Monday, December 06, 2004

Social Security: The "Do Nothing Reform Plan" detailed. Feel free to attribute it to opponents of reform who have no plan of their own.

It should be just plain common sense that opponents of Social Security reform who constantly invoke the "transition cost" objection to it can't do so in any intellectually honest way unless they present their own proposal to close the $10 trillion unfunded liability of Social Security while preserving workers' benefits and rates of return on contributions -- opening their own proposal to criticism, and comparing the two ideas.

After all, if you want to make the wise choice between two options, you must compare them, right? Yet those who line up to oppose every reform proposal crying "transition cost!" never present a proposal of their own to solve Social Security's problems.

John Kerry and John Edwards during their recent campaign, their economist supporters like Paul Krugman and Brad DeLong, the 45 Democrats surviving in the Senate, the NY Times' editorial page writers ... all have been quick enough to cry out "transition cost!" as an objection to all reform proposals, yet not one of them has presented an alternative to get Social Security out of its problems and said, "Let's compare".

But, happily, George Will reminds us that the "do nothing" proposal of the opponents to reform has been spelled out...
... two years ago two former senators, Democrat Bob Kerrey of Nebraska and Republican Warren Rudman of New Hampshire, proposed a thought experiment:

"Suppose that a member of Congress introduced legislation called 'the Social Security Do Nothing Act.' Under this bill, promised retirement benefits would be cut by 16 percent for today's 30-year-olds, by 29 percent for today's 20-year-olds and by 35 percent for today's newborns. Alternatively, payroll taxes would go up by roughly 40 percent in 2041.

"How many politicians would rush to endorse this bill? And yet these are the choices under the Do Nothing Plan."
The Concord Coalition continues ...
“What is remarkable is not that reform plans engender such heated debate, but that the Do Nothing Plan engenders so little outrage.

"Worse yet is the fact that no one will have to endure the scrutiny and ridicule of specifically advocating the Do Nothing Plan in order for its absurd consequences to take effect. The Do Nothing Plan has already been enacted. It is current law."
It is remarkable. And this all highlights the fallacy of the transition cost argument. Inevitably it is presented as: "reform has a cost but the status quo does not, and it is better to not needlessly incur that cost of reform."

Yet this argument works only if one doesn't present a plan of one's own to solve the problems in the status quo, because if one does then the future costs inherent in the status quo become visible. And then people can make a comparison between those costs and the costs of reform -- in which the status quo may not come out looking so good (all those benefit cuts!). So opponents of reform unanimously don't present any plan of their own -- they want nothing to compare!

Let's see how the New York Times' editorial writers just recently worked through this. They've heard the common sense message that options should be compared ... and they object!
Privatization advocates will tell you that the cost of creating private accounts today must be compared with the cost of doing nothing to reform Social Security. This is specious...
... no reasonable person is suggesting that nothing be done. The proper comparison is between a plan to borrow trillions and a plan to phase in slowly a modest package of tax increases and benefit cuts that would preserve the current system's essential protections without borrowing ...
Gee, OK, the proper comparison is between borrowing trillions of dollars and "modest" tax increases and benefit cuts phased in "slowly" that essentially maintain the current system. Hardly any changes at all, it sounds like. Who could argue?

Except that's not very specific. Let's imagine the Times being just a little bit more explicit about the "modest" changes it proposes in its "proper comparison"...
... no reasonable person is suggesting that nothing be done. The proper comparison is between a plan to borrow trillions and a plan to cut benefits for today's 30-year-olds by 16%, for those entering the workforce today by 29%, and for the younger by even more.

As to preserving the historical essentials of Social Security, all annual cohorts who retired before 2000 received from Social Security more than they paid into it. Most recieved much more. From now on, all will receive less under the current benefit formula, with 30-year-olds receiving as little as 50% less. Of course, reducing their benefits yet more will further reduce their return -- 30-year-olds will get back as little as about 40% of what they contribute, while the younger will get back even less than that.

But this modest change in the essentials of Social Security going forward is well worth it to avoid borrowing today...
Gosh, why didn't they print that? ;-)

Because just admitting that any significant changes are necessary in Social Security to preserve the status quo shows that the status quo can't be preserved -- major reform is in fact inevitable, one way or another, as a matter of arithmetic.

And if you are opposed to reform, where are you then?