Opinion

Social Security outlays are projected to rise from 4.8 percent of GDP now to 6 percent of GDP in 20303. This is a huge crisis, requiring complete overhaul of the system.

Defense spending rose from 3 percent of GDP in 2001 to 4.2 percent last year; you should also add a couple of tenths of a percentage point for non-defense security spending. This was no big deal — certainly not a reason to reconsider the tax cuts sold back in 2001 as easily affordable given large projected budget surpluses.

Just saying.

Or at any rate, not his initials. Keep it clean, please.

I see from comments on this post that some readers are missing the point, in a couple of ways.

First, my beef with the “life expectancy was only 68 years!” thing is that it’s meant to convey the impression that in the good old days the typical Social Security recipient only collected three years of benefits before keeling over; in fact, it was more like 14 years, and has now risen to 18.5. So yes, the length of time benefits are collected has risen, but not as dramatically as the usual suspects would have you believe.

Second, child mortality really is irrelevant: someone who dies at age 7 neither pays into the system nor collects benefits.

Third, yes, death in working years does have an effect: if a 57-year-old dies, he or she has spent 35 or so years paying in, but never collects benefits. That’s why a return to the Mad Men era, with lots of smoking by working-age Americans, would be good for Social Security.

The point, though, is that all of this is folded into the SSA projections, which show benefits rising from 4.8 percent of GDP now to an eventual plateau around 6 percent of GDP. That’s not peanuts, but it’s far from the apocalypse you keep hearing about.

I’m kind of Ryaned out at the moment, so I’m not going to do a detailed analysis of his WaPo op ed.

Let me instead just comment on the tone. It’s ranting: he goes on and on about how the Democrats have “raided” Medicare, which is pretty rich for someone who proposes to dismantle the whole system and replace it with vouchers whose value systematically lags medical costs. It’s whining: the Democratic “political machine” is out to get him, when the fact is that so far he has faced precisely one hostile op-ed article. (Not only am I Washington, I’m multitudes.) And it’s evasive: when you propose replacing the whole Medicare system with a set of vouchers, the defensible response to someone who says that you’ll end Medicare as we know it is to say “Yes, and we should”, not start flailing while denying that you’re doing any such thing.

So where, in all this, is the reasonable guy with whom Democrats can deal?

Hoo boy, if Social Security is the big thing in the next few months — which is starting to look possible — it’s going to be like old times again, shooting down all the usual fallacies one more time.

So: one thing you’re going to hear is something along the lines of, “In 1950 life expectancy was only 68 years, so hardly anyone was collecting Social Security; now it’s 78 years — the problem is obvious”.

Does anyone know what’s wrong with this? You over there in the corner?

That’s right: a life expectancy of 68 years doesn’t mean that a lot of people toddle along then suddenly keel over over after threescore and eight birthdays. Mostly it meant much higher child mortality than we have now, which has no relevance one way or the other to Social Security.

Much more to the point is the number of years people could expect to live after reaching 65: 14 years in 1950, 18.5 years now. Not so impressive a change, is it? And the retirement age is already 66 for my cohort, and scheduled to rise to 67 on current law.

Oh, and by the way, rising life expectancy was built into Social Security planning from the beginning. The big surprise has, if anything, been stagnating life expectancy among less affluent Americans.

Some people have wondered about the ads appearing next to this blog, which often seem to feature the very ideas and people I’m attacking. I’m pretty sure that we’re watching algorithms at work — the ads are being placed based on keywords. Put it this way: Bill O’Reilly is probably getting a lot of ads hawking Jennifer Aniston beauty products right now.

Given the apocalyptic rhetoric we’re hearing, once again, about Social Security finances, it comes as something of a shock — even to me — to look at the actual projections in the latest Trustees’ Report. OASDI is projected to rise from 4.8 percent of GDP now to about 6 percent of GDP in 2030, and level off. That’s not trivial — but it’s not huge either.

But now I understand why the usual suspects are reviving the old switcheroo on how you think about Social Security, in which surpluses don’t count but deficits do. It’s because when you adopt either consistent view — either Social Security as a standalone budget, or as part of an integrated federal budget — it just doesn’t look like a big deal. And that’s not an acceptable answer for people who really, really want a crisis.

But actually it’s the other way around. And the fact that, to a growing extent, the less prosperous don’t live as long has important implications.

You see, the buzz increasingly suggests that the catfood deficit commission will call for a rise in the age at which people can collect full Social Security — justified by rising life expectancy.

This is a really terrible idea, for at least three reasons.

1. The retirement age has already been increased to 66, and is scheduled to rise to 67. So any further increase would mean pushing retirement back to unprecedented ages. Yes, a lot of people live to 70; how many of them are really able, easily, to work that late into life?

2. While life expectancy is rising, life expectancy at age 65 — which is what is relevant here — isn’t rising nearly as fast.

3. Finally, disparities in life expectancy have been rising sharply, with much smaller gains for disadvantaged socioeconomic groups and/or those with less education than the average. Yet these are precisely the people who depend most on Social Security.

Here’s a chart from the CBO documenting points 2 and 3:

Congressional Budget Office

The point is that raising the retirement age sounds reasonable to well-educated, highly-paid people, who can expect a long, rich life after 65. But they’re not the people who need Social Security in the first place.

Update: It turns out that the good people at EPI got there well ahead of me. They point us to this study by the Social Security Administration, which shows (Table 4) that men in the bottom half of the earnings distribution saw their life expectancy at age 65 rise only 1.1 years from 1982 to 2006. Over the same period, by the way, the retirement age — under current law — rose 8 months.

Sadly, it looks as if we’re going to have to fight the Social Security fight all over again, with the same old disingenuous arguments making the rounds. So let me return to an oldie but baddie: the there-is-no-trust-fund nonsense.

How should we think about Social Security? It’s a government program supported by a dedicated tax; like other such programs, like the highway fund, it can bank surpluses in years when the dedicated tax yields more revenue than the program’s costs, and use those banked funds to cover shortfalls in other years.

Of course, it’s also part of the general federal budget. This means that Congress always has the option either of undedicating the revenue from the payroll tax (or seizing the trust fund, which is basically undedicating past revenues), or of topping up Social Security by adding more funds. However, either of these options would amount to a political earthquake; so the program’s independent financing has real significance as a practical matter.

So there are two ways to look at Social Security. You can view it as a stand alone program, in which case payroll tax revenues and the trust fund accumulated out of those revenues are at the center of the story; or you can view it as just part of the federal budget, in which case the relative size of retirement benefits and payroll tax receipts has no special significance — benefits are just one federal expenditure, payroll taxes just one source of federal revenue.

These views aren’t contradictory; which one you want to emphasize depends on what question you’re trying to answer. If you want to know when Social Security, per se, will have a crisis, requiring either benefit cuts or new funding, you want to take the standalone view. If you want to think about the broad direction of the federal budget, you want to just fold Social Security into the total.

But here’s what you can’t legitimately do: you can’t switch views in midstream. You can’t say that Social Security is just part of the federal budget, so the trust fund is meaningless — then say that because there’s no real trust fund, Social Security is in crisis when payroll receipts fall short of benefits. Either you adopt the integrated-budget view, in which payroll taxes and retirement benefits have nothing to do with each other, or you focus on dedicated financing, in which case the trust fund has to count too.

Or to put it a bit differently: there’s no valid approach under which Social Security surpluses don’t count but Social Security deficits do.

All of which makes it alarming that the co-chair of the deficit commission is making that very claim.

Update: One more point worth making: what would we say about the financial implications of a plan to reduce Social Security outlays, say by killing off old people raising the retirement age? From the standalone point of view, it would improve the prospects of the trust fund. From the integrated view, it would reduce the prospective budget deficit. Saying that it does both things isn’t double-counting; it’s just acknowledges that there are two different criteria here. And you can be sure that if and when the deficit commission unveils its proposal to make old people eat catfood reduce future Social Security benefits, it will make precisely that claim.

Somehow, though, when it comes to Medicare cost savings under the new health reform, making that completely reasonable statement is outrageous double-counting.

Reminder to commenters: long, run-on comments will be classed as spam, regardless of content — this morning I had to delete a couple of long comments praising and defending me. (By the way, the Times does allow me to delete a comment simply because it’s an attack on the author. But I never have.)

And obscenities are no-nos at the Times.

One of the odder criticisms I get is from people accusing me of endorsing the Obama administration’s very optimistic forecasts about unemployment. What makes this strange is that during the euphoria of spring-summer 2009, when everyone was saying that we were about to see a V-shaped recovery, I was … well, let’s just look at The New Yorker from May 25, 2009:

The New Yorker

Video here.

For tomorrow’s column. Notice the helicopter operation at the end.

One recurrent complaint in comments is that I haven’t said what I would do about the long run budget deficit. Except, you know, I have:

At the moment, as you may have noticed, the U.S. government is running a large budget deficit. Much of this deficit, however, is the result of the ongoing economic crisis, which has depressed revenues and required extraordinary expenditures to rescue the financial system. As the crisis abates, things will improve. The Congressional Budget Office, in its analysis of President Obama’s budget proposals, predicts that economic recovery will reduce the annual budget deficit from about 10 percent of G.D.P. this year to about 4 percent of G.D.P. in 2014.

Unfortunately, that’s not enough. Even if the government’s annual borrowing were to stabilize at 4 percent of G.D.P., its total debt would continue to grow faster than its revenues. Furthermore, the budget office predicts that after bottoming out in 2014, the deficit will start rising again, largely because of rising health care costs.

So America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control — without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard — in particular, a modest value-added tax, say at a 5 percent rate, would go a long way toward closing the gap, while leaving overall U.S. taxes among the lowest in the advanced world.

But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t.

Let me expand on the health care question a bit. We actually know quite a lot about how to hold down health care costs. We know that insurers, including Medicare, pay for a lot of procedures of dubious medical value, so that creating death panels identifying those useless procedures — and some procedures with minimal medical benefits but very high costs — can cut down significantly on expenses. We know that insurers generally don’t pay for things that improve patients’ long-term health, so if we can get the system to take a longer view there’s money to be saved. We know that fee-for-service creates perverse incentives for providers, who do too many expensive tests and procedures because they profit personally. We know that integrated health systems, like the VA or, to a lesser extent, Kaiser, have lower costs without lower quality of care.

So there’s a lot of room for fiscal improvement from the health care side. The new health reform takes some important steps in the right direction — over the hysterical objections, I might add, of self-styled deficit hawks. But much more can be done. And if we can sharply reduce “excess cost growth” in health care spending — the tendency of per recipient spending to rise faster than GDP — the whole fiscal problem will become manageable, something we can deal with by raising taxes modestly and making modest cuts elsewhere.

And if you say that I need to be more specific, the question is, compared to what? Compared to just writing down some numbers about future Medicare spending?

Jonathan Chait — yes, this time I’ve got the right TNR JC — writes about the WSJ’s contention that “Washington” is ganging up on poor Paul Ryan:

Ryan has been riding months of slobbering praise from the conservative press. I realize that doesn’t count, because “Washington” in conservative-speak is an epithet that by definition excludes conservatives.

So, working within the conservative movement’s definition of “Washington,” let us tally up the litany of Ryan’s persecution:

He was the subject of a flattering Washington Post profile about the boldness of his plan that featured no policy analysts pointing out that the Ryan plan would increase the deficit over the next decade even if its wildly implausible spending caps were implemented.

The same day he was the subject of a flattering New York Times profile that expounded the same theme and suffered from the same crippling flaw.

Then Paul Krugman wrote an opinion column pointing out some of the massively misleading or unrealistic aspects of Ryan’s alleged plan to balance the budget.

Next my friend Ted Gayer, who runs the economic department at Brookings, wrote an item defending Ryan on the grounds that he means well and deserves to be granted an extreme benefit of the doubt when judging the massive flaws in his plan.

Then Washington Post blogger Ezra Klein wrote a blog item also vouching for Ryan’s character and good faith.

Then today, the Times wrote another story about Ryan, saying he’d be the perfect person to negotiate a balanced budget with, regardless whether his plan really would balance the budget or massively increase it.

Is this really a picture of Washington ganging up on Ryan? It seems just the opposite. He is being embraced and defended by the establishment and credited with good intentions that are not at all manifest in his record or in his proposal, with one opinion columnist being the sole dissenting voice.

Clearly, the only way to make sense of this is to say that I, personally, am Washington — even though I live and work in New Jersey. You got a problem with that?

Oy. So the Times has a profile of Paul Ryan, sort of — you’ll notice that there is hardly any information about what’s actually in his plan. What we get is:

Paul Krugman, the New York Times Op-Ed columnist, recently derided Mr. Ryan as a “flimflam man,” arguing that the tax cuts in his plan would ultimately make the debt worse.

Is that remotely an adequate summary of what I said? I don’t think so. And notice, by the way, that the tax cut problem is implicitly presented as some kind of long-run issue, when the reality is that it turns the plan into a deficit-increasing venture from day one.

But what really bothered me was this:

Let’s leave aside for now the debate over the viability of the road map, which, as a practical matter, doesn’t stand a chance of being enacted as is, anyway. The more pertinent question is whether Mr. Ryan is the kind of guy who just wants to make a point — or whether his road map represents the starting point in what could be a serious negotiation about entitlements and spending.

That’s completely wrong-headed. My experience — very much based on Bush 2000 — is that a politician’s policy proposals offer the best clue to what “kind of guy” he is. Back then, all the professional political reporters were hanging out with W and reporting what a swell guy he was, while I was looking at the flimflam in his tax and Social Security plans, and reaching the conclusion that he was a scammer. Who was right?

And that’s the point with Ryan. He’s going around posing as a fiscal hawk while offering a plan whose pretense of deficit reduction in the near term depends on (a) ignoring the revenue effects of tax cuts (b) making a completely unrealistic assumption about domestic discretionary spending.

So what kind of guy is he? Based on his plan (and, since my article, on the dust clouds he’s been throwing up in an attempt to confuse the issue), he’s the kind of guy with whom you can’t have an honest discussion.