Social Security: Glenn Beck’s $53 Trillion Asteroid
Is CNN trying to imitate the National Review? If not, why let a village idiot like Glenn Beck write something on Social Security?
Let’s say a giant asteroid was headed toward Earth right now and experts say it has a good chance of ending civilization as we know it. Let’s also say that we’ve known about this asteroid for years but even as it gets closer and closer our leaders do nothing … Let me give you three numbers that will put this economic asteroid into perspective: $200 billion, $14.1 trillion, and $53 trillion.
$200 billion is the approximate total amount of write-downs announced so far as a result of the current credit crisis.$14.1 trillion is the size of the entire U.S. economy
And $53 trillion is (drum roll please) the approximate size of this country’s bill for the Social Security and Medicare promises we’ve made.
While no one will ever mistake me for Alan Greenspan, it seems to me that the third number is quite a bit larger than the other two. It also seems very few people care. According to the latest Social Security and Medicare Trustees report (and I use that term loosely since it has the word “trust” in it) released earlier this week, the economic asteroid will first make impact in the year 2019 when the Medicaid trust fund becomes insolvent. Only an immediate 122 percent increase in Medicaid taxes and a 26 percent increase in Social Security taxes can prevent (or more likely, delay) its impact.
Glenn clearly did not read what I wrote but he should have read what Paul Krugman wrote. Had he done so, he would have realized that the estimated long-run shortfall fell. Or maybe Glenn should have read what Andrew Samwick noted:
Picking up on Pete’s post about the 2008 Trustees Report, I always go first to this table, Table IV.B7, which shows the present value of Social Security’s unfunded obligations over an infinite horizon. The number is $13.6 trillion, or 3.2% of taxable payroll or 1.1% of gross domestic product over the same horizon.
$13.6 trillion does not sound as bad as $53 trillion and 3.2% is a far cry from 26%. Speaking of Paul and asteroids, let’s recall this insight:
Sometimes you really have to wonder. It should be obvious that the Social Security Administration’s estimate of the growth of unfunded liabilities says nothing – nothing at all – about the cost of delaying a “fix”, whatever that might mean. But it seems that even many economists – to say nothing of Joe Lieberman – don’t get it. So here’s an example, to illustrate the point. Suppose that an asteroid is bearing down on our planet. If nothing is done, it will strike in 2019, inflicting $20 trillion in losses. At a nominal interest rate of 5 percent, that’s a present value of $10 trillion. If we do nothing about the asteroid, by next year the present value of the future losses from the asteroid strike will be $10.5 trillion. So the “unfunded liability” from the asteroid strike rises by $500 billion a year. Suppose that there is a way to fix the problem: we can send Bruce Willis into space to blow up the asteroid. So here’s the question: if we wait a year to send Bruce Willis into space, does that cost $500 billion? Of course not: it could cost either more or less. If waiting a year means that we’ve lost our last chance to stop the asteroid, it costs $10 trillion – the full present value of the avoidable losses the asteroid would inflict. On the other hand, if Bruce Willis can still blow up the asteroid next year (or any year before 2019), there is no cost at all to waiting. In fact, if waiting increases the Willis expedition’s chances of success, there’s a benefit to delay. In other words, the $500 billion increase in the present value of the future costs from the asteroid says nothing about the costs of delaying action. All it says is that the future is getting closer. The same is true for Social Security.
But of course, Glenn Beck would not know this. After all, he does not appear to have read anything on this topic from intelligent folks like Andrew Samwick and Paul Krugman. So pray tell – why did CNN ask him to write on a topic that he is so utterly clueless about?