Walker on Diamond-Orszag, Continued...

July 25, 2002

General Accounting Office head David Walker has expressed concern that his criticism of the recent study by Peter Diamond of MIT and Peter Orszag of the Brookings Institution not be misinterpreted as a dismissal of the study as a whole. Specifically, in Congressional testimony June 19, the day following the release of the Diamond-Orszag paper, Walker argued that the paper's comparison of the benefits paid by a funded reform plan to those promised by the underfunded current program is misleading:

There's a lot of people that want to compare Social Security reform proposals just to promised benefits. That is fundamentally flawed and unfair because all of promised benefits are not funded. There is a huge shortfall between what's been promised and what's been funded, and you've got to figure out how you're going to close that shortfall. So, any analyses, including the ones that were released yesterday, that compare the benefit cuts based upon promised benefits solely rather than funded and promised, is unfair, unbalanced, in my opinion inappropriate. So, therefore, when GAO does work…we compare it to both funded and promised benefits. Both are relevant. One or the other is not appropriate. You need to look at both, and you need to determine how to close that gap.

In a letter to Cato, Walker reiterated this basic point:

Specifically, I believe that any study that compares Social Security reform proposals solely to promised benefits—or solely to funded benefits—leaves out an important part of the necessary analysis. As a result such studies present an incomplete perspective and as such lack balance. … I believe it is important to compare proposals both to promised/scheduled benefits and to "funded benefits" because picking a single benchmark requires making assumptions-either implicitly or explicitly--about future policy actions to achieve a match between promised and funded benefits. While I recognize that the Diamond-Orszag study includes a text box late in the report that briefly discusses alternative comparisons, both the Executive Summary and the overwhelming burden of the analysis is based on the single benchmark they advocate using.

However, Walker stressed, "This does not mean that all aspects of such studies are flawed."

Cato analysts, and others, have expressed concern with other aspects of the Diamond-Orszag analysis. Walker's testimony did not address these other criticisms, nor were they attributed to him by Cato. Nevertheless, Walker wanted to be clear that he did not necessarily concur with these other critiques of the Diamond-Orszag study.

National Review's Ramesh Ponnuru writes on the debate over the Diamond-Orszag study at TechCentralStation.com. Read Ponnuru's article.

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