Social Security, not quite the back burner….U.S. News & World Report takes advantage of a slow news week (?) to give White House budget director Josh Bolten a long leash to talk up what passes for fiscal policy in this administration. Along the way, it lets him repeat the usual canards about Social Security. This is a subject dear to my heart, thanks to the recent publication of my book, ?The Plot Against Social Security: How the Bush Plan is Endangering our Financial Future.?
The pertinent portion of the Q&A is this:
The president doesn’t seem to be getting much traction on his Social Security proposal.
[Bolten:]The president’s plan, which includes personal accounts, is a pretty big challenge politically because it’s a problem that will only be fully visible or tangible to people a decade or two from now, at which point it will be enormously harder to fix. The president has made a great deal of progress in educating the American people about a problem that, to many people, seems to be on the other side of the horizon.
And yet private accounts won’t shore up the system.
Private accounts are an essential part of a comprehensive solution. In and of themselves, they don’t have a major effect on the overall solvency of the system. But they do provide an opportunity for younger workers to get a better deal out of the system.
Ever since the Social Security privateers were forced to acknowledge that private accounts wouldn?t improve the system?s fiscal balance, but would actually harm it, this has been the fall-back position: In effect, we have to cut benefits sharply no matter what, and private accounts are the only way for younger workers to make up the losses. The reply to this argument is in my Chapter 9 (?The Ownership Scam 1: Risk or Reward??). The point is that younger workers may get a better deal out of the system by investing privately, but then they may not. The variable is risk. As the Government Accountability Office has shown, millions of account holders may well do much worse. Some will do poorly, some will do superbly, and some will get what we call at the blackjack tables a ?push.?
If we could know in advance which category we?d fall into and plan accordingly, this would be a terrific plan. But as the late economist Herbert Stein, who was nobody?s fantasy of a liberal, once wrote, if you?re talking about a bedrock secure retirement benefit, it?s obvious that subjecting it to market risk is inappropriate.
In introducing its Bolten interview, U.S. News commits one of the familiar solecisms about the coming generational fiscal crunch by treating Social Security and Medicare as programs on parallel fiscal paths. (?The real fiscal trouble begins three years from now when the baby boomers start retiring and stretching Social Security and Medicare to their breaking points…?)
Well, no. First of all, no fiscal trouble is facing Social Security in three years; even the standard projection (which I show in my book has been historically overpessimistic) doesn?t posit a crisis until the 2020s. Second, Medicare is a whole nother thing. As I tell my lecture audiences when the question comes up (which is always), the reason the Bush Administration is focusing on Social Security even though Medicare is in a much more dire condition is because, unlike Social Security, you can?t adjust Medicare?s balance sheet by working strictly within its own parameters?you have to make changes in the entire U.S. health care delivery and financing system, which is the real driver of Medicare costs.
And we know how hard this administration has worked to fix health care.