Sunday, December 19, 2004

Democrats, Unity, and Social Security

Matthew Yglesias has two posts on whether the Democrats should participate in the legislative process on Social Security or remain united in opposition to any action by the Republicans. From the first of these posts:

It's not so much a question of conservatives versus moderates, as it is a question of people who happen to have a bug in their pants about Social Security versus those who are nervous about the political risks here and who have other agendas they'd like to advance. The only really feasible way to put a stop to this is to make sure that the nervous nellies stay very nervous. Key to that is making sure that unlike with, say, the Medicare bill, they can't drape their vote in even the merest veneer of bipartisanship.
In the second post, he endorses the following:
"Message No. 1 to Americans: When it comes to Social Security, the sky is not falling," said the Senate's new assistant Democratic leader, Richard Durbin (D-Ill.). "There are people in this administration who have an agenda that is not friendly to Social Security."
And then he adds:

Exactly. Message number one is that Social Security is healthy and successful. There is no crisis.
I'll look to address (again) the substance of the "there is no crisis" refrain in another post. In this post, I'll focus on why I think this is not a winning strategy for Democrats. I'll be very frank about my bias here. I have no partisan interest in the Democratic party per se, but it would be nice if someday it fielded a candidate for President who inspired me to vote for him or her.

First, the focus group results that I have seen show that very few approaches to Social Security cause as negative a reaction as denying that Social Security has a problem that needs to be fixed. If you don't like the idea of adding personal accounts to Social Security, then argue against it. But to go beyond that and suggest that there is no need to reform the system (leaving aside for now whether the current predicament merits the label of a "crisis") is unwise. I think that most people understand that the aging of the Baby Boom will reshape our fiscal landscape. They don't have much tolerance for people who seem to doubt that widely held view. On the other side of the issue, I have sequenced my arguments on this on the blog very precisely to make sure that every reader knows that I think the key issue is solvency and not personal accounts.

Second, there's an old saying in Washington, "You can't beat something with nothing." I hated having this quoted to me by policy folks in the White House last year--it caused otherwise sensible small-government people to propose all sorts of expansions of the federal government. Not very Republican of them. But there is a big danger to the Democrats who suggest that unity in opposition is a sensible policy for a (shrinking?) minority party in the Congress. If Democrats elected to the legislature refuse to engage in the legislative enterprise, then the rationale for re-electing them disappears. We saw some of that in 2004: the Democrats lost ground in Congress and Senator Daschle was defeated even though he held the leadership position. Had he used that position to be something other than the President's chief obstructionist, he may have stood a better chance.

There are plenty of ways the Democrats could constructively engage. For example, they could insist that, in exchange for going along with personal accounts of the size suggested by the President's Commission (e.g., 4% of payroll up to $1000), solvency be restored not through reducing benefits across the board but by raising the ages of full and early retirement (a much better policy). To cover themselves politically, they could even insist that this change be proposed on a bipartisan basis. If they did that, they would have dramatically improved the system compared to its present status. And they would also come a step closer to getting the "Grownup Republican" vote that they needed in November. As an alternative example, they could shore up the support of their base if they proposed something like this.

I don't want a replay of the Medicare bill any more than Matt does.

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9 comments:

Anonymous said...

Professor Samwick: I have read all you posts on the Social Security situation, as well as Max Sawicky's, Brad Delong's and a host of others.

I find the characterization of Social Security as being in 'crisis' just an impossible stretch of the word. By that standard Medicare is in double-secret crisis, to sort of borrow a phrase from Animal House.

Thirty eight years and (probably) growing just doesn't meet my definition of a crisis. Our current account deficit, the sinking dollar, our stagnant jobs situation, our eroding educational system, the growing ranks of those without health insurance, the assault on the social safety net, our aging infrastructure are all a wee bit closer to being in crisis. And the outcome of these issues might actually have an impact on the growth of our economy and therefore impact the solvency of the fund. The cart is definitely before the horse.

And I find the suggestion that the Democrats should listen to focus groups instead of say... economists symptomatic of much of what is wrong with our political system. So much for leadership and rational discourse. I doubt the many of those in the focus groups could explain diddly about the situation beyond the President's assertion that there is a crisis.

The coupling of this so-called crisis and the privatization of accounts is just a partisan non-sequitur, to put it politely. Conniving and duplicitous seem to accurately describe the situation as well. Privatization will not return the fund to solvency, it will take adjustments to current taxes or future payments to fix this. You have reversed the issue: if honest, the Republicans would sell privatization on its true merits, not wrapped in the guise of a so-called crisis.

You yourself suggest that the Democrats should get involved and play ball on privatization so they can get the fund returned to solvency. This would seem to be a real political loser for the Democrats. They would do the dirty work and take the heat for the painful part of the agreement while the Republicans take care of the base and manipulate the media.

Since I am convinced the actual Republican agenda is the Grover Norquist 'starve the beast/destruction of the New Deal', I would hope the spirit of bipartisanship is pretty much dead on this issue. The Democratic problem is how to make sure the blame, should this happen, actually falls on the Republican party given the current state of the media.

The state of the Trust Fund (which is what we are all talking about) is properly described as 'potentially a problem' not 'in crisis'. The odds are that if nothing is done and we have this same conversation next year the fund will actually be in slightly better shape, ie. insolvency will have moved a bit farther into the future. Crisis this is not.

Should Mr. Bush trash the economy (especially health care and jobs) and action is truly required, I have no problem with your earlier suggested solutions. However, as I have commented before, you are avoiding the discussion of the health care complications inherent in the strategy of extending the retirement age. You clearly have too nice a deal in group health. Try getting an individual policy if you are a small business owner over the age of 50.

Anonymous said...

Ooops. Cats out of the bag. Now it's not so much a secret.

"The Medicare problem is about seven times greater than the Social Security problem, and it has gotten much worse," said Comptroller General David M. Walker, head of the GAO. "It is much bigger, it is much more immediate, and it is going to be much more difficult to effectively address."

I would have been more accurate yesterday characterizing Medicare as in 'septuple-secret crisis'. And Mr. Greenspan and President Bush said just last year that expanding the drug benefit was no problem. What were they thinking?

Anonymous said...

"Grown-up Republicans" had a choice to not repeat the Medicare bill debacle, but chose to return Bush to the White House. It is impossible to imagine that Bush can implement a policy that is not messed up. DeLong has a challenge to find one example; I'm sure you have seen it Mr. Samwick, but you have not responded. In such an environment, bipartisanship is collaboration. When has collaboration been judged a successful strategy?

Anonymous said...

Us anonymous guys seem to be only ones posting in these comments. I guess I need to get an ID. No disrespect intended, Professor Samwick.

I realize the juxtaposition and first sentence are AP's Jennifer Loven's, but this:

'Without any changes, Social Security would begin paying more in benefits than it takes in by 2018.

"The first step in this process is for members of Congress to realize we have a problem," he (President Bush)said. '

Unfortunately, I fear the current administration's privatization efforts are just the first steps in abandoning or curtailing the Trust Fund's repayment, currently estimated to begin in 2018. The base will not like having their income taxes going to a bunch of retired boomers.

JG said...

"Thirty eight years and (probably) growing just doesn't meet my definition of a crisis."

Thirty-eight years only in your dreams, and in political exercises of denial.

(1) While SS "has the money" to pay the benefits for 38 years, it has it only in the form of a totally nonbinding promise that the money will come from the Treasury somehow. And, alas, the Treasury does not have the money.

To pay off those SS trust fund bonds the Treasury is going to have to raise a new $5 trillion in taxes -- on top of the even much larger amount of taxes it will have to raise to cover Medicare.

If you think SS benefits financed on a paygo method are going to come through that financial pressure unchanged, I have a bridge to sell you.

(2) A good twenty years *before* that 38 years is up, the generation in the 40s is going to be looking at having their benefits slashed 30% as of the day they retire.

So if you don't believe that a good 20 years *before* that 38 years is up -- or earlier than that -- they won't be insisting on a major re-write of the program, I have some magic beans to sell you.

Of course, those people are going to be insisting on a re-write of benefits *upward* as that $5 trillion is coming due on top of the Medicare crunch, forcing benefits *downward*.

Crisis? What crisis? ;-)

Hey, imagine you're 45 years old and you just discovered your private sector pension trustee just ran off with all your pension savings and left you with nothing?

Crisis? What crisis?? You won't be retiring for another 20 years! That's plenty of time, what's to worry??

If you're lucky you might not even live that long!

JG said...

"Message number one is that Social Security is healthy and successful."

OK, now here's the issue upon which the denialists are in complete denial, because they have no answer to it and *can have no answer* as a matter of the Iron Laws of Arithmetic.

FDR made an explicit promise when the SS system was created in 1935 that it would always pay a "fair return" comparable to that on goverment bonds.

And anyone who has a lick of political sense knows that SS's great historical popularity has resulted 99% from it paying *much more than that* to everybody regardless of need -- $10 trillion over the bond rate up to those who retired up to 2000.

Alas, every annual cohort retiring after 2000 is going to get *less* back than they put in by the same measure -- up to 50% less, as that $10 trillion gets paid back by the young. And if it is kept paygo, it will be up to 65% less by the Iron Laws of Arithmetic, as either a tax increase or benefit cut to close the financing gap reduces returns further.

So .. throwing both FDR's explicit promise and the very key to the real-world political popularity of SS overboard is a small cost to "keep SS as it always has been", eh? ;-)

Since big positive returns made SS so popular for so long, what do you imagine *big negative* returns are going to do to its political popularity??

How popular are govenment programs that make people *poorer*??

"Social Security as we've known it" -- the very heart of which has been big popular returns -- not only cannot be preserved, it is **already dead and in its grave.** Some people just don't have the nervet to look in. It's already over, folks.

If you imagine you don't need to do anything about it because the young haven't realized it yet, and can wait another 10 or 15 years until they do, well, people who *really* want to destroy SS "as we know it" will say "Be our guest!"

Private accounts can put positive returns back into Social Security, to maintain it pretty much as we've known it. They are the *only* thing that can.

If you value FDR's promise and realize the political necessity to keep SS as something that benefits people, rather than *impoverishing* them, you will support private accounts. Those who want to protect SS as we know it *should* favor private accounts.

But if your ideology is such that you would rather throw FDR's promise and the political foundation of SS overboard, "to keep it as it's been"(!), well ... what game are you really playing?

JG said...

"There are plenty of ways the Democrats could constructively engage. For example, they could insist ... solvency be restored not through reducing benefits across the board but by raising the ages of full and early retirement (a much better policy). "

I'm afraid that when the political rubber meets the road Democrats will have a hard time agreeing to this or any general benefit cutback, such as this is.

The reason is simple: it's regressive. The poor get much more of their income from SS than the rich, so a benefit cutback -- such as delaying the retirement age -- hurts the poor disporportionately.

The poor then have to work until they're 70 to get what they used to get at 65. The rich can still retire at 62 and use their SS benefits to pay for an annual warm-weather vacation.

If your whole ideology and political selling point is that SS is a "safety net for the poor", you are going to have a hard time getting your scissors out to cut a hole in the net like that as *your part* of a deal to give Bush private accounts! At least, that's what I'd suspect.

Anonymous said...

Jim: you have me confused. I actually think we are in agreement on a few things, although I suspect from different directions. And I cannot follow for the life of me the 'law of arithmetic' thingy, so I will ignore that for now.

As long as we are assuming our General Fund will honor its obligation to the Trust Fund, the year at issue is 2042. This is the year the Fund is depleted after 24 years of cashing in the chits we will have accumulated between 1983 and 2017. The years 2018 and 2042 are this year's estimate of the start and end of the payout from the General Fund to cover the pay as you go shortfall due to retired Boomers like me. I was born in 1951, so I can retire with full benefits at age 66 in 2017, the last estimated year of true pay as you go. In 2042 I will be 91. The 1983 SS reform led by Mr. Greenspan not only was a >4% tax hike on my wages, but it bumped me back a year in retirement. I suspect most boomers cannot accurately identify when they can retire.

The years 2018 and 2042 are not set in stone. They are estimates, actually the middle of 3 estimates made by the Social Security Administration on a yearly basis. These dates have actually been drifting forward in time as documented several places on the web, including Kevin Drum at WashingtonMonthly.com. By this measure I find the use of the word 'crisis' a stretch in the extreme.

But 2018 is really the year at issue. It is my belief, and I assume yours from your statements, that the current administration has no intention of fulfilling this obligation. They seem to promote privatization as a solution to this problem, but Professor Samwick and even their own economists do not buy into this. The current talking points showing up in the back pages of the media is that *of course* future benefits will have to be curtailed, even with privatization. The current system is in default and getting some benefits are better than none!

If 2018 is the real issue, let the Republicans deal with it honestly. I don't expect this to happen since I find this administration to be chock full of lying bastards. They need to explain why Chinese purchased bonds are honored, wealthy US investor purchased bonds are honored, but the bonds purchased for the retirement of retired Americans are not honored.

And I cannot for a minute buy the idea that a regressive tax raise on working Americans in 1983 was ok and the Reagan years were so wonderful, but a progressive tax raise in 2018 will wreck the economy. Is the argument that the working guy just has more spunk than the wealthy?

And one last very big point. If we are going to default on 2018, it is time to roll back 1983. (Way past, actually.) It is being poured down a hole never to return, and every working American could use that 4%. (Remember, we are still pay as we go until 2018 so no pain until then!) And we might as well roll back the Medicare part of 1983 too, because it looks like we won't be seeing that either.

Roland Patrick said...

"I cannot follow for the life of me the 'law of arithmetic' thingy, so I will ignore that for now."

Iow, "assume a can opener".

"But 2018 is really the year at issue. It is my belief, and I assume yours from your statements, that the current administration has no intention of fulfilling this obligation."

The current administration won't be around in 2018.

"If 2018 is the real issue, let the Republicans deal with it honestly."

But not the Democrats?