Alan Greenspan and the New York Times Are Gunning for Your Social Security

With health care reform finally signed into law, a new policy battle over Social Security is quietly but unquestionably building momentum. Make no mistake -- Wall Street is now doing its best to gut Social Security, and as a front-page article in yesterday's New York Times makes clear, the media is not ready to challenge them on it.

 

Like every other major institution in the public and private sectors, Social Security has taken a few licks from the current recession. But the problems are simply not very serious -- the entitlement program's trust fund currently stands at a massive $2.5 trillion -- that's trillion with a "t." If the federal government makes absolutely no changes to Social Security whatsoever, the program is currently projected to remain fiscally fit through 2037. The effects of the recession are included in that projection -- prior to the financial crash of 2008, Social Security was projected to remain solvent through 2041.

 

But pesky facts like that are not the focus of the story from Times reporter Mary Williams Walsh, who instead highlights a fundamentally meaningless statistic to needlessly frighten her readers:

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016.

That threshold would indeed be important -- if Social Security weren't sitting on an additional $2.5 trillion. Walsh dismisses the trust fund -- putting the term in scare quotes and calling it a mere "accounting device." And, in fact, the trust fund is an accounting device -- just like bank reserves and dozens of other financial metrics used in the business world. What that accounting device shows is that Social Security is fundamentally stable from a fiscal standpoint, to the tune of $2.5 trillion. There's nothing fishy about it.

 

If that $2.5 trillion ever runs out -- which it won't, because Social Security's revenues will increase in a few years as the economy recovers -- policymakers would still actually have plenty of options available for boosting the program. But according to former Federal Reserve Chairman Alan Greenspan, there's only one truly viable course of action -- draconian benefit cuts for seniors. Here's the Maestro, from Walsh's article:

When the level of the trust fund gets to zero, you have to cut benefits . . . . Because of the size of the contraction in economic activity, unless we get an immediate and sharp recovery, the revenues of the trust fund will be tracking lower for a number of years.

Greenspan, lest anyone forget, is one of the people most responsible for moving Social Security's solvency projections from 2041 to 2037. Our current recession was caused by rampant financial excesses that Greenspan actively refused to regulate and a housing bubble that he explicitly refused to act on. To the extent that today's government finances are constrained, the two major culprits can both be laid at Greenspan's feet -- the bank bailouts that were deployed to clean up his mess, and the lost tax revenues from job losses and plunging home values.

 

So it should come as no surprise that Greenspan is simply wrong about even the hypothetical need for benefit cuts. If -- under a wild, unthinkable set of economic circumstances -- Social Security did one day find itself in a fiscal hole, the government could always simply increase Social Security taxes or tap revenues from other government programs. In fact, when Greenspan himself was part of a commission to fix Social Security in the early 1980s, that commission did not cut benefits -- it raised taxes. Policymakers would not need to cut benefits -- Greenspan simply prefers that they do, because he doesn't like the idea that the government should be providing safety nets for the elderly.