Good thing we'll have more day light

Congress decides to spring forward Social Security's crisis date

Photo by Kevin Ku on Unsplash

Hello,

Welcome to Known Unknowns, a newsletter with strong opinions on some obscure, technical issues we should all care about.

A Bad Week for Pension Geeks

Social Security has about ten years left before it can no longer pay full benefits through tax revenue and by drawing on the “trust fund.” The sooner we place it on a sustainable path, the cheaper and fairer any solution will be. The solutions aren’t overly complex and can even improve the program. This would also provide more certainty for the many Americans who plan to rely primarily on Social Security for their retirement. We could finally put an end to the refrain of “who knows if it will be there for me,” from people who make no effort to plan for its absence.

I’ve learned to keep my expectations low when it comes to Washington. While entitlement reform is critical to addressing our debt problems and vital for many reasons, I’ve accepted that politicians will do nothing until absolutely necessary. Even then, they’ll likely cover shortfalls with general revenues—because why not commit a few percentage points of GDP to an ongoing entitlement indefinitely? It is something that low-grade upsets me. It lurks in the background, and when I think about it, I feel a bit mad and frustrated. Then I shrug and focus on things I can control.

Last week, low-grade upset turned into intermittent, seething rage. Apparently, doing nothing and muddling through isn’t bad enough—our politicians seem intent on making the problem worse. First, Trump announced a plan to stop taxing benefits. Then, both houses of Congress passed a bill to repeal two Social Security benefit rules: the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).

Andrew Biggs explains what this means better than I can.

In short, public sector workers often don’t pay payroll taxes or receive Social Security, instead benefiting from more generous state-backed pensions. However, if they have a spouse who receives Social Security or have held jobs subject to payroll taxes, they could potentially “double dip.” This is costly for taxpayers and highly regressive. WEP and GPO were designed to prevent this, but the Senate is now poised to repeal these provisions. To make matters worse, this is being branded the Social Security Fairness Act. It’s projected to cost taxpayers $200 billion over the next decade.

Here’s my proposal: this “Fairness Act,” should come with a credible, enforceable provision ensuring the federal government will never bail out state or local pensions.

Rethinking Tariffs

I’ll never rethink the basic math that demands entitlement reform. However, the events of the last few years should prompt experts to reconsider some long-held beliefs.

I have always been, I will admit, at little dogmatic about tariffs. I did the international field at Columbia for goodness sake---that means I was taught not only are all tariffs bad, even multi-lateral trade deals are bad. We were very intense about it, I even had tee-shirts made then that said, “Free Trade Now!” in block letters and distributed them to all my friends (no surprise there were not many).

But maybe my youthful views lacked nuance. And well, China is challenging many of the conditions under which free trade is optimal. China ignores intellectual property rights, manipulates its currency, and enforces questionable labor standards. Is it really optimal that 90% of the materials for antibiotics come from China? Diversification is a core benefit of trade, yet we lack it. Perhaps tariffs, or the threat of them, are sometimes useful—though I am not sure that is a game you can play more than once. And maybe tariffs are better than sanctions. I worry using tariffs as a tool for diplomacy or as a bargaining chip can become a slippery slope, but in some circumstances with a very well-defined and limited goal, they are not completely terrible and sometimes even useful. And that’s big step for me to say that.

I recently wrote a column for Bloomberg and spoke at an Aspen Strategy Group panel about whether economists are out of touch—and maybe wrong—on certain issues. Perhaps we can afford to revisit some of our dogmas. After all, expertise requires constantly learning and adjusting assumptions to fit a changing world.

The case for Day Light Saving

I’m also dogmatic about time zones. I oppose time changes because I see time as a social construct meant to facilitate economic and social interactions. Standard time zones became necessary with the advent of railways and the telegraph. At some point—wrongly blamed on farmers—we decided to shift time twice a year, in some places, at different times depending on the location. To me, this undermines the very purpose of time.

When Marco Rubio became Secretary of State, I feared his years-long crusade for permanent Daylight Saving Time (DST) might stall. However, it appears on the DOGE agenda—though Trump may favor year-round Standard Time instead. Perhaps this stems from the fact that year-round DST means darker mornings in Northern states, especially in northern states, which made it unpopular in the 1970s.

In Bloomberg, I argue that year-round DST is preferable to year-round Standard Time, which in turn is better than the biannual time changes we currently endure. The economy has changed since the 1970s, and more Americans live in the South. The time for change has arrived.

Until next time, Pension Geeks! See you in the new year!

Allison