Part of a Series
The issues surrounding the president's as-yet-unformulated plan to partially privatize Social Security are thorny ones, no doubt, and appear no less so as a result of the release last week of the 2005 Social Security Trustees report. Regardless of the complexity of the issues involved, however, they demand a full airing and some attempt at honest public debate. But given the current punditocracy atmosphere of deliberate obfuscation, well, as Buddy Holly sang, "That'll be the day."
The big news, at least initially, appeared to be that two of the so-called "doomsday" numbers constantly touted by the president and his supporters were moved back, each by one year. The 2004 report had predicted that the Social Security system would have to start drawing on its trust fund in 2018, and that the trust fund would be completely exhausted in 2042. This newest report bumped those dates back to 2017, and 2041, respectively.
How did this happen, after the "doomsday" numbers had been steadily revised up year after year prior to this? Headlines offered evidence of continuing confusion. While the Los Angeles Times declared: "Social Security Going Broke in 2041; Trustees report insolvency expected to arrive a year earlier than previously estimated," USA Today claimed: "Social Security Numbers Get Uglier: Insolvency in 2041," and MSNBc=com offered the singularly sloppy "Social Security outlook: Broke in '41."
But as anyone paying any attention at all can tell you, Social Security will never "go broke." It can exhaust its trust fund, but our payroll taxes will continue to be paid into the system, meaning that it will continue to take in money, though this may need to be augmented from other sources.
The most egregious error in the initial coverage could be found in an Associated Press story (headlined "Social Security Said to Go Broke in 2041") that drove much of the coverage of the report. As Media Matters noted, the AP misquoted Treasury Secretary John Snow as saying that in order to meet the projected shortfall, "Social Security payroll taxes would have to be raised by 3.5 percentage points or benefits would have to be cut by 22 percent." The facts, however, bear little resemblance to this. The truth is that payroll taxes would have to be raised by 1.92 percentage points, while benefits would be reduced by 12.8 percent. The misstatement makes the alleged "crisis" in the Social Security system appear far more dire than even any worst-case analysis can project.
But back to the "doomsday" numbers. How did they slide back? Brad DeLong, professor of economics at UC Berkeley and research associate of the National Bureau of Economic Research, notes some salient facts on his blog that have escaped the vast majority of reporters covering the report.
According to DeLong's research, the report's assumptions for future economic growth ignore the previous four years' productivity data. This methodology was first adopted last year, in the 2004 report. If the trustees had used the methodology that was in place until last year, they would have projected long-term productivity growth of 1.9 percent per year rather than the 1.6 percent they employ. As DeLong notes, "In 2004 the Trustees [froze] the long-run rate of productivity growth at 1.6% per year, thus for the first time choosing a forecast of future productivity growth lower than both the 40-year and the 10-year average." While the administration isn't cooking the books, one would think that making up their own accounting practices "on the fly" would produce some skeptical, or at least curious, reporting. But just try and find it.
The issues grow even more complicated when one realizes that the trustees rely on three separate sets of projections for economic growth: an optimistic projection, a pessimistic projection, and one in between. Press coverage of the issue consistently chooses only the most pessimistic projection – which is also the one the administration pushes. But this only tells part of the story. As Roger Lowenstein so deftly pointed out in the New York Times Magazine this past January, the truth is that a study found that over a recent 10-year span the optimistic case turned out to be the most accurate. Apparently, the study, and Lowenstein's evidence, has fallen on deaf ears. To confuse matters further—no doubt intentionally on the part of the White House—while the trustees project that in the future the economy will grow at a sluggish 1.9 percent a year, the president claims that private accounts will average a whopping 6.5 percent a year.
A growth rate of 1.9 percent would be the slowest sustained rate since the 1930s. Bloomberg News surveyed 58 economists and strategists, and found that 39 of them feel that if the economy actually grows at such a slow pace, the president's stock outlook is by far too optimistic. Bloomberg finds that "[o]ver the last 50 years, as the U.S. economy grew 3.4 percent a year on average, almost twice as much as the agency is forecasting,… the Standard & Poor's 500 Stock Index returned only 6.8 percent after dividends were reinvested." In other words, if growth were to slow to a rate of 1.9 percent, maintaining 6.5 percent dividend growth would be almost impossible.
Impossible, that is, except in the media's rendering of the president's plan to destroy the most successful social program in all of America's history. With the stakes so high, a little skepticism in reporting seems in order.
Eric Alterman is a senior fellow at the Center for American Progress and the author of six books, including the just-published When Presidents Lie: A History of Official Deception and Its Consequences.
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