January 28, 2005
By David C. John and William W. Beach
Paul Krugman becomes more irresponsible and
shrill with each new column. His January 28 column, "Little Black
Lies," reaches a new low.
In it, he blasts a pioneering seven-year-old
study by The Heritage Foundation that compared the amount of Social
Security taxes that Americans pay with the amount that they receive
That report showed Social Security to be a bad deal for most
Americans, especially African Americans. Krugman cites a 1998 memo
from Social Security Administration actuary Steve Goss criticizing
some aspects of the methodology that we used and leaps to the
conclusion our study is nothing but "damned lies." He then accuses
President Bush of taking the higher death rate for African
Americans for granted, stating that "But the claim that blacks get
a bad deal from Social Security is false. And Mr. Bush's use of
that false argument is doubly shameful, because he's exploiting the
tragedy of high black mortality for political gain instead of
treating it as a problem we should solve."
Let's put the rhetoric aside, and concentrate
We answered Goss's critique (and others) long
ago, in our December 11, 1998, report "Social Security's Rate of
Return: A Reply to Our Critics." This paper has been
available on our website for many years now and proves that we did
account for Social Security's progressive retirement benefits
formula, as well as disability and survivor benefits and other
elements of the program that disproportionately benefit
In short, we used the same benefit formula
that Social Security uses to calculate retirement benefits for our
study. We included the cost of a life insurance policy that
duplicates the survivors benefits offered by Social Security. Most
importantly, we treat disability benefits as a separate program
from the retirement and survivors benefit program that we
Indeed, we went so far as to rerun the numbers
using an alternate methodology suggested by Goss and found that it
reinforced our initial finding that African Americans generally
receive a far lesser return on their "investment" of Social
Security taxes than whites.
Disability benefits are not included in our
study for a good reason: Social Security's Disability Insurance
(DI) benefits are administered through a separate program that has
its own tax (0.9 percent of income from both the employer and
employee), its own trust fund, and its own procedures for
determining eligibility. It is a true insurance program, while
Social Security's retirement income program has the characteristics
of a pension plan. The only real overlap is that both programs
currently use the same formula for calculating benefits, and we
have been calling for that to be separated for several years. We
feel completely justified in leaving this program out of the
analysis of the larger Social Security program since any plan to
fix Social Security's retirement program should leave the
disability program just as it is.
A major factor in African Americans' poor
returns from Social Security is the sad fact that so many black
workers die before they can receive significant benefits. When
measured in terms of the proportion of a worker's pre-retirement
income that is paid in Social Security benefits, all lower income
workers receive more than higher income workers do. However, they
often receive these benefits for a shorter period of
Krugman tries desperately to minimize, even
dismiss, this problem. "Blacks' low life expectancy is largely due
to high death rates in childhood and young adulthood," he assures
us, before noting that the typical African-American male who makes
it to retirement age can expect to collect benefits for only two
years less than his white counterpart.
However, the difference between receiving
benefits for 14.6 years instead of a white worker's 16.6 years is
12 percent. A 12 percent "cut" may be no big deal to Krugman, but
it often determines whether workers realize a net gain or loss from
A more appropriate way to look at this problem
is reflected in a National Center for Health Statistics report,
which shows that one-fifth of white men die between the ages of 50
and 70. These workers have paid a lifetime of Social Security taxes
into the system, but at best only receive retirement benefits for a
few years. The same study shows that fully one-third of
African-American men will die between the ages of 50 and 70.
Contrary to what Krugman claims, the difference in Social Security
rates of return between African Americans and whites is not
primarily due to high death rates in childhood and young
The one area where Krugman is correct is that
this situation is a national tragedy and that correcting the health
problems that causes the difference in life expectancies should be
a national priority-but not as part of a bill that would save
Social Security's retirement income benefits.
Rather than acknowledge and consider the
inconvenient facts, Krugman resorts to base name-calling. Those who
would reform the system to give Americans-and especially African
Americans-a better return on their investment and the ability to
amass a nest egg that can be passed on to their heirs are charged
with "playing the race card" and bigotry.
Paul Krugman was once a respected academic,
but sadly, he now stoops to produce superficial and poorly
researched propaganda. Krugman's January 28 attack is no more than
an artfully executed piece of propaganda; Only when one examines
the facts behind his charges does its veneer of reason shatter.
David John is Research Fellow in Social
Security and Financial Institutions in the Thomas A. Roe Institute
for Economic Policy Studies, and William W. Beach is Director of
the Center for Data Analysis, at The Heritage Foundation.
William W. Beach and Gareth G. Davis, "Social Security's Rate
of Return," Heritage Foundation Center for Data Analysis
Report No. 98-01.
William W. Beach and Gareth G. Davis, "Social Security's Rate
of Return: A Reply to Our Critics," Heritage Foundation
Center for Data Analysis Report No. 98-08.
Contra Krugman, Social Security really is a bad deal for African Americans.
David C. John
Senior Research Fellow in Retirement Security and Financial Institutions
Read More >>
William W. Beach
Director, Center for Data Analysis and Lazof Family Fellow
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