Okay, that's more than a bit strong, but on the other hand, AP referred to Social Security as "a giant federal Ponzi scheme," so if we're going to do name-calling, Beat the Press is closer to mark here than AP. It goes on to tell readers: "That's pretty much the current system. Social Security takes contributions from today's workers and uses them to pay the old-age benefits that were promised to retirees. But there are serious concerns how long that can last." "There are serious concerns"..... scary, ominous, concerns lurk. Of course, once we get beyond science fiction and horror films, concerns don't lurk in the world, they reside in specific people. Names would be nice. There are people cited in the article, but none of them say anything implying that a largely pay as you go Social Security system could not continue indefinitely, because of course it can. Social Security is absolutely not a Ponzi scheme as anyone who has ever looked at either the Trustees report, the Congressional Budget Office's (CBO) analysis, or taken third grade arithmetic knows. As this article notes, the Trustees project that the program will be fully funded through 2037 (the next 28 years) with no changes whatsoever. CBO projects that it will be fully funded through 2043 (the next 34 years) with no changes whatsoever. The program is projected to face shortfalls after these dates, but it would still be able to pay the overwhelming majority of scheduled benefits even if no changes were ever made. (Just like a Ponzi scheme, right?) The reason that it can pay all benefits now and nearly all benefits forever, is that the tax rate is set at level that the taxes collected from current workers can support the benefits paid to current retirees. The problem in the longer-term is that we will be living longer in future decades, therefore the ratio of retirees to workers will rise, eventually pushing the program into deficit. But, this is not exactly a horror story. As the country gets richer, it may decide to put a larger share of its wealth into supporting retirement. That is something that it has done repeatedly in the past (something that AP reporters who write on Social Security should know). It may also decide to raise the retirement age at some point, this is also something that has been done in the past. Social Security has faced many shortfalls in prior decades because the rise in the ratio of retirees to workers is not new, it has been happening almost continuously since the program's inception (the baby boom cohort is a small blip, temporarily reducing the ratio during its peak working years). If our AP reporter had been around in 1965 he or she would have been writing much more alarming stories, since the situation for Social Security three decades into the future would have looked far worse then. If anyone had taken such fears seriously, we never would have created Medicare, Medicaid, or Head Start. As it was, we did create these programs and we also patched the holes in SS, so it is still doing just fine more than 40 years later. This article also includes an inaccurate assertion by Brookings Economist Bill Gale, that "the world is sick of our debt." This can easily be shown to be false by looking at market interest rates. Investors are willing to hold 10-year Treasury bonds at a 3.75 percent interest rate. This is a far lower interest rate than they demanded at any point in the prior 50 years, except at the peak of the crisis last fall. If investors were actually sick of our debt, they would be demanding very high rates of interest to hold it.
--Dean Baker
