The $600 Billion Man

SYNOPSIS: Scroll down to see the reply to this article by Sen. Joseph Lieberman (D-CT) in a letter to The New York Times and then Paul Krugman's response to Lieberman's letter, which was originally posted on Brad DeLong's blog

The argument over Social Security privatization isn't about rival views on how to secure the program's future - even the administration admits that private accounts would do nothing to help the system's finances. It's a debate about what kind of society America should be.

And it's a debate Republicans appear to be losing, because the public doesn't share their view that it's a good idea to expose middle-class families, whose lives have become steadily riskier over the past few decades, to even more risk. As soon as voters started to realize that private accounts would replace traditional Social Security benefits, not add to them, support for privatization collapsed.

But the Republicans' loss may not be the Democrats' gain, for two reasons. One is that some Democrats, in the name of centrism, echo Republican talking points. The other is that claims to be defending average families ring hollow when you defer to corporate interests on votes that matter.

Let's start with the case of the bogus $600 billion.

In his Jan. 15 radio address, President Bush made a startling claim: "According to the Social Security trustees, waiting just one year adds $600 billion to the cost of fixing Social Security." The $600 billion cost of each year's delay has become a standard administration talking point, repeated by countless conservative pundits - who have apparently not looked at what the trustees actually said.

In fact, the trustees never said that waiting a year to "fix" Social Security costs $600 billion. Mr. Bush was grossly misrepresenting the meaning of a technical discussion of accounting issues (it's on Page 58 of the 2004 trustees' report), which has nothing to do with the cost of delaying changes in the retirement program.

The same type of "infinite horizon" calculation applied to the Bush tax cuts says that their costs rise by $1 trillion a year. That's not a useful measure of the cost of not repealing those cuts immediately.

So anyone who repeats the $600 billion line is helping to spread a lie. That's why it was disturbing to read a news report about the deputy commissioner of the Social Security Administration, who must know better, doing just that at a pro-privatization rally.

But in his latest radio address, Mr. Bush - correctly, this time - attributed the $600 billion figure to a "Democrat leader." He was referring to Senator Joseph Lieberman, who, for some reason, repeated the party line - the Republican party line - the previous Sunday.

My guess is that Mr. Lieberman thought he was being centrist and bipartisan, reaching out to Republicans by showing that he shares their concerns. At a time when the Democrats can say, without exaggeration, that their opponents are making a dishonest case for policies that will increase the risks facing families, Mr. Lieberman gave the administration cover by endorsing its fake numbers.

The push to privatize Social Security will probably fail all the same - but such attempts at accommodation may limit the Democrats' political gain.

Meanwhile, the party missed a big opportunity to make its case against increasing families' risk by acquiescing to the credit card industry's demand for harsher bankruptcy laws.

As it happens, Mr. Lieberman stated clearly what was wrong with the bankruptcy bill: "It failed to close troubling loopholes that protect wealthy debtors, and yet it deals harshly with average Americans facing unforeseen medical expenses or a sudden military deployment," making it unfair to "working Americans who find themselves in dire financial straits through no fault of their own." A stand against the bill would have merged populism with patriotism, highlighting Democrats' differences with Republicans' vision of America.

But many Democrats chose not to take that stand. And Mr. Lieberman was among them: his vote against the bill was an empty gesture. On the only vote that opponents of the bill had a chance of winning - a motion to cut off further discussion - he sided with the credit card companies. To be fair, so did 13 other Democrats. But none of the others tried to have it both ways.

It isn't always bad politics to say things that aren't true and claim to support things you actually oppose: just look at who's running the country. But Democrats who engage in these tactics right now create big problems for a party that has been given a special chance - maybe its last chance - to remind the country of what Democrats stand for, and why.

Originally published in The New York Times, 3.15.05

[Sen. Joseph Lieberman (D-CT) responds in a letter the the New York Times]

Protecting Social Security

Published: March 18, 2005

To the Editor:

Paul Krugman ("The $600 Billion Man," column, March 15) claims that when I say that every year we do nothing about Social Security's coming insolvency we add $600 billion in unfunded liabilities, I am "helping to spread a lie."

Nonsense. Experts we've consulted at the Social Security Administration have confirmed this estimate.

Everyone knows that Social Security is on a path to insolvency. Every year that we wait to make the program solvent will cost us more.

I know that Mr. Krugman opposes the president's carved-out private savings accounts. So do I. But if we stop there, the victims will be tens of millions of seniors who need Social Security to escape poverty.

As a columnist, Mr. Krugman has the right to just say no. As a lawmaker, I have a responsibility to work with other members of Congress in both parties and with the administration to protect this great program.

And as a Democrat, I feel a special responsibility to preserve one of my party's most effective initiatives ever.

Joe Lieberman

U.S. Senator from Connecticut

Washington, March 16, 2005

Originally published in The New York Times, 3.18.05

[Paul Krugman responds to Lieberman's letter in a post on Brad DeLong's Blog]

Bruce Willis, Asteroids, and Unfunded Liabilities

Sometimes you really have to wonder. It should be obvious that the Social Security Administration’s estimate of the growth of unfunded liabilities says nothing – nothing at all – about the cost of delaying a “fix”, whatever that might mean. But it seems that even many economists – to say nothing of Joe Lieberman – don’t get it.

So here’s an example, to illustrate the point.

Suppose that an asteroid is bearing down on our planet. If nothing is done, it will strike in 2019, inflicting $20 trillion in losses. At a nominal interest rate of 5 percent, that’s a present value of $10 trillion.

If we do nothing about the asteroid, by next year the present value of the future losses from the asteroid strike will be $10.5 trillion. So the “unfunded liability” from the asteroid strike rises by $500 billion a year.

Suppose that there is a way to fix the problem: we can send Bruce Willis into space to blow up the asteroid. So here’s the question: if we wait a year to send Bruce Willis into space, does that cost $500 billion?

Of course not: it could cost either more or less. If waiting a year means that we’ve lost our last chance to stop the asteroid, it costs $10 trillion – the full present value of the avoidable losses the asteroid would inflict. On the other hand, if Bruce Willis can still blow up the asteroid next year (or any year before 2019), there is no cost at all to waiting. In fact, if waiting increases the Willis expedition’s chances of success, there’s a benefit to delay.

In other words, the $500 billion increase in the present value of the future costs from the asteroid says nothing about the costs of delaying action. All it says is that the future is getting closer.

The same is true for Social Security. The future is getting closer, so the unfunded liabilities of Social Security are rising in present value (though not as a percentage of GDP). This says nothing at all about the cost of delaying a “fix.” Those costs, if there are any, depend on the nature of the fix.

And it’s hard to see any costs of delaying the Bush version of a fix. After all, the problem is that in the absence of changes in the system, at some future date Social Security may have to pay reduced benefits. The only thing the Bush plan does to help the system’s finances is – guess what – reduce future benefits. Why does waiting a year to announce benefit cuts that won’t happen for several decades have any cost?

One last point. Lieberman defends himself by saying that unfunded liabilities do too grow $600 billion a year. But that’s not what he said earlier: he said that each year we delay costs $600 billion, which isn’t at all the same thing.

Originally published in on Brad DeLong's Semi-Daily Journal, 3.21.05