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Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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December 15, 2005

Why Social Security Reform?

My (admired) colleague-in-blogging Calculated Risk is unimpressed by my call for support of Andrew Samwick's latest proposal for reforming the U.S. social security system.  In the comment section of my previous post, CR writes:

Of course I oppose the Samwick, et. al. plan. The reason is simple: the two major fiscal problems facing America are 1) Health Care and 2) the General Fund deficit. Both of those problems dwarf any SS shortfall.

Any good manager would start with the most serious problems first. Wouldn't it be great if the blogosphere banded together and pushed the National debate to those two issues?

Ahhh. Now I remember why I haven't written about social security reform in awhile.  Oh well. I opened the door, so I may as well walk on through.

I'll start with this: I don't understand CR's position at all.  By his logic, we ought to avoid grabbing the perfectly edible fruit on the branches that can reached from the ground because there is some really juicy stuff way up at the top of the tree (that can be reached only after a fairly arduous climb.) That just doesn't make much sense to me.

Here's my view, in brief:

a) I agree with CR ranking the health care issue in front of social security, but believe it is a much harder nut to crack.  Where, for example, is the nonpartisan proposal on that one? If some civic-minded across-the-political-spectrum group like Samwick-Liebman-MacGuineas have a simple well thought out compromise plan, by all means let's all jump on board.  I've yet to see it, though. and am disinclined to let other opportunities languish while we wait for it to arrive.

b) Let's put things in perspective. No matter what side of the issue you are on, the most important immediate subject for the country is the war, as there is much more at stake than today's treasure.  If you are going to argue we can only do one thing at a time, then it seems to me everything on the economic policy list goes off the table for now.  I, of course, am willing to accept that we can walk down the policy street and chew a few pieces of gum at the same time.

c) My philosophy on the federal deficit is that if you get the spending, tax, and transfer stuff right, deficits per se -- especially of the magnitude we are experiencing now -- are of second or third order importance.  It is better to let the (completely manageable) deficits we have now run for a bit, while we get the big picture on fiscal policy right.  By getting some sensible social security reform, for example.

UPDATE: Calculated Risk posted his arguments mentioned here, and generated plenty of reaction. Jane Galt correctly (un my view) notes that the social security problem and deficit problem are inextricably linked. Arnold Kling reinforces the argument that we ought to be looking at the fiscal policy as a whole. And Andrew, not surprisingly, agrees that we ought to first solve the problems for which ready solutions exist.

December 15, 2005 in Social Security | Permalink


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We can have as many retirees as the economy can support. Screw up the econmy and you end up killing retirees with waiting lists and other deceptions that hide scarcity.

Posted by: Mark | December 15, 2005 at 05:57 PM

I sincerely appreciate Professor Samwick's efforts - I just think they are aimed at the wrong problem. And I respectfully disagree on the consequences of the General Fund deficit - so lets focus on health care.

The GAO estimate of the NPV of the Medicare shortfall is $27.8 Trillion compared to $3.7 Trillion for Social Security. Clearly fixing SS and ignoring health care only fixes about 10% of the problem related to these two areas.

The savings from reforming health care are potentially huge. The US has the most expensive health care system in the world and some of the worst outcomes of any first world country. Talk about an opportunity for reform!

And I think the US can tackle multiple problems at the same time, but for fiscal issues I'd start with the largest ones first. I don't think SS reform will ever be easy, so why not spend our energy on a bigger payoff?

And finally, from my management experience, I always make someone that works for me prove they can clean up any mess they made, before I give them a new assignment. Mr. Bush is responsible for Iraq, the General Fund deficit and a significant portion of the Medicare deficit (according to the GAO). If he can demonstrate competence in cleaning up those messes, I will be willing to give him another assignment.

Best Wishes.

Posted by: CalculatedRisk | December 15, 2005 at 07:08 PM

"I always make someone that works for me prove they can clean up any mess they made, before I give them a new assignment."

How does this jive with the following:

"The Chinese definition for insanity says, 'continue doing the same thing year after year but expecting different results.' "


Posted by: nate | December 15, 2005 at 07:36 PM

nate, the alternatives to making someone cleanup their mess is to either demote or fire them.

If I could, I'd fire Mr. Bush. Unfortunately he has a contract that runs for another three years, 35 days and 16 hours - not that I'm keep count.

Best Wishes.

Posted by: CalculatedRisk | December 15, 2005 at 07:44 PM

Mark Thoma also weighed in what some tough questions. This Angrybear has put his two cents in on what at least is an interesting proposal.

Posted by: pgl | December 15, 2005 at 07:56 PM

I like the key feature, the mandatory payment of X amount toward ones own retirement fund. The same idea should be included in a health care solution.

One cannot drive a car without buying liability insurance, one should not be allowed to work without setting aside a minimal amount into a tax advantaged health savings account. The real cost to the purchaser would be negligible and numerous inefficient government programs could be canceled.

The empowerment of the poor to control their health care and retirement savings would be a nice "freedom thing".

Posted by: Jack K. Miller | December 15, 2005 at 08:00 PM

"The empowerment of the poor to control their health care and retirement savings would be a nice "freedom thing"."

Just exacctly what does that mean? The prescription drug plan is so convoluted with "freedom" that SMART RICH people cannot understand it.

Why is it that businesses focus on "core competancies" and individuals are supposed to be experts at healthcare, retirement, finance?

Somhow taht "freedon thing" just rigns hollow.

Posted by: me | December 15, 2005 at 09:11 PM

Read Prof. Thoma's take on the proposal. This is not the low hanging fruit. The crowd in the white house will use social security reform as an excuse to cut social security taxes without making any real changes in the social security outlays. That's how they've managed the general fund and exactly the pitch they made when they were touring the country. We'll cut your taxes, you'll invest the money, look at how much better things will be. They never talked about social security cuts because they had no intention of making any. If the democrats support Samwick's plan, it will turn into another unfunded tax cut in committee.

Posted by: Mark Sullivan | December 15, 2005 at 11:11 PM

Actually they have talked about nothing other than privatization and benefit cuts. Any tax increases have been verboten. I'm afraid they would pass this and then decide they really can't allow raising of the cap.

Posted by: Lord | December 17, 2005 at 12:22 AM

'Calculated Risk' says, "Any good manager would start with the most serious problems first." Wrong. A good manager weighs the most serious problems vs the ones that are he easiest to fix. Lots of times it is the latter that needs to be tackled first.

Posted by: Norman | December 17, 2005 at 09:07 PM

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