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Walking the PowerLine


There isn’t going to be much discussion on this site about the fight over Social Security. It’s an important issue, yes. And it’s a big fight where the Democrats get to – or should get to – rack up some credibility with voters. But so far, it’s been a pretty dry conversation best left to the experts, wonks and economists.
But we’re starting to get a look at the politics of this thing. And it’s kind of interesting. Remember, changing Social Security used to be known as the “third rail” of national politics? Changing it was deemed impossible. That’s no longer the case. And remembering that context give you an idea of what’s to come.

On top of that, we know that the Bush White House likes diversionary tactics when it comes to domestic politics. So it’s been kind of obvious that while they may say this is a fight to create a nation of private-account holders who manage their own retirement, instead of check-cashers, Republican, to judge from this post over at Brad de Long’s, know that’s political infeasible.
So they don’t really mean it. They may get the accounts but they’re not pinning everything on that. So what do they want? Well, remember that memo that was “leaked” – snort! — last week, the one purporting to unveil the super secret strategy to kill off old people’s retirement funds? Here’s the graph that was the most important. Please note, it doesn’t have anything to do with private accounts.
…[W]e’re going to take a very close look at changing the way benefits are calculated. As you probably know, under current law benefits are calculated by a “wage index” — but because wages grow faster than inflation, so do Social Security benefits. If we don’t address this aspect of the current system, we’ll face serious economic risks.
It’s worth noting that wage indexation was not part of the original design of Social Security. The current method of wage indexation was created in 1977, under (you guessed it) the Carter Administration. Wage indexation makes it impossible to “grow our way” out of the Social Security problem. If the economy grows faster and wages rise, this produces more tax revenue. But the faster wage growth also means that we owe more in Social Security benefits. This has produced a never-ending cycle of higher tax burdens, even during periods of robust economic growth. It is the classic case of the dog chasing his tail around the tree; he can run faster and faster, and never make any progress.
You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits — therefore making no effort to address this fundamental structural problem. In my judgment, that’s a bad idea. We simply cannot solve the Social Security problem with Personal Retirement Accounts alone. If the goal is permanent solvency and sustainability — as we believe it should be — then Personal Retirements Accounts, for all their virtues, are insufficient to that task. And playing “kick the can” is simply not the credo of this President. He wants to do what needs to be done for genuine repair of Social Security.

Now, this is what Republicans really want: An adjustment in how benefits are calculated, de-linking benefit payments to increases in wages. This reduces the burden on businesses and, of course, reduced increases in benefits. It’s also something – given that the hard right wants only personal accounts and the hard left want the Social Security system to stay as it is – that ends up looking like a compromise. If Bush gets changes in benefits calculation with private accounts as a add-on, he’s won. And given the way the administration has positioned this “reform” that’s not unlikely.
It’s clever, no? Diabolically so.
UPDATE: For idea of just how diablolical, take a look at Brad De Long’s post on this topic today. He says he should be in favor of some of the Bush Admnistration’s proposals. Some of them make sense and might be good policy. But experience with the administration keeps him from supporting it’s ideas.
That’s a reasonable argument. Except that, well, except that Bush won the election on the politics and policies that de Long objects to. So his objections — as much as I agree and endorse them — are the ones that look out of line. Remember that political capital that Bush talked about? This is a great example of spending it wisely and shrewdly. Republicans have positioned the Social Security agrument as a test of Democrat’s reasonableness. And that’s one good reason why they’re going to win this fight. They may even get more than they want.

Share  Posted by Chris Nolan at 11:13 AM | Permalink

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