Weisbrot Still in Denial about Social Security

August 1, 2003

In an article for the Milwaukee Journal Sentinel, "System doesn't need 'fixing,'" opponent of Social Security reform Mark Weisbrot makes several claims that do not accurately portray the immediacy of reform. Weisbrot is codirector of the Center for Economic and Policy Research in Washington. Several of his claims follow, coupled with a refutation by the Cato Institute:

Claim: "We are repeatedly told that Social Security will face 'enormous strains' as the baby boom generation enters retirement. Nothing could be further from the truth. As anyone with Internet access can verify, Social Security's finances are rock-solid (www.ssa.gov)."

Response: As anyone with Internet access can verify, Social Security's current finances are not sustainable. See the 2003 Social Security Trustees Report, page 2, under "Long-Range Results"; page 8 for estimated benefit cuts required; page 16 for tax increases required; and 61 for the unfunded liability projection totaling $10.5 trillion. By no means do the trustees claim the system's finances are secure. For analysis of the trustees' report, see Andrew Biggs's analysis, "Failing by a Wide Margin: Methods and Findings in the 2003 Social Security Trustees Report."

Claim: "In the bubble years of the 1990s … it was fashionable to dismiss Social Security as a waste of money that could be invested in the stock market. That's a tougher sell today, with the stock market down and not likely to rebound any time soon."

Response: This claim assumes that workers opting for personal accounts would not hold a diversified portfolio and would invest only for the shortterm. On the contrary, most proposals for personal accounts require a combination of stocks, bonds, and government Treasury bonds and suggest that portfolios should become less risky the closer the individual is to retirement. Furthermore, as former Cato analyst Andrew Biggs writes in his briefing paper, "Personal Accounts in a Down Market: How Recent Stock Market Declines Affect the Social Security Reform Debate," the benefits of long-term investing in the private markets are far greater than Social Security's dismal rates of return. He writes, "Even with the recent stock market decline, a worker investing only in stocks would receive benefits 2.8 times higher than he would had he 'invested' the same amount of money in the current program."

Claim: "[Social Security's detractors] seize upon the Social Security Trustees' projection of a shortfall over the second half of their 75-year planning period—after 2041—and claim that the system is not affordable over the long run. This is a joke."

Response: The necessary 27 percent benefit cuts and a 50 percent increase in payroll taxes are not a joke. Twenty-five trillion ($25,000,000,000,000) dollar cash flow deficits are not a joke. For more information, see Biggs' analysis, "Social Security: Is It 'A Crisis That Doesn't Exist'?"

Claim: "By 2041, the average employee in the United States will be earning a real wage—adjusted for inflation—that is more than 40 percent higher than today. So few will care if they actually do have to pay 1 percent more of this much higher income to maintain the Social Security system that has kept the majority of our senior citizens out of poverty for decades."

Response: This claim does not address the fact that benefits are computed using "wage indexing," which means that as wages rise, so will benefits. Rising wages will not solve Social Security's troubles, only make demands on the system that much greater.

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