Soc Sec XV: Why do they care?

Properly speaking this is not an economics post. So most of it is below the fold.

I started a Social Security blog in Nov. 2004 in the wake of Bush’s announcement that he would expend his new political capital on Social Security ‘reform’. At that point in time I had been looking at these numbers for about seven years and had largely formed the conclusions I have been laying out in this series. In blunt terms I knew that ‘crisis’ was in context bullshit, and I also knew along side Dean Baker that this was “well known to those who have looked at the numbers”. So this post is an attempt to answer two questions: one, ‘why do they persist anyway?’ and two, a question I posed in one of my first posts ‘Who the hell am I to be lecturing economists on Social Security?’

As most readers know I am not an economist, I never took even an Intro course in Economics and the closest I got to the tools of the trade was Statistics 20, Introduction to Statistics for Non-Majors, and that 33 years ago. So who am I to take this subject on? Well the answer is that Social Security ‘crisis’ is not at bottom an economic question to start with. Certainly all of the surface action suggests that the issue is retirement security and that the question revolves around whether or not that will be economically sustainable at some future point. But having poked around in the numbers for years I knew that really wasn’t the core issue, the results under Intermediate Cost were certainly acceptable, while results closer to Low Cost were at least plausible. Which raised the question ‘Why do they care?’. After all these people have no problem cutting heating oil subsidies for today’s seniors, with requiring kids to remain uninsured for a full year before they can transfer from a private plan to a new government alternative. Many of the same people who want to privatize Social Security to ‘save’ it simultaneously advocate for abolishing the Department of Education. These are the farthest thing from bleeding heart liberals, yet they profess to be deeply concerned about retirement security for future generations, aye verily even unto the Infinite Future Horizon. But why? And just as importantly ‘Why now?’

Well I explored the question in a July 2005 post Social Security: is it about Solvency or about Ayn Rand?. And the conclusion I came to was this:

The numbers are important, if you are going to participate in the debate over the future of Social Security you need to understand them, you need to understand their implications, you need to be able to measure them against the numbers you read in the paper every day. Because oddly enough this debate is not about numbers and in most respects it never has been.

The oppostion to Social Security has always been driven by the ideology, and that ideology can only be understood in historical perspective, and particularly in the millennia long struggle between the powerful and the people over the distribution of production. Which is where I come in, I was in fact a trained historian with a speciality in Medieval Europe but substantial side work in Classical Greece and Ancient Rome. And over the course of that study I learned a couple of fundamental truths, one the issues hadn’t changed much between the time of the Gracchi brothers (133 BC) and the Cato Institute of today, and two the historiography is almost always charged with the class struggle of the time. The modern study of Rome can hardly be separated from the economic ideology of those first historians. That is we see the Gracchi brothers and later Caesar through a historical lens fundamentally hostile to what were considered dangerous democratic and even socialistic impulses. It is worth noting the Cato the Censor, after whom the Cato Institute is named, was the sworn enemy of the Gracchi brothers’ grandfather Scipio Africanus, and for same reasons, although Africanus like Caesar was the ultimate son of privilege, achieving all the highest offices, he dared to suggest that the interest of the people at large be considered.

Who knew that proposals for land distribution in 2nd century BC Rome or the history of the Statute of Laborers (1351) and successor acts in England would be relevant to the Social Security debate today? Well that is why we are here.

The powerful have always been alarmed and often to the point of physical violence at any scheme that remotely smacks of being redistribution and this impulse historically preceded by centuries the development of classical economic theory. If you examine the actual economic history that paralleled the development of the new theory you can clearly see that the former infused the latter, there is only one degree of separation between a nineteenth century liberal economist and a nineteenth century liberal manufacturer. When examined in the historical perspective of the centuries before and close to two centuries after you see an academic discipline shaped by the political class struggle of the day, although admittedly perhaps largely invisible to the actual theorists involved.

A successful Social Security system is a threat to the powerful in much the same way that the throughly aristocratic Gracchi brothers land distribution plans were. Because once you let the camel of ‘greatest good for greatest number’ get its nose under the tent who knows where it will stop. Which of course was Hayek’s premise in Road to Serfdom, admit that government planning works in some cases, next thing you know you are in the gulag. (For those who think this too strong, try reading the authorized 18 panel cartoon version of The Road to Serfdom (hosted on Marek’s mothership

The question of ‘Why now?’ is itself explained by this 1998 article from our friends at Cato The Myth of the 2.2% Solution. On my reading they had simply panicked, people like Baker and well, Webb were pointing out some inconvenient numbers, which led the Cato folk to assert the following:

The 2.2 percent figure assumes that the reform would take effect at the beginning of calendar year 1998. Thus it is already out of date. Each year Congress waits, the magnitude of the tax hike required to balance the Social Security trust funds rises.

The solution is not permanent. In fact, an additional tax hike would be required every year to keep the trust funds in balance over a full 75 years.

The 2.2 percent solution is based on the Social Security trustees’ “intermediate” projection. If we accept the trustees’ “high-cost” projection, whose key economic and demographic assumptions more closely reflect historical experience, the necessary tax hikes would be at least twice as large.

The 2.2 percent solution focuses only on the program’s solvency. But simply raising taxes (or cutting benefits), while it may balance the Social Security trust funds, does nothing to redress the program’s other underlying problems, most notably the declining rate of return for young workers.

Only problem none of these are factually true. In fact in the years since the magnitude of the tax hike needed has gone down, the solution is permanent and requires no additonal tax hikes during the 75 year window, the high-cost projection doesn’t remotely reflect historical experience, and at best the declining rate of return is dubious, indeed the 78% of 160% = 125% equation suggests just the obvious.

In short they were and are panicking, the debate was slipping out of their control, and their only response was half-truths and lies to disquise their actual, ideological committment to the principles of Cato the Elder. Social Security is thus not an economic question at all, instead it is a case study in the centuries long struggle between democracy and reaction.