PART 3—THE AUTUMN OF 96: It’s amazingly easy to get disinformed concerning Social Security. Consider the plight of the poor shlub voters who watched last night’s Special Report.
In an early segment, correspondent Shannon Bream reviewed the things “Floridians are talking about ahead of Thursday night's [GOP] debate.” Bream had interviewed Justin Sayfie, whom she described as a “Florida political analyst.” She had also spoken with Jeff Niefeld, a Florida Democratic voter.
Before long, the 1.6 million people watching the show were being treated to this:
BREAM (9/20/11): There's also the issue of Social Security and a term used by Texas governor, Rick Perry.The Democratic voter defended the system. But the political analyst told younger viewers that they shouldn’t expect any benefits from the Ponzi-like program.
NIEFELD: You can call it a Ponzi scheme implies that it's a criminal enterprise. Social Security is not criminal. It's not criminal. We all pay into it, and at the end of our time, allotted time, we can draw out of it.
BREAM: But attitudes are shifting here in Florida along with demographics. Nearly half the state's electorate is now under 50 and willing to acknowledge some hard truth about the solvency of Social Security.
SAYFIE: If you're a younger voter, if you're a voter between the ages of 18 and 30 and you're paying into the system and you don't have a reasonable belief that you're going to be paid, the term Ponzi scheme probably sounds about right.
Fox viewers were hearing this presentation for perhaps the ten millionth time. Bream offered no contradiction or challenge. Neither did Brett Baier, the program’s irresponsible anchor.
Alas! American voters have been disinformed in precisely this way for the past thirty years. Today, the liberal world is no longer completely asleep in the woods. Today, many liberals get the chance to hear analysts explain what's wrong with this rank disinformation.
But in earlier decades, the situation was worse. Consider what happened in 1996 when the New York Times reviewed Pete Peterson’s book, “Will America Grow Up Before It Grows Old? How the Coming Social Security Crisis Threatens You, Your Family, and Your Country.”
Peterson was a well-known alarmist on Social Security; he had been for quite a few years. A well-known economist did the review—and he seemed to be buying the premise:
KRUGMAN (10/20/96): In this silly season politicians are once again promising that we can have it all—that we can cut taxes, spare every popular spending program from even the smallest cut and still balance the budget. Nobody really believes them; if the public is willing to indulge such fantasies, it is because it does not, when all is said and done, really take the budget deficit seriously. After all, we have run huge deficits year after year as far back as anyone except economists can remember, and the sky has not fallen. Where is the crisis?Good grief! Could the republic be saved? Prospects weren’t looking real good.
Just over the horizon, that's where. Through a kind of sound-bite numerology, the political debate over deficits became fixated last year on the seven-year prospect; each party insists that its economic program will balance the budget in the year 2002. Neither will, but that is beside the point. Responsible adults are supposed to plan more than seven years ahead. Yet if you think even briefly about what the Federal budget will look like in 20 years, you immediately realize that we are drifting inexorably toward crisis; if you think 30 years ahead, you wonder whether the Republic can be saved.
Peter G. Peterson states the reason for this succinctly in his brief, scary new book, "Will America Grow Up Before It Grows Old?"
The Times’ reviewer was in fact Paul Krugman, an eminent economist who wasn’t as well-known at that time as he is today. If you’re familiar with Krugman’s current work, you may be surprised to see the things he wrote in the autumn of 96.
(In this 1996 piece, Krugman also reviewed a book about the AARP. To read the review, click here.)
We haven’t read Peterson’s book, nor are we Peterson haters. But if you were an average shlub, it was very easy to get alarmed about the future during this era. As Krugman proceeded, he pretty much bought every part of Peterson’s thesis. For those who know Krugman’s work today, this passage will sound quite peculiar:
KRUGMAN: Generous benefits for the elderly are feasible as long as there are relatively few retirees compared with the number of taxpaying workers—which is the current situation, because the baby boomers swell the workforce. In 2010, however, the boomers will begin to retire. Every year thereafter, for the next quarter-century, several million 65-year-olds will leave the rolls of taxpayers and begin claiming their benefits.Does that sound like Krugman today? As he continued, Krugman even made it sound like those “trust funds” might be a big bag of air:
The budgetary effects of this demographic tidal wave are straightforward to compute, but so huge as almost to defy comprehension. Mr. Peterson, the chairman of the Blackstone Group, a private investment bank, informs us that "the combined Federal cost of Social Security and Medicare, expressed as a share of workers' taxable payroll, is officially projected to rise from the already burdensome 17 percent in 1995 to between 35 and 55 percent in 2040. And this figure does not include the many other costs—from nursing homes to civil service and military pensions—that are destined to grow along with the age wave.”
KRUGMAN (continuing directly): But aren't Social Security and Medicare basically pension funds, in which workers' contributions are invested to provide for their retirement? Hardly. A private pension fund that planned to pay the benefits these programs promise would be accumulating huge reserves. In fact, the so-called "trust funds" are making barely any provisions for the future. In another spectacular statistic, Mr. Peterson notes that if Medicare and Social Security had to obey the same rules that apply to private pensions, the reported Federal deficit this year would be not its official $150 billion, but roughly $1.5 trillion.Gack! As Krugman closed, he pictured a semi-dystopia:
In short, the Federal Government, however solid its finances may currently appear, is in fact living utterly beyond its means. While the present generation of retirees is doing very nicely, the promises that are being made to those now working cannot be honored.
KRUGMAN: Both Mr. Morris and Mr. Peterson offer plans to avert the crisis ahead. The details differ, and Mr. Peterson's proposal is more completely fleshed out, but the general thrust is clear: slow the growth in benefit levels, gradually raise the retirement age, impose limits on expensive terminal medical care that prolongs life for only weeks or days and—last but not least—raise taxes moderately now, rather than massively later. We need not dwell on their sensible proposals, however, because there is not the slightest prospect that they will be put into effect—or indeed that we will do anything serious about the looming crisis until it is almost upon us.Something "unthinkable" was going to happen, Krugman said as he closed his review. For the average shlub, even the average liberal, it was very easy to get alarmed in the autumn of 96.
Both books take comfort from the economist Herbert Stein's famous dictum that unsustainable trends tend not to be sustained. Something is bound to give—but what? Will retired boomers—who will have even more political clout than today's smallish population of retired voters—be willing to accept a sharply reduced standard of living? That is hard to imagine. Will younger voters be willing to accept huge increases in tax rates to support the boomers in the style they have been promised? That is equally hard to imagine. Or will the Government try to square the circle by simply printing the money it needs, creating runaway inflation? Surely that is inconceivable. Yet one or more of these unthinkable things will happen, because something must.
Was Krugman “wrong” in his assessments? In 2007, a flap blew up about his past statements on these subjects, including those in this review. At the time, Krugman seemed to say that the facts had changed since 1996; some defenders noted that he had lumped Social Security and Medicare together in his review. But that wasn’t the stance he took in real time concerning this review. In real time, Dean Baker wrote a letter to the Times, chiding Krugman for his assessments. (Baker: “It should not be necessary to explain simple concepts to an economist as distinguished as Paul Krugman.” Full text below.) By the late autumn of 96, Krugman was taking back what he had said in an exchange with Jamie Galbraith in Slate:
GALBRAITH (11/8/96): Is there a crisis of the Social Security system? The most recent issue of Challenge carries a fine assortment of views on this vexing question. Of these, the most persuasive argue that there is no crisis, that possible shortfalls in Social Security can be fixed by very modest adjustments, at most. Unfortunately, alarmists like the dedicated anti-Social Security campaigner Pete Peterson, an investment banker, are dominating this debate. It is regrettable that certain serious economists—it might disrupt present comity if I named a name—have recently stated their categorical support for the alarmist position.Only three weeks had passed, but Krugman was bailing on his review. Remarkably, he seemed to say that he had failed to check Peterson’s arguments “by consulting with the real experts” before he wrote his review. He seemed to say that he’d gone with the flow because Peterson sounded so reasonable.
KRUGMAN (11/12/96): First of all, a mea culpa of my own. Ignore Galbraith's coyness: I was the economist who went overboard in supporting Pete Peterson's position on entitlements and demographics. Demographics play a smaller role in Peterson's forecasts, and debatable projections of medical costs a larger one, than I realized when I recently reviewed his book for the New York Times. I broke my own rule that you should always check an argument both with a back-of-the-envelope calculation and by consulting with the real experts, no matter how plausible and reasonable its author sounds. Do as I say and normally do, not as I unfortunately did in this case.
That was then, not now. Over the past dozen years, Krugman has become our most important, constructive, informative upper-end journalist. But in yesterday’s post, we took you through Larissa McFarquhar’s detailed review of Krugman’s career—which at one point was rather careerist, according to Krugman himself. In McFarquhar’s review, Krugman was quoted saying this: “I feel now like I was sleepwalking through the twenty years before 2000.”
It’s hard to argue with that assessment if he was writing reviews for the nation’s most important newspaper without bothering to check the author’s argument—reviews concerning a major topic on which the public was being disinformed and had been for many years. (The piece appeared in the widely-read and influential Sunday “Book Review” section.)
Where have the professors been over the past thirty years? In large part, last night’s garbage still sells on Fox (and in other precincts) because of their thirty-year silence. After he took his post as a New York Times columnist, Krugman became the giant exception to this rule. But we’ll suggest that you read his review of Peterson’s scary book in conjunction with the McFarquhar profile, in which Krugman and his wife, Robin Wells, describe the contempt the professors had in the late 1990s for people who would lower themselves to speak to the public, the rubes.
By Krugman’s own account, his life changed after 1999. But the public remains highly disinformed. In large part, the thanks for this can go to our sleeping professors.
At one time, professors were absent-minded. For the past thirty years, they’ve simple been absent. Over and over, this cohort has failed you.
Crackers! What should we do?
Tomorrow: What should we do?
Baker replied: Dean Baker responded to Krugman’s review. Here’s the full text of his letter:
LETTER TO THE NEW YORK TIMES (11/17/96): It should not be necessary to explain simple concepts to an economist as distinguished as Paul Krugman. Unfortunately, his review of two recent books on entitlement programs for the elderly (Oct. 20) shows he is as susceptible to prevailing misconceptions in this area as the rest of the nation's pundits.Today, Baker’s easy-to-follow points are understood by many liberals. But in the fall of 96, it was still extremely easy for liberals to get disinformed.
Mr. Krugman comments approvingly on "Will America Grow Up Before It Grows Old?," by Peter G. Peterson, which purports to show that the elderly are going to bankrupt the nation. Mr. Krugman, like Mr. Peterson, lumps Social Security and Government health care programs for the elderly together. But the issues are completely different.
In the case of Social Security, according to the trustees' report, it will be possible to meet all scheduled benefit payments over the next 75 years with relatively minor tax increases (2.2 percent of payroll, if done tomorrow). These increases would allow future generations to enjoy substantially higher after-tax income than workers do at present. The main reason taxes will have to rise at all is not the retirement of the baby boom generation, but the fact that people are living longer.
The Medicare and Medicaid projections are indeed a nightmare, but this is because of underlying projections in the cost of health care more generally. The Health Care Financing Administration's projections show that private sector health care spending will be nearly $4,000 per person by the year 2005. This means that a family of four at the median income will be spending approximately 30 percent of its before-tax income on health care. That is a crisis, but it has nothing to do with entitlement programs for the elderly.