Saturday, September 10, 2011

On weirdly resilient entitlement myths

My recently-completed financial management class was the source of many frustrations for me, but nothing quite as bad as the day when we talked about the US deficit. My professor started out by forcing the whole class to look at one of those awful deficit-tracking sites (see, e.g., http://www.usdebtclock.org/). These sites are essentially libertarian propaganda in the guise of a public service. Without some context (i.e., education on macroeconomic policy), a large red number labeled "US public debt" does very, very little to teach anybody anything, beyond eliciting the simple observation that "Gee whiz, that's a really big number." Even worse are the ones that update in real time -- "In the time it took you to read this, the US government spent four million dollars" frightens a lot more than it informs. Worse still, there's always a whiff of anti-fiat goldbuggery about them. It's the sort of thing people paint on signs and hold up at Ron Paul rallies.

Or teach in financial management, apparently.

After letting us stare at these sites for a while ("That's a really big number," one of my peers helpfully contributed), my professor made a little joke. "So, do you guys think you'll have Social Security?" And everyone laughed knowingly.


Okay, here's the thing about Social Security that you may not realize. It's not going under. It's not unsustainable. It's not out of control. It's facing one well-understood, medium-term challenge: the change in population demographics that accompanies the aging of the baby boomers. Look, Ezra Klein explains it very well:
Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP (pdf). If we increase its revenues by that amount -- which could be accomplished by lifting the cap on payroll taxes -- or reduce its benefits by that amount or do some combination of the two, Social Security is back in the black...

Why does Social Security show a shortfall? As Stephen C. Goss, the system’s chief actuary, has written, Social Security projects an imbalance “because birth rates dropped from three to two children per woman.” That means there are relatively fewer young people paying for the old people. “Importantly,” Goss continues, “this shortfall is basically stable after 2035.” In other words, we only have to fix Social Security once. After we reform it to take account of modern demographics, the system is set for the foreseeable future.
Despite the fairly incontrovertible truth of this assessment of the program's finances, Social Security remains hounded by the insidious myth that it's going broke. Its fictitious struggles have passed from political cliche into the popular consciousness. Like the incident in my financial management class demonstrates, everybody "knows" that Social Security is doomed, in spite of the simple fact that it isn't.

Some of the persistent public ignorance about Social Security's sustainability can surely be explained by the Republican Party's campaign against the entitlement. The GOP has a vested interest in conjuring up as a frightening picture of Social Security as possible. "Talk about it being a “monstrous lie” or “a Ponzi scheme” or “broken” is meant to create a crisis to clear the way for radical changes in Social Security." (Klein, again.)

But this myth has taken root in a way that most Republican talking points haven't. Almost everyone across the political spectrum thinks Social Security is in dire shape. I have no idea why this is. I'd say that it's a reflection of a general modern cynicism about the future, but Medicare -- which actually is on track to implode if it's not reformed somehow -- doesn't attract nearly the same level of popular pessimism.

Anyway, this is precisely the kind of misconception you'd expect a public policy professor to understand and correct. Instead, we're teaching it to our future bureaucrats. So I guess it's going to stick around for a while.

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