Playing with numbers

The battle of removing Social Scurity heats up, and the left, I'm pleased to say, comes out firing. First, of course, is Paul Kugman's piece in the New York Times. Many others have linked to it, but here's my favorite piece, and one of my personal questions as well:

My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government.

If the trust fund is meaningless, by the way, that Greenspan-sponsored tax increase in the 1980's was nothing but an exercise in class warfare: taxes on working-class Americans went up, taxes on the affluent went down, and the workers have nothing to show for their sacrifice.

But never mind: the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own.

There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it.

Then, as if on cue, Brad DeLong and then Kevin Drum point out some shortfalls in the Republicans logic. DeLong:

Assume a payout ratio of 60%. Earnings yield of 5% per year... That gives you a dividend yield of 3% per year... That means that the profits of currently existing and traded companies (not aggregate profits!) have to grow at 3.5%-4% per year... That means that the economy as a whole has to grow at 4.5%-5% per year forever... That's much higher than the Social Security actuaries' long-run growth assumption, which heads for productivity growth of about 1% per year and very low population growth by 2050...

In other words, the stock market can attain its 6-7% per year real payoff only if the macroeconomic news in the future is much better than Social Security is projecting, in which case there's no Social Security financing problem at all.

Drum, after pointing out the SS failure is if GDP growth averages 1.8% or less:

This growth is lower than we're used to, but that's because GDP growth = population growth + productivity growth. Since population growth is slowing down, so will GDP growth.

Still, what if you assume that things will be a little more robust than this? If you project GDP growth of around 2.6% per year, you end up with Estimate I, and in that scenario Social Security never runs out of money. In fact, if you project GDP growth just a few tenths higher than 1.8%, Social Security stays solvent for the next century.

In other words, if GDP growth averages, say, 2.2% over the next 75 years, Social Security is in fine shape and we don't have to do anything. We only need to "fix" it with private accounts if GDP growth is less than that.

But that hasn't stopped Republicans from their planning. The Hill reports that the GOP is pushing to rewrite budget rules that will help mask the cost of the 1-2 trillon dollars it is projected to cost to "privatize" social security:

The potential move to craft budget language that would direct the Congressional Budget Office to score Social Security reform legislation over 30 or more years would likely increase the chances that the bill would pass in the 109th Congress.

Republicans could also write budget provisions that would remove the program entirely from the budget process.

Reshaping Social Security, deemed the third rail of politics, has long been viewed as an almost impossible task. But with the deficit projected to be $348 billion and the large transition costs of Social Security reform, the legislative obstacles appear even more daunting next year.

(snip)

Rep. Bob Matsui (D-Calif.), ranking member on the Ways and Means subcommittee on Social Security, said rewriting budget rules to expedite adoption of a reform bill would imperil the country’s finances for decades to come.

“I’ve never even contemplated that anyone would come up with an idea like this,” Matsui said. “The whole idea and purpose of a budget and expenditures and revenues is to have an accurate accounting of where the federal government is in terms of fiscal policy and in terms of the overall economy. To take off $2 trillion and to say it doesn’t really exist because it’s a future debt, it really distorts the whole budget process.”

Matsui also said that removing Social Security from the budget would make federal budgets “meaningless” for the next 25 to 30 years and would scare away many foreign investors and send jitters through Wall Street.