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Saturday, July 17, 2010

 
Exploding the Social Security Myths

by digby

I have a reading assignment for you. It's a short one, but an important one. If you don't get to it right away, bookmark it for some time when you have a few minutes.

The assignment is this and this post by Susan G at Daily Kos about Social Security myths. The first is this one about life expectancy, which is something that has driven me crazy for years. Mush of the literature about "problems" with social security will tell you that longer life expectancy was unanticipated by the people who designed the system, which is ridiculous. They certainly did. And they will also tell you that life expectancy was only 63 at the time social security was designed, which is true, but they neglect to explain that life expectancy in those days was was shorter mostly because of childhood diseases, which means that the financing ratios were never affected. After all, kids who die at 3 never pay FICA in the first place. Anyway, the upshot is this, from Nancy Altman's important book on the subject The Battle for Social Security: From FDR's Vision To Bush's Gamble:

For Social Security purposes, the correct question is not how many live to age 65, but rather how long those reaching age 65 live thereafter. Here the numbers are not as dramatic. In 1940, men who survived to age 65 had a remaining life expectancy of 12.7 years. Today, a 65 year old man can expect to live not quite three years longer than he might have in 1940, or 15.3 years beyond reaching age 65. For women, the comparable numbers are 14.7 years beyond age 65 in 1940; 19.6 years in 1990.


There's much more to this myth at the link, but it's important that we all understand this. The most important thing about it is that the designers of social security built all these expectations into the system, nothing has "gone wrong" and technology hasn't rendered the system ever more expensive because we are all living so much longer. (Medicare, as we all know, is a very different situation. Those extra few years are coming at an ever increasing cost in health care dollars.)Raising the retirement age is not a panacea, and will actually likely be a cause of another group of problems in an age where jobs are hard to come by for everyone, but especially those just entering and those close to leaving the workforce.

The other post is just as important: the misconce3ption that the ratio of workers to recipients is rapidly coming to the point where there won't be enough workers to cover the retirees. More from Altman's book:

… [George W.] Bush sought to prove the point that Social Security was unsustainable through the use of a terrible deceptive and misleading factoid. The president announced, "And instead of sixteen workers paying in for every beneficiary, right now it's only about three workers."

"Sixteen workers paying in for every beneficiary" is a meaningless statistic that never affected policy in the slightest. The 16-to-1 ratio is a figure plucked from 1950, the year that Social Security expanded to cover millions of theretofore uncovered workers: farm workers, domestic workers, and others. Those 1950 amendments followed the recommendations of the 1948 advisory council ….

… all pension programs that require a period of employment for eligibility, private as well as public, show similar ratios at the start, because all newly covered workers are paying in, but no one in the newly covered group has yet qualified for benefits. The president could just as accurately have said that in 1945, the ratio of works to beneficiaries as 42 workers paying in for every one beneficiary or the equally accurate but misleading ratio from 1937, 26 million workers paying in for about a dozen beneficiaries.

… what is important is not the worker-to-beneficiary ratio at the start of the program but the ratio when the program reaches maturity. Consistent with the meaninglessness of the 16-to-1 factoid, the worker-to-beneficiary ratio was halved to eight workers for every beneficiary within five years, and by 1975, the ratio was where it is today. The 1994-1996 advisory council had not agreed on much, but it made one very valuable contribution. Its report included the appendix that stated that "the fundamental ratio of beneficiaries to workers was fully taken into account in the 1983 financing provisions, and, as a matter of fact, was known and taken into account well before that...

Bob Myers watched Bush on television from his home right outside Washington and stared in disbelief. In 1934, not only could Myers foresee the world as it changed, he had forecast these changes with great specificity. He was the one who had crunched the numbers for Roosevelt's Social Security proposal. Myers and Otto Richter, the senior actuary with whom he had worked, had been extremely farsighted. Myers knew, in 1934, that people in the twenty-first century would live longer and draw benefits longer.

As it turned out, Myers and Richer were a shade too conservative in their projections, believing the percentage of the population that would be elderly in the future would actually be higher than it turned out to be. Specifically, in 1934, he and Richter projected that, in year 2000, 12.7 percent of the population would be age 65 or older. How accurate were they? According to the 2000 census figures, the percentage of those aged 65 and over was 12.4 percent of the population.


Now it's true that the baby boom was an anomaly, which is why they passed the changes in 1983. But as Susan points out, they weren't mathematical cavemen in the 30s and they did anticipate that the ration would shrink as the program matured as the above passages point out.

All of this is to say that social security is not in crisis and it needn't be part of any Grand Bargain with Republicans who simply want to destroy the program (and will, of course, fail to act in good faith anyway.) It is well financed,efficient, bare subsistence level program for people at the end of their lives that is in no way responsible for the debt. In fact, its surpluses have been covering the Republicans' insane wars and tax cuts and the nation's overall rising health care costs for many years. It should be, quite literally, untouchable.

But the right wing and their wealthy owners have been after Social Security since the minute it was created and they have successfully propagated many myths about the alleged financing problems as a way to push their real agenda. They have been lying for 70 years.

Recall:

Ronald Reagan said back in the 1960s:

But we're against those entrusted with this program when they practice deception regarding its fiscal shortcomings, when they charge that any criticism of the program means that we want to end payments to those people who depend on them for a livelihood. They've called it "insurance" to us in a hundred million pieces of literature. But then they appeared before the Supreme Court and they testified it was a welfare program. They only use the term "insurance" to sell it to the people. And they said Social Security dues are a tax for the general use of the government, and the government has used that tax. There is no fund, because Robert Byers, the actuarial head, appeared before a congressional committee and admitted that Social Security as of this moment is 298 billion dollars in the hole. But he said there should be no cause for worry because as long as they have the power to tax, they could always take away from the people whatever they needed to bail them out of trouble. And they're doing just that.

A young man, 21 years of age, working at an average salary -- his Social Security contribution would, in the open market, buy him an insurance policy that would guarantee 220 dollars a month at age 65. The government promises 127. He could live it up until he's 31 and then take out a policy that would pay more than Social Security. Now are we so lacking in business sense that we can't put this program on a sound basis, so that people who do require those payments will find they can get them when they're due -- that the cupboard isn't bare?



...in the 1980's, Ronald Reagan's indiscreet budget director David Stockman admitted that the purpose of ginning up the social security crisis was "to permit the politicians to make it look like they are doing something for the beneficiary population when they are doing something to it, which they normally would not have the courage to undertake."

And then with masterful chutzpah, considering his famous "Choice" speech from 1964 excerpted above, Ronnie then went on to use the so-called "looming" SS crisis to great effect --- he flogged the GOP contention that the program was insolvent (as they'd been doing for fifty years) and also raised the payroll taxes which they immediately raided to cover their budget deficit. And now, lo and behold, we are "in crisis" again. Imagine that. Brilliant.


FYI: Nancy Altman, Eric Kingson, Laura Clawson, Bob Borosage and I will be talking about this on the subject on this panel at Netroots Nation next week.

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