D.J. Tice has been posting on The Big Question some excellent material on the Social Security debate that I really hope will happen. While he did some factchecking of Hillary Clinton's claim that the global war of terror threatens Social Security -- which could also be said, albeit to a smaller degree, about earmarking transportation money for bike trails -- he stated that the Republicans have been "less than wholly impressive" on Social Security, except for Fred Thompson. In an earlier post he notes Thompson's position is to switch from indexing benefits to wage inflation to indexing on price inflation.

It�s a real plan for restoring Social Security�s solvency � real enough to be scaldingly controversial. By most estimates, so called price indexing would cause future benefits to fall enough to balance Social Security�s books without tax hikes, about 25 percent from the levels now promised. In effect, it would simply cut benefits to match Social Security�s existing revenue stream.

All the same, price indexing would still mean that future retirees would receive real benefits, after inflation, equal to those of today�s retirees.

Here's an example of the kind of attack on the Thompson plan you can expect, from our liberal friends at the Center for Budget and Policy Priorities. The price indexing idea has been around for quite some time, and was considered the starting point for discussions President Bush tried to have in 2005; you might remember how well that went. Economists and public policy specialists have known of this option longer than that.

So what's wrong with it? For one, it means you cannot grow your way to funding Social Security liabilities (unless all of a sudden profits and interest grow much, much faster -- not a position likely to be supported by CBPP.) Wage indexing means that any gains in productivity created by future generations will be transferred off to the retired generation. Insisting on the maintenance of wage indexing means you are moving the cost of public pensions increasingly onto future generations.

Second, as David Leonhart's column today makes clear, the Social Security problem is only part of the larger issue of unfunded liabilities we have. Medicare is much larger, and nobody seems willing yet to discuss that issue. Last night Rep. Kucinich argued for extending Medicare to all, and the other Democratic candidates weren't far behind. Republicans aren't any better. When Ben Bernanke brings it up, he gets scolded: Why should presidential candidates be expected to be any bolder? Well, here too, Thompson has at least said he wants to address the topic.

Labels: economics, politics