This issue is now all the rage. It’s quite amazing how your understanding of an issue this big has to be pieced together. Take a look at the following:

The 1970s were a time of social turmoil, rampant inflation, and falling real wages. Gerald Ford was president in 1976 and Alan Greenspan was his chairman of economic advisors. To this day Mr. Greenspan no doubt has painful memories of those wacky “Whip Inflation Now” (WIN) buttons that came to symbolize economic policy disarray. Inflation in 1974 and 1975 had been running at about 10% per annum. Many voters were extremely distressed about the impact that inflation might have on the value of their Social Security and other pension benefits.

There was strong bipartisan support at that time for indexing initial benefits to inflation, but a great deal of confusion about how to do it. Should the government use indexes of wages or of consumer prices to adjust future initial benefits? If so, what specific index should be used? It was a given among economists then—and still is—that wages are likely to rise faster than consumer prices over the long run based on the long-term trend toward higher labor productivity.

Be sure to read that again and then consider: if Congress and President Ford had chosen to index Social Security to inflation in 1976, there would be no problem today. They chose wage indexing because real wages were falling at the time, so they saved some money in the short term and screwed us in the longer term, with little or no discussion at the time:

Whatever one’s opinion on that monumental policy shift may be, the remarkable thing is that it occurred with virtually no public discussion. A search on Lexis-Nexis of major U.S. newspapers during the 1975 to 1977 period turns up few editorials or news analysis of any substance dealing with the massive shift in policy. The mainstream media clearly seemed to be missing in action on the entire story. If there was a substantive debate on wage indexation in 1976 it seems to have been entirely an inside-the-beltway affair.

Read the whole thing, and weep.