Peter Orszag and the Drive to Cut Social Security

Peter Orszag, President Obama's former budget director, seems
determined to cut Social Security. Like most people involved in this
quest he is prepared to leave the facts behind and is quick to resort to
name calling.

He begins his column by telling readers:

"The budget deficit figured prominently in much of the discussion surrounding yesterday's election."

This is partly true since the media tend to prominently feature the
views of people who discuss the budget deficit in all contexts, but it
is absolutely false insofar as the implication is that the deficit was
an important factor in the Democrats' defeat. All the polls show that
high unemployment was the major factor in the Democrats' loss; the
deficit was at most a minor issue.

Orszag goes on to tell readers that progressives should be happy to see Social Security reform on the agenda since:

"the key issue progressives had been concerned about -- individual
accounts within Social Security -- has been definitively won in their
favor (for now)."

It might have been helpful if Orszag had used names, since I don't
know any progressives who have this as their "key issue." The
progressives who are most visible on this issue have been concerned
about a Social Security benefit that is already small by international
standards being made still smaller. . . .

This issue of accounts divides progressives, since many support some
form of government managed saving accounts as a supplement to Social
Security. If Social Security is cut and, as a separate matter accounts
are established to supplement Social Security income, it is logically
identical to an outcome in which a portion of Social Security is
explcitly replaced by private accounts. It is not clear whether Orszag
is simply confused here or is deliberately trying to mislead readers.

The next item on Orszag's list of reasons for early cuts is:

"acting now would allow changes to take effect more gradually, cushioning the blow."

It is important to understand this argument, since it is unlikely
that many who do understand it would endorse it. Given the 75-year
planning horizon, if we cut benefits for people who are retiring in the
near future, then we will have to raise taxes and/or cut benefits less
for people who are working/retiring in later years. In other words, if
we squeeze some money out of the current cohort of near retirees, we
will have to get less money out of people in 2050 and 2060.

Is this a good idea? Well, we know that the vast majority of near retirees will have almost nothing
other than Social Security to support themselves in retirement. The
reason is that the people who always talk about budget deficits were too
ignorant of the economy to recognize the dangers of an $8 trillion
housing bubble. Since these people were controlling economic policy,
middle class workers saw much of the wealth they had accumulated as home
equity or in their 401(k) disappear. In other words, the deficit hawks
who want "changes to take effect more gradually" want to kick again the
people whose wealth was destroyed due to the incredible economic
mismanagement of these deficit hawks.

By contrast, the Social Security projections show that workers and
retirees will on average be about 40 percent richer in 2040 than they
are today and about 70 percent richer by 2060. Why exactly is it
important to cut benefits from retirees in 2015 or 2020 who will have
very little income, so that their far richer children and grandchildren
end up with an income 50 years from now that is only 69 percent higher
net of taxes rather than say 70 percent? Orszag obviously feels this
redistribution from the relatively wealthy to the relatively poor is
important, but he certainly doesn't explain why.

Orszag concludes by referring to "the left's strident opposition to
any serious discussion of Social Security reform." So, the people who
disagree with Orszag are "strident." The name-calling might be more
warranted if Orszag had a better argument.