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Paul Krugman: Social magician

By Thomas E. Brewton
web posted November 26, 2007

New York Times columnist Paul Krugman, in his November 16 piece, tells us:

But the "everyone" who knows that Social Security is doomed doesn't include anyone who actually understands the numbers. In fact, the whole Beltway obsession with the fiscal burden of an aging population is misguided.

As Peter Orszag, the director of the Congressional Budget Office, put it in a recent article co-authored with senior analyst Philip Ellis: "The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country's financial health will in fact be determined primarily by the growth rate of per capita health care costs.

First, while it's true that Medicare and Medicaid will become the largest drain on Federal funds in coming decades, it's not true that concern about Social Security in misguided.  That's analogous to saying that, compared to a category 7 hurricane, a tornado is no problem, because its total devastation is confined to a smaller area.

Second, Mr. Krugman implies that the article by the Congressional Budget Office's Messrs. Orszag and Ellis dismissed Social Security as a non-problem.  In fact, they don't deal with Social Security at all in the article citied by Mr. Krugman (New England Journal of Medicine, "The Challenge of Rising Health Care Costs — A View from the Congressional Budget Office"), which can be accessed here.

A summary of the article can be found here.

As for whether the future of Social Security is problematical, let's compare Mr. Krugman's brush-off with the assessment of J. Robert "Bob" Kerrey.  Mr. Kerrey is a liberal icon, who is well-versed in the intricacies of funding processes for Social Security and Medicare-Medicaid.

He served as governor of Nebraska and then as United States Senator from Nebraska.  In the Senate he teamed up with New York's iconic liberal Senator Patrick Moynihan to hold a series of committee hearings on the looming plight of Social Security.

Former Senator Kerrey is now president of New York City's New School for Social Research, an institution for the furtherance of socialism founded, among others, by John Dewey, the leading socialist intellectual of the first half of the 20th century.

In the opinion piece referenced above, Mr. Krugman chastizes Barack Obama for calling Social Security a "crisis." 

Disagreeing entirely in an op-ed piece in the Wall Street Journal (Pride and Prejudice, February 1, 2005; Page A12), former Senator Kerrey offered the following perspective on Social Security:

On the other hand, there are two problems with Social Security that are serious enough to be called a crisis. The first is that in eight years the income from a 12.4% payroll tax will be insufficient to pay the old age, survivor and disability benefits owed at that time. From that point on, Social Security will begin to redeem some of the hundreds of billions of dollars of Treasury bonds it has "accumulated in the trust fund" in order to issue monthly checks to beneficiaries.

Though these bonds are far from "worthless," as some critics allege, the picture of them "accumulating in a trust fund" is not accurate either. That is because, in order to convert these bonds into cash, the U.S. Treasury will use the cash from individual and corporate income taxes. While some income taxes are currently used to pay Social Security benefits, the dollar amounts do not pose a serious budgetary challenge. In eight years that will change. Coupled with the cost of Medicare and Medicaid, the annual benefit demands of Social Security will put real pressure on Congress to cut spending on defense and nondefense appropriations.

It is at this point in time that the demographic and monetary demands of the baby boom generation will become painfully apparent. The disinvestment in public infrastructure caused by the growth in Medicare and Medicaid will become even worse than it is today. And the nature of this crisis will be considerably more daunting than that faced squarely by Congress and the president in 1983. Liberals, who have silently watched the share of state and federal spending apportioned to the elderly grow at the expense of education, training, child care and research, will be appalled to discover how much their silence has cost them.

The second crisis is the one for which liberals are even more urgently needed. This crisis is the shockingly low rates of savings and pitifully inadequate amount of preparation being made by American households for their old age. If liberals were to join this debate and insist upon provisions that would lead to dramatic reductions of the numbers of poor elderly, the outcome could be a dramatically enhanced quality of life for all, reduced dependency upon welfare in old age, and downward pressure on the social costs of growing old. ESR

Thomas E. Brewton is a staff writer for the New Media Alliance, Inc. The New Media Alliance is a non-profit (501c3) national coalition of writers, journalists and grass-roots media outlets. His weblog is The View From 1776. Email comments to viewfrom1776@thomasbrewton.com.

 

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