National Review's Bruce Bartlett and New York Times columnist Paul Krugman appear to be singing from the same song sheet on Social Security. Bartlett writes,
It is not clear what is driving the urgency of Social Security reform. It is desirable, to be sure, but nothing will happen to anyone’s benefit for some time to come. By contrast, the Medicare system is on the verge of collapse...
I’m not a Pollyanna; I think that we may well be facing a fiscal crisis. But it’s deeply misleading, and in fact an evasion of the real issues, to call it a Social Security crisis
...last year’s prescription drug law, if it really goes into effect as promised, worsens the long-run federal budget by much more than the entire accounting deficit of Social Security.
Bartlett argues for addressing Social Security by switching to price indexing from wage indexing [note--I mistakenly reversed this when I first posted this]. Krugman is less concerned with policy prescriptions than with scoring points against those who favor privatization.
I think that on the Internet, much of the discussion of Social Security is reasonable. As I read posts on other blogs, such as Dead Parrots, I see very little of the sorts of phony arguments that Krugman associates with the pro-privatization side. By the same token, Krugman quietly concedes that there is a case for trying to reduce the disincentives to work and thrift inherent in the current system.
I think that among those who understand the economics of Social Security, there is generally a consensus that:
1. The key driver of Social Security sustainability is the ratio of workers to retirees, which is falling. Some gradual reduction in benefits or increase in taxes is required. This is largely a separate issue from privatization, and is probably more important.
2. Privatization, to have any positive effects, must increase the incentives for work and thrift.
3. The impact of the "transition cost" depends on how in the financial markets the short-run increase in debt is perceived relative to the long-term reduction in liabilities.
It seems to me that when someone takes a strong stand on privatization one way or the other, their views are driven mostly by their feelings about President Bush. People who are more detached politically tend to be more ambivalent about privatization. Overall, I get the sense that the Bush backers have much less passion than the Bush opponents, at least when it comes to this issue.
UPDATE: Another idea into the mix--adding a government savings program on top of Social Security--from Gene Sperling
For Discussion. Are there any important issues related to privatization that have not been raised in discussions at EconLog?