THE BLOG
08/20/2010 03:01 pm ET Updated May 25, 2011

What Did a Senior Administration Official Really Say About Social Security?

Progressive bloggers were ready to have a "stroke" after Mike Allen from Politico reported that the Administration wants to take action on Social Security -- action that's likely to include cuts. Many were relieved when Tim Fernholz of the American Prospect, who attended the same briefing Allen did, assured them that Allen got it wrong. Well, I was at that briefing too. This may be bad news for the cerebro-vascular health of the progressive movement, but it seems to me that Allen got this one right.

Tim Fernholz does a lot of excellent work, and some of Allen's reporting on the briefing was off the mark. His biggest misstep was this all-caps header yesterday: "EXCLUSIVE - DEBT COMMISSION'S BIG RECOMMENDATION MAY COVER SOCIAL SECURITY." That's been their announced goal for many months, complete with "greedy geezers" comments from co-chair Alan Simpson and a defense of the Commission's focus on Social Security by Commission member Alice Rivlin.

But Allen's take on the issue is consistent with my overall impression and the substance of my notes. Allen said the Administration thinks Social Security changes are necessary to build "credibility," and that was my strong sense as well. Allen also wrote that the Administration thinks that passing a bipartisan Social Security change would "strengthen the odds for political consensus behind other spending cuts or tax increases." That's consistent with my notes and recollections, too.

To be fair, the official didn't specify what those changes might be (neither does Allen), so it's theoretically possible their proposal wouldn't include benefit cuts. But that seems unlikely: The official seemed to suggest that they hoped a proposal would come from the Deficit Commission, or some subset of it, which they could then embrace. The Commission's members -- and especially its co-chairs -- have shown a strong inclination toward benefit cuts. (And that's putting it mildly.)

Allen writes: "The mood of the world at the moment (slightly excessive, from the administration's point of view) is that if you don't do anything with spending cuts, it doesn't get you credibility." Tim Fernholz points out that "the mood of the world" and the Administration's mood are not the same. But the official seemed to be saying that this is the context in which they operate, and that without the support of those who feel this way -- including Republicans -- nothing will get done. It's reasonable to conclude from those comments that spending cuts are likely to be part of the final package -- although the official didn't say that, and neither did Allen.

Tim adds that "the reason the administration official was interested in credibility before the markets is so the government could borrow more money for temporary fiscal stimulus." I didn't get that impression. In fact, the official also said that it was unlikely much more could be done on the stimulus side in this political climate. I felt the objectives were bond market credibility and political consensus-building, although they hope to pass the Administration's assistance plan for small businesses.

The briefing was held on deep background, so no direct quotes can be used and the official can't be identified when discussing the substance of his remarks. But I agree with Allen's reporting about the desire to build a consensus for "stabilizing" Social Security that would make the government "credible." It's true, as Tim writes, that the official said Social Security cuts would have no short-term impact on the deficit and that current benefits were not generous by European standards. But the "credibility" idea kept returning to the conversation as a rationale.

Tim writes, "Allen doesn't mention that the official cited Paul Krugman when talking about Social Security's contributions to the deficit. " That's true -- but what Tim doesn't mention is that he cited Krugman to defend including Social Security in deficit reduction plans. The official seemed to be quoting Krugman's observation, echoed by many economists, that "Of course, (Social Security) is part of the the general federal budget." But Krugman also said, in the same piece, that it's equally valid to view it as a stand-alone program. In this context, it seemed to me that Krugman was being used to in a way that reinforces Allen's observations, rather than undercut them.

Krugman also keeps observing that the bond market likes our government's prospects just fine, which suggests we have enough "credibility" already, but his views on that subject weren't embraced at the meeting.

Tim's description of the Deficit Commission discussion is consistent with my recollections: "The official believed that the largest consensus was forming around an undefined plan to support the long-term solvency of Social Security and was discussing why that hypothetical plan might help bolster political will for other deficit-reduction ideas." But I don't see how that contradicts Allen.

I came away with the distinct impression that the Administration intends to make some changes to Social Security. They believe that will improve confidence in the government's fiscal responsibility and ability to address difficult issues,while at the same time building a political consensus that can address other spending problems. My sense is that they hope the Deficit Commission or some of its members, including both Democrats and Republicans, will generate a workable proposal which they can adopt. Based on Commission members' past comments, however, it's hard to imagine that any proposal from them wouldn't include some benefit cuts. I felt the Administration itself might be satisfied with relatively minor changes to Social Security, or to a solution that doesn't involve cuts, but that their strategy will almost certainly result in some cuts being proposed.

Of course, we're all giving our impressions of an off-the-record meeting. That's tricky. As Tim observes, "it's hard to dispute Allen's interpretation without being able to post direct quotes, but hopefully this adds some much-needed context." We're all struggling with that problem. But my sense of the meeting was close to Allen's, and nothing Tim writes has changed that. In fact, Tim's context and Allen's context don't seem all that different to me, except in emphasis.

Tim Fernholz writes this about Allen's reporting: "Sure makes it seem like the administration wants to cut Social Security, doesn't it?" I don't think cutting Social Security is their goal, but I think they have a financial and political game plan that's leading in that direction. Unless there's significant political pushback between now and December (when the Deficit Commission concludes), my impression is that the Administration is likely to embrace a package of Social Security "tweaks" that includes some benefit cuts.

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