False praise for Cesar

Donald Luskin praises Cesar Conda for an article on Social Security:

To be sure, many Democrats will reflexively charge that price indexing will "cut" benefits for seniors. However, President Bush has explicitly pledged to protect benefits for both today’s retirees and near-retirees.

Uh, guys, that's one of the reasons Democrats have such a hard time swallowing Bush's plan in the first place. You can't promise not to make cuts in future benefits and then work on a proposal to do just that. It's called a "false promise," and while Americans like Luskin don't seem to mind those from the President, there was about 60 million of us who do mind.

That promise not to cut future benefits? Campaigning, pure and simple. The cut is big talk now, and we shall see if they really try and push for this poison pill.

Secondly, only in Washington would slowing the rate of increase in overall benefits from eighteen-fold to eight-fold be considered a "cut."

Imagine you let me borrow 1000 dollars from you, and I told you that I would pay it back at 18% interest. About halfway through the deal, I suddenly decided to give you only 8%. When you complain I say it's not that big of a drop and besides, money promised in the future doesn't really exist. That's the kind of argument the Bush administration seems prepared to give.

I know it's not a perfect analogy. In this case you'd probably find someone to break a finger or two to even things out. I'm not sure if that kind of physical retribution will be a part of Bush's plan, but I highly doubt it.

Kevin Drum presents a less semantic argument against the dropping of the rate increase:

Still, the subject is on the table, and it's worth unpacking the specific benefit cut that appears to be everyone's favorite right now: indexing future benefit increases to prices instead of wages. When I first got interested in Social Security many years ago, this initially struck me as a reasonable idea, but it's the kind of thing that looks worse and worse the closer you look at it. So, since we're all going to be hearing a lot more about this over the next few months, it's worth understanding what it means.

The inflation rate that most of us are familiar with is the Consumer Price Index, or CPI, which measures the increase in prices over time. But that's not the only way to measure inflation, and the method used by Social Security is to index benefits according to wage inflation, the average increase in wages over time.

The difference is simple but profound. Think about it this way: what if there were no price inflation at all. Would wages go up anyway?

Answer: sure they would. This is because the economy grows in real terms, and as the economy grows we all get paid more and our standard of living goes up. The whole point of having a growing economy is that it allows everyone to earn more money in real terms and live better lives.

The CPI doesn't take this into account. If your benefits go up only as fast as the CPI, your standard of living is frozen forever no matter how strong the economy is. Consider this: in the past 50 years, thanks to the growth of the American economy, wages have grown about twice as fast as prices and the average Social Security payment has grown to about $900. If we had adopted a price-linked model in 1954, the average payment today would be a meager $450.

Now, back to Luskin's praise:

Finally, the politics of Social Security have dramatically changed: Today’s young workers would gladly give up all of their future Social Security benefits for the chance to invest part of their payroll taxes in an account that they would own and control.

Um, I'm a young worker. And looking over what I've written, you can tell that this statement isn't true. And while Paul Krugman may not be as young as I am, he seems to have some things to say on the issue, too:

Information about other countries' experience with privatization isn't hard to find. For example, the Century Foundation, at www.tcf.org, provides a wide range of links.

Yet, aside from giving the Cato Institute and other organizations promoting Social Security privatization the space to present upbeat tales from Chile, the U.S. news media have provided their readers and viewers with little information about international experience. In particular, the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers' contributions on fees to investment companies.

It leaves many retirees in poverty.

Clearly this will be a battle in both the Senate and the House, one that Bush may ultimately spend the bulk of his "capital" on. If Democrats can argue out in front of this issue, it would seem that Bush's investment will be a failure. But a handful of bloggers and Paul Krugman cannot bear the load on their own.