Paul Krugman comments on the latest Trustees Report while Andrew Samwick, from his new blogging location, puts Krugman's claims to the test.
Krugman's basic argument -- which I believe really originated with Dean Baker -- is that however we characterize the trust fund, calling Social Security a "crisis" is incorrect. If we believe there is a trust fund, Krugman says, then the program is solvent until 2041, making it a significant but not-so-pressing problem. If we don't believe there is a trust fund, then Social Security is just a part of the federal government and so is funded in perpetuity.
Clever, but limited for several reasons. For once, consider that much of Medicare is not financed through a trust fund, being paid entirely through general revenues, but that doesn't mean we don't consider its cost growth a problem. (It's the only problem, some would argue.) Likewise, Social Security's costs are projected to rise from 4.3% of GDP today to 6% of GDP in 2030. Those costs must be paid, whether we consider trust fund real or not. Whether we consider the trust fund real may influence how we think they should be paid, but the cost increase is real and significant.
Samwick takes on this quote from Krugman:
"As Kevin Drum, Brad DeLong, and others have pointed out, the SSA estimates are very conservative, and quite moderate projections of economic growth push the exhaustion date into the indefinite future."Samwick points out, much as I have (see here and here), that this claim isn't particularly plausible:
You can look at the sensitivity analysis for the growth in real wages in Table VI.D4 and see that increasing the projected rate of growth in real wages by 0.5 percentage points (around the baseline growth rate of 1.1% per year) shrinks the 75-year actuarial deficit from 1.70% to 1.12% of taxable payroll. That gets us about a third of the way toward a zero balance over 75 years and is a necessary but not sufficient condition to support Krugman's claim. If continued linear extrapolation is valid, then we would need to add about 1.5 percentage points to the real wage growth rate--over 75 years--to get the balance to zero. That's sustained real wage growth of 2.6% per year for 75 years. Krugman should come out and say that such a number is "quite moderate" if that's what he means. Seems pretty optimistic to me.For a fairly lengthy alternate take on what it means for the trust fund to be "real", see here.