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April 23, 2005

Debunking The Daily Debunker

Today’s Daily Debunker from the Cato Institute deserves to be debunked:
…Yes, if solvency is the only issue at hand – and it does appear to be the singular focus of the Bush administration thus far – then raising the retirement age is a fine idea. But raising the retirement age under the current system is merely a benefit cut ... Of course, politicians can ensure solvency and a (sic) create a better retirement program for all Americans through a system of personal retirement accounts. Take, for example, the Individual Social Security Investment Program Act (HR 530), also known as the Johnson-Flake bill. According to the Social Security Administration, this measure would "eliminate Social Security's long rang actuarial deficit" and restore the system to "sustainable solvency." It would also allow Americans to invest 6.2% of their Social Security payroll tax into personal retirement accounts, giving them the opportunity actually to increase their net benefits...
First, the claim that the Bush administration has had a singular focus on solvency is wrong. Privatization does nothing to address solvency as the White House now admits, and no proposal from the administration addresses solvency, in no small part due to the fact that contrary to popular belief, the administration has no proposal for reform on the table. Their singular focus has been on privatization, not solvency, and the two issues are independent. To the extent there has been a focus on solvency, it has been to manufacture a crisis to sell its philosophy of privatization, but nothing has been done to try and solve the created solvency crisis. Second, the claim that the Johnson-Flake proposal solves the solvency problem through privatization is false. The proposal replaces wage indexing with price indexing, a cut in benefits, it covers downside risk which increases the burden on the system, more so with moral hazard factored in, and there is the matter of the 6.5 trillion transition cost that is conveniently ignored in Cato’s analysis. The proposal achieves solvency by cutting benefits, not through privatization (there is another version of the proposal which also achieves solvency by cutting benefits). Cato stoops to making false associations in its attempt to debunk. It implies privatization solves the invented solvency crisis when it is benefit cuts that are actually at work. That Cato adopts misleading strategies sheds considerable light on the strength of its counterarguments. If it had any, it wouldn’t resort to false associations and flake analysis of the Johnson-Flake bill. [Update #1: PGL at Angry Bear follows up here.] [Update #2: Dave Altig at macroblog comments here. While I believe there has been a pattern of conflating solvency and privatization, his post makes a contrary argument. I have a brief reply in the comments to his post.]

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