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Edited on Wed Feb-25-04 01:12 PM by JHB
...from nearly 10 years ago pointing out flaws in the various "SS is in danger so we must take drastic action to save it" arguments/talking points. I'd like to hear the opinion of someone with a real economics background before I hold them up to illustrate how big a snow job we've been fed, and for how long: Almost no one bothers to investigate the claim of Social Security's coming insolvency, which is based on projections in the annual report of the system's trustees. I did (Left Business Observer, 12/22/95), and discovered that the projections assume the economy will grow an average of 1.5 percent a year (after inflation) for the next 75 years--half the rate of the previous 75, and matched in only one decade this century, from 1910-20. Even the 1930s, the decade of the Great Depression, saw a faster growth rate.
What would happen if the economy grew at a peppier 2.2 percent rate? The trustees provide alternative projections based on that as well, and, gosh, the system remains solvent indefinitely. At 2.5 percent--still slower than the 75-year average--it runs a surplus. About the only other journalist to question the dire predictions for Social Security's future was Robert Kuttner, in his Business Week column (2/20/95).
And what about Chile, everyone's favorite model? Time pointed out that Chile's program was recently endorsed by the World Bank, an entity that has overseen the impoverishment of scores of countries in the name of free-market reform. Its endorsement should excite fear rather than respect, but that's another story.
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In Chile, according to Joseph Collins and John Lear's excellent new book, Chile's Free-Market Miracle (Food First Books), the public system's minimum benefit was $1.25 a day in 1988. Less than a quarter of all workers make enough money to qualify them for more than this risible minimum public benefit. Tellingly, the army and national police kept their own generous public systems; while the new plan may have been good enough for the masses, it wasn't good enough for the forces in charge. Of course, Time was silent on all this. http://www.globalaging.org/pension/us/socialsec/henwood.htmBut at every turn there's a bearish assumption in the Trustees' numbers. At 0.4% a year, the projected population growth through 2075 represents quite a deceleration from the 1.2% average of the last 75, and well under the Census Bureau's 0.7% projection for the next 50 years. The workforce is slated to grow even less -- by just 0.2%. Not only is the youthful share of the population expected to decline, the Trustees project that fewer of them will be working: the share of the population aged 20-64 at work (the employment-population ratio) is projected to decline, a violation of all historical precedent.
The Trustees' growth projections have been trending steadily downward since the early 1980s, so much so that you'd almost think there was an intention behind the trajectory {emphasis added -- JHB} (though the system's actuaries deny any political pressure to emit bearish forecasts to grease the privatization agenda). As is typically the case with official projections, there are three scenarios -- a gloomy one, an optimistic one, and an official, moderate one. In 1981, the Trustees projected a long-term growth rate of 3.1% in their middle scenario and 2.1% in their gloomy one. In 1986, the numbers were 2.5% and 1.4%. And this year, they're 1.4% and 0.6%. The Trustees' optimistic prediction for 1998 -- 2.1% -- matches their most bearish forecast from 1981. Aren't lowered expectations a banished relic of the Carter years?
Rerun the projections with more reasonable -- though still conservative -- projections and the "crisis" largely or fully disappears. If the employment-population ratio for those aged 20-64 remains constant, a third of the projected shortfall for 2020 disappears; if it rises, because the share of women employed approaches that of men, then two-thirds of the projected deficit disappears. As the nearby chart shows, if the economy grows at a modest 2.5% rate, red ink will turn to black. And even if the official bearish projections turn out to be true, the shortfall could be made up easily by subjecting investment income to Social Security taxes, and by eliminating the cap that exempts wage income above a certain maximum ($68,400 in 1998). The reason for sparing such income from Social Security tax is that the program is supposed to be financed solely by labor, with no contribution from capital, capital already being so burdened. The "crisis" of Social Security is a political one, not an economic one.http://www.leftbusinessobserver.com/AntisocInsec.html |
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