Fixing Social Security Jude Wanniski January 20, 1997

Memo To: John Rother, Director of Legislation and Public Policy, American Association of Retired Persons
From: Jude Wanniski
Re: Social Security

Your comments on the various suggested reforms for the Social Security System in yesterday's NYTimes are practically the only worthwhile comments in the batch. The idea of increasing returns to the Trust Funds by having them invested in equity rather than government debt is so inane I cannot believe the kinds of people who are lining up behind it. The SSS is only in trouble if we as a nation refuse to allow the economy to grow as fast as it is capable of growing over the next 75 years. If real GDP would double in the next 15 years instead of the next 30, the population would have $12 trillion per year to divide between public and private purposes instead of $6 trillion. Under such circumstances, Social Security pensions and Medicare payments could easily be met at existing benefit levels and at existing tax rates or lower. The so-called "Advisory Council" was doomed to failure before its first meeting because it was totally comprised of zero-sum bean counters. There were no serious growth projections underpinning their analysis. They took "realistic" actuarial assumptions about economic growth, inflation and population growth that were essentially constructed around the last 30 years of economic decline in the United States.

You must have noticed that the supply-siders are almost uniformly opposed to the notion that the CPI overstates inflation. We do so for the same reason we oppose the various austerity solutions for SSS and Medicare. We should not be concentrating our political energies on cutting back benefits and raising tax rates until we have exhausted all opportunities to expand the economy through long overdue fiscal and monetary reforms. GDP doesn't even have to grow faster numerically for this to happen. AARP retirees are now living in a society that is pouring enormous productive resources into a gigantic criminal justice system and supporting many millions of lawyers and accountants just to collect taxes. All of this is counted in GDP. The Boskin Commission is a fraud and a hoax, appointed with full knowledge beforehand that it would bring back news that we have been underestimating the health of the economy because we have been overestimating the inflationary disease.

Have you discussed these matters with Jack Kemp at Empower America? He and Steve Forbes have been in the forefront of those Republicans who have been arguing against the idea that the CPI overstates inflation and needs adjustment. If anything, it should be adjusted upward.

We should encourage a new bipartisan commission that has a chairman and staff that is open to the idea of economic growth as a solution to the problems of the Social Security System. It can and should remain a government social insurance system that provides a floor of pension support for everyone in the American family. As the economy grows rapidly without inflation, through supply-side tax and monetary reforms, the private pension systems will grow atop that floor. Social Security benefits and their projections deep into the next century now seem high relative to the economy because our economy has been mismanaged for the last two generations — by the same theoretical practitioners who now come forward with solutions. If AARP would throw its weight behind growth reforms, we can stop all this talk about the inevitability of bankruptcy.