How not to report on Social Security reform

Today's New York Times report on Bush economic advisor Greg Mankiw's testimony about Social Security is a disaster.

First, reporter Edmund Andrews highlights Mankiw's statement that "The benefits now scheduled for future generations under current law are not sustainable given the projected path of payroll tax revenue," but he fails to adequately explain transition costs as he puts the remarks into context:

Mr. Mankiw's remarks suggested that President Bush's plan to let people put some of their Social Security taxes into "personal savings accounts" would have to be accompanied by changes in the current system of benefits.

Throughout the presidential campaign and in remarks after he was re-elected, Mr. Bush focused almost exclusively on these accounts as a crucial way to shore up Social Security. Most experts have said that the accounts must be accompanied by other belt-tightening measures.

Here's where the canons of "objectivity" get in the way of good reporting. Forget this "most experts" nonsense. It's indisputable that the switch to private accounts would divert payroll taxes going to pay the benefits of current retirees. That money has to come from somewhere; Andrews fails to adequately explain the problem.

Also, the phrase "other belt-tightening measures" implies that private accounts are a "belt-tightening measure." That's simply not true; private accounts actually make the finances of Social Security worse for decades.

But wait, there's more!

Policy analysts say changing the way benefits are calculated could save trillions of dollars in decades to come. But it would imply significant reductions from the benefits promised under today's laws. The idea behind personal accounts is that workers, by making investments in stocks and bonds, could more than make up the difference with extra earnings.

Did Andrews read the CBO report on the President's Commission to Strengthen Social Security plans that combine a switch to price-indexing with a shift to private accounts? Bush recently said the commission created "a good blueprint," and his economists highlighted its Plan 2 in the 2004 Economic Report of the President. In short, the following CBO analysis of Plan 2 is highly relevant:

CSSS Plan 2 would reduce expected retirement benefits relative to scheduled benefits for all later cohorts, even when the benefits paid from IAs [individual accounts] under CSSS Plan 2 are included.

So "the idea" that Andrews presents as plausible is flatly untrue, at least when it comes to the most specific and relevant plan that has been analyzed to date. Shouldn't he tell his readers this?

I return to my three points on Social Security. Any good article on the issue should make the following points clear:

1. Social Security's long-term fiscal imbalance is relatively small and can be addressed through a series of relatively modest changes in rules, eligibility, etc.

2. Private accounts actually make the Social Security imbalance worse, not better, in the short to medium term. Transition costs are estimated at $1-2 trillion. In addition, there are many difficult issues that would have to be resolved to create a well-designed private accounts system. The upshot is that private accounts are an attempt to change the fundamental nature of Social Security (for better or worse), while also addressing financing shortfalls through borrowing and rules changes. They are not a direct solution to the imbalance except in the long term.

3. The massive long-term shortfall in Medicare financing is a much, much bigger problem than Social Security. No one has any good answers for dealing with this.

Comments

[Brian]

Brendan,
What do you make of Peterson's book "Running on Empty"? His response to the argument that you make (SS can be saved through relatively modest reforms) is that while some such reforms would save SS, it is really Medicare that is completely unsustainable, and that the law and precendent have linked these entitlement programs such that it is really impossible to fix one without fixing the other. I haven't searched all your archives, but I didn't see much on Medicare reform. Do you think the issues are separable? Do you think Medicare can be reformed with equally modest measures?