Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Global Warming v. Social Security

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Global warming and Social Security are both long-run problems.  Both rely on long-run projections fraught with uncertainty.  Can you support reform to address one problem without also supporting the other?

Over the years, Megan McArdle has argued “no”: that if you care about one, you should care about the other: deferral of these sorts of problems is not a good strategy. (see here and here (the recent instigating post from her co-blogger Jon Henke))

Kling argues “yes”, there are differences:

The most important difference is that we can improve the entitlement outlook costlessly. The problem with entitlements is that we are promising more than we can deliver (at least if the economic projections are reasonably correct). Suppose that we raise the age of eligibility for Social Security and Medicare for people under 50 to something like 72, and then we index that age for longevity. This will change what we promise. We still have the option, down the road, of delivering more benefits to people now under 50. But lowering what we promise them helps forestall the situation in which we either renege on our promise or we raise tax rates ginormously to try to keep our promises.

To appease the economic models of entitlements, we don’t have to make any sacrifices today–we just have to make more conservative promises going forward. To appease the global warming models, we have to make rather large sacrifices of output.

Kling is correct in that the Social Security funding deficit can be eliminated strictly through benefit cuts.  Personally, I support a similar proposal and therefore would agree with his analysis.

However, others are concerned with the deeper problem implied by the actuarial forecasts: that it may be almost impossible to simultaneously achieve our pre-defined notions of “fair” benefits and “fair” levels of taxation.  Many of these other people would also presumably argue that Kling’s (and my) position on benefit cuts is not “fair”.  Therefore, they would argue that simply eliminating the funding deficit is not sufficient: you have to solve the funding deficit in a way that is equitable.  This is a much more difficult task.  Indeed, our notions of “fairness” may make it impossible to achieve.

Therefore, it is reasonable for well-educated people to disagree about whether it is consistent to care about one problem but not the other.  There actually isn’t even agreement about what the deep problems truly are, or which solutions are truly “solutions”.


Written by Victor

June 7, 2008 at 3:14 am

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