The White House and its loyal talking heads want us to believe two things: (1) the Social Security Trust Fund is short $10 trillion; and (2) privatization is a free lunch that will create $10 trillion out of thin air. Some of their claims are so absurd, all I can think of are certain childhood cartoon characters such as J. Wellington Wimpy who would say “I’d gladly pay you Tuesday for a hamburger today”. Now don’t get me wrong as I love hamburgers but Wimpy annoyed me. Imagine a small child trying to mouth “time value of money”.
I thought of Wimpy as I read this Robert Novak oped where Novak finally admitted there is no free lunch (something free-lunch supply-side Lawrence Kudlow gets him to claim quite often) but then writes this very odd statement:
According to the Social Security Administration’s actuaries, transition costs of DeMint’s plan would be $8.2 trillion over the next 75 years. But the same source estimates the 75-year-cost in higher taxes at $26.1 trillion if nothing is done. That’s how DeMint claims his plan will save taxpayers $17.9 trillion.
Wow – which restaurant will pay me $26.10 in change if I purchase lunch for $8.20? I checked NRO to see if Kudlow gave him this statistic and it seems Lawrence is not even touching this issue. Stephen Moore’s oped was not placed at NRO but here:
Studies show that for the average young worker now entering the job market, the rate of return on this account would average, even conservatively estimated, between 4% and 6% per year–that’s is versus the less than 2% that Social Security returns…George Bush deserves to be applauded for having an adult conversation with the American public about the severe funding crisis in Social Security.
Oh yes, the Trust Fund is near bankruptcy and we have a free lunch – but no $26 billion claim. NRO is publishing Luskin opeds, which is the only downside to the return of Paul Krugman to the New York Times. The closest thing to Novak’s $26 million from Donald “imminent crisis” Luskin that I found was this claim that the Congressional Budget Office is claiming a Social Security deficit equal to 2% of GDP:
the fact that this very calculation means, even with new revenues of 0.54 percent of GDP injected into the system, that the system will end up exhausted: “at the end of the 100 years, the balance would be large enough to authorize paying one year’s worth of benefits.” After that, the report projects there will be a mismatch between revenues and expenditures of more than 2 percent of GDP.
Luskin has to go to the 22nd century to find his imminent crisis? And we thought the neocons were overstating the dangers of Saddam Hussein!
This New York Times article this weekend by Roger Lowenstein is getting a lot of well deserved praise. Roger has discovered Novak’s source for the $26 trillion claim and done the kind of reporting Novak refuses to do:
Cato, a libertarian policy center founded in the late 1970’s, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees’ annual report. Actually, the trustees’ intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn’t actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040’s, won’t exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed — some 32 times the agency’s figure. (Kasich toted up annual deficits in nominal — not inflation-adjusted — dollars for every year through 2080, by which time a hamburger could cost $40.)
Hamburgers again! I’m getting hungry and Fatburgers is just down the road. But darn, I’m out of cash and the ATM is broke. Wait, the manager is named Mike Tanner and he loves to read Novak’s columns. Idea! I’ll sign this piece of paper as an IOU for $10 dated 12/31/2100. Maybe Mike will give me two hamburgers and enough change to buy a beer on the way home – assuming he really believes this Novakian finance.