The New Bush Agenda: A Debate on Social Security with Paul Krugman vs. the American Enterprise InstituteFrom DemocracyNOW.org
President Bush devoted a large portion of his State of the Union address to his push to restructure Social Security, kicking off a campaign to advocate for the privatization of the system. We host a debate with Paul Krugman of The New York Times and Eric Engen of the American Enterprise Institute.AMY GOODMAN: ...Paul Krugman, let's begin with you, your response to President Bush's saying that Social Security is going bankrupt?
PAUL KRUGMAN: Well, you heard the booing, and that was well justified. I mean, in -- even if you believe those fairly pessimistic estimates, in the year that the trust fund is exhausted, which is what he is referring to, Social Security will be taking in about 75 cents for every dollar of expenses. If that's bankrupt, then the US federal government is bankrupt right today. If you look at the federal government outside Social Security, right now, it's taking in only 68 cents of revenue per dollar of expenses. This is a wild exaggeration to call it bankrupt. But really important thing is that nothing in what the president said last night would do anything to address that issue. The most interesting stuff that we heard was actually not in the speech, but what a senior administration official told reporters, in a background briefing, we got a little bit more of the -- you know, a little bit be another step in the striptease, about what the Bush plan would involve. It is pretty clear that it involves nothing. We'll go into this in the course of discussion. There's nothing that would do anything to help the finances of Social Security. So, you know, the complete disconnect between what he is warning about, and what he wants to do.
JUAN GONZALEZ: Eric Engen, your response on this whole issue of is it appropriate to call this a possible bankruptcy of the Social Security system?
ERIC ENGEN: Well, I think, you know, if -- when you start talking about bankrupt, you get into semantics and what one person means by bankrupt and another. I think that the main issue is what the state of the system, and I think there the president described it correctly. He basically just reiterated what is in the annual Social Security trustee's report, and that is in 2018, the outflow of benefit payments starts to exceed taxes. The system would then have to start counting on the funds that are in the trust fund, and ultimately, it's 2042. Now, these numbers, you know, vary from year to year to a certain extent. But generally, that's the state of the system. Now, the issue is that in 2018 although the trust fund provides budget authority for Social Security, what would have to happen at that point is for the general budget in order to make those payments is that in the general part of the government's budget, they would have to either raise taxes or reduce spending or borrow from the public in order to meet those payments. As the Congressional Budget Office has said, the trust fund represents budget authority for Social Security, but it doesn't represent real economic resources. So, this issue of whether we should or should not reform Social Security is one that's interesting, because back in the Clinton administration, their Social Security advisory council headed by Ned Gramlich at the Federal Reserve Board, they came to the conclusion that look, the system ultimately needs to be reformed, and it's better do it early rather than later. Much of the latter part of the Clinton administration, they were weighing these topics of reforming Social Security. Many economists have noted that the demographic pressures of the retirement of the baby boom will put the Social Security system ultimately on a path that's not sustainable, and that it's better and more responsible to start working towards reform early when changes can be gradual rather than waiting right at the point where the system has to face either 25% benefit cuts in that year, or increases in taxes.
AMY GOODMAN: Paul Krugman, your response?
PAUL KRUGMAN: Yeah.
I think that, you know, this has become the final -- the last defense of the other arguments fall apart, which is, oh, Clinton wanted it, too. There's an enormous difference between what the situation that was envisaged in the later years of the Clinton administration and where we are now. The situation that we thought we had was Social Security was building up a trust fund and it was entirely real because it was being used to help the federal government as a whole pay down debt. And so, that was -- you couldn't say that the surplus wasn't actually contributing to the future ability to pay bills. You were actually paying down debt. That was actually helping. But because we were running on overall budget surplus, it looked likely, people actually believed five years ago that we were going to run out of debt to pay down. So, during the Clinton years, people talked about, well, what else can Social Security invest in. How should we organize that investment? There were various discussions about how it should be handled, whether it should be simply considered part of the trust fund, whether we should have another system of accounting. None of that applies now. The situation right now is that we have -- Social Security itself is being run on a relatively responsible basis. Social Security system is running a surplus now. I mean, if you say all the stuff about 16 workers per retiree. We have three workers per retiree and we're running a surplus. We will have an eventual transition to two. So, Social Security itself has mild long-run financial shortfall, maybe. But the big problem is for the rest of the federal government is running an enormous deficit that we have blown the surplus that we had at the end of the 1990's. And that is the problem. The issue is not oh, how are we going to deal with the fact that Social Security is going to actually start wanting to collect interest on its bonds in 2018 or 2020 says the CBO, but it's the fact that we have plunged the rest of the federal government into deep deficit. And that, not Social Security, is the reason to be worried about the budget picture.
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