Thursday, June 11, 2009

Neil Buchanan on 2009 Trustees Report

As a counterpoint to the NCPA report below, which paints a negative picture of Social Security's future, George Washington University law professor Neil Buchanan says that we shouldn't overreact:

Given what appears to be clearly bad news, are there reasons to be upbeat, especially with regard to Social Security? Happily, there are. Despite years of propaganda suggesting that Social Security is doomed and that younger generations will never receive back a dime of the money they are paying in, it remains true that the only thing we need to maintain a healthy Social Security program well into the future is political will. We can and should continue to support this important program – especially now that we have seen what can happen to our private pensions, 401(k)'s, and savings accounts when the economy takes a negative turn.

Much of Buchanan's piece is fine and really just a difference of values: he values certain things more than I do and others less.

There are a couple places, however, where Buchanan makes common but faulty arguments:

First, he tries to cast doubt on the Trustees projections by comparing their projected future GDP growth rates to those of the past. As I've argued in a number of places (and as CBO made clear here) these comparisons are silly because they don't account for the fact that lower birth rates, which we are already experiencing, will reduce future labor force growth which will reduce future GDP growth. Future productivity growth and individual wage growth will be right around the historical average. The fact that so many on the left continue to make these arguments despite such a simple counterargument strikes me as sloppy, at best.

Second, Buchanan points to the high and low cost projections to argue that we shouldn't take the Trustees' intermediate cost projections – their "best guess," as it were – too seriously. The Trustees (and even more so CBO) are very open about the uncertainty of their projections. But uncertainty isn't a reason to delay action but to act sooner, since things could as easily turn out worse than projected as better. (The case for acting today on global warming, for instance, rests almost entirely on the uncertainty of future projections; if the projections were certain, the most likely conclusion would be to let rich future generations build dikes.) As an econ Ph.D., Buchanan should know that the welfare value of averting an unlikely but nasty future event outweighs the cost of insuring against something that doesn't come to pass.

Third, Buchanan jumps on the train saying the problem isn't Social Security but Medicare, and that the Medicare problem is just rising health costs leaking over from the private sector. As this post showed, even the administration's own projections show that population aging – something that affects government programs far more than private sector ones – is the real entitlement cost driver.

In any case, worth a read to get perspective.

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