Social Security

Paul Krugman had an interesting op-ed in the November 16, 2007 New York Times about  the general Washington political discussion of Social Security, "Played for a Sucker."   

Krugman's first point:  doomsaying about Social Security--along the lines of "it won't be here for the next generation"--has become quite common inside the beltway, as in a recent Russert-Matthews exchange on the program "Hardball." 

Krugman's second point:  the conventional "inside the beltway" wisdom on this is simply wrong.  The fiscal issues facing the United States on the retirement of boomers are not caused by demographic change but by the enormous growth rate of per capital health care costs.  See articles by Peter Orszag and Philip Ellis to this effect, in the New England Journal of Medicine, here (claiming fiscal condition misdiagnosed--it's health care costs, not demographics) and here (suggesting some ideas for constraining rising health care costs).

Krugman's third point:  the misconception about the source of the costs has been a concerted campaign by "conservative ideologues whose ultimate goal is to undermine the program."  Thus, scaremongering about the impact of demographic change on the viability of the safety net has been used as a reason for undoing the safety net--privatizing the program and putting the risk of failure on the individual retirees rather than on the public system.   (How tossing the safety net out the window is saving it has never been adequately explained by the proponents.)

(Readers will note that this tactic is fairly common when it comes to working tax systems as well.  Ideologues who think no tax is a good tax argue that the tax system doesn't work well, and then they argue that the cure is to remove the sick body rather than to make the body whole--eliminate the tax.  This argument has been used, in one form or another, as justification for repealing the corporate tax and lowering rates (with an eye to eventual outright repeal) of capital gains taxation.  On the other side, people who claim they care about progressivity argue for a progressive cash-flow consumption tax. But, my friends, I fear it is highly unlikely that any consumption tax to replace an income tax would be enacted in progressive form and highly likely that any consumption tax enacted would have numerous loopholes (such as nontaxation of borrowed funds) that leave the rich even richer and ordinary taxpayers supporting what government programs are needed after the wealthy take care of themselves in gated communities.)

Krugman's fourth point is worth pondering.  Partisan politics--basically, ideology wearing a mask of sound political thinking--may have gotten so bad that progressives need to be wary of making the mistake of assuming that they can do business in Congress by rising above it.  If you talk too much about transcending partisanship, you may just be a sucker for playing into the hands of the worst partisanship imaginable--the "privatize government" ideologue game that has been going on for the last 7 years.

Comments

[Ian from Ann Arbor]

"Visionist," Tom Frey believes the current tax system will soon simply collapse ( http://snipurl.com/incometaxcollapse ); and economist Laurence Kotlikoff heralds that - short of enactment of FairTax (or an otherwise unlikely change in congressional spending habits) - the U.S. will shortly facing an irrevocable economic breakdown ( http://snipurl.com/meltdowninprogress ).

Kotlikoff believes that passage of the FairTax progressive consumption tax can stave off the economic ruin we're facing, but also has laid out proposed revisions to health care (see podcast linked above) that will set the U.S. on a sustainable course; but he would be surprised to see it happen.

Frey and Kotlikoff may be right on both counts, and we may not be able to successfully evoke change; but shall we not try? ( http://snipr.com/scrapthecode )