Some Still Claim Growth Will Solve Social Security Problem

November 20, 2003

"There is a contrarian view of the crisis in the nation's retirement programs, one that makes the long-term financing problem of Social Security and Medicare look more manageable than the disaster described by those who advocate drastic reforms," observes Newhouse News Service columnist Miles Benson. His most recent article presents the opinion that the "Economy Can Grow Out of Entitlements Crisis." However, Benson acknowledges the countering opinion: such optimism, in effect, spells the disaster.

Benson writes: "For years, analysts have warned that a demographic tidal wave will swamp Social Security and Medicare early this century … Preserving [Social Security] will require a politically unpopular cut in benefits, an equally unpopular increase in taxes, or a combination of both.

According to Benson, "Economist Marilyn Moon, who was one of the two public trustees for Medicare and Social Security, is convinced that greater worker productivity and wealth in coming years will produce much of the government revenue necessary to support the baby boomers in their old age."

At the center of this argument is a projected increase in wages and worker productivity. For example, Benson writes, the primary measurement of an economy's growth, the Gross Domestic Product, "will rise 55 percent per worker by 2035, according to conservative projections by the Social Security and Medicare trustees' annual reports."

For those who hold Moon's point of view: "Sharing those greater resources with the retirement programs will make them sustainable and affordable … What's more … future workers 'would still be substantially better off' even after paying higher taxes."

Benson goes on to point out that, although individual private investment of Social Security is on the Bush agenda, even "Some of the highest officials in the Bush administration agree with Moon … 'There certainly is something to that analysis,' said Treasury Secretary John Snow. 'If we can get higher output per worker, more GDP per worker, we'll have more resources with which to fund these large future promises.'

In addition, Benson writes: "Comptroller General David Walker said Moon has a point. 'In theory, I agree,' he said. But while the retirement programs' financing imbalance may be less challenging than some have claimed, he said, 'I don't think we're going to grow our way out of the problem.'

On the other hand, projections for a wealthier, more productive economy may detract due attention. Social Security benefits are wage-indexed—as wages rise, so will benefits.

Benson points to Michael Tanner, director of the Cato Institute's Project on Social Security Choice: "[Tanner] warned all this 'good news' contains some 'bad news' for Social Security's traditional financing structure. If future GDP per worker rises, so do benefits per retiree, Tanner said, because the benefit formula is designed to grow more generous as the economy grows.

"'So, if you bring in more money, you owe more money in the long term,' Tanner said.

"The Concord Coalition, a bipartisan advocacy group, has been at the forefront in warning that Social Security and Medicare will collapse without major reforms. Robert Bixby, the coalition's executive director, does not challenge Moon's analysis, but fears it could help postpone the reforms that he insists are required. Even with reforms, Bixby said, 'I think future workers are going to have to pay more.'"

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