Equus Mortuus 1
President Bush’s privatization scheme for Social Security is dead in the water, but Hyman comes in a day late and a dollar short with a series of commentaries that beat this dead horse for an entire week, revealing two “facts” about Social Security each day.
Hyman calls Social Security the “world’s largest Ponzi scheme.” I don’t know of any Ponzi scheme that’s lifted tens of millions of elderly out of poverty and kept millions more from falling into it. In fact, Social Security is perhaps the most successful governmental program in history. It is no more a Ponzi scheme than any insurance policy in which you pay a small amount in on a regular basis with the promise that you will have benefits if/when you need them.
Of course, this economics is based on an ethos of faith and shared responsibility. In both Social Security and insurance, those of us who don’t need benefits pay into the system to support those who do need benefits today. We do so with the understanding that when we need benefits ourselves, we will draw on the contributions of others. Both Social Security and insurance are based on promises made from one group of citizens to another.
But because Social Security is based on promises made to today’s seniors through the government, it is anathema to conservatives (as it was when it was first introduced). I’ll say more about the “every man for himself” philosophy that’s behind the conservative position later on in the week. For now, let’s just recognize that it’s a pessimistic, mean-spirited, selfish, un-American, and (dare I say) un-Christian approach to civic life.
So let’s look at the first two of Hyman’s “phacts” about Social Security, and then compare them with the real facts.
Hyman Phact #1:
Social Security is a pay as you go system. The FICA taxes collected from today's
workers are paid out to today's retirees. Sixteen workers used to pay in for
every retiree collecting benefits. In the next generation it will be two workers
paying in for every one retiree.
Real Fact: Not all FICA taxes collected today are used to pay for benefits because we have more workers than retirees. That’s why we have a Social Security surplus. Yes, the aging of the baby boomers will mean that we will have less workers per retiree in the future, but the fact that the boomers are paying into the system as workers today will mean that there will be a surplus from which to pay them benefits after they retire for a long, long time.
Moreover, an economic reality that Hyman and other privatization privateers ignore is the fact that worker productivity has steadily increased over time (roughly doubling every 36 years). As Doug Orr, a professor of economics who is an authority on Social Security, points out in an essay that appeared in the journal Dollars and Sense points out, this means that by 2040, it will take fewer workers to pay into the system to keep it operational, and that in fact both workers’ and retirees’ income will go up.
Hyman Phact #2:
Social Security is going broke. It begins deficit spending by 2018 and by 2042
it will no longer be able to meet its obligations.
Real Fact: Social Security is not going broke. The study Hyman cites simply says that the Social Security trust fund will run out by 2042. At that point, incoming revenue from taxes will be needed to pay benefits. But as we noted above, the increased productivity of workers will go a long way in offsetting the effects of the trust fund having been spent.
But the news is actually even better than that. The gloom and doom predictions about the trust fund going bust in 40 years are based on unrealistic expectations about the growth of the economy. Again, Orr points out that the bankruptcy prediction relied on by people like Hyman assumes a 1.8% growth in GDP for the next 75 years. The problem is that there has never been an extended period of time when we’ve had that stagnant of an economy (even including the Great Depression). If the economy grows at a more realistic (but still highly conservative) rate of 2.4%, the trust fund will not be depleted, and we’ll either have to raise benefits or cut taxes to reduce the surplus money that Social Security will be building up.
And those are the factual Counterpoints.
Hyman Index: 2.78