DO I HEAR AN ECHO? Remember yesterday's sermon?

A "secure retirement" is only as secure as the productivity of the current crop of workers.

Matt at Tapped is beginning to understand.

Is it true that faster economic growth can't make Social Security solvent? No. Now it is true that faster growth leads to higher wages, and that higher wages lead to higher benefits along with higher revenue. But faster growth (driven by higher productivity and resulting in higher wages) increases revenue by more than it increases benefits. It does so because a retiree's benefits only get adjusted by the wage index once, when you first start drawing checks. After that initial check, future increases are pegged to the slower-growing Consumer Price Index.

At any rate, the math is complicated, but seeing that the Ponnuru/Longman line is wrong isn't. Just ask yourself why the projected doomsday year for the Social Security trust fund has moved 13 years into the future over the past seven years. It wasn't the magic of mandatory stock ownership (the Ponnuru plan) or a sharp increase in the birth rate (Longman's favored solution) -- it was the end of the 1973-1995 productivity slump and a return to the higher historical pattern. The persistence of a weak labor market over the past several years in the context of strong productivity growth (manifested in the statistics by labor's declining share of national income) suggests that the economy could actually be growing significantly faster in real terms than it is now, especially if we avoid the sort of fiscal meltdown that could be precipitated by the $2 trillion borrowing binge implicit in
privatization plans.

The next challenge: get Mr Yglesias to grasp the next point from the sermon.

The Social Security tax drives a wedge between productivity and reward, which reduces economic growth. Because the bonds currently representing the Trust Fund's "surplus" will be refinanced out of expected tax revenues, the status quo means reliance on that lower rate of economic growth -- or on refinancing the bonds at the Fed, which means your defined benefit of $1 is an inflated $1.

We have agreement that the tax base reflects the gains from trade in a growing economy. That's the beginning of wisdom, young apprentice.

The editorial board at the Washington Post (via Pike Speak) indirectly recognizes that connection.

If these cuts sound harsh, that's partly because the current system makes
promises that aren't affordable. The practice of wage indexing that the
administration appears keen to scrap is one source of this excessive generosity.

Nathan Newman suggests that there is more than one way to address that revenue deficiency.

So since we're talking about expanding the base for social security, why shouldn't non-wage income be taxed to help fund the system? And to help out Medicare by assessing that portion of the wage tax as well on investment income.

His post lays out a case for making federal taxes as a whole proportional, or perhaps taking a greater share of higher incomes. But in doing so, he's illustrated a law of conservation at work that ought give pause to anyone who asserts a "defined benefit" pension plan is preferable. In order to preserve the same level of benefits (or, perhaps, some more conservatively indexed benefits) he is proposing to redefine the contributions, either by redefining those components of income subject to tax, or by rewriting the tax code such that Social Security becomes simply another on-budget item (which is what refinancing the trust fund as government bonds after 2009 really is.) The benefit stays as promised. The investment individual taxpayers make to secure that benefit rises. The return on their investment falls. Isn't that the argument the privatizers are making, which is resonating with younger workers?