In response to yesterday's post on the issue -- wherein I take the position that the social security trust fund was(and is), as a matter of positive economics, an accounting gimmick -- pgl asks the following:
Dave - to blue collar voters in 1984, the promise of the Reagan-Greenspan Commission that these payroll contributions meant prefunding of their Soc. Sec. retirement benefits likely meant something to them. Otherwise, they would have vote against CLASS WARFARE Ronald Reagan. Why do you and William insist on implicitly saying the GOP has lied to us for a generation? Why not just say so explicitly. I know a few Democrats who would love this kind of honesty - just so it occurs before Nov. 2006.
The William referred to is William Polley, who hits the nail on the head:
The trust fund is a social contract. In that sense, it's fully funded politically and morally. But I see nothing in the accounting structure of Social Security to suggest that it is fully funded in the strict economic sense.
In case there is any doubt at all where I stand on this issue, I wrote this in 1997 (in a Cato article I have referenced several times in previous posts).
Unlike many others, however, our proposal follows the "no harm, no foul," principle: the benefits of older generations are preserved while the young obtain the same or better benefits (on average) by investing a major part of their current payroll contributions in private capital markets.
The emphasis is added. (At the time, "older generations" meant anyone over 30, a more stringent line in the sand than the 55-year-old cutoff the President referred to tonight.)
I think this position makes me considerably more protective of the trust fund promise than many on the no-private-account side of the debate. A fave of those in that camp is the (very reasonable) proposal by Peter Diamond and Peter Orszag. The CBO scoring of the proposal explains some of the details:
Benefits would generally be reduced under the proposal for beneficiaries first eligible for benefits in 2012 and later. Part of the reduction would be determined by future increases in life expectancy, and the reductions would accelerate beginning in 2023. For a typical retired worker, CBO projects that scheduled benefits would be reduced relative to current law by 2 percent in 2025, 12 percent in 2050, and 23 percent in 2105. Beneficiaries with higher benefits under current law would be subject to larger reductions.
Wait a minute. Doesn't this imply that benefits promised to me -- yes, me! -- are being reneged on? By the logic of those who beat on us "IOU Yahoos", it seems to me the answer is "yes."
I, of course, don't see it that way. Things change. I haven't worked the statistic out exactly, but I don't think I have lived under the same tax code for more than five years of my adult life. I never really expected social security -- which in the cold light of day is just another tax and transfer program -- to be different.
This is exactly why I have been so insistent on making the point that, economically, the social security trust fund is not funded in any meaningful sense. The issue is not that President Reagan -- and the Democratic Congress that passed the "Reagan-Greenspan" reform -- lied. (This is a kind and gentle weblog, and I never impute any but the most honorable of intentions to others.) The issue is that the flaws in the trust fund scheme meant making promises that could not be reasonably delivered (or at least that has to be your position if you agree that some adjustments have to be made in the next couple of decades.) If we had implemented a private account scheme in 1983, we would not be having this discussion today because we would no longer be tethered to the tenuous demographics of the existing -- I'll say it -- pay-as-you-go system.
Which, incidentally, means that the current system is not riskless. But that is an argument for another post...