Share on Google Plus Share on Twitter 10 Share on Facebook 2 Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon Tell A Friend (12 Shares)  
Printer Friendly Page Save As Favorite View Favorites View Stats   5 comments

OpEdNews Op Eds

How Should Social Security Benefits Respond to an Economic Collapse?

By (about the author)     Permalink       (Page 1 of 1 pages)
Related Topic(s): ; , Add Tags Add to My Group(s)

View Ratings | Rate It

opednews.com Headlined to H3 8/19/14

Become a Fan
  (34 fans)
- Advertisement -

Cross-posted from CEPR

From youtube.com/watch?v=c_sUHK4qo_I: Social Security on the Table
Social Security on the Table
(image by YouTube)
  DMCA

This is the issue that Andrew Biggs implicitly raises in his Wall Street Journal column highlighting the jump in the size of the projections of the Social Security shortfall since 2008. Biggs complains that progressives have responded to the economic collapse by proposing an increase in benefits that would make the shortfall even larger rather than supporting plans for eliminating the projected shortfall. While Biggs' focus is explicitly the solvency of the program, the actions of progressives can only be understood against the larger economic context.

The calls for expansion of benefits are at least in part a response to the economic collapse.It's worth noting that this collapse was 100 percent preventable and that it was one of the worst blunders in the history of economic policy-making in the history of the world. Unfortunately the top economic advisers in both political parties whose errors were responsible did not have their standing affected by this mistake.

As a result of the collapse, many people nearing retirement saw much of their savings disappear as the stock market collapsed, house prices plummeted and they lost their jobs during their peak savings years. This meant that millions of workers had to draw down their savings to support their families at a point where they had planned to be accumulating wealth for retirement. In addition, due to the weakness of the labor market created by high unemployment, tens of millions of workers have seen stagnant wages over the last six years when they could have expected to see real wage growth in the neighborhood of 1.0 percent annually had the economy continued on the path projected in 2008.

- Advertisement -

In short, the collapse hugely increased the need for Social Security, which is the basis for the response of progressives. Biggs is correct that the cost of additional benefits will have to be covered at some point, but there is no obvious reason that it is necessary to come up with the full plan today. Part of the cost can be recovered by increasing the payroll cap as has been proposed by people across the political spectrum.

It is likely that we will need some increase in the payroll tax at some point, but there is little reason that the exact timing needs to be pinned down today. In the decade from 1980 to 1990 the payroll tax increased by over 2.0 percentage points. In spite of this hike, many conservatives tout the eighties as an economic golden age. It is difficult to see why it would be such a disaster if there were a comparable increase somewhere over the next three decades.

Workers care about their after-tax wages which are primarily determined by what they earn before taxes. Due to economic mismanagement and trade and regulatory policies that were designed to redistribute income upward, most workers have seen very little growth in before-tax wages over the last three decades. If they get an even share of the projected growth in compensation over the next three decades, then before tax compensation will be almost 60 percent higher in 2044 than it is today. It is understandable that progressives would be more focused on ensuring that workers get their fair share of economic growth than the risk 3-4 percent of these gains might be taken back in tax increases to support their retirement.

- Advertisement -

 

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon


Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles
Related Topic(s): ; , Add Tags
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Deficit Hawks Target Nurses and Firefighters

The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security

The Real Reason For The Government Shutdown

Poverty: The New Growth Industry in America

The profit on the TARP and Bernie Madoff

The CEO Plan to Steal Your Social Security and Medicare

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
5 people are discussing this page, with 5 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

We should not be worried about how to pay for Soci... by Scott Baker on Wednesday, Aug 20, 2014 at 2:42:05 AM
The wrong question indeed. Thanks for making tha... by Kenneth Johnson on Wednesday, Aug 20, 2014 at 2:54:33 PM
Why do conservatives always focus on the costs of ... by Jerry Lobdill on Wednesday, Aug 20, 2014 at 8:03:01 AM
Because the conservative brains are reptilian by n... by 911TRUTH on Wednesday, Aug 20, 2014 at 3:34:02 PM
We need to remove the ceiling on contributions to ... by BFalcon on Wednesday, Aug 20, 2014 at 10:09:12 AM