Crisis or not? Create an imaginary crisis if needed

One of the major arguments that is being presented for privatizing Social Security that there is huge crisis about its solvency and that it is in serious trouble. But as anyone can imagine, not only are we talking several decades into the future, we are also talking about a situation in which one group's assumptions are as good/bad as any body else's. So all projections should be taken with a pinch of salt. (Read an excellent article written by a management consultant on how unreliable most projections are).

On one hand, Bush administration is arguing that the crisis has suddenly become so grave that we can not even wait to talk about it for a few weeks. On the other side are other economists who do not agree that the crisis is so big and so urgent. (Related article: Bush's real reasons for privatizing Social Security)

Alarms being raised about Social Security have a hollow ring, according to Bill Witte, an economist and co-director of the Center for Econometric Model Research at Indiana University. "There is no crisis. A crisis implies something imminent," Witte said, disagreeing with claims that the system will be undermined by 2018 and bankrupt by 2042. In his view, deep philosophical questions are raised by President George Bush's proposal calling for workers to take a portion of the tax that goes into the Social Security system and put it into a personal retirement savings account that each individual can invest. "If you view it as a social security system, it is set up appropriately," Witte said. "It has lasted and performed well for three-quarters of a century, making it one of the most successful government programs ever." Privatization would shift the risks and responsibilities away from society as a whole and place them on each worker individually, he said.

"If the President and members of Congress and those responsible for the management of the federal government were CEOs and CFOs and directors of business enterprises, they might be in prison today." These are strong words, but they are probably true. They are the words of J. Edward Ketz, accounting professor at Pennsylvania State University, and they appear in his "Accounting Cycle" column in the January 2005 issue of SmartPros.com. Dr. Ketz compares the Social Security accounting fraud with that of the Adelphia scandal. He writes, "... Adelphia did not bother to recognize its debts to the SPE, arguing that they are off-balance sheet items. The scheme came tumbling down when the investors discovered the SPE was sitting on a lot of worthless receivables.

"Under unified budgeting, Social Security works the same way, with American laborers serving as the investors. The workers transfer some funds in the form of Social Security taxes to the Social Security fund. The Social Security fund takes this cash and gives it to Congress to disburse as it chooses. And Congress refuses to combine these activities with the general fund, treating it as an off-balance sheet liability. Some day this scheme will come crashing down."

If you want to hear what Bush administration is saying then it is interesting to read Vice President Cheney's view that the world is about to end if the Social Security reform is not done right away or rather weak argument put forward by Greg Mankiw's lame argument that "...the combination of large benefit increases and a growing elderly population puts the Nation on an unsustainable path."

Recommended article: How Social Security works and if it is in trouble