This is bad. I see the Social Security mumbo-jumbo has gotten so bad that even the usually sharp Michael Kinsley is taking a sip or two of kool-aid. One problem with the column is the assertion that “if privatization is truly voluntary, it can’t do much harm.” Kinsley should know better, since he himself writes earlier that “Bush’s privatization ideas are a mathematical fraud.” Fraudulent business proposals are almost always voluntary. Nobody needs to get suckered in. But they’re not harmless. Nor is, say, heroin harmless even though nobody’s forced to take it.
A more serious error, in many ways, because it lends a liberal imprimatur to a bit of pure rightwing spin is this: “The problem is fewer and fewer workers supporting more and more retirees.” For one thing, it’s simply not the case that we’re looking at fewer and fewer workers. The population is aging, not shrinking. There will be both more workers and more retirees, it’s just that the number of retirees is increasing faster than the number of workers. That’s a different sort of problem. And the mere fact of aging doesn’t necessarily cause any problems for a pay-as-you-go social insurance plan. The reason is that over time thanks to the accumulation of capital goods, improvements in education, and so forth, workers grow more productive. That’s to say that a single person in 2005 can produce a lot more value in terms of goods and services than could a single person in 1905. So we’re looking at a smaller worker/retiree ratio in the future, but future workers will be super-sized compared to today’s workers and therefore capable of supporting more retirees while also seeing their own livings standards improve.
Now all that notwithstanding, the rapid one-time shift in population composition associated with the baby boom is projected to outpace increases in productivity growth. This, though, was entirely foreseeable a long time ago. And, in fact, a bipartisan commission chaired by Alan Greenspan came up with a plan to cope with the problem, a plan that was passed by the congress and signed into law by Ronald Reagan. That plan was the build-up of a Trust Fund that was supposed to generate sufficient additional money to cover the demographic transition and leave us with clear sailing, which was what we were projected to have in 1983. Now by 2005, clear skies are no longer forecast. What went wrong? Did Greenspan count the number of baby boomers wrong? Well, that would be a pretty stupid mistake. And, in fact, it’s not a mistake that was made. Josh Bivens of the Economic Policy Institute took a look at what actually went wrong and concluded that “The deterioration in the 75-year actuarial balance of Social Security that has occurred since 1983 has been caused overwhelmingly by economic developments, trends in disability incidence, and programmatic changes to Social Security.”
Specifically productivity growth from 1983-1995 was very bad by historical standards and more people have been becoming disabled than we expected. Fortunately, since 1996 the productivity situation has turned around. Unfortunately, the Social Security Administration adopted a methodological change two years ago that prevents them from considering recent trends in productivity growth that suggest the shortfall will be more like the one originally forecast in 1983 (which is to say nonexistent) than like the one being projected today. Policy measures to increase wage growth, reduce disability rates, and reform immigration — all of which are worth doing on their own terms — could very well eliminate the whole problem without any benefit cuts or tax hikes whatsoever.