As Obama’s Fiscal Commission prepares for its June 30 hearing, New Deal 2.0 invited leading thinkers to participate in our Social Security’s Fiscal Fitness series, which examines the soundness of the program, its relationship to the federal deficit, and the vital role it plays in America’s economic future.
The National Commission on Fiscal Responsibility and Reform set up by President Obama claims both that reducing the projected federal deficit should be a major national objective and that Social Security should be considered as one potential source of relief either through reducing benefits or enhancing revenues or some of both. That much is simply a fact.
But this commentary is about ideology. It is to remind readers that the same attacks on Social Security have been going on -- in different guises -- for at least four decades. The stagflation of the 1970s, precipitated by the oil crisis of 1973-74, provided long-term, ideological critics of social insurance an opportunity to argue that such programs -- retirement, survivors' insurance, Medicare, disability coverage, unemployment -- were unaffordable. Critics from the Cato Institute, the Heritage Foundation, and increasingly, in the 1980s, in publications financed by the Wall Street financier Peter Peterson, were not prepared to attack the desirability of social insurance programs directly. Instead, claims varied from how ungovernable such programs seemed during the 70s to the follow-up charge of affordability.
What is crucial to understand is how devious and misleading such lines of argument are. They are best understood as an ideological remedy searching for plausible occasions to celebrate what was presumed. This strategic ploy is obvious in the case of Social Security pensions. Currently, Social Security is not suffering worrisome fiscal imbalances. The worry of the worriers is about 2035 or 2042 when, according to forecasts of the actuaries and CBO, there might well be some shortfall in revenues against predicted claims. To the extent the worriers worry about 2016, they must focus on an aspect of the program never before considered in history -- whether payments from the general fund to the trust funds for interest payments are in excess of payments from the trust funds to the general fund for the purchase of bonds. But why go decades into the future or invent a new concern when the deficit in the nearer term is the issue at hand?
The answer has two components. Specters raise present fears, the more so if exaggerated by demographic forecasts with some plausibility. So the aging of baby boomers is the first premise, and the falling ratio of workers to retirees is the second. Together, these two premises suggest that there will be a need for cutbacks or increased contributory taxes. But if the baby boomers are growing in numbers and if Social Security is the ' third rail of American politics", then critics had better scare citizens into accepting cuts now because it will be harder later on. Note, however, the deceits. The ratio of workers to non-workers, for example, is a much more relevant measure than simply the ratio of workers to retirees. More older Americans means more for pensions and medical care and less for youngsters and their diminished numbers at schools. This ratio hit its height in 1965 and has generally been decreasing since that time. The ratio also ignores increasing productivity. As productivity increases, as it has and is projected to continue to do, the burden on workers falls. Finally, there is every reason to believe that relatively small adjustments on the revenue and outlay side can take care of any shortfall. The genius of social insurance is that small adjustments add up to huge long-term changes in fiscal balance. But there is precious little discussion among the deficit hawks about this point.
What we have is a case of ideology masked as fiscal prudence. There is every reason to believe that Peter Peterson and the personnel of his foundation believe profoundly in the virtues of a smaller public sector, a robust means-tested conception of social welfare policy, and the importance of not providing most citizens with a collectively financed system of income protection against major losses in family income from recognized and understood risks. So they are advancing their cause as prudent, fiscal watchdogs.
But the distortion of this longstanding approach is evident in the concentration on Social Security rather than the most important threat to America's fiscal future, the continuing, disproportionate rates of increase in medical care spending, both private and public. The health reform legislation of 2010 was celebrated as insurance expansion for millions of uninsured Americans, but it did not seriously take on medical inflation. There is a big problem in this policy space, but the Fiscal Commission meetings of late June 2010 are not focused there. Instead, they are locked on the one sphere of American domestic policy that has been a substantial success over its history since 1935.
It is ironic -- and infuriating -- to have a debate in 2010 about Social Security when that program had nothing to do with the transformation of the nation's fiscal policy from surplus to deficit since 2000. Two wars, Bush tax cuts, and the fiscal consequences of the economic crash of 2008-9 explain the size of the deficit. Why are we even talking about reducing Social Security at this time? It is not because there is a good rationale, but because of the money behind the rationalizers of a smaller government.
**For a review of the same arguments two decades ago, see Marmor, Mashaw and Harvey, America's Misunderstood Welfare State, (Basic Books, 1990, 1992).
Ted Marmor is Professor Emeritus at Yale University School of Management.