Social Security: the non-sequitur wars

January 21, 2020

Eve Edelheit for The New York Times

By Paul Krugman

Opinion Columnist

Today’s column was about some bad behavior by the Sanders campaign, which essentially lied about the content of a speech by Joe Biden. Sanders has now offered a graceless sort-of apology, saying that his campaign should have provided the “whole context” — the whole context being that Biden was actually saying the opposite of what the Sanders people claimed. Not a good look.

But the column also acknowledged that Biden has in the past called for Social Security cuts, not because he was particularly hostile to the program, but because he was much too willing to buy into the Beltway consensus. And I want to talk a bit more about how that consensus went so wrong.

Social Security is America’s oldest major social program, and it’s a crucial support for older Americans, a majority of whom depend on it for more than half their income, and a quarter of whom depend on it for almost all their income. The program is structured to look like a pension fund, where what you get out depends on what you paid in, but that’s bit of a Noble Lie. For the most part it’s a pay-as-you-go system, in which Americans of working age support retirees.

There’s nothing wrong with having such a system, but the long-term finances of Social Security look a bit dodgy, for two reasons. One is the aging of the population, with a rising ratio of older Americans to those of working age. The other, which you hear less about, is rising income inequality. The payroll tax that supports Social Security only applies to income up to a maximum level, currently $137,700. Rising inequality has meant that a declining share of total income accrues to workers in the taxable range, eroding the system’s revenue base.

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All of this means that something will probably have to be done to keep Social Security sustainable. But what, exactly, should be done?

Back in 2004-2005 the Bush administration tried to use the supposed crisis in Social Security to privatize the system, converting it into 401(k)-type accounts. This never made any sense: What did privatization have to do with a potential revenue shortfall?

A few years later it somehow became Beltway orthodoxy that it was urgent to lock in gradual benefit cuts. Why? It’s true that if the Social Security trust fund is eventually exhausted, it will be necessary either to raise taxes or to cut benefits. And, the argument went, to guard against the possibility of future benefit cuts, it was urgent that we act now to… cut future benefits. If this doesn’t sound to you as if it makes sense, that’s because it doesn’t. But all the Very Serious People believed it.

Finally, there was a lot of talk about raising the retirement age — which, by the way, we’ve already done: Full benefits used to kick in at 65, but now they don’t kick in until you’re 66 and 2 months, and eventually the age will rise to 67. But many prominent people called for raising the age even further. After all, Americans are living longer, aren’t they?

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Well, it depends on which Americans we’re talking about. Life expectancy has gone up a lot for affluent Americans, but much less if at all for those with lower incomes — who are precisely the people who rely on Social Security the most. Should janitors be forced to keep working because corporate lawyers are living longer?

The Social Security story is, in short, a classic case of the elite converging on a conventional wisdom that didn’t actually make sense and also ignored the reality of how ordinary Americans live (and die.) And it’s entirely fair to criticize politicians and pundits who bought into that conventional wisdom — as long as you don’t try to spice up the critique by lying about what they’ve said recently.

Quick Hits

The growing gap in life expectancy by income, and why it matters.

Nancy Pelosi saved Social Security. Asked when she would present an alternative to the Bush plan, she replied, “Never. Is never good enough for you?”

The bad-faith accounting that underlay some of the attack on Social Security.

U.S. conservatives never succeeded in privatizing retirement. Margaret Thatcher did — and it was a disaster.

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