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Does What Democrats Said About Social Security in 2000 Matter?

It's obvious that Nick Kristof pilfered the special stupid pills from Robert Samuelson's medicine cabinet, the ones that make you type "both sides are equally irresponsible," or "neither party is willing to confront the real issues" over and over again, regardless of circumstances. Allen Sloan and Gregg Easterbrook seem to have been on the same party circuit.

Josh Marshall and Kevin Drum have both responded at thoughtful length, and I know better than to try to add much when either of them have spoken, much less both. But there is one aspect of this where I want to add a little perspective:

Kristof makes much of the fact that Democrats of the late 1990s expressed greater concern about Social Security's future solvency and had more concrete proposals. The fact that "even Bill Clinton" thought there was a problem in the long-term financing of Social Security is a rhetorical staple of the Samuelson/Kristof axis of the extremely sensible, and tends to give anyone pause. What's that about?

It is true that five years ago, the idea that the long-term financing problems of Social Security were a relatively minor concern was a distinctly out-of-the-mainstream view. If someone had created www.thereisnocrisis.com back then, there wouldn't have been many endorsers, other than Dean Baker and Mark Weisbrot of the Center for Economic Policy Research, whose message was quite provocative and indeed infuriating to some of the main Democratic economic advisors. History has been kind to Mark and Dean's view that the midrange assumptions of the Social Security trustees were unduly pessimistic.

Going back to that period, around 2000, what were those Democrats thinking? And what's changed? Obviously, as others have made clear, the problem did seem worse at the time, and the Trustees' report has added, on average, two years to the projected day of reckoning when the Trust Fund would be exhausted, every year since 1997. And the problem was then much worse relative to other problems. The Medicare funding problem was not as clear at the time and had not been made worse by the prescription drug benefit. The general fund deficit crisis was unimaginable.

But there was another reason why advisors to Democrats (and here I'm thinking of people like Bob Reischauer of the Urban Institute or Bob Greenstein of the Center on Budget and Policy Priorities, who Democrats tend to listen to, although both are nonpartisan in the extreme) wanted to call attention to the potential Social Security shortfall: They worried that the hard-won budget surplus would be quickly squandered on new promises. They knew that the budget surplus was a tentative, doubtful thing. They knew that demographics would catch up with it, and they knew that both the Congressional Budget Office and OMB projections were based, as they are today on unrealistic assumptions, such as that Congress would restrain discretionary spending or that the Alternative Minimum Tax would continue to bring in ever-growing revenues, even as it cut into the middle class. And they knew that there were at least potential problems on the horizon, including Medicare and Social Security, as well as the "unknown unknowns" such as war or other crisis.

These are the cautions that reached Clinton's ears, and they were somewhat simplified into a warning of the need to protect Social Security. What it really meant was, please please please don't treat the whole surplus like free money.

An important point about these warnings: They were absolutely equal opportunity, non-partisan warnings. They were targeted at Bush's assumption that the surplus could be given away in tax cuts, but they were equally directed at Democrats such as Bill Bradley, in his presidential campaign that year, who were stretching to be able to pay for an ambitous health care plan. It was a bizarre moment, a blessed interregnum in 25 years of deficit thinking, when anything you could think of -- tax cuts, health care, "baby bonds," or a little bit of everything -- could be paid for from a hypothesized surplus, until we had all in theory spent the surplus several times over. But the most responsible outside analysts, as well as those inside the Clinton administration like Gene Sperling and Bob Rubin, understood the risk, and Social Security happened to be the best way to articulate the risk in one sentence.

Neither Bradley nor Gore listened to these warnings in their bidding war for the nomination, and neither did Bush. After securing the nomination, though, Gore shot radically over to the other extreme, pledging to run a budget surplus "every single year" until the entire national debt was paid down, which is, if possible, equally irresponsible as economics.

Is any of this relevant today? Hardly. Clinton, Reischauer, etc. were warning us then to be careful about a surplus that long, long ago has been squandered on tax cuts. To put it in personal terms: it's as if you warned a friend who won the lottery to save some of the money because he might need it for an emergency; instead he spent all the money and went into debt. Now he's asking to borrow money to buy a Porsche and also to save some for an emergency. Imagine if he says, "but you warned me to be prepared for an emergency -- why aren't you concerned about that anymore?"

Kristof also suggested that Democrats, to have an alternative, should be proposing that the funds needed to protect Social Security should come from reinstatement of the inheritance tax. As various bloggers have pointed out, it's fine to propose that, but it's not something that Bush would ever sign. But there's another point: Many have suggested it. I was talking to a friend the other day who is much more deeply immersed in this politics, in talking about the various proposals on the table, she said, "all the Democrats seem to be interested in using the estate tax to fix Social Security. But that won't work because we need the estate tax revenue for for the general budget deficit."

Exactly. We are now in a world that is the mirror image of 2000. Instead of using the surplus three times over, we are now looking at one or two pieces of possible revenue to pay for a dozen urgent needs. Democrats are acting perfectly responsibly if they try to prioritize those needs according to today's urgency, not the situation five years ago.

Posted by Mark Schmitt on February 8, 2005 | Permalink

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Comments

Ah, the lost days of the lockbox...sigh. An actual plan to save social security, for which the unfortunate Al Gore is not being given even retrospective credit for.

Nice post Mark.

Posted by: Marcus Stanley | Feb 8, 2005 4:50:19 PM

I have a dumb question, Mark, and I'm sick of asking economists for a straight answer: What, praytell, is the Social Security Trust Fund?

I thought I had a handle on it - that it's the surplus created through higher payroll taxes, implemented on the recommendation of Greenspan's commission in 1983-84, in anticipation of Baby Boomer retirement. That surplus has been "lent" to the general fund in the form of non-marketable Treasury bonds.

Therefore, I told myself, the claim by some Republicans that the money is "gone" is absurd. Not only is it a slap in the face to workers who paid the higher payroll tax all these years, it's akin to saying the federal government will default on bonds for the first time it its history.

Then I read this Mike Kinsley column from 2000 and confused myself all over again. I realize the politics of Social Security has evolved into a completely different organism since Kinsley wrote that piece. But he strongly intimates that the Trust Fund is more of a promise to pay than a requirement. What gives?

Posted by: Grant D. | Feb 8, 2005 5:07:15 PM

Grant, your first three paragraphs are correct.

It is the accumulated difference between payroll tax income and social security payments.

Posted by: yoyo | Feb 8, 2005 10:57:54 PM

The Trust Fund has actually existed since the beginning of the program, tho of course it's all been tweaked. While Social Security was for awhile more genuinely a "pay as you go" program, not accumulating sizeable assets until the greenspan reforms, it was of course never a perfectly balanced program with revenues=benefit payments every year.

Posted by: Atrios | Feb 8, 2005 11:15:53 PM

The AARP Social Security website, http://aarp.typepad.com/socialsecurity, characterizes Social Security in a nice, Family Values-friendly phrase, as a "family income protection program." I think I'm going to start using it too. Here's the quote:

"Social Security is much more than a retirement program. It is a family income protection program that reflects the commitment of the country to the economic security of workers, retirees and their families.
"Social Security provides a strong, unshakable financial base ... "

Judith Gran

Posted by: Judith Gran | Feb 8, 2005 11:21:34 PM

I must say I'm getting damn tired of the Johnny-One-Note "there is no crisis" response.

Presently, the Repub plutocracy is schedule to remain in power for the next twenty years. By then, we'll owe so much money that there isn't a snowball's chance in hell the majority of bonds in the Social Security Trust Fund will be redeemed.

If I were a twenty-something with average or better than average earnings expectations, I'd take Bush's deal.

I sure wouldn't count on the Democratic party to get the country's financial house in order.

Hell, the party hasn't elected a President with 50% of the vote in 40 years.

Posted by: Ellen1910 | Feb 9, 2005 12:10:00 AM

the party hasn't elected a President with 50% of the vote in 40 years.

Um, 28 years ago, actually.

Posted by: apostropher | Feb 9, 2005 1:36:42 AM

(but 50.1% isn't much to brag about)

Posted by: Troy | Feb 9, 2005 2:25:15 AM

"I sure wouldn't count on the Democratic party to get the country's financial house in order."

Well, first of all, as has been noted, you can't count anyway ... and then there is the fact that the most recent administration to get the country's financial house in order was, in fact, a Democrat.

Posted by: praktike | Feb 9, 2005 9:02:10 AM

I think the surplus was only a small part of it. For the entirety of the Clinton administration, the notion the social security was "doomed" went unchallenged. We are paying for that today by having to expend so much time and effort in the current fight to save social security. Plus, in the then DLC dominated party in Washington, it was fashionable to look for "third way" ways to "save" social security. Notice none of the beltway Democrats in the nineties suggested the simplest and fairest way to solve any future funding problem--lifting the FICA cap.

Posted by: Paleo | Feb 9, 2005 10:19:57 AM

Mark, I hate to reveal my ignorance, but can you explain this to me:

pledging to run a budget surplus "every single year" until the entire national debt was paid down, which is, if possible, equally irresponsible as economics.

Posted by: obscure | Feb 9, 2005 10:21:37 AM

prakite, I think you missed the point.

Could you give us your best estimate of the date when Democrats will regain control of the Congress?

Until then, you can't count on the Democratic party to do much of anything.

Posted by: Ellen1910 | Feb 9, 2005 10:49:04 AM

Social Security is and always has been a pay-as-you-go system; it cannot be "fixed."

The Greenspan/Moynihan "reform" was never intended to "fix" it. It was intended to do exactly what it did -- generate tax revenue to pay for the Reagan tax cuts and the 600-ship Navy. The fact that it also supported the Bush II tax cuts may have been an "unintended consequence."

Twenty years from now the X and Y Generations may have income adequate to support the Baby Boom Generation in the manner they would wish to be supported -- and maybe they won't.

The fact that from 1984 to 2018 Boomers paid some of the costs of government via FICA taxes rather than via income taxes is irrelevant.

Posted by: Ellen1910 | Feb 9, 2005 11:28:48 AM

hope I've fixed Ellen's italics...

"Plus, in the then DLC dominated party in Washington, it was fashionable to look for "third way" ways to "save" social security. "

For the DLC it was fashionable to genuflect to the stock market in any way and at any time possible. Gotta show that you're part of the Kool Kids, you know. In illustration, look at all the coiffed heads on ESPN spending the week talking about Bill Belichick. They aren't talking about Bill to call attention to Bill, they're talking about Bill to get attention for themselves.

Social Security? That's retirement funding, and since the DLC is convinced that Mr. Stock Market is the most wonderfullest thing ever (and that includes sliced bread) then they just had to exclaim over how much better the godlike Mr. SM could do the job.

Like I've observed repeatedly, the biggest problem (and illustrated again in Mark's opening paragraph) is that the Third Wayers starting from Clinton and working on down are very bright people, but like many smart guys they Don't Know When To Shut Up.

I do, so I will. :>

Posted by: a different chris | Feb 9, 2005 11:46:56 AM

Testing my italics --

Obscure -- Running a long-term budget surplus would be deflationary and tip the economy into a recession/depression.

Ask Andrew Jackson.

Posted by: Ellen1910 | Feb 9, 2005 12:21:21 PM

also central bank holdings are now basically in other countries' bonds.

Posted by: yoyo | Feb 9, 2005 5:04:49 PM

Ellen1910, I remembember reading somewhere that Jackson screwed up the financial situation, leading to the "Panic of 1837" in "Van Ruin's" (Martin Van Buren, his veep and succesor) Administration because of either too little faith or too much fiddling with the First Bank of the United States. Anyone have any experience in this area? Please e-mail me.

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