The Plot Against Social Security
I'm just starting to try to wrap my head around this Republican push to privatize Social Security, so I can't say I fully understand all the ins and outs. Josh Marshall over at Talking Points Memo has a long intro to this subject with a focus on the Democratic strategy to counter it. Here are some of the key grafs:

As Paul Krugman, Kevin Drum and many others have been making clear in recent days, the entirety of the president's argument is based on a series of well-constructed lies. The president's advisors were never more truthful than they were when they compared the coming round of disinformation and fear-mongering to their public campaign in support of the Iraq war in 2002.

The Social Security "crisis" is manufactured; there is no crisis. To the extent there are long-term financing problems, the president's plan will gravely worsen them. The problem we face isn't over Social Security, which continues to run up huge surpluses (just as it was intended to under the early-80s reform), but that our non-Social Security budget continues to run massive structural deficits. Or rather, it has returned to running massive structural deficits after getting into the black in the late 1990s through the combined exertions of a Democratic president and a Republican congress. Social Security isn't the problem, but rather George W. Bush's reckless fiscal policy.

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As we've discussed before, this isn't a debate about 'reform', 'privatization' or 'saving' Social Security. It's about phasing out the Social Security program, or not. Framing it any other way concedes half the battle before the fighting even begins.

Third, beware the risks of arguments about risk.

Republicans want to make this an argument about people who believe in markets and people who don't. That's not true. But Democrats can make it seem true by framing too much of the debate on 'risky scheme' lines. Letting the argument be framed that way is a losing proposition because most Americans instinctively believe in markets and largely for good reason.

The issue here isn't markets. Most Democrats favor plans that would make it easier for middle- and lower-income families to save and invest money for retirement. That would make the overall retirement picture much better.

The issue is balance and commonsense. A breadwinner with dependents who gets a lump sum salary at the beginning of the year and invests it all in a few hot start-ups doesn't believe in the market; he or she is just a fool. A wise investment portfolio is balanced between riskier and more conservative investments. The best way to make this argument (and the most valid one) is to make it clear that Democrats want people to be able to invest. That really is the path to wealth. But Social Security is different. It is, among other things, a baseline of guaranteed retirement security and income for everyone. You get it whether you retire in boom times or bust times, whether life has dealt you good cards or bad cards. The two things are simply different.

And here are the key points from Paul Krugman's NYTimes column:

Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall.

This would sharply increase the government's debt. Never mind, privatization advocates say: in the long run, they claim, people would make so much on personal accounts that the government could save money by cutting retirees' benefits. Financial markets won't believe this claim, as I'll explain in a minute, but let's temporarily grant the point.

Even so, if personal investment accounts were invested in Treasury bonds, this whole process would accomplish precisely nothing. The interest workers would receive on their accounts would exactly match the interest the government would have to pay on its additional debt. To compensate for the initial borrowing, the government would have to cut future benefits so much that workers would gain nothing at all.

How, then, can privatizers claim that they could secure the future of Social Security without raising taxes or reducing the incomes of future retirees? By assuming that workers would invest most of their accounts in stocks, that these investments would make a lot of money and that, in effect, the government, not the workers, would reap most of those gains, because as personal accounts grew, the government could cut benefits.

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Once you realize that privatization really means government borrowing to speculate on stocks, it doesn't sound too responsible, does it? But the details make it considerably worse.

First, financial markets would, correctly, treat the reality of huge deficits today as a much more important indicator of the government's fiscal health than the mere promise that government could save money by cutting benefits in the distant future.

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Second, a system of personal accounts, even though it would mainly be an indirect way for the government to speculate in the stock market, would pay huge brokerage fees. Of course, from Wall Street's point of view that's a benefit, not a cost.

There is, by the way, a precedent for Bush-style privatization. One major reason for Argentina's rapid debt buildup in the 1990's was a pension reform involving a switch to individual accounts - a switch that President Carlos Menem, like President Bush, decided to finance with borrowing rather than taxes. So Mr. Bush intends to emulate a plan that helped set the stage for Argentina's economic crisis.

Kevin Drum over at Washington Monthly has an even more pressing question:

REAL PROBLEMS vs. FAKE PROBLEMS....Here's a question for all you policy wonks out there: why is George Bush spending all his political energy on trying to privatize Social Security? Is Social Security really the most important problem we have right now? Is it even the most important entitlement program we have right now?

Here's a handy chart comparing Social Security with Medicare. Decide for yourself.

	Social Security	Medicare
Current guess about when we start dipping into the trust fund	2018	2010
Current guess about when the trust fund is exhausted	2042	2019
Level of optimism about trust fund	High! Doomsday keeps getting pushed out, from 2029 a decade ago to 2042 today. And the CBO estimates that it's really more like 2050 anyway.	Low! Doomsday was pulled in from 2026 to 2019 just last year. The future of Medicare looks worse today than it did a few years ago.
Current expenditures (2003)	About 4.5% of GDP.	About 2.6% of GDP
Estimated expenditures in 2050	About 6.5% of GDP.	About 9.5% of GDP.

So: Social Security is solvent for several decades at a minimum, and if the economy performs decently it may very well be solvent forever. What's more, the cost of Social Security is only going to increase by 2 points of GDP in the next 50 years. This is not Armageddon.

Medicare, on the other hand, will start dipping into its trust fund in a mere six years. And no one thinks this estimate is going to improve: thanks to skyrocketing healthcare costs, Medicare might very well be in worse shape than we think it is. As a result, the cost of Medicare is likely to increase by a staggering 7 points of GDP over the next 50 years.

Why, then, are we obsessing over Social Security, which is not really that big a deal, and ignoring Medicare, which has serious problems in both the short term and the long term?