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Social Security

The Phony Crisis

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

Read an excerpt and an op-ed by the authors.

199 pages | 6 x 9 | © 1999

Economics and Business: Economics--Government Finance

Political Science: Public Policy

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

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