Economics Without The B.S.**: Social Security: Critique by Heritage
Foundation
[** Double entendre intended.]
Social
Security: Critique by Heritage Foundation
The Heritage Foundation
cited a report which criticizes the actuaries at the Social Security
Administration: the link to their
article,
My reply:
Your report and analysis of the Social Security System is disguised
as “Reform” but is just the usual misinformation of a system that has been
functioning quite well in our democratic political process among both
Republicans and Democrats (as well as independents and others) for over 70
years now – a system that has required only modest modifications over those
decades to keep it on-going as it was initially designed under the New Deal of
Franklin Delano Roosevelt. And I might
add, a system that does not contribute one penny to the National Debt and
currently has a surplus account of almost $3 trillion, (That
is not a typo, TRILLION with a ‘T’.)
Now you want to attack the actuaries of the Social Security
System, government employees who are apolitical and serve Democrat and
Republican administrations as well as all congressional representatives of the
House and Senate, who are responsible for providing
guidance for the sound management of the Program. You cite academic research from Kashin, King,
and Soneji with back-fitted data and analysis to contradict and discredit the
work done by the actuaries of the Social Security System who were projecting
information for the future solvency of the program. You have a one-time academic citation while
the actuaries of the Social Security System have given Congressional testimony
each year over the many, many decades of the existence of the program. Over these decades, Mr. Stephen Goss, the
Chief Actuary at the Social Security Administration for over twenty-five years,
and other actuaries have given public presentations and have written papers
explaining the Social Security System, have held themselves up for the scrutiny
of the many professional actuarial organizations that are out there, and have
responded to critics – being so effective that once during Bush’s second term
when he attempted to “privatize” Social Security some Congressional Republicans
wanted to prevent Goss from speaking in public because he was so effective a
speaker and was opposed to privatization.
The academic research you cite from Kashin,
King, and Soneji that criticizes the work of the Social Security Administration’s
actuaries slings one canard after another.
Their assertions of the Social Security Administration’s actuaries are
just plain false – (1) that the Actuary
Reports do not publish systematic and comprehensive forecasts; (2) that the actuaries withhold data; (3)
questioning the academic standards of the actuaries; and, (4) their assertions
of the Social-Psychological pressures along with the Internal and External
pressures is pure bunk and psycho babble .
First, the actuaries report to the public and to Congress where it has
been subject to public scrutiny over many, many decades. Their models are stochastic models along with
sensitivity analysis of the assumptions that they have made. Other professional and academic organizations
have compared these models to their own.
Second, there are downloadable data sets right on the web site of the
Actuary Section of the Social Security Administration as well as citations of
the data in their many, many reports.
And third, you question the academic standards of the actuaries, but
their work has met the professional standards required of actuaries and has
withheld the scrutiny of the many professional actuarial organizations that
have reviewed their work plus the scrutiny and review and critique of other
academic institutions, just to name Yale and Northwestern as two examples that
immediately come to mind. And, Stephen
Goss and his actuaries have stood up to Congressional reviews time and time
again. When the next Congressional
review takes place, let Kashin, King, and Soneji testify. It is their bona fides of being apolitical
that will be questioned with the likely outcome that they will discredit
themselves under cross-questioning and where the views of others and the Social
Security actuaries can respond.
Over the decades, the opponents to
Social Security have lobbed one canard after another on the soundness of the
Social Security System:
(1)
The Social Security Program has been called “Socialism” even though the concept of social insurance
was initiated by the bulwark of German conservatism, Otto von Bismarck, way back in the 19th
Century.
(2)
You use “unfunded liability” and “pay-as-you-go” as pejoratives. You fail to mention (or enlighten your readers)
that this $13.4 trillion unfunded liability is the present value of a 75 year
sum, a cash flow that will take place over 75 years. Yes, it is huge, but it
is manageable. The key to managing it is
how well the economy does over that period.
If we could get back to an economy like we had in the ‘60s – near
full-employment, a better educated work force, and pay (not subsidized incomes)
for all workers who contribute to the economic growth having some share of that
growth – then we should see healthy receipts in Social Security. “Unfunded liabilities” is how most folks
live, especially when their children are born.
After all, who has all the money needed to raise children at the time
you first give birth to them?
(a) Your
mention of an additional $400 billion to that $13.4 trillion is hardly “massive”
– an increase of less than 3% for that debt incurred over that 75 years of cash
flow.
(3) And the red
herring that Social Security is redistribution – another pejorative? Yea!
You bet it is. Just as intended
back in the New Deal – upper income folks who depend less on Social Security
for retirement income get less of a return on their Social Security
contributions than lower income folks who usually rely more almost exclusively
on Social Security for their retirement income.
Redistribution – that’s how the westward expansion of the U.S. got
financed. Name any major society in the
history of humankind that has not had redistribution?
(4) And the canard
that Social Security discourages work???
That has more to do with the present state of our economy, which has
just been fumbling along at about an annual growth rate of 2% far below what we
had in the ‘60s. Place the blame where
it belongs, not on Social Security.
Social Security did not discourage work in the 1960s, our most
productive decade (by GDP) since WWII, or during the 1990s when we eventually
got near to full employment.
(5) The red herring
that Social Security adds to the National Debt.
The Social Security Trust Fund cannot use debt unless they get a special
authorization from Congress – which they have not had to do since their last
crisis in the early ‘80s. And that debt
was paid off in a few quick years.
(6) The red herring
that the IOUs in the Social Security Trust Fund are worthless. The IOUs are better than bonds or cash. Whereas bonds can go up or down in value over
time, the IOUs in the Trust Fund are redeemed at face value – they cannot lose
value. And where cash earns little
interest on deposit, the IOUs earn a dividend (or coupon payment) like bonds,
currently paying around 3% annually.
Trying earning that on a guaranteed bond in today’s market.
(7) And finally the
canard that the “full faith and credit of the United States of America” doesn’t
stand for something and that is why the IOUs are worthless. I mean, REALLY??? The U.S.A. has never, NEVER, defaulted on its
debts. The “technical defaults” that you
conservatives/libertarians come up with have been handled by a variety of
measures that have always, ALWAYS, resulted in creditors to the U.S.A. of being
paid one way or the other with a recognized legal tender. A legal tender that has been acceptable to
the great majority of U.S. citizens (if not those who question the legitimacy of
the currency) and a legal tender that was held by foreign countries who buy
U.S. debt and hold that debt in U.S. currency and not gold or some other
currency. Take a graduate level finance course
and you will find out what the “full faith and credit of the United States
of America” means. For a risk-free rate
students use U.S. treasuries because foreigners as well as Americans know the
U.S. A. has never defaulted on its debt.
Mr.
Stephen Goss, the Chief Actuary of the Program, actuaries who are responsible for providing guidance for the sound
management of the Program, has plenty of statistical studies to show
that the type of modifications that were made in the past – raising the income
cap, raising the payroll tax, adjusting the retirement age, re-computing the
benefit formula, etc. – and were gradually phase in so as not to shock people
can restore the system as is to long-term sustainability. The biggest obstacle to this has been
political inaction because politicians would be labeled as tax increasers.
Here is a C-SPAN link of Congressional
hearings held in 1989 on those very issues with all views present from liberal,
conservative, and libertarian viewpoints:
In
this 1989 piece they talk about what the Program will look like in 2000, 2010,
and the rest of the 21st Century with and without modifications if
nothing is done, using estimates from the Social Security actuaries, and they
are right on target for where we are today.
They discussed how gradual changes over twenty years would bring
the Trust Fund into sound financial standing.
They discussed it in the late 1980s, the 1990s, the ‘00s, and
since. They discuss; but, they did nothing
– in the 1990s, the ‘00s, and since. Clinton talked about it (even in a State of
the Union address) but did nothing. Bush
wanted to privatize Social Security in his second term. Right after his re-election and at the start
of his second term in January of 2005 he made it his number one priority and
had over half the American people believing that Social Security needed to be “saved”. He followed this by going on the road to sell
his program of private accounts in Social Security as part of the Ownership
Society. The more he talked about it as
he went around the country, the more support he lost; so, that by mid-April of
2005 the Gallup Poll (hardly a liberal organization) showed 2-to-1 disapproval
of his recommendations and all efforts to change or modify Social Security were
dropped like a dead weight and the political agenda moved to other topics. Obama has talked only a little bit about the
Program and has done nothing, even mentioning that it will be done some time by
a future administration.
This critique and analysis by the Heritage Foundation only
shows you to be the political hack organization you have become in recent years
disguising yourselves in the respectable previous prestige you enjoyed as an
alternative political research organization and now using this disguise to
impute the integrity of apolitical professionals who work in the Federal
Government and serve the public interest.
What is troubling is not as you state the actuarial assumptions by the
Social Security Administration but your use of academic research to undermine
the soundness of the Social Security system.
Although the Social Security system needs modifications once again – the
last time being with the Greenspan Commission in the mid-1980s – to keep it sustainable, economically and financially sound, and socially
responsible, it is not financial problems but rather a politically driven
agenda by long-time opponents of the Social Security program that are the
problem.
What is it about modern-day Republicans – not Ike, not
Nixon, not even Reagan (who initiated a bi-partisan effort to modify Social
Security) – what is it about modern-day Republicans and Right-Wingers that they
can’t put their arms around and embrace the Social Security System (with almost
$3 Trillion in surplus) that has been functioning for over 70 years as it was
originally designed during the New Deal?
Social Security does not exist in some abstract world of
academia. It exists in a society with a
political realm and your views about a democratic representative government are
out of favor. Leadership is needed,
similar to that displayed by President Reagan, to forge a bi-partisan consensus
to make the modifications that are necessary to sustain the program. Even if no changes were made to Social Security it would still have enough money to pay $.75 for each dollar of benefits by
sometime in the 2030s when you critics claim it will be broke. But is there some politician who thinks they can get re-elected after
they tell Granny that she is only going to get $.75 for each dollar of
benefits?
Since
the inception of the Social Security Program over 70 years ago critics have
used hyperbolic language to describe any problem that came up along the way and
predicted calamitous events for the outcome.
The critics have used the democratic process to undermine a
well-functioning program and prevent the necessary modifications from being
made and their political opposites (who say they champion the Social Security Program)
have used this tactic to their political advantage. The longer the Social Security Program goes
without the needed modifications the more likely any future shortfalls will be
bailed out by dipping into the General Fund (just like what has happened to the
Highway Trust Fund); and, that will be regrettable. The present system can be fixed with the
modifications; and, that will keep the program sustainable, economically sound,
and socially responsible.
We
live in a democratic system. It is up to
each generation that participates in the Social Security System to either renew
that support or find a different approach.
Political will is not just a test for politicians, but also a test for
the people they serve.
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