Trying to assess the urgency of Social Security reform? Economist Brad Delong offers a helpful metaphor. In comparison to the massive threat posed by the deficits in the general fund, currently standing at $7 trillion, the far-off imbalance of Social Security is but a slowly leaking tire on a car that has already crashed into a tree.
J. Bradford DeLong is professor of economics at the University of California at Berkeley and a former assistant U.S. Treasury Secretary.
Fifteen years ago, the United States was in the midst of what you could call its “Age of Diminished Expectations.” Productivity gains had stalled, energy prices were high, the backlog of potential technologies that originated in the Great Depression had been exhausted, and waning benefits from economies of scale led nearly every economist to project that economic growth would be slower in the future than it had been in the past. With productivity growth stagnating for almost two decades, it made sense back then to argue that the U.S. government’s social-insurance commitments (Social Security, Medicare, and Medicaid) were excessive and so had to be scaled back.
The intervening years have seen an explosion of technological innovation that has carried America’s general productivity growth to new heights. Yet the same calls to scale back America’s social commitments are heard.
Social Security’s actuaries may not have fully recognized the impact of today’s technological revolutions, but they have markedly boosted the scale of the system that the U.S. government can afford. Fifteen years ago, the consensus was that America’s Social Security system was in huge trouble, that it needed the equivalent of an engine rebuild. Today its problems look much more like the equivalent of a slow tire leak: You have to fix it eventually, but it isn’t very hard to do and repair isn’t terribly urgent.
So why is the Bush administration proposing radical changes to the Social Security system? Everyone who worries about America’s weak fiscal position puts Social Security's relatively small funding imbalance far down the list of priorities. The highest priority problem is balancing the overall budget, as the Bush tax cuts have opened Reagan-size deficits that threaten to cripple American economic growth.
The second highest priority is the long-term problem of figuring out what to do with Medicare and Medicaid. America must decide the size of its public health programs and how to finance them. The third most serious problem is the long-run problem of putting the U.S. government’s General Fund budget on a sustainable basis.
If Social Security is a slow tire leak, then the post-2020 General Fund is an urgent brake job, Medicare and Medicaid are a melted transmission, and the budget deficit is the equivalent of having just crashed into a tree.
What kind of driver, owning a car that has just crashed into a tree, has a burned-out transmission, and needs a break job, says, “The most important thing is to fix this slow leak in the right rear tire?” George W. Bush is such a driver.
There are three theories as to why the Bush administration is focusing on Social Security. The first is simple incompetence: Bush and his inner circle simply do not understand the magnitude of America’s other fiscal problems.
The second is ideology. For some reason Bush and his people think it is important to undermine the successes of the New Deal institutions established under Franklin Roosevelt.
The third reason is bureaucratic capture: just as the principal aim of Bush’s Medicare Drug Benefit bill of 2003 was to boost pharmaceutical company profits, so the Bush administration’s Social Security proposal will most likely be tailored to the interests of Wall Street.
If I were a betting man, I would put my money on Bush’s incompetence. After all, that seems to be the common denominator of every policy controlled by his White House.
Copyright: Project Syndicate, January 2005.
