Saturday, March 14, 2009

Draft of 'Four crises'

(This piece is incomplete and may be junked altogether. But any comments/advice etc are welcome)
by Bruce Webb

Much of the conceptual confusion around Social Security derives from the fact that 'crisis' is defined in (at least) four different broad categories resulting in proposed solutions that don't even meet the frame of the objector. So I propose to unpack the various versions and then discuss the ways the framing shapes the resulting rhetoric.

Crisis 1: Benefits Crisis. This holds that the problem is a gap between cost and scheduled benefits that should if possible be addressed with a fix that maintained the highest attainable benefit.

Crisis 2: Financing Crisis. This holds that the problem is a gap between promised benefits and financing that if possible should be addressed with a fix that maintains affordable financing.

Crisis 3: Socialism Crisis. This holds that the problem is that the government even addressed this issue in the first place. For example Milton Friedman believed Social Security was immoral and should be liquidated by given everyone securities in exact proportion to their past contributions and projected benefits. (That is he maintains the government obligation to the past while getting it out of the business going forward.)

Crisis 4: Pure Opportunism. This holds that the problem is actually an opportunity to make a huge amount of money by privatizing the system.

For the most part people who are motivated by Crisis 3 or 4 are not able to operate in the open. Particularly these days when most Americans are not saying 'Man if we had only allowed Wall Street to take a cut out of every Social Security dollar they wouldn't have to cut back on corporate jet purchases.' And while most Americans have been conditioned to shudder when they hear the word 'Socialism' they don't by and large associate that with the multi-colored check that shows up in their parents mailbox each month. Instead Crisis 3 and 4 people have to hide themselves behind arguments derived from Crisis 1 or 2. Which brings up the problem of sincerity. How do you positively identify people who are fundamentally being driven by Ideology (3) or Greed (4) when they are using arguments drawn from Finance (2)? Well you can't, which is why I rarely try. You can suspect or know that that your debate component is just fronting for Wall Street or alternatively the Austrian Alps, but while you can make them uncomfortable mostly you can't pin them down. Instead the debate generally resolves to Crisis 1 vs Crisis 2.

Which is where the big battle is waged. Something I will discuss under the fold.

First thing to note is that Crisis 1 and 2 are almost irreconcilable. People who believe in Crisis 2 are simply not going to be convinced by arguments that fixing Crisis 1 would be cheap because they are not committed to the concept that Crisis 1 is important. For whatever reason Crisis 2 people simply don't want to pay any more now or in the future.

Starting from the bottom with Crisis 4. Supporters of traditional social security often claim opponents are only bent on getting ahold of pretty much the only huge stream of money that they don't control. And it is a big pot, in 2007 Social Security took in $785 billion in receipts and disbursed $589 billion in benefits Table III.A3.—Operations of the Combined OASI and DI Trust Funds, Calendar Year 2007 [In millions]. Surely there are opportunities for someone to skim off hundreds of millions off the top of that huge river of cash. Well there are two complications to that. One is operational, currently Social Security operates with administration costs right under 1% of receipts and less of total costs and are servicing 10s of millions of beneficiaries. But the second is rhetorical, the people who might think they can make huge money off of retirees just can't come out and admit that in the open. Which means that people who are really motivated by Crisis 4 have to hide themselves behind Crisis 1 or 2 and promise better results at a lower cost. (A result that is in my view not really possible.) In any case these people are mostly marginalized in the debate.

As are people who are really believers in Crisis 3. The American people by and large have been conditioned to think bad things when they hear the word 'Socialism', like labor camps. They have equally been conditioned to think such things when they hear 'Government Health Care'. But by and large they don't put Social Security into the first category or Medicare into the second. I remember back in the last go around of Medicare 'reform' one woman being quoted to the effect "I don't care what the government does, as long as they keep their hands off my Medicare". In the face of that the libertarian/glibertarian camp pretty much has to fall back on arguments about the superior efficiency of private markets and line up behind Crisis 1 or 2 right with the opportunists.



Joel said...

why not bankruptcy, I think it will be more capitalistic and fair

Bruce Webb said...


First Social Security can't go bankrupt, it is a federal government program and not a corporation or lower level governmental agency.

Second though it may not be visible from this piece Social Security is fundamentally sound, the 'crisis' is mostly just in the heads of the critics.