One thing we can’t afford to do though is privatize Social Security – an ill-conceived idea that would add trillions of dollars to our budget deficit while tying your benefits to the whims of Wall Street traders and the ups and downs of the stock market.Before I get into the substance of his argument, I offer a Law of Conservation from James C. Capretta in National Affairs.
There is a mathematical limit to what any pay-as-you-go pension system can churn out in benefits, as the implied real rate of return for the average worker over the long run cannot exceed the sum of population growth and real productivity improvement in the economy. Put simply, what comes in must keep pace with what goes out. In practice, this means that what will be affordable in the future will depend entirely on the size of the future work force relative to the size of the retiree population, and on the capacity of that work force to produce marketable goods and services.Stock markets exist to value capacity, and to allocate capital to augment capacity. Government tax revenues depend on the exchanges that produce sales, profits, and wages. President Obama, therefore, is being disingenuous when he invokes market risk to argue against private retirement accounts.
A few years ago, we had a debate about privatizing Social Security. And I’d have thought that debate would’ve been put to rest once and for all by the financial crisis we’ve just experienced. I’d have thought, after being reminded how quickly the stock market can tumble, after seeing the wealth people worked a lifetime to earn wiped out in a matter of days, that no one would want to place bets with Social Security on Wall Street; that everyone would understand why we need to be prudent about investing the retirement money of tens of millions of Americans.Prudent about investing retirement money? Professor Krugman has Our President's back.
Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.Professor Krugman's use of so-called is highly significant. I give you Dave Lindorff, advocate of Social Security.
What [Professor Krugman] fails to mention is that the Trust Fund has all been stolen (okay, technically borrowed) by the federal government to fund its own annual deficits, and given the national attitude towards taxes, it will never be repaid. That's why the right is able to create a panic by falsely claiming that Social Security is going to go "bankrupt" when current workers' Social Security taxes can no longer pay for the benefits of current retirees.Mr Lindorff, we will see, would like to preserve Social Security. One can use the "stolen, technically borrowed" argument, as well as the need for revenues to cover the borrowing, in a case that Social Security is a Ponzi scheme. Changing the tax rate, or the tax base, or the retirement age, doesn't revoke the law of conservation. Here's Our President's pledge.
Seventy-five years ago today, Franklin Roosevelt made a promise. He promised that from that day forward, we’d offer – quote – “some measure of protection to the average citizen and to his family against ... poverty-stricken old age.” That’s a promise each generation of Americans has kept. And it’s a promise America will continue to keep so long as I have the honor of serving as President.That promise is only as good as the macroeconomy's ability to produce gains from trade that can be taxed.
Here's Mr Lindorff.
And now, as a day of reckoning approaches, they pretend it's all our fault. They say we want too much in benefits, or that we want to retire too early. But the truth is, we deserve decent retirement income, and we deserve to retire at 65 or even 62. In fact, if we hang onto our jobs until 70 or 72, as these hacks and the lobbyists for corporate American want us to do, it'll just be that harder for our kids to get jobs and move out of the house!I detect a version of the lump-of-labor fallacy, in which one person must quit a job in order for another person to take it. As far as deserving a decent retirement income, again, that's only as good as the macroeconomy's ability to produce gains from trade that can be turned into future claims. It doesn't matter whether you call it a Social Security trust fund or a Wall Street investment account.
This is not about a private pension fund that's going bust. It's about a public pension program that has been raided, that has never been adequate, and that needs to be bolstered now by a tax on the rich. Nothing elaborate mind you. They just need to pay at the same rate that the rest of us do.Here, too, he's counting on the macroeconomy to make people rich enough to pay more in taxes.