Kevin Drum, who often does a pretty good job for a political commentator at understanding Social Security fundamentals, is missing an important point when he says:
"I'm not in favor of making any changes to Social Security at the moment. The 'funding shortfall' has a strong Chicken Little flavor to it, and even if it turns out to be real there's little reason to try fixing it four decades ahead of time."
Au contraire, mon brave. The shortfall is driven by rising life expectancies, which are unlikely to change (and we certainly hope they don't change). So it is a pretty solid projection even if the timing bounces around. And the drop-dead date could move forward as well as back. Plus, with benefits being pegged to wage growth, it is harder to out-grow the problem. Why wouldn't you plan in advance for a predictable problem down the road? Should people wait until age 60 to plan for their own retirements?
I realize Kevin is reacting to the Bush Administration's absurd insistence that a $10 trillion piece of the fiscal gap requires making changes that have nothing to do with sustaining our long-term finances, while they conveniently forget the estimated $16.6 trillion hit they laid on the fiscal gap in 2003 with the Medicare prescription drug benefit, not to mention the $12 trillion hit they are planning right now via fixing the alternative minimum tax and making the Bush tax cuts permanent. But, Kevin, don't let this draw you into denying that there is a Social Security problem (albeit a smaller one than the Medicare problem) that we ought to do something about. Responsible people on all sides will ultimately have to recognize this.
On the other hand, Kevin quotes something that is right on the money with regard to proposals to eliminate wage indexing of Social Security benefits so that we only have inflation indexing: "It's as if an official in 1935 had said: 'Why does every retiree deserve a flush toilet and a telephone? Half of Americans make do without complete plumbing and less than half have telephones.'""
This is indeed the problem with eliminating wage indexing. Another way to put it is that, over the infinite long run, it means that seniors' benefits are phased down to zero as a percentage of GDP.
But this doesn't mean, as Kevin too swiftly concludes, that moving to mere inflation indexing should be off the table. Don't we need to look at all the tradeoffs and at effects on all age cohorts? Personally, what I like about eliminating wage indexing is that it changes the inertia point. Congress must vote to raise seniors' benefits relative to inflation, rather than having it occur automatically, and thus what is defined as a "cut" versus a "new benefit' changes. In a political world where seniors and the AARP are so powerful, inflation indexing strikes me as a better place to set the pre-change baseline even if we recognize that it is problematic as an actual outcome.