Brian Leiter's Law School Reports

Brian Leiter
University of Chicago Law School

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Wednesday, November 14, 2007

The Fake Social Security Crisis

A bit off topic, but with behavioral law and economics all the rage these days, some attention surely might be given to the amazing amount of misinformation and irrationality surrounding the public discussion of social security:

[Barack] Obama is no enemy of Social Security. But like most of the country, he is misinformed on this issue. So he is going after his opponent, Hillary Clinton, for saying "if we just get our fiscal house in order that we can solve the problem of Social Security."

Obama told [Tim] Russert: "Now, we've got 78 million baby boomers that are going to be retiring, and every expert that looks at this problem says 'There's going to be a gap, and we're going to have more money going out than we have coming in unless we make some adjustments now.'"

In fact, there is not the least bit of urgency regarding Social Security, and it would be best to take the issue off the table entirely until we have at least a few years of public education....

In fact, the first cohort of baby boomers (those born in 1946) will begin retiring in just a couple of months, since many people take their Social Security at age 62 (with a correspondingly reduced benefit). Our Y2K moment is upon us, and nothing will happen - because the baby boomers' retirement has already been financed.

Back in 1983, when Social Security really was running out of money, with just a few months of payments on hand, Congress raised the payroll tax substantially. This was done deliberately in order to pile up a surplus to finance the baby boomers' retirement. And so it did: that accumulated surplus stands at more than two trillion dollars today, and is increasing at a rate of $190 billion annually.

As a result of this surplus, all the baby boomers' will have retired before Social Security runs into a projected shortfall in 2041. That is according to the Social Security's (mostly Republican-appointed) Trustees. According to the non-partisan Congressional Budget Office, Social Security can pay all promised benefits even longer, until 2046. By either date, most baby boomers will be dead, and almost all of the rest retired, before there is a problem....

Even accepting that there could be a shortfall after 2046, it is not much to lose sleep about. The projected shortfall over Social Security's whole 75-year planning period is less than what we fixed in each of the decades of the 1950s, 1960s, 1970s, and 1980s.

In fact, even if nothing were ever done to close the projected gap - and that is a wildly implausible scenario - Social Security would, after 2046 still have enough money to pay, indefinitely, a bigger benefit than it does today. That's in real terms, adjusted for inflation. Of course, this benefit would be less than what seniors in the distant future would be entitled to, so we will eventually make some adjustments. But there's no hurry.

The fact that a major Democratic presidential candidate could attack the front-runner in 2007, for not proposing a solution to a problem that is so relatively small and uncertain and nearly four decades away, is testimony to the power and durability of well-financed right-wing propaganda -- especially when there is no matching effort on the other side. The right spent more than two decades, and millions of dollars, discrediting Social Security with nothing more than verbal and accounting tricks - they never even bothered to make their own projections to compete with Social Security's Trustees. Some of the money that altered public opinion came straight from Wall Street financial firms who stood to make a fortune from privatization.

These efforts should be regarded as one of the most successful disinformation campaigns in modern history. These people managed to convince tens of millions of Americans that they are never going to see their Social Security benefits, an event about as probable as the United States disappearing from the political map.

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