Surprising audience reaction to Social Security reform.
Yesterday I gave a talk at the Osher Lifelong Learning Institute (OLLI) at California State University, Monterey Bay (CSUMB). I usually give 2 such lectures in the spring and 2 in the fall. This year is not the same. One of the people involved with OLLI suggested last spring that in the fall I give 2 speeches on economic issues in the presidential campaign. (The second talk will be on October 8.) I agreed with some trepidation. Why tremble? Because I know that even the most reasonable people (and the OLLI audience is generally very reasonable) can be swayed about certain candidates.
So what I did at the beginning of my presentation was show a slide that said:
Play candidates.
Play problems.
When I showed that slide, I said, “The good reason for doing that is that I find the stories more interesting than the candidates.” That got a lot of nods and a few laughs.
I talked extensively about government spending, federal taxes, and the federal budget deficit, showing them some scary statistics from the Congressional Budget Office. I then pointed out that according to the CBO, during the years 2030-34 Social Security spending net of Social Security revenue would add an average of 1.2% of GDP to the annual budget deficit and net spending on Medicare revenue would add 2.4% of the GDP. net income. So these 2 programs alone will add 3.6% of GDP. That’s more than half the expected deficit as a percentage of GDP. If it weren’t for that, we would be in a much better position.
Then I delved deeper into Social Security to make a few points. The first was one goal of FDR’s advisors in setting up Social Security:
WR Williamson, actuary consultant for the Social Security Board, said Social Security extends the Federal income tax in a “democratic way” to low-income brackets.
I filled in the back, pointing out that the income tax at the time was a “rate tax” and that it was only World War II that made it a “big tax.” When I surveyed a room of about 30 to 35 people, I said I suspected that none of their colleagues in their mid-1930s income distribution would pay any income tax.
I then stated that the fact that Social Security is a Ponzi scheme and was clearly designed to be a Ponzi scheme.
Show me this quote from comedian Dave Barry:
I say we are going against the tide [Social Security] system and change it to a system where you can add your name to the bottom of the list, then send money to the person at the top of the list, and you . . . Oh, wait, that IS our current system.
-Dave Barry, “The election can decide who is the best kisser,” Miami HeraldSeptember 24, 2000.
I then quoted Paul Samuelson calling it a Ponzi scheme. I quoted from the chapter on Social Security in my 2001 book, The Joy of Freedom: An Economist’s Odyssey:
MIT economist Paul Samuelson added some intellectual support for these policies. “The beauty of social insurance is that it is actually [italics Samuelson’s] it’s not easy.” Samuelson’s point was that if real income grew faster, each generation would receive more from Social Security than it paid for. When its critics attacked Social Security as a Ponzi scheme, Samuelson beat them to the punch in 1967 a blessing be like another. “The growing nation,” wrote Samuelson, “is the biggest Ponzi scheme ever devised.”[1] [1] Samuelson’s quotations appear Newsweek, February 13, 1967, and quoted in Derthick, p. 254.
I then quoted Franklin D. Roosevelt stating how running a Ponzi scheme will almost certainly ensure that Social Security will never be abolished:
[T]pipeline taxes were not an economic problem. They are political all the way. We put those contributions in place to give contributors the legal, moral, and political right to collect their pensions….With those taxes in place, no politician is going to overturn my Social Security system.[1] [1] From Arthur M. Schlesinger, Jr. Roosevelt’s time, the volume. 2, The Coming of the New Covenant (Houghton Mifflin, 1959), pp. 309–310, referring to Martha Derthick, Making Social Security policy, Washington, DC: Brookings Institution, 1979, p. 230.
Then I showed a picture of my Hoover colleague Mike Boskin and noted that his commission, established by the US Senate, produced a report in December 1996 that said the Consumer Price Index had exceeded annual inflation by 1.1 percent. Then I did the math. “If Congress and the President had started in 1998 to put a Cost of Living Adjustment (COLA) on the CPI – 1.1 percentage points, by 2033, Social Security benefits would have been 32%. (Here’s the math: 0.989^35 = 0.68.) The Social Security crisis would have gone just like that. I then noted that the Bureau of Labor Statistics had made some changes in response to Boskin’s commission. Boskin, on the subject of mine The Concise Encyclopedia of Economicsit is estimated that as a result CPI exceeded inflation by 0.8 to 0.9 percent.
So I did the math again: 0.992^35 = 0.75. So Social Security benefits will be 25% lower. Again, this problem would end.
I can tell you some of the highlights of my speech—there are many. But what I really liked was that this audience, at least 85% of whom were receiving Social Security, seemed open to this.
It makes sense. Who attends the education class, for which there is no certificate? Answer: people who want to be educated.
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