Bad Social Security Journalism Causes Mass Misunderstandings Of Social Security, Apparently

Columbia Journalism Review's Trudy Lieberman has written a lengthy lamentation on the state of our Social Security journalism, and finds that the media -- mostly the Washington Post's Lori Montgomery, naturally! -- has performed a "dubious role" in shaping the debate over the program. "Dubious" in that media outlets have done a pretty awful job doing "journalism":

For nearly three years CJR has observed that much of the press has reported only one side of this story using "facts" that are misleading or flat-out wrong while ignoring others. Whatever the reason -- ideology, poor understanding of how the program works, gullibility, or plain old reportorial laziness -- news outlets have given the public a skewed picture of the financial health of this hugely important program, which is the sole source of retirement funds for millions of Americans and will continue to be for decades to come.

Lieberman went on to point out that one of the effects of this sort of journalism is that otherwise reasonable people begin to make very poorly informed personal choices. "The one-sided reporting on this issue has influenced the way millions of Americans, especially younger ones, now think about Social Security," she said, citing an example:

A twenty-nine-year old web manager for a New York City agency recently told me she was opting out of the program, which the city pension system allows her to do. "I don't think Social Security is a wise investment given the (availability) of a deferred compensation plan," she said. "It's a known fact," the woman explained, "if it stays the way it is right now, it would run out of funds in 2035." How did she know that? She listed the media outlets that helped shape her opinion. The elites were there like The Wall Street Journal, CNN, The New York Times, and Bloomberg News, but so were relative newcomers like Investopedia and other media products. The message from the elite media is trickling down.

One of the perennially misunderstood aspects of Social Security is that those who are paying into the system aren't actually investing in their own retirement. Rather, they are providing for the, you know, "social security" of older generations. A much younger worker will be providing the same service for this 29-year old web manager. And this is precisely why there is a debate over the "future of Social Security" in the first place. There is currently a lower ratio of FICA payors to recipients than there has been in the past.

This has created what amounts to a math problem, and there's a room filled with one thousand monkeys and one thousand calculators that must solve it by the 2030s. ("LIFT THE CAP ON INCOME SUBJECT TO FICA WITHHOLDINGS" is already scrawled, in chimp feces, on the wall of this room, but everyone has evidently decided to let the monkeys press on a while longer.)

How are things likely to work out for our 29-year old web manager? Well, in the first place, the decision to opt out of the social insurance program only adds to the "math problem" that must be solved in the first place. But more importantly, she might want to revisit the notion that she's making a wise investment.

That's because that city pension system she alluded to has recently been "reformed" by New York Gov. Andrew Cuomo: The retirement age has been raised, the generosity of the pensions have been reduced, and workers are instead being encouraged to join 401(k) programs and trust the vagaries of the stock market -- without, I'm guessing, getting the same "too big to fail" bailout considerations of the market's primary actors.

It is, in the end, a worse deal for workers (but a great deal for Wall Street financial firms, which is why unions opposed these reforms and Mayor Michael Bloomberg praised them). Opting to take the traditional pension benefit is now less beneficial. And while there's nothing wrong with 401(k)s as investment vehicles, they are subject to storms and stresses of the market without the virtue of being a defined retirement benefit.

What you save in your 401(k) is what you get. Blow through it and you're done. For a municipal worker, who is not likely to be in the position to sock away millions of dollars in a 401(k) in any event, a defined pension benefit is a better deal because a check shows up on a regular basis after you retire.

If you want to think of your investments in political terms rather than pure mathematical terms (which, frankly, is smarter), Social Security is safer than the municipal pension because the New Deal program is beloved by everybody and is insanely hard for politicians to cut, no matter how much they may want to. (As Lieberman notes, "Gallup polls dating back six decades consistently show some 70 percent of the public strongly supports Social Security.") A pension that only benefits a few government workers is easier to demagogue and obliterate. Witness, in fact, its obliteration in New York.

In any event, it would be a worse deal still to get to retirement with a low-wealth 401(k) and no Social Security. Fortunately for fools who might choose this path, it's not available: You have to either take the pension or Social Security. Good luck to the guy who picks the "reformed" pension.

As Lieberman pointed out, with the quality of the reporting being so poor, "young people like the New York City worker can be forgiven for misunderstanding the concept of social insurance and believing Social Security is almost dead." Yes. Bad journalism begets bad information begets bad decisions. This is why it's so appalling when journalists get marginal tax rates wrong: People turn down raises. And then, they guy from Politico writes about how everyone in America is stupid. But the fish rots from the head!

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