Biased Accounts: Part II:
Truth About Social Security Reform Lost in ‘Transition’
Networks cite red-herring ‘costs’ of personal accounts without explaining what they mean.

By Amy Menefee
May 17, 2005

    “Transition costs” are cited frequently in the media as a downside to Social Security reform. But reporters are missing the fact that a transition to personal accounts wouldn’t mean new costs – because Social Security is already made up entirely of borrowed money.

     Opponents of personal accounts argue that phasing in the accounts would require up-front borrowing. This is true, but it’s merely borrowing from a different source instead of today’s Social-Security-paying workers, as economists like Larry Hunter and Jagadeesh Gokhale have shown. That wouldn’t have the dire consequences for the federal budget that personal accounts’ opponents suggest, because it wouldn’t produce new debt. On the other hand, leaving Social Security as is would produce a shortfall of $11 trillion, according to the Social Security Administration.

     Media estimates for transition costs have ranged from $750 billion to more than $4 trillion. Reporters often juxtaposed these costs with mentions of the current national debt, as CBS’s Michelle Miller did on the Nov. 27, 2004, “Evening News”: “Both backers and critics of the plan predict the borrowing could run into the trillions of dollars; this at a time when the nation faces a record deficit.”

     Likewise, CBS’s John Roberts said on the Dec. 9, 2004, “Evening News” that reform would “carry a whopping price tag.” “To fund the transition to private accounts while paying current retirees will cost an estimated $1 trillion to $2 trillion,” Roberts said. This became the standard line for broadcast reports on the subject, though reporters failed to explain how the “transition” would work.

     In a new Free Market Project study on media coverage of Social Security, sources interviewed by broadcast reporters mentioned “transition costs” 23 times, while reporters added another 30 references of their own. These references promoted the idea that these costs were a downside to reform, often coupled with the notion that reform would add to the federal deficit.

     Rarely did anyone – reporter or source – make the point that Fox News’ Jim Angle did on the Feb. 15, 2005, “Special Report with Brit Hume.” Angle repeated the estimates of “$754 billion in the first 10 years and $3 trillion or so after that,” but he also included the White House rebuttal: “White House officials say that wouldn’t be additional debt, that it would simply shift existing future debts forward, like paying off your mortgage early.”

     Larry Hunter, vice president and chief economist of the Free Enterprise Fund and a senior research fellow with the Institute for Policy Innovation, has written about the inaccurate argument that transitioning to personal accounts would produce new debt. The government is already borrowing money from today’s workers to pay retirees, with a promise that they’ll get paid back some day. But, Hunter said, it’s just that – a promise.

     “If the government defaults on that bond, there’s no court in the land that’ll force the government to pay,” he said.

     Borrowing money now to cover the costs of phasing in personal accounts would simply mean borrowing from a different source, instead of from workers, he said. And once the accounts were in place, government borrowing would decrease.

     “You have reduced borrowing the minute you start putting money into private accounts,” Hunter said.

     But reporters didn’t get into the details of the economics. They talked only of skyrocketing deficits. NBC’s David Gregory said the transition would create new debt, calling the “downside” of the accounts a “$1 to $2 trillion shortfall” on the Dec. 9, 2004, “Nightly News.”

     CBS reporter Joie Chen also cited the “trillions” on the Nov. 28, 2004, “Evening News.” She expounded on the debt idea: “Exploding the deficit could be politically precarious, but the White House insists in the long run it will help Americans save. There may be a huge debt left for future generations to pay, though, well after the current administration is long gone.”

     Actually, personal accounts would not create additional costs to the system, said Cato Institute Senior Fellow Jagadeesh Gokhale. Restructuring the system, which Cato promotes, would be refinancing debt that already exists because Social Security can’t pay all its creditors – workers – after 2041, according to the Social Security Administration. After that date, the SSA projects that the system will pay lower and lower benefits, with payouts dropping in 2041 to 74 percent of the promised level and falling to 68 percent of scheduled benefits in 2079.

     “Personal accounts just makes that shortfall visible,” Gokhale said. “It’s not as though the cost wouldn’t be there if we didn’t go to personal accounts.”

     The shortfall he mentioned is estimated by the Social Security Administration at $4 trillion over the next 75 years and $11 trillion further into the future. In other words, that’s a promise of benefits to future workers that can’t be kept under the current system.

     Hunter said the information is out there for those who would get to the bottom of the Social Security debate. If the press reported simply and accurately on Social Security’s troubles and how personal accounts would benefit workers, he said, “Workers would demand that Congress do it. Right now, Congress can hide behind the deficit.”

     The Free Market Project examined the evening news programs on all five major networks – ABC, NBC, CBS, Fox News Channel and CNN – between Nov. 15, 2004, and March 15, 2005. This time frame covered the heart of President George W. Bush’s proposal to reform Social Security from soon after his re-election through the launch of his “60 stops in 60 days” campaign.

     The study analyzed use of liberal and conservative talking points, focusing on 125 stories mostly or completely devoted to Social Security. Talking points on both sides of the issue were coded, designated “liberal” or “conservative,” and tallied. If the ratio of talking points for the two sides was greater than 1.5, then that story was considered to reflect the position of the side with the most talking points. Stories that had a 1.5-to-1 or less ratio were categorized as “neutral.” Overall, liberal talking points outweighed conservative ones by a 2-to-1 margin.

     To read the first release from that study, “Biased Accounts,” click here