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Saturday, April 30, 2005

Richard Stevenson has an excellent article in the NYTimes on Social Security and Bush.

Within the limits of hesaid/he said Furman manages to explain the debate over whether Bush is trying to save social security of phase it out. Like Brad DeLong he hands the mike to Jason Furman who he gives the last word.

The end result would be a system in which many workers would rely more on the proceeds of their investment accounts and less on the government-paid benefit, and one in which upper-income people would have less of a stake in traditional Social Security, potentially undermining political support for it.

"This would represent a major change in the philosophy of Social Security," said Jason Furman, an economist at New York University and a senior fellow at the Center on Budget and Policy Priorities, a liberal research group. "If you combine progressive indexing with private accounts, you could threaten to unravel the entire Social Security system."

Exactly. Bush, the defender of the poor has to explain why he is also trying to slash medicaid. He is because the poor are weak and by making Social Security a program for the poor, he will make it vulnerable.

I have a criticism of this sentence. "White House officials said the right point of comparison is not what current law promises but what the Social Security system can afford to pay down the road; under current projections, the system can pay full benefits for the next 36 years, and afterward just under 75 percent." The structure is basically sound, Stevenson quotes White House officials who want people to compare the Bush plan to the fictional bankrupt social security administration which pays 0. He then points out that the future banrkupt social security administration will pay a lot more than zero. However there is something wrong with the attempt at calculating the numbers 36 and 75% under projectionS. There are many projections, so they do not imply one pair of values. The SSA trustees are clearly cheating to give low forecasts and their low cost forecast has outperformed their middle cost forecast (which Stevenson uses). I would use CBO forecasts. To be correct, the sentence would have to say "according to one of three forecasts by the SSA trustees."

On the other hand the proportion 75% is simply incorrect (and over optimistic given the forecast). That is the proportion in the first year after exhaustion. According the to the trustees the proportion that could be paid would decline over time. Thus the correct comparisons are too many for a newspaper article. It is Bush plan vs do nothing plan as a complex function of time of retirement and income.

If he had time and a spreadsheet (or help from a blogger with time and a spreadsheet) Stevenson could have made the comparison exact comparing the Bush plan to the non plan of paying promised benefits times 1 until the trust fund is empty then times the ratio of payroll tax revenues to promised benefits. This comparison, advocated by the White house, would imply that 45 year olds would be much better off under the do nothing plan and that all but the poorest 25 year olds would be much better off. One would have to calculate the fraction of 25 year olds who would count as lower income under the Bush plan. This fraction should decline to zero over time.

Uh Oh I am a blogger and I have a spread sheet. Maybe instead of complaining I should run the numbers [sudden scared end of post].

Update: Even without running numbers, I can compare the Presidents plan to the do nothing until the trust fund is empty then pay full promised benefits to people with income under 20,000 2005 dollars and pay to people earning over 20,000 promised benefits times what's left of revenues divided by promised benefits to people earning over 20,000. This would clearly be better for every currently living person except for very young people who will have high incomes and who should (and do) care hardly at all about their social security pensions. Bush says cut benefits but protect the poor. OK let's do nothing till the trust fund is exhausted then when (and if) it is exhausted cut benefits but protect the poor.

I'm not going to run the numbers because I am lazy and ignorant. I would have to learn more about how the system works and there are plenty of people who know already.

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