Sunday, February 20, 2011

Social Security

So, is Social Security in trouble now? That seems to be the accepted thinking these days, doesn't it? We keep hearing about the critical necessity for massive "entitlement reform," with our longer lifespans and aging population pointing clearly to disaster ahead.

But then, I remember seeing those same kinds of scare tactics from Republicans for decades. My Dad was always certain there'd be no Social Security left when he retired. The Democrats were going to spend it all (on black people, I imagine), just as they were going to outlaw hunting and take away his guns (among other loony ideas). Yeah, Rush Limbaugh sure had it right.

But not really. As it turned out, my Dad had a very enjoyable retirement. And more than a decade after his death, my Mom still lives on Social Security (and still enjoys her retirement). Unfortunately, the Republican Party has only gotten better and better at scaring gullible people. Well, why abandon a winning tactic, just because it's, you know, unethical?

At any rate, what's the truth about Social Security? As we all know, Social Security only covered widows and orphans at first. Like Medicare, it started as a very small government program. And since then, life expectancy in America has risen dramatically. In these days of massive budget deficits, we just can't afford Social Security, especially now that the baby boomers are starting to reach retirement age.

Hmm,... that all sounds plausible, doesn't it? And at least Republicans are no longer talking about privatizing Social Security. (Partly, that's because the word "privatize" was shown to poll badly, so they've turned to using other language to describe the same thing. And partly, it's because the recent stock market crash is still a bit too clearly remembered by all Americans. Give it a couple of years, though...)

OK, what's the truth? Well, here's Paul Krugman on the "widows and orphans" bit (check out the links he provides if you want to dig deeper - the evidence seems to be pretty clear):
Paul Rosenberg catches the president rewriting history — and, revealingly, doing so in a way that makes the case for timid, incremental action, while waving away the actual history of bold strokes.

Specifically, Obama said this:
This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people. When Medicare was started, it was a small program. It grew.

Under the criteria that you just set out, each of those were betrayals of some abstract ideal.

This is all wrong: both programs were huge from the start. From the beginning, Social Security applied to all private-sector workers, except those in agriculture, domestic service, or casual employment — and yes, those exceptions happened to exclude the majority of African-Americans. Still, it was by no means a small program that grew big. Medicare covered everyone 65 and older right from the beginning, although initially it only provided hospital insurance.

OK, but how about our rising life expectancy? No one can deny that, surely. I know, I know, don't call you Shirley. For the rest of it, let's go to Paul Krugman again. He is, after all, a Nobel Prize-winning economist.
So: one thing you’re going to hear is something along the lines of, “In 1950 life expectancy was only 68 years, so hardly anyone was collecting Social Security; now it’s 78 years — the problem is obvious”.

Does anyone know what’s wrong with this? You over there in the corner?

That’s right: a life expectancy of 68 years doesn’t mean that a lot of people toddle along then suddenly keel over over after threescore and eight birthdays. Mostly it meant much higher child mortality than we have now, which has no relevance one way or the other to Social Security.

Much more to the point is the number of years people could expect to live after reaching 65: 14 years in 1950, 18.5 years now. Not so impressive a change, is it? And the retirement age is already 66 for my cohort, and scheduled to rise to 67 on current law.

Oh, and by the way, rising life expectancy was built into Social Security planning from the beginning. The big surprise has, if anything, been stagnating life expectancy among less affluent Americans.

Got that? Yes, life expectancy has increased greatly, but much of that is due to the huge drop in child mortality. The life or death of infants doesn't affect Social Security actuarial tables one way or another, though it has a big effect on average life expectancy.

Yes, we live longer, on average, once we get to retirement age, but that change isn't nearly so dramatic. And rising life expectancy was expected. It was factored into the program from the beginning. Finally, we already made changes to Social Security (in 1983, when Ronald Reagan was president), which scheduled an increase in the retirement age and also an increase in the income cap. (Yes, back then, Republicans were still willing to cut costs and increase revenues.)

So, considering all that, what does this mean for budget projections? Here's a nice little chart I got from Mother Jones (taken from a CBO document here):

That might be hard to read in this narrow column, but it shows projected federal spending on Social Security, Medicare, and Medicaid out to 2082, as a percent of GDP (which is really the only rational way to look at it).

The white area at the bottom of the graph is "other federal non-interest spending." That's the discretionary spending which Republicans are trying to slash in order to balance the federal budget (supposedly). Note that it's forecast to remain around 10% of GDP pretty much forever. (And that is actually a decrease from earlier years. So that's clearly not the problem.)

Social Security costs are expected to rise slightly, but not by much, and then to level off. Currently, we spend about 4.8% of GDP, and it's scheduled to rise to about 6% by 2030.  Do you see a ticking time bomb in that? I certainly don't.

As Krugman points out, defense spending rose from 3% of GDP in 2001 to 4.2% last year (not even including extra non-defense security spending). That didn't seem to be reason for hysteria, did it? Heck, Republicans didn't even consider giving up their tax cuts for the rich. That kind of increase was obviously considered to be no big deal.

But look at Medicare and Medicaid in the above graph. That's where the long-term problem lies (and partly, at least, it's because of the unfunded drug benefit Republicans passed under Bush). It's health care that's scheduled to keep increasing so dramatically in cost (not just government programs, but all health care). And that's why the health care reform bill, though only a start, made a significant difference to deficit projections (assuming Republicans don't succeed in their attempts to destroy it).

But we hear "entitlement reform" because the right wing still hates Social Security, as they have from the beginning. They want to believe - or at least to convince the rest of us - that it's as big a problem as Medicare. In reality, Social Security is not a big problem. It should be easy to fix (maybe not easy politically, though). Just removing the income cap, where high earners stop paying the tax, would make a huge difference, and it's easily justified, too.

Higher-earning Americans not only can afford the extra tax, but they tend to live longer - and therefore stay on Social Security longer - than those less well off. Remember how we were talking about life expectancy earlier? Well, those are averages. And if you look further into the figures, those averages mask big differences among income levels.

Here's another chart (by the CBO) and comment from Paul Krugman:

Finally, disparities in life expectancy have been rising sharply, with much smaller gains for disadvantaged socioeconomic groups and/or those with less education than the average. Yet these are precisely the people who depend most on Social Security. ...

It turns out that the good people at EPI got there well ahead of me. They point us to this study by the Social Security Administration, which shows (Table 4) that men in the bottom half of the earnings distribution saw their life expectancy at age 65 rise only 1.1 years from 1982 to 2006. Over the same period, by the way, the retirement age — under current law — rose 8 months.

If you're rich, you may see nothing wrong with raising the retirement age to 70. Well, if you work at all, you're probably not doing physical labor, nothing that gets harder as you get older. So why not?

But people who are less well off don't live as long, on average, as the wealthy. And they tend to work at jobs that get progressively harder as our bodies age. And finally, if ethical concerns matter to you at all, they need Social Security far more than wealthy people do.

Here's another comment from Paul Krugman, followed by a chart from Matthew Yglesias:
When medical expenses are big, they’re big; even the very affluent are grateful when Medicare pays the bills for their mother-in-laws bypass or dialysis. The importance of Medicare, in short, is obvious to all but the very rich.

Social Security, by contrast, is something that matters enormously to the bottom half of the income distribution, but no so much to people in the 250K-plus club. A 30 percent cut in benefits would represent disaster for tens of millions of Americans, but a barely noticeable inconvenience for VSPs and everyone they know. A rise in the retirement age would be a vast hardship for people who do manual labor, but if anything a gift to VSPs, who don’t want to step aside in any case. And so on down the line.

So going after Social Security is a way to seem tough and serious — but entirely at the expense of people you don’t know.

Does this mean I favor a means test for Social Security? I don't think so. Yes, the wealthy live longer and they don't need Social Security nearly as much. But means tests would add a layer of complexity - and a layer of bureaucracy - that we really don't need. Right now, Social Security is pretty simple. Let's not mess with that unless we have to.

And my whole point is that we don't have to. All this talk about "entitlement" problems is just Republicans trying to muddy the water. There's no crisis in Social Security. At most, we need just a minor fix. Ending the earnings cap, where high-earners stop paying into the plan, would probably fix most of it all by itself (and we can easily justify that, given that they tend to live longer than the rest of us).

Other than that, maybe we'd need some very minor adjustments, but nothing more than that. We certainly don't need drastic changes in the retirement age or big cuts in benefits. When it comes to long-term budget health, Social Security is not a problem. Medicare - health care in general, actually - is the real problem.

To end, maybe I'll quote someone else besides Krugman for a change. Heh, heh. How about Jonathan Bernstein?
The long term budget deficit is about one thing: medical costs. It’s not about “entitlements.” Social Security isn’t a long run problem of any serious consequence, nor are various small programs that count as entitlements in the budget process. Long-term projections of the federal budget are very clear. It’s all about health care.

Medical costs. Medical costs are going up much faster than inflation. Therefore, Medicare and Medicaid, and any other government programs affected by medical costs, will, long term, get far more expensive than any realistic level of taxation can handle.

So when budget hawks talk about “entitlements,” as Andrew Sullivan did today, they’re using language that in my view obscures, rather than illuminates, the situation.

Now, I’d go a bit further, as others have done. I agree with those who have argued that health care isn’t really, properly speaking, a federal budget problem. It’s a serious problem for the American economy. Thinking of it as a budget deficit problem misses the point; shut down Medicare completely and you solve the budget deficit part of it, but you still have an important dysfunctional situation with regard to health care.

Either way, I agree with Jonathan Chait: the way to measure a politician on federal budget deficits is really just to measure whether he or she has made medical costs a priority. ...

Getting back to my main my view, those who are upset about the long-term federal budget deficit should talk about it in terms of what it is, health care costs. Just as the phrase “weapons of mass destruction” encourages sloppy thinking (because nuclear weapons are not really similar at all to chemical and biological weapons in lots of important ways), talking about “entitlements” confuses the budget situation. I could see “Medicare and Medicaid” or, perhaps, “government health programs,” but not entitlements.

PS. The average retired worker gets about $14,000 a year from Social Security. That's the average, so people who really rely on this money to survive tend to get much less. Do we really want to slash this pitiful amount, or make a worker wait until he's in his 70s to retire, just to give millions in tax cuts to the very wealthiest Americans?

Really, how can Republicans get more than 2% of the vote? I just don't get it.

1 comment:

Jim Harris said...

I don't understand why so many people are republicans either. All those Tea party people who live off of social security and depend on Medicare are crazy to attack these systems. If I had paid for my mother's medical bills in the later part of her life I'd have spent everything I had, everything I saved and still be in debt, and I could never retire.

One reason why I'd like to see the Social Security System be considered separate from the annual budget is because people think it's a area they can cut. If seen as a separate program I think they would realize it's a great program and isn't in trouble.