Storytelling In The News: #82

The story of social security: Krugman, Treasury & the Fed

March 8, 2004

In the four novels known as the Alexandria Quartet, Lawrence Durrell shows how storytelling operates in layers.

* In the first novel, Justine, the struggling writer, Darley, tells the story of his intense but frustrating love affair with the rich Egyptian businesswoman, Justine, in the 1930s in Alexandria.

* In the second novel, Balthazar, Darley discovers he was mistaken and that his mistress was conducting an even more passionate affair with another writer, Pursewarden.

* In the third novel, Mountolive, we learn that neither account is valid: instead, Justine's affairs formed part of a larger set of political machinations.

* In the fourth novel, Clea, Darley struggles to figure out which, if any, of these stories were true. There is evidence to support all of them. Were they all true? One of them? Or none of them? The more we learn, the more the truth is elusive. The saga is viewed through the distorting lens of the ancient Egyptian city of Alexandria and its corrupt political and sexual mores. The novels are as intricate as Chinese puzzles in the "wheels-within-wheels" of their stories. In the end, we realize how well Durrell has captured the fragility underlying any impression of hard reality. Understandably, Durrell's quartet has been called a work of "splendid craft and troubling veracity".

Fast forward to March 2004, and we enter the house of mirrors known as the Washington debate on the U.S. social security system, where a similar sense of troubling veracity hangs over the tale-telling.

Greenspan tells his story

On February 25, 2004, master storyteller Alan Greenspan kicked off the latest round of discussions when he transfixed the U.S.capital with his tale of what would be needed to fix the troubled social security system. As he had spoken in public, one might think that it would be easy to determine to know what he said. But the Delphic chairman of the Fed is a champion of exquisite ambiguity, all aimed at preserving an appearance, if not a reality, of political neutrality:

* According to the New York Times, "Greenspan Urges Cuts to Social Security to Rein In Deficit". The message was clearly a slap at the Republicans and President Bush.

* According to the Wall Street Journal, "Greenspan Pushes Benefit Cuts But Sides With Bush on Taxes". The message was clearly Republican and a slap to the Democrats.

Both Democrats and Republicans were quick to disassociate themselves from the unpopular stance of cutting social security benefits. What to do? Republicans talked of private social security accounts. Democrats spoke of reversing the tax cuts for the rich. Listeners was left with no clear sense of how the huge problem was going to be solved.

Krugman tells his story

No so quickly, said New York Times columnist and distinguished economics professor, Paul Krugman, on March 2: According to Krugman, Greenspan is trying to solve a problem that doesn't exist. Although the rest of the government is running huge deficits — and never did run much of a surplus — the Social Security system is in good financial shape: it is currently taking in much more money than it spends. Thanks to those surpluses, the program is fully financed at least through 2042, i.e. beyond the realistic horizon of anyone living today. The cost of securing the program's future for many decades after that would be modest — a small fraction of the revenue that will be lost if the Bush tax cuts are made permanent. And the reason Social Security is in fairly good shape is that during the 1980's the Greenspan commission persuaded Congress to increase the payroll tax, which supports the program.

So why are we trying to "fix the problem of social security" when the problem doesn't exist in the first place.

Simple, says Krugman. Something else is going on. Mr. Greenspan pushed through an increase in taxes on working Americans, back in the 1980s, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits. The "joke" is on the poor suckers - American workers - who have - so far - gone along with these machinations.

Krugman says that if anyone had tried to sell this package honestly — "Let's raise taxes and cut benefits for working families so we can give big tax cuts to the rich!" — voters would have been outraged. So Republicans engaged in bait-and-switch: pushing through their agenda by getting people scared about a problem that doesn't exist.

The Treasury tells its story

Not so, says the Treasury. Look at the hard numbers. According to a study it has done, the situation of the social security system is even worse than Greenspan had indicated. The administration had earlier estimated that the gap between promises under current law and the revenues expected would total $18 trillion over the next 75 years. But an internal study in 2002 by the Treasury Department, looking much further ahead, concluded that the gap was actually $44 trillion - and would climb each year that nothing was done.

According the Treasury study, the numbers are so big and extend so far into the future that they border on the surreal. Analysts in both Congress and the administration warn that the flood of retiring baby boomers will cause federal spending on old-age benefits to eventually consume as much of the nation's economy as the entire federal budget does now.

So what's going on here? On the one hand, we've got Krugman - a distinguished economics professor -- saying there's no imminent financial problem. On the other, the Treasury says that the problem is not only big - it's surreal.

Krugman tells another story

Krugman comes back to the fray on March 5 and challenges the Treasury claim that Social Security and Medicare are $44 trillion in the red, creating an imminent financial problem.

Krugman notes that two words — "and Medicare" — make a huge difference. According to the Treasury study, only 16 percent of that $44 trillion shortfall comes from Social Security. Second, the supposed shortfall in both programs comes mainly from projections about the distant future; 62 percent of the combined shortfall comes after 2077.

So, does the Treasury report show a looming Social Security crisis? No.

By all means, says Krugman, let's plan ahead. But let's set some limits. When people issue ominous warnings about the cost of Medicare after 2077, Krugman's question is, Why should fiscal decisions today reflect the possible cost of providing generations not yet born with medical treatments not yet invented? The biggest risk now facing Social Security is political. Will those who hate the system use scare tactics and fuzzy math to bring it down?

Eating doughnuts alone won't cause you to lose weight

Republicans often declare that the answer to the social security problem is to create private retirement accounts. To Krugman, this is peddling this snake oil. He finds it amazing that journalists continue to let them get away with it. When the Wall Street Journal declared on March 4 that "personal accounts alone won't cure Social Security's ills," Krugman agreed. Similarly, eating doughnuts alone won't cause you to lose weight. Krugman asks: why is it so hard to say clearly that privatization would worsen, not improve, Social Security's finances?

His conclusion: should we consider modest reforms that reduce the expenses or widen the revenue base of Social Security? Sure. But beware of those who claim that we must destroy the system in order to save it.

So what's the real story?

Which story do we believe?

The Treasury and the Fed are supposed to be organizations dedicated to serving the public interest. In principle, they should be the keepers of the truth.

But Krugman is suggesting that they have been politicized to the point that they can no longer be trusted.

"The Bush White House has made it clear that it will destroy the careers of scientists, budget experts, intelligence operatives and even military officers who don't toe the line. Mr. Greenspan should have been immune to such pressures, and he should have understood that the peculiarity of his position — as an unelected official who wields immense power — carries with it an obligation to stand above the fray. By using his office to promote a partisan agenda, he has betrayed his institution, and the nation."

Should we believe Krugman? He is a distinguished economics professor, but in his persona as New York Times columnist, he has abanoned any pretence of political neutrality and is explicitly a passionate Democrat who is willing to use any argument, economic or rhetorical, to make his case.

There is evidence to support all stories here. Is one of them true? Or none of them? The more we learn, the more the truth seems elusive. Everything is viewed through the distorting lens of Washington politics. In the end, reality is as hard to fathom as it was in Durrell's Alexandria quartet. Here too, we marvel at the storytellers' craft while noting the "troubling veracity".

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