Tuesday, March 31, 2009

Wash Post: Recession Puts a Major Strain On Social Security Trust Fund

The Washington Post's Lori Montgomery reports on the recent decline in the Social Security surplus, with some contrasting – though, I think, both correct – views on what it means. The Center for American Progress's Christian Weller says:

"This is not a problem for Social Security, it's a problem for fiscal responsibility," said Christian Waller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress. He said the new estimates would force President Obama and his budget director, Peter Orszag, "to stay on track in what they have set out to do, and that is rein in deficits."

This is a good point. During the reform debate of 2005 folks on my side pointed out that Social Security will begin running deficits in 2017, demanding repayment of the trust fund. I always why the left didn't simply acknowledge this, but then point out that the 2017 date signaled a problem for the rest of the federal budget, not for Social Security, and that this problem was only made worse by tax cuts that put the budget further out of balance. (I'm not saying I fully agree with this, but it's an effective talking point.)

In any case, here's what I told the Post:

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Now they've essentially got to pay their own way, at least a little more fully.

"Instead of Social Security subsidizing the rest of the budget," he said, "the rest of the budget will have to subsidize Social Security."

For more on the relationship between the trust fund and the rest of the federal budget, see this post: "What does it mean to save the surplus?"



Bruce Webb said...

Well speaking as someone on the other side. Those of us who were actually aware of the numbers were fully aware that cash surpluses would disappear starting in 2017. That is under Intermediate Cost assumptions. We also knew that the initial gap was projected to be quite small even when expressed in current dollars ($24 billion Table VI.F8) and less when adjusted for inflation ($19 billion Table VI.F7). Given that the Bush Administration was having no problem borrowing hundreds of billions for a one time tax rebate and about $120 billion a year for a war of choice it was hard to believe they were really concerned about a $20 billion gap twelve years down the road. Particularly since they never seemed to deploy any number that was not projected over the Infinite Future Horizon.

I was all over the relevant blogs back then and perfectly happy to debate actual numbers with anybody. But oddly nobody on the other side ever seemed to want to use numbers, at least not from the main data tables. But some of them were strangely familiar with the rather obscure Table IV.B6 (now IV.B7).

If people on your side had been willing to quantify those deficits in 2005 rather than just use language like 'bankrupt' 'dead broke' 'phony IOUs' and 'massive cuts in programs or increases in taxes' then maybe we could have had a reasonable policy discussion. It was just that 1.92% or $24 billion were maybe not sexy enough numbers to actually move the President's agenda.

The reality is that in constant dollar terms the gap between total income and total cost never gets that big. And in 2005 the data was pretty strong in support of the idea that the dates of shortfall and depletion would continue to push forward into the future, particularly if the President's tax cuts produced the kind of growth his advisors were suggesting. Well those tax cuts did not deliver as promised, productivity crashed in 2005 Q4 and never really recovered. But neither side was projecting those results during the summer and one side was implicitly arguing that we would never have a severe reset in stock prices and profits (no profits, no 6.5-7.5% real return).

I started my own, then mostly private blog in November 2004 and from the start was using numbers. Because to quote myself from back in 2005 "Because oddly enough this debate is not about numbers and in most respects it never has been" Social Security: is it about Solvency or About Ayn Rand

Andrew G. Biggs said...


In this old piece I tried to talk about the costs of repaying the trust fund in ways that fleshed out the numbers a bit: http://www.socialsecurity.org/pubs/articles/art-biggs010417.html

Some of it I'd no longer really endorse, but the basic argument is that the trust fund isn't a pot of gold that we can access whenever we need it. It's an asset to Social Security, but an equal and opposite obligation to the rest of the government and it will be an expensive one to honor. We will honor it, but it's wrong to treat it as an asset to everyone but a debt to no one.

Anonymous said...

Really? Given the extent of our fiscal problems, are you sure it's still safe to assume that the U.S. will honor its full debt to Social Security?

Andrew G. Biggs said...

Anonymous, I'm pretty sure it will be paid off, but for a perspective on how things might go the other way you can check this article I put out a couple days ago: http://andrewgbiggs.blogspot.com/2009/03/new-article-full-faith-and-overextended.html