Marginal Revolution: Mirror, mirror on the wall

Marginal Revolution: Mirror, mirror on the wall

Marginal Revolution is a blog by two George Mason economics professors. I make sure to read it every day if I can. They come up with some great things on their site.

Anyway, this was a great post. There's the comment by Paul Krugman, who by all means is a marginal economist. This was the comment that really set me off:

For Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.

The right doesn't want to destroy Social Security. If anything, they're trying to save it, much to save it. What leftists like Krugman don't realize is that Social Security isn't a modest amount of taxation and spending. Pensions spending is 5.1% of GDP as of 1997 and that's only going to increase as the aging portion of the population becomes larger and larger. From the UN Population Projections as of 1997, the percentage of the population that is over 60 years old will double from a little over 15% of the population to 30% of the population by 2040. That means that there's going to be an increasing amount of older Americans are going to want the government to provide for their retirement, or at least a part of it.

Of course, Mr. Krugman doesn't see a problem looming with Social Security. Rather he says:

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

Ok, so the idea is that the problem with future social security payments is just of "modest size". His junk statistic in this case is that "with no change in benefits, would only require another half percent of GDP. But what he doesn't realize is that with COLA adjustments, benefits do increase every year to adjust for inflation. So I'm going to guess that his prediction is going to be just a bit off.

What he doesn't go into are the political ramifications of the end of the trust fund. For a tax-and-spend liberal like Krugman, he probably doesn't mind the fact that payroll taxes are going to have to increase in order to just keep payments at their current levels. However, by 2040, Krugman will be well into his retirement phase so he'll still be writing op-ed's for the AARP newsletter making damn sure that the government doesn't cut HIS benefits. Meanwhile, my generation is going to have to pay the penalty for the myopia of Krugman's generation.

Actually, that's not entirely true. I'm sure there are some of Krugman's generation that see the need for reform of the Social Security system. Rather than mocking these brave individuals (including President Bush), Krugman should be lauding them for being courageous enough to attempt to touch the "third rail" of politics.