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Friday, December 16, 2005

Social Security: Responding to Criticism

by Bill McBride on 12/16/2005 02:28:00 PM

A couple of blogs have responded to my post dismissing the Samwick, et. al. Social Security proposal. Let me reiterate, I respect Professor Samwick's intentions, but I think his efforts are misdirected.

The first blogger, Arnold Kling at Econlog writes:

Even if one were to accept the premise that the fiscal problem is larger elsewhere, this is a phony argument. CR is acting like an angry teenager, sticking his fingers in his ears and saying "I'm not listening to you."

But the premise is also wrong. If we allocated a larger share of payroll taxes to Medicare instead of SS, we could argue that Medicare is not a problem but SS is the big issue. We should be looking at the challenge of funding spending as a whole, not looking at the arbitrary allocation of taxes to different programs. In terms of overall spending, Social Security is a gigantic issue.

Finally, it is disingenous to whine that we need to solve the other problems first, without offering a solution. Overall, this stance of "solve X and Y before you tackle Z" comes across to me as mere demagogic rhetoric, the end result of which will be that X, Y, and Z will remain unsolved.
Skipping over Kling's personal attacks, Kling is completely wrong - both about my suggestions and about the underlying economics.

First, although not included in my Social Security post (for brevity), just last week I wrote that there is good news for reforming health care in America:
... there is hope for the health care system. Currently the US has the most expensive health care system per capita in the World, and some of the worst outcomes for a first world nation. This offers an opportunity to reform the US healthcare system, and luckily there are several examples of systems that provide better outcomes for substantially lower costs. (See Angry Bear's and Kash's posts on the left under Topics: The U.S. Healthcare System)
So I'm not suggesting moving money from bucket A to bucket B; I'm actually suggesting reforming the entire system and dramatically cutting the costs and improving outcomes.

But Kling really goes astray when he suggests looking at "spending as a whole". The real issue in all of these debates is who pays the taxes and who receives the benefits.

As a mental exercise, imagine if we eliminate SS spending and the SS payroll tax - what happens? The General Fund deficit stays exactly the same and we would need to address the significant General Fund shortfall. Would Kling then suggest raising taxes on lower and middle income Americans to cover the shortfall? That seems to be Kling's suggestion.

So I believe we want to do the exact opposite of what Professor Kling suggests; for some programs we want to analyze each program and revenue source separately.

Two Lenses

One of the skills of a successful executive is to be able to manage with two lenses: a wide angle lens (to see the big picture) and a telephoto lens to zoom in on problems. But just like a photographer, the executive needs to know when to use each lens.

Its not that I'm "not listening", I'm prioritizing.

I believe there is no need to discuss the details of Professor Samwick's proposals; the wide angle lens shows Social Security is irrelevant.

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