Picking The Lock Boxes At Social Security And Medicare

Apr 30 2011 Published by under Uncategorized

Sociologist and author Margaret J. Wheatley once made the eminently sensible observation, “Everyone in a complex system has a slightly different interpretation. The more interpretations we gather,” she said, “the easier it becomes to gain a sense of the whole.” Sadly, Dr. Wheatley neglected to add a necessary exception to her otherwise serviceable rule—politics.

Consider Social Security and Medicare, arguably two of the most successful federal programs in our history. Once considered political “third rail” topics no politician dared broach except to pledge their undying devotion, these programs have been targeted by Paul Ryan and Bowles-Simpson as unsustainable fiscal black holes, emblematic of Washington’s profligate spending. Centrist budget “realists” such as Fortune senior-editor-at-large Shawn Tully and even putative Democrats like Alicia Munnell routinely fall into traps laid by right-wing pundits from every corner, and instead of clarifying, each new interpretation further muddies an already murky swamp of misinterpretation.

Simply put, most of the “facts” about Social Security and Medicare trust funds wedged in our heads are either false or profoundly misleading. The trust funds have been raided, we are told, stuffed with “IOUs,” and hurtling toward insolvency unless something drastic is done now. We can’t balance the budget unless benefits are slashed and eligibility ages raised. Our aging population is rendering both programs unsustainable Ponzi schemes which must necessarily collapse under their own weight. And so on.

The truth is that—even if nothing was done to alter Social Security—it would remain solvent and paying out full benefits under current retirement guidelines until 2037. Put that way, it doesn’t seem quite so urgent, does it? Not that we want to ignore a potential catastrophe just because it’s so far in the future, but aren’t you curious why our elected representatives—who rarely look beyond the next election—are hyperventilating about a problem that won’t fully materialize until 26 years hence?

And what about the “lock box?” Is it really empty? Have your hard-earned FICA dollars been raided and replaced with IOUs, thus rendering the trust funds fundamentally insolvent? In a word, “no.” The IOUs that critics habitually wail about are not trifling chits scrawled on the backs of a cocktail napkins; they are special issue government bonds backed by the full faith and credit of the United States government. If this doesn’t instill much confidence, keep in mind that these bonds are IOUs in the same sense as the federal and municipal bonds in your private retirement fund. They are promises to pay—with interest. If we weren’t talking about Social Security, these IOUs would be called by another name: investments.

Paradoxically, the charge that Social Security trust funds have been “raided” is really an admission that they actually are solvent. The raiding of these trust funds has been done by Congress, which exploited the trust funds as political cover for their own unsustainable budget policies. For three decades, supply side ideologues in both parties have ratcheted income tax rates down, choking off revenues to the general fund and in turn mushrooming our national debt. In addition to borrowing trillions from the Chinese and others, Congress has borrowed from the vast Social Security trust fund by issuing bonds, thus masking systemic problems elsewhere. Now, in a classic example of attempting to have their cake and eat it too, right wingers are portraying both Social Security and Medicare as mismanaged bureaucracies duped into trading the family cow for a fistful of magic beans. But the fact that the trust funds are used to plug budget holes elsewhere is an indictment of Congress, not of Social Security.

Such misrepresentations aside, the current hysteria over the national debt seems to suggest that Social Security must suffer the budget axe along with every other sacred cow, right? But what exactly does that mean? Quite simply, it means that Congress intends to continue the current shell game with the trust funds, but with a new twist. By characterizing benefits as “handouts” and reducing them, they intend to replenish the trust funds for further “raids,” all under the guise of hard-headed austerity measures.

Although Dr. Wheatley’s observation on interpreting complex systems might not serve us well in our current budget debate, another of her many wise remarks seems particularly cogent and timely. She said, “Thinking is the place where intelligent actions begin. We pause long enough to look more carefully at a situation, to see more of its character, to think about why it’s happening, to notice how it’s affecting us and others.”

Therefore, don’t be misled by the so-called budget “realists” pitching the rollback of Social Security and Medicare as “shared sacrifice.” These programs are not only not contributing to our deficit spending, they have long been exploited to patch holes elsewhere in the budget. Although their obligations are great, both programs are robust and extraordinarily well-managed, and as the bulk of our comparatively threadbare American social safety net, they are also dramatically more stimulative to the economy than tax cuts. To lose sight of these fundamental truths is to lose all hope of ever gaining “a sense of the whole.”

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