Matt Bai has a good column in the Times today about the looming debate over controlling the costs of old age entitlements, especially social security. The left wing of the Democratic Party is wildly–I’d say, excessively–opposed to limiting it in any way. I disagree: a few minor fixes, similar to those made in 1983, would be a fair, sane and relatively painless way to solve the problem (and those who say that there is no problem because a discrete social security trust fund “exists” are not only blowing smoke, but also resurrecting one of the stupidest arguments in recent memory–Al Gore’s 2000 notion that he would put social security funds in a “lock box.”)
There is a strong progressive argument for fixing social security now. Actually, there are two. First, as we saw when Bill Clinton chose to address the federal deficit in 1993, markets respond to fiscal responsibility. In that case, interest rates declined and the economy boomed (despite higher taxes, I must repeat again and again); now, a move toward federal fiscal responsibility might encourage the U.S. business community to start investing the $1.8 trillion in cash it is hoarding and thereby create some jobs.
The second argument for addressing long-term structural budget problems now is that it will make it possible for some of the reluctant moderates and even some conservatives in Congress to vote for the short-term stimulus that is necessary to prevent a double-dip recession. In sum, it is good politics and good policy–a rare conflation.
There are three basic ways to fix social security and I’d favor a combination of them all–a gradual increase in the retirement age (perhaps adjusted according to income: those who make more might have to wait to age 70; whereas those who’ve earned less, especially those whose jobs involved physical labor, would be eligible earlier), an indexing of benefits according to the increase in actual products that the elderly buy–housing, food, energy, health care–rather than wages, and an increase in the amount of income that can be subject to social security taxes.
This is a deal worth doing–and it should be accompanied by several other long-term budget considerations: an end to agricultural subsidies, a move away from fee-for-service Medicare and a major cut in the defense budget, especially when it comes to the presence of U.S. troops in places like Germany and Okinawa, where they are no longer needed.