own retirement. In a free market, almost everyone would adequately prepare. If Krugman were concerned about the elderly poor, then he would support converting the system to a means-tested welfare program. Then taxes could be lowered on the working poor and middle class rather than increased.

But for all of Krugman's class warfare and blaming of the rich, he seems to have no interest in promoting a change that would dramatically improve the lives of the working poor and middle class. Krugman ignores the obvious fact that taking 12.4% of the income of every working poor family in America is a moral atrocity. I'm sick and tired of this faux concern among the left for the poor. Any real leftist would favor an immediate, massive reduction in benefits for all but the poor -- with a commensurate tax decrease for the poor and middle class.

I'm not sure whether members of the left or the right are the worst hypocrites when it comes to Social Security. The left claims to support the poor but endorses a horribly regressive tax that destroys the ability of the poor to build wealth. The right claims to support free markets but endorses forcing workers to fund accounts mandated and regulated by national politicians. Meanwhile, AARP encourages its members to screw their children and grandchildren as hard as possible.

As I've written before, the debate about Social Security should be between those who want to phase it out and those who want to replace it with a means-tested program to help only the poor. The fact that neither the left nor the right can support either of those positions demonstrates the bankruptcy of both sides and a codependency between them. There is and can be no real argument in favor of the current system, the most destructive redistribution program in our nation's history. Instead we're left with the pathetic spectacle of Krugman arguing against Bush and both entirely missing the point.

For additional analysis, please see Social Security: Collected links.

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