Wednesday, January 14, 2009

Huff Post: Why Liberals Should Want Obama to Take On Social Security Now

Scott Bittle and Jean Johnson, writing for the Huffington Post, argue that now is the time for President Obama to take on Social Security reform. Here's their main take (I've edited down the explanation of their reasons – you'll have to read the whole article for that.):

Why should liberals who have fought so passionately to preserve Social Security as it is now be eager to take this on as soon as possible? Let's leave the substantive arguments aside for now. In terms of sheer politics, the best answer is that Social Security's strongest supporters have the upper hand right now. We're not saying that people on the left necessarily have the right answers on Social Security, but we are saying to liberals that if we were you, we'd see this as a "seize the moment" moment. Things may not get much better, for several reasons:

Reason No. 1: The public's appetite for private accounts is probably in the basement.

Reason No. 2: We might be able to avoid a generation war.

Reason No. 3: It's easier than health care.

Reason No. 4: There is a Democratic Congress and a Democratic President.

It's hard to argue with their reasoning: on paper, now seems to be a very good time for folks on the left to get a good deal on Social Security. That said, they shouldn't think that they're likely to get whatever they want. Remember, in 2005 President Bush had just come off an election victory and Republicans controlled both houses of Congress, yet reform went nowhere.

It's much easier to play defense on Social Security reform than offense. I think the Democrats demogogued Bush's reform plans, but Republicans are just as capable of doing the same to Obama. For that reason, a true bipartisan reform effort is the only one likely to succeed.

6 comments:

rosserjb@jmu.edu said...

Health care is harder, but it is clearly needed much more. It is the rising projected costs of health care that are clearly the main driving force for the longer term scary projections regarding overall budget balances. The arguments about political balances clearly apply as strongly, if not more so, to health care than to social security.

Also, while it is said that social security is "easier," Bush failed to get something through when he was using all his "political capital," and part of the reason why was that he was having trouble coming up with a fix that did not screw somebody, such as the "doughnut hole" of some six years age group of people who would get neither private accounts or the full benefits.

I agree it might be easier if one does not try to push private accounts and just focuses on reducing future benefits or raising fica taxes, perhaps along the lines suggested by Obama, although I have problems with that particular proposal. But this all depends on the accuracy of your stochastic projections, Andrew, and frankly, the record looks pretty pathetic. Here we have just had a bad recession year, but the outcome was better than the supposedly pessimistic high cost projection. Maybe this year will be worse, but we have had a bunch of years that outperformed the low cost projection, under which, as you know full well, the system never runs a deficit. I would presume the mean forecast of your stochastic model tracks the intermediate projection outcomes, but the system has definitly beaten that in most years.

Let us look at your argument more closely. You are calling for a bunch of changes based on a shakey probability that down the road there might be a deficit or worse in the system. But, even if you make tweaks, there will still be some probability of this. Just what probability is OK? Why not wait until we have a better idea of what is going to happen? Your "spreading out the costs" response is very weak at best.

As for Obama or Huffington, I cannot think of a major potential policy issue that is lower priority to do anything with or to or about right now than social security. During his campaign, Obama's people were probably convinced by Bruce Webb and me to leave it along until 2019, and that remains the correct position.

Barkley Rosser said...

Let me make a more open and direct challenge to you, Andrew, here on your blog. What is the acceptable probabilistic outcome that policy should strive for? Is it 95% chance of "no bankruptcy," even though after such an outcome in 2041 recipients would still get about 120% in real terms of what today's recipients get, assuming the intermediate cost projection holds true? Is it 95% that the system will never run a deficit? Just what is it? No matter how much you tweak the system, there will remain some probability of these events happening eventually.

Andrew G. Biggs said...

Barkley,

In this working paper (http://www.aei.org/publications/filter.all,pubID.28225/pub_detail.asp) I argued that uncertainty regarding future solvency imposes a cost on current and future participants (as well as on policymakers, who are constrained in their other long-term planning). The basic reform I put forward here is indexing taxes and/or benefits to changes in the ratio of workers to beneficiaries. (See also this blog post:http://andrewgbiggs.blogspot.com/2008/07/new-paper-policies-to-reduce.html)

Doing so eliminates almost all the demographic uncertainty regarding system financing, since in the long term it's really demographics that push things.

In general, I'd prefer a 100% probability of solvency -- that is, auto-adjustments to taxes and benefits to spread uncertainty as broadly as possible. This doesn't mean that future generations can't change Social Security, it just means they'll do so from a position of solvency rather than insolvency.

Paul Lawin said...

I'll agree that some sort of automatic correction seems to be politically more possible than fixed adjustment, primarily because it deals with the "there is no problem" argument.

However, instead of indexing to the worker/beneficiary ratio, it seems more direct to look at revenue/benefits. Simply reduce all benefits in any year with a shortfall by a percent that produces total benefits = total revenue (including some planned use of the trust fund).

I think Bush over-reached when he tried to bundle complex benefit reductions with individual accounts. A simple proposal like this would have highlighted the issue. Discussions of retirement ages, indexing, spousal benefits, etc. tend to muddy the waters. Those discussions can only occur after the voters are convinced there is a problem.

rosserjb@jmu.edu said...

Andrew,

Your proposal is certainly superior to what was apparently being proposed by Bush (nothing was ever officially admitted, as we all know). However, it would seem that such adjustments should take account of what the balance is at a given time. So, we have large surpluses now on the balance sheet, but these are going to go down. Should we have different adjustments based on different levels of those surpluses or deficits rather than just the demographic ratios?

Also, it is not possible to have a 100% guarantee of solvency. Even Gaussian distributions have tails that go out to infinity, not just all those fat tailed distributions and black swan stories.

Andrew G. Biggs said...

I may not have been clear in the paper, but I was really focusing on 'cash flow solvency' rather than trust fund solvency. I personally don't think the fund is particularly meaningful economically (I've done a couple posts explaining why), and in any case it's not expected to last forever anyway. So I would adjust things to basically get rid of current surpluses and then run on a pure paygo basis afterwards. I assume current TF balances would be honored, but don't factor them in explicitly since this was mostly for demonstration purposes.