Cover image for Social security : the phony crisis
Social security : the phony crisis
Baker, Dean, 1958-
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Chicago : University of Chicago Press, 1999.
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xi, 175 pages : illustrations ; 24 cm
Social security and its critics -- Generating phony wars with generational accounting -- Entitlements for the elderly: medicare "reform" -- Debate over the consumer price index -- Glories of privatization -- Advisory Council's recommendations and other fixes -- Debate over national saving -- Will the age wave lift all boats? -- Honest debate.
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HD7125 .B2785 1999 Adult Non-Fiction Non-Fiction Area

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Is it true that the Social Security system is in serious trouble and must be repaired? As baby boomers begin to retire, will they inevitably, by force of their sheer numbers, bankrupt the system? Is Social Security a big Ponzi scheme that will leave future generations with little to show for their lifetime of contributions? Is the only way to solve the Social Security crisis through radical changes like privatization or bolstering it with massive new taxes?

According to the authors of this important new study, the answer to these questions is a resounding no. In Social Security: The Phony Crisis , economists Dean Baker and Mark Weisbrot argue that there is no economic, demographic, or actuarial basis for the widespread belief that the program needs to be fixed.

As the authors emphasize, there is virtually no disagreement about the facts of Social Security's finances, or even the projections for its future. Rather, the Social Security debate has been foundering on misconceptions, confusion, and lack of agreement on the meaning of crucial terms.

The authors also take on related issues: that privatization would help save Social Security, that America has a pressing need to increase its national savings, and that future generations will suffer from the costs--especially for health care--of supporting a growing elderly population.

As New York Times columnist Fred Brock recently wrote, "So-called reform of the Social Security system is looking more and more like a solution in search of a problem." In this accessible and insightful work, Baker and Weisbrot seek to cut through some of the myths and fallacies surrounding this crucial policy issue.

"Dean Baker and Mark Weisbrot have no trouble at all demonstrating that even on highly conservative assumptions about economic growth, the much-forecast insolvency of the Social Security system by about 2030 is most unlikely to happen then, if indeed ever."-- The Economist
"The authors challenge basic assumptions with vigor and intelligence. . . . An absolutely relevant and important analysis, presented with force and clarity, that asks, basically, what kind of a nation we really are."-- Kirkus Reviews

"Proponents--like George W. Bush--of Social Security privatization . . . typically ignore prospects for a stagnant or falling stock market. In Social Security: The Phony Crisis, [Baker and Weisbrot] show how a falling stock market could place pressure on both future Social Security payments and privatization schemes because earnings from the trust fund could actually fall."--Jeff Madrick, New York Review of Books

Reviews 2

Booklist Review

Baker and Weisbrot take issue with widespread dire predictions that the 64-year-old Social Security system will not be able to provide financial security for the aged and disabled in the future. Baker, a senior research fellow at the Century Foundation and the Preamble Center, and Weisbrot, a research director at the Preamble Center, project that Social Security will remain viable for at least 30 more years--longer if the U.S. economy continues to grow at its current pace. Concerns about a shortfall that will transform economic class warfare into "intergenerational conflict" are outright lies, according to the authors. Doomsayers have misinterpreted demographic trends and mistakenly lumped together Medicare and Social Security when estimating the financial burden on the government, the authors claim. Baker and Weisbrot offer an interesting viewpoint in the controversial debate about Social Security--one that is certainly more welcome than the typical predictions of a shortfall. --Vanessa Bush

Choice Review

In a short, far-reaching volume that touches on topics such as measuring inflation, national savings rates, entitlement programs for the elderly, and privatization in general, economists Baker and Weisbrot set about to debunk popular notions about Social Security--that the system will go bankrupt when "boomers" begin to withdraw from the labor force; that increases in the retirement age or decreases in cost-of-living adjustments will soon be necessary; and that major reforms (including possibly privatization) will be required to head off a crisis. Furthermore, the authors allege that reformers have manipulated the accounting ledgers and spread misinformation in a disguised attempt to bring free market solutions to bear on this social insurance program. To the extent that there are hidden agendas, and undoubtedly there are, Baker and Weisbrot are sinners in that same congregation, because their ulterior motives have little to do with Social Security itself; rather, they use that ruse to rail against income inequality, poverty, and market forces. The book jacket endorsements--from Robert Reich, Ralph Nader, Edward Kennedy, Jesse Jackson--should provide fair warning. Nevertheless, to hear both (or all) sides of an argument about one of the most pressing social, economic, and political issues of our day, this latest contribution is worth a quick read. All collections. A. R. Sanderson; University of Chicago

Table of Contents

Chapter 1 Introduction
Social Security and Social Insurance
The Politics of Non-Issues
Chapter 2 Social Security and its Critics Social Security's Finances
The Disappearing Trust
Fund Demography as Destiny Unfunded Liabilities, Ponzi Schemes, and Other Rhetorical Devices
Chapter 3 Generating Phony Wars With Generational Accounting
How Generational Accounting Works
How Generational Accounting Cooks the Books
Discounting Our Children's Futures Will Education Really Impoverish Our Children?
If Health Care Costs Destroy the Economy
What Will Happen to Tax Rates?
What the Recount Shows How Will Our Children Really Fare?
Rising Incomes, Changing Demographics
The Base Case What the Real Generational Accounts Show
Chapter 4 Entitlements for the Elderly: Medicare "Reform"
The Wrong Direction
The Wrong Incentives
Medicare and Health Care Reform
Chapter 5 The Debate Over the Consumer Price Index
What Difference Does 1.1 Percent Make?
The Boskin Arithmetic
The Evidence for an Overstated
CPI Substitution Bias Retail Outlet Substitution Bias Quality and New Goods
Bias Sources of Understated Inflation in the CPI Inflation for Whom?
The Implications of an Overstated CPI
The Boskin Commission's Failed Case
Chapter 6 The Glories of Privatization A Happy Market, an Unhappy Economy
Is There a Way to Beat 3.5 Percent?
The Returns From Privatization: Going Down From 3.5 Percent
A Modicum of Privatization
Chapter 7 The Advisory Council and Other Fixes
Three Ideas From the Advisory Council
Investing the Trust Fund Other Regressive Cuts
Proposals for Means Testing Benefits
A Worsening Problem?
The Way to Real Reform
Chapter 8 The Debate Over National Saving
An Economist's View of Saving
How Saving Generates Investment Finding a Recipe For Higher Saving
The Impact of Investment on Economic
Growth Saving Will Not Make Us Rich
Chapter 9 Will the Age Wave Lift All Boats?
The Basic Features of the Future
The State of the Nation's Health
The Many Homes of the Future Benefits of the Information Boom Opportunities in Education
The Future of Work
The Downside to the Next Century Fix the Problems, not Social Security
Chapter 10 An Honest Debate Appendix: The Feldstein-Samwick Plan