The financial collapse of 2008 has taught us to be skeptical of economic forecasts that simply spin trends out into an indefinite future. Most central bankers, economists and business leaders failed not only to foresee, but even to imagine, the colossal dimensions of that catastrophe.

Now, however, the very people who said that there was no way for regulators to recognize financial bubbles in advance predict budget gloom and doom. Scary charts of the time path of U.S. debt-to-GDP ratios — many originating from the Peterson Foundation — fill the media, along with specious arguments about how budgets affect national income.

The strangest of these debates involve Social Security. The “arguments” here sort mostly into two groups: One rails on about how “runaway entitlements” are leading to a deficit explosion. The other advises that Social Security can be “saved” in the long run by timely changes, typically involving a mix of taxes and benefit cuts, including, notably, yet another rise in the age of eligibility for the program.

Neither point of view makes much sense. The simple fact is that the deficit did not swell tidally until the financial crisis hit. While George W. Bush’s tax cuts destroyed the Clinton budget surpluses, enough tax revenues trickled in to keep the deficit from blowing out until the economic equivalent of Hurricane Katrina hit in the fall of 2008. It was the one-two punch of the bank bailouts and the Great Recession that led to today’s giant gap between general revenues and expenditures.

But even now there is no near-term threat to Social Security’s solvency. In 1983, Congress enacted into law recommendations of the Greenspan Commission to raise Social Security taxes to cover the retirement bulge coming from baby boomers. Since then, the program has piled up enormous surpluses. These have been invested in government bonds, thus helping to finance the rest of the government.

The 2011 Report of the Trustees of the Social Security Trust Fund projects that the Trust Fund and interest earnings from it will suffice to cover all benefit payments until 2036. Even then, the fund would not be empty — the report projects that tax revenues will still cover approximately 75 percent of promised benefits until 2085. Talk of the bankruptcy of Social Security is hot air.

2036 is a long way off. The argument in 2011 is about whether there is any reason to do anything at all right now. The case pressed by self-proclaimed “rescuers” of Social Security such as Peter Orszag, the former head of the Obama administration’s Office of Management and Budget who has since accepted a position at Citigroup, is unpersuasive.

The first yellow flag is Orszag’s frank acknowledgment that Social Security features barely at all in any putative budget shortfall: “Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they’re projected to rise to about 6 percent.” A rise of 1 percent in four decades! Former Sen. Alan K. Simpson, co-chair of the president’s deficit commission, claimed that his group’s deficit report “harpooned all the whales in the ocean, and some of the minnows.” Lost in the blaze of publicity about the commission is the crucial fact that Social Security is plainly one of the minnows.

But the whole discussion is even fishier. If any shortfall ever materializes, it could easily be made up by transfers from general tax revenues, though that would breach the long-maintained fiction that Social Security is a contributory system on the model of most private insurance. (It is actually a pay-as-you-go system, where current taxes pay benefits to current beneficiaries, with the final guarantee of the whole system’s soundness being, in the last analysis, the success of the economy as a whole.) But if fears about 2036 are unbearable, plenty of ways exist that would fix the program without threatening anyone’s life support system.

Between 2002 and 2007, for example, the richest 1 percent of Americans garnered 62 percent of all income gains, while the bottom 90 percent of the population saw their incomes grow by 4 percent. At the same time, thanks to the Bush tax cuts, the rich were also paying proportionately fewer taxes. Considering that ordinary Americans fronted most of the money for the bank bailouts and have endured most of the recession’s “collateral damage,” it seems only simple justice that if the program needs fixing, the best way to do it would be to raise the ceilings on earnings subject to the Social Security tax, which is currently only $106,800. That would put the burden on people who cannot plausibly claim to be suffering.

But if, for example, productivity runs even slightly higher than in the forecasts, there may be no shortfall of any kind. Considering that the projected shortfall is still a quarter century away, there is no good reason to tinker with a program that, as the Washington Post editorialized in 2005, provides the majority of income “for nearly two-thirds of the elderly … [and] the only source of income for one-fifth of all elderly people, for 25 percent of non-married elderly women, and for 38 percent of elderly African Americans and Hispanics.”

But Orszag and others who agree that the program makes at most a minor dent in the budget, nevertheless argue for “fixing” it now. Their reason is remarkable: As Orszag frankly confesses, “even though Social Security is not a major contributor to our long-term deficits, reforming it could help the federal government establish much-needed credibility on solving out-year fiscal problems.” Cut benefits, in other words, simply to prove to financial markets that the government can do it. As Paul Krugman observes, this position is tantamount to claiming that we should cut Social Security now, because we might have to do it in the future. Polls show strong public opposition to cuts in Social Security. Considering the havoc that the financial crisis wreaked on the home values and pensions of ordinary Americans, proposals that Democrats should roll over and join Republicans and the Peterson Foundation in cutting Social Security is outlandish. As profits for the banks the American people rescued soar, it marks a new low in the Democratic Party’s long retreat from the New Deal’s glittering promise that ordinary Americans, too, deserved to share in prosperity.

This essay is adapted from Thomas Ferguson and Robert Johnson’s “A World Upside Down: Deficit Fantasies in the Great Recession,” which appears in the new issue of the International Journal of Political Economy (Vol. 40, No. 1, pp. 3-47). That essay is a revised and expanded version of their working paper for the Roosevelt Institute.

Rob Johnson is a senior fellow and the director of the Project on Global Finance at the Roosevelt Institute.

Thomas Ferguson is a professor of political science at the University of Massachusetts, Boston and senior fellow at the Roosevelt Institute.

Progressives are not amused, to put it mildly, at the prospect of a Democratic president unilaterally dismantling the social welfare state. Congressional Democrats are reportedly “anxious,” “worried” and caught “off guard.” Republican proposals to slash Medicare have proven to be a potent political weapon for Democrats — and now Obama has gone over to the dark side?

It’s all very confusing. Just a few days ago, the president was preaching a “balanced approach” to deficit reduction that included revenue increases as well as spending cuts. Republicans rejected his stance out of hand. So how does it make sense to seek even greater spending cuts?

The answer is that it doesn’t make sense. Here’s why: The new plan, reports the Times, supposedly hinges on Republicans agreeing to $1 trillion in new revenue.

The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare and Medicaid and Social Security — programs that had been off the table.

Excuse me? Let’s step back here a second. Democrats are right to be alarmed at the prospect of big cuts to entitlements. But how do you suppose your average House Republican is reacting to the news of what would be, for all intents and purposes, a trillion dollar tax hike? I can’t imagine they’re very pleased, and I don’t see how Boehner can possibly keep his caucus together on this issue. It’s even more unrealistic to assume that ending the Bush tax cuts on the wealthy could be folded into this deal, as some reports are suggesting.

There is nothing more important to the GOP than its stance on taxes.

And indeed, the only line that really rings true to me in the New York Times piece makes exactly that point:

Aides to Mr. Boehner said that no tax increases were on the table and that he had not agreed to the expiration of any tax cuts.

Combined with House Majority Leader Eric Cantor’s oft-repeated declaration that any closing of tax loopholes or tax breaks without equivalent tax cuts elsewhere is a non-starter, and assertions today from GOP sources that any “revenue increases” must be accompanied by lower tax rates overall, and it becomes very difficult to see where this magical $1 trillion comes from.

So where does that leave us? How about right where we were last week? The White House has decided that Republican intransigence on taxes makes any real long-term agreement impossible. The obvious step for Obama is to extract the maximum political advantage here by appearing willing to negotiate a “grand bargain” — to be the guy mature enough to compromise. Ezra Klein makes the case:

We’re likely seeing the White House make a show of their interest in a compromise even though there’s no compromise on the table. That fits with their general plan here: if the debt ceiling is going to cave in, they’re going to make sure it does so on the Republicans. And the best way to get Democrats out of the way is to show that they did everything possible to make a deal while Republicans elevated the repetition of the word “no” into something approaching performance art.

I will concede — it is scary to hear reports about the president bending over backward to offer entitlement cuts when the party on the other side of the negotiating table has proven themselves utterly unwilling to make any meaningful compromises. And it is completely insane that Washington has decided that deficit reduction is first priority of the day when unemployment is at 9 percent and the U.S. government is able to borrow money at historically low rates. But I think outraged progressives should try to imagine how the country as a whole might be perceiving these negotiations. One side, by every indicator, seems willing to make a deal. The other is threatening to trash the U.S. economy if it doesn’t get 100 percent of its demands met. That doesn’t strike me as a politically viable position.

But stay tuned. Even as I write these words, Obama is meeting with all key congressional players at the White House. The situation is very much in play.

UPDATE: Jon Chait makes a similar, even more convincing argument.

To review: The Wall Street Journal reports that “across a wide range of measures — employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well-being — the economy’s improvement since the recession’s end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.” In light of this miserable situation, it’s no surprise that Gallup’s Frank Newport reports that the president’s job approval rating “has been hovering near the fault line between probable re-election and probable ‘one-term’ presidency.”

For most of the president’s tenure, he, his staffers and his devoted-but-dwindling army of sycophants have insisted that the political fallout from the crushing recession reflects unrealistic expectations of Obama in the wake of George W. Bush’s destructive reign. It is, dare I say, an audacious claim, especially coming from a candidate who asked us all to have the “audacity of hope” — and it’s more than a little insulting. After all, much of the complaints about the president have been about campaign promises that he didn’t just fail to fulfill — but that he refused to even try to fulfill.

Indeed, when a political candidate promises to try to pass a public option to compete with private insurers, attempt to crack down on Wall Street abuse, do what he can to stop unfair trade deals, oppose extending his predecessors tax cuts and avoid initiating initiate costly new wars sans congressional approval, and then once in office works to kill a public option, refuses to prosecute Wall Street crimes, presses the rigged trade deals he opposed, supports the extension of his predecessor’s tax cuts and starts a new war in Libya with no congressional authorization — whose fault is it that he ends up in reelection trouble?

I’d say the answer is obvious — I’d say that if such a politician wasn’t in reelection trouble, it would be a sign that our democracy is in a deeper crisis than it already is.

But, then, merely citing this record brings accusations of treason, at least from Democratic staffers, pundits and activists in Washington. In an age of politics that has melded politicians with celebrity and activism with starfucking, to be a rank-and-file progressive and honestly examine a candidate’s record during a reelection campaign is to risk being portrayed as a dangerous, seditious, ideologically zealous revolutionary.

After Wednesday night, though, the power of this kind of with-us-or-against-us partisanship will face it’s ultimate test. Because while the intricacies of health care, Wall Street regulations and trade pacts can be muddled with esoterica and while Democratic presidents have shown a deft ability to soothe their base by conflating militarism with humanitarianism (the same trick, of course, that Republicans use for their militarist adventures), this Democratic president is aiding a new war on Social Security, the single most popular social program in American history, a program that the Democratic Party has — both in principle and out of sheer self-interest — long based its brand on. Whether Obama ultimately champions specific cuts or just floats the general possibility of such cuts, the larger news is that he has now legitimized them as a negotiating chip — and importantly, he made such a move on his own, not because of circumstantial necessity.

To appreciate this reality, go back and read every Democratic Party press release during President Bush’s 2005 failed assault on Social Security. Those press releases reminded us that Social Security is one of the most fiscally sound programs in American history, projected to run surpluses for the foreseeable future. Additionally, what problems it does face can be easily solved — as just one example of a solution, the Center on Budget and Policy Priorities reports that had President Obama refused to extend the Bush tax cuts and instead worked to repeal them, that move alone would generate revenues equal to two and one-half times the entire Social Security shortfall over the next 75 years (yes, 75 years!).

And yet now, like that gruesome scene at the end of “Fargo,” Social Security — a pay-as-you-go embodiment of fiscal responsibility — is being rammed into the grisly woodchipper of cynical debt-reduction politics. Only instead of a glowering Peter Stormare (or Mitt Romney) doing the pushing, there’s a cheery President Obama insisting that cuts are really just progressive efforts to “strengthen” — the same Obama who chastised his 2008 Republican opponent for using the same pathetic spin to shroud cuts to the same program.

This is not real politik, it is not triangulation and it isn’t even Bush-ism (that is, taking unpopular positions and then just arrogantly pursuing them without regard for public will). No, we are watching a sort of Orwellian dystopia. Indeed, it is a sight to behold: a regime that believes it can say one set of things over and over and over again, and then do exactly the opposite.

Inherent in that ideology is the assumption that Americans — and particularly Democratic voters — are either too stupid to see the heist in process, or if they do see the heist, are too entranced by their president’s power/fame/celebrity/charisma to want to do anything about it, even if what’s being pilfered is Democrats’ Social Security crown jewel.

The assumption, in other words, is that ignorance and fealty will permit a president to serve as an accomplice to the very grand larceny he was explicitly elected to office to oppose. Should the assumption prove true — should Obama now be cheered on for doing to Social Security what no Republican president has ever been able to do — the date on the calendar may say 2011, but it will really be 1984.

AARP has long been cast as the defender of entitlements for U.S. seniors, willingness to bend on the issue, according to AARP representatives, comes from a place of necessity as opposed to ideology (and was only decided after “wrenching” debate within the group).

“The ship was sailing. I wanted to be at the wheel when that happens,” John Rother, AARP’s longtime policy chief, told the paper.

According to the Journal:

“The group will accept cuts, but won’t champion them, and it is particularly leery of certain concepts such as eliminating benefits for wealthier recipients. It wants tax increases to fill most of the program’s financial hole, and it insists that a deal must be crafted apart from broader deficit-reduction negotiations.”

The importance of AARP’s position should not be underestimated: The group is a lobbying leviathan with a huge budget (last year its revenue was $1.4 billion) that can do a lot of work when it comes to shaping political discourse. AARP can well afford to make a decision that will anger its members; it is unlikely to alienate all 37 million of them.

However, not everyone sees AARP’s posture as the seismic shift described by the WSJ. TPM’s Josh Marshall writes:

The premise of the article is that AARP has always been a stalwart opponent of any cuts to Social Security or any efforts to transform it into a 401k style individual accounts system. And now they’ve changed that position. But that’s simply not true. As a general matter, yes, AARP has been a significant obstacle to efforts to gut these programs. But AARP has long been a headache for liberal political groups who do want to defend these programs’ basic structure and integrity.

Nonetheless, AARP has never before been actively open to accepting Social Security reform (even if it has not always been the ardent defender the WSJ depicts). As Business Insider notes, “cutting Social Security benefits is seen by most political analysts as especially difficult. The chief financial concern of aging Americans is that they don’t/won’t have enough money set aside for retirement … Older people vote in disproportionately high numbers. Everything aligns against any attempt to ‘reform’ the nation’s most important social welfare program.”

AARP’s shift in position, it seems, does at least have the potential to change this.

UPDATE: AARP Friday released a statement in response to the Wall Street Journal story:

“Contrary to the misleading characterization in a recent media story, AARP has not changed its position on Social Security,” reads a statement from the group’s CEO A. Barry Rand.

In the release, reproduced in full by TPM here, Rand asserts that AARP remain defenders of Social Security.

Nonetheless, the Wall Street Journal scoop has precipitated a furious response from other leading senior advocacy groups, which — regardless of Rand’s statement — blame AARP for delivering the possibility of Social Security cuts to the budget talks table.

Speaking on a phone conference with representatives from a coalition of Social Security advocacy organizations, Max Richtman of the National Committee to Preserve Social Security and Medicare said “the timing couldn’t be worse.”  The advocates noted that it came as little surprise that AARP had decided upon a negotiating strategy that could involve softening on entitlement cuts to achieve tax increases. However, the revelation is out that the AARP is open to negotiate on Social Security, which is all self-described budget hawks ever wanted to hear.

Was I having a low-grade midlife crisis? I had no red sports car, reckless affair, or other obvious sign something was amiss. Instead, there seemed to be internal bleeding — a sense that the energy and optimism were ebbing out of me. My hope was that a three-month sabbatical would cure all that, bringing needed rest and clarity. After ten years of running the non-profit organization I’d founded — a think tank on boomers, work and social purpose — I thought I might be able to arrange some combination of vacation and leave. My board, perhaps a little worried about me as well, was happy to oblige.

I resolved to get away, far away. Soon I was looking at hotel reservations in Australia, contemplating time in Southeast Asia, marking off several months in the calendar. I purchased plane tickets, for myself, my wife, and our kids. Then the reality set in — the cost, the time away, living out of a suitcase for weeks on end. It all sounded eerily like one more business trip. A down payment on the road to 3 million miles? Do they give you the actual luggage when you hit that milestone?

I canceled the Australian hotels. I called the airlines to say forget it. My three-month sabbatical Down Under was downsized into a two-week car trip in a dented Prius up the Pacific Coast from San Francisco, where I live, to Oregon. After consulting the map and locating the midpoint for our journey, I got on the phone with the Homewood Suites in Medford, Oregon, to make reservations for our first stop en route to the Pacific Northwest. In the spirit of frugality — after all, I was already out a thousand bucks before our trip had even started — I asked about discounts. The AAA rate knocked off 20 percent. Great. Then it dawned on me. I was fifty years old, after all. I had shelled out for the AARP card when prompted. What about the “senior” discount?

In that moment on the phone with the reservation clerk, a series of truths about my quiet crisis became evident. The odd combination of discounts and requests — signs of what once indicated distinct parts of the life cycle separated by decades — made one thing abundantly clear and personal: The old map of life, which guided us for generations, was rapidly becoming an anachronism.  What’s the category for people like me? There are a growing number of us who can be classified as neither-nors. Neither young nor old. Neither retirees nor of traditional parenting age. Tired, perhaps, but neither ready to be retired nor able to afford it. The truth is, I will probably be working for another twenty-five years, the second half of my adult life.

What’s more, this isn’t just about me or my boomer colleagues. New research suggests that children the age of my kids, growing up in the developed world, can reasonably expect to see their one hundredth birthdays. The odds of doing so, by some estimates, exceed 50 percent. In other words, those of us hitting fifty today are simply the first generation to inhabit an emerging lifecourse, one that is in flux but will be a permanent change, not a passing aberration.

In 1900, the life span in the United States was forty-seven. Today, it is approaching eighty (although great disparities persist across class and race). Overall, that’s an increase in a hundred years approximating all the gains since the beginning of time. And the length of life may well be headed toward the century mark. Some think the upward rise will be even more precipitous. Yet while we’ve been remarkably adept at extending lives, our imagination and innovation in remaking the shape of those longer lives have been struggling to keep pace. In the words of anthropologist Mary Catherine Bateson, we’re “living longer and thinking shorter.” The situation is beginning to fray, especially in the period of life that is emerging between traditional midlife and what used to be occupied by retirement and old age. It’s fair to say that this condition constitutes a long-standing problem, one that existed even before longer lives and changing demographics made it a much bigger one. The territory between middle age and old age has long been shaky ground, “unstable social space,” in the words of cultural historian Thomas Cole.

Remarkably, the first recipient of Social Security, a bookkeeper named Ida May Fuller, started to collect her checks in 1940. She proceeded to live another thirty-five years, long enough to witness the ascent and disbanding of the Beatles and the landing of the man on the moon. (For her total $24.75 contribution, she received $22,888.92 in benefits, perhaps qualifying her as the nation’s first de facto lottery winner, as well as its inaugural Social Security recipient.) Indeed, the time between the end of work and the end of life was already starting to raise uncomfortable questions in the decades following the establishment of Social Security and mass retirement — most fundamentally, what do you do with yourself during this period? Medical experts were advising a quiet existence, rocking peacefully in Whistler’s Mother-like fashion.

It took ingenuity to redesign lives to keep up with changes in longevity and society in mid-twentieth-century America, but we rose to the occasion. We plugged the purpose gap with something called the “golden years,” a stunning innovation that almost overnight turned an arid economic institution, retirement, from an anteroom to the great beyond into a core component of the American dream. We did such a good job of making virtue out of seeming necessity that soon retirement at sixty-five wasn’t enough. Even as lives were already lengthening, we wanted retirement earlier and earlier. We couldn’t wait to stop working and start playing in a period that was fashioned by financial marketers and housing entrepreneurs as a kind of second childhood. Golf became the new symbol of late-life success. A new deal was struck around shorter working lives that turned the push out of the labor market into a powerful pull. The golden years shored up the postmidlife purpose gap for fifty years and then some, filling the unstable space with something aspirational and attainable. This was a dream for average Americans, not just the elite. But as lives lengthened and careers shortened, this fix grew shakier and shakier, especially as the vast wave of boomers began approaching.

Kurt Andersen, in his book “Reset,” provides a useful context of broader changes in American life over the past quarter century. Andersen suggests that we are in the aftermath of what might be characterized as the bloating of America, a mass overextension that occurred between 1980 and the late 2000s. Mortgages mushroomed, debt ballooned, and our houses expanded, along with our waistlines. We could easily add the golden years to the package, as they went from an assumedly brief proposition at the end of life, a well-earned respite, to a thirty-year McMansion of a stage, inflated until it literally constituted the second half of adulthood. But it became both unattainable, for most individuals, and unsustainable, for a society soon to have more people over sixty than under fifteen. (And we’re relatively young in the community of nations — Japan, South Korea, Germany, Italy, and Spain will see over-sixty populations approaching or exceeding 40 percent by the middle of the twenty-first century.)

Thirty-year retirements, in the era of the Great Recession? Let’s face it, that is simply not going to work, nor is it desirable. Does it make much sense for society to throw away the most experienced segment of the population when it is a long way from obsolescence?

 The way to make the most of coming hundred-year life spans is not to stretch and strain the contours of a life course set up for a bygone era. That’s like plastic surgery to make a seventy-year-old face look like a forty-year-old one — the result is unnatural and the intention wrongheaded. Likewise, the answer to the unsustainability of thirty-year retirements is not substituting endless middle age for endless old age, the alternative some are proposing to the much longer life. Middle age, like all good things, eventually must reach an end. No use denying it. In Nora Ephron’s words, “There’s a moment when people know — whatever their skills are at denial — that they have passed from what they can delude themselves into thinking is middle age to something that you could call the third act.” Ephron, now sixty-nine, declares, “I’m definitely in the third act.” As the “third act” notion suggests, the reality is that the end of middle age is no longer, for most people, attached to the beginning of either retirement or old age. (It’s like the transcontinental railroad, started at both ends, designed to eventually meet. However, the two ends of this project — life — don’t meet anymore.) Individuals left in that lurch, in this unstable space that has no name, no clear beginning or end, no rites or routes of passage, face a contradictory culture, incoherent policies, institutions tailored for a different population, and a society that seems in denial that this period even exists.

The new migration is across time and the life course, as tens of millions (8,000 a day, one every ten seconds, are turning sixty) reach the spot where middle age used to end and old age once began, the new territory where a resurgent purpose gap, and gulf in identity, stands. Opportunity is there as well. The surge of people into this new stage of life is one of the most important social phenomena of the new century. Never before have so many people had so much experience and the time and the capacity to do something significant with it. That’s the gift of longevity, the great potential payoff on all the progress we’ve made in extending lives. Realizing these possibilities will require the courage to break from old and familiar patterns that once were our friends but just don’t work any longer. It means considering ideas like “gap years” for grown ups, new kinds of internships and fellowships for Americans moving beyond midlife, remodelling higher education to help retrain people who have been working for 40 or 50 years, even the creation of new kinds of investment accounts to help cover the costs of transitioning to new careers.

What we’re facing is not a solo matter; it’s a social imperative, an urgent one that must be solved as the great midlife migration gathers scale and momentum. Inventing a new stage of life is a conscious decision that won’t happen by itself, easily or automatically, even as the soil becomes more fertile and conditions increasingly ripe.

From the book “The Big Shift: Navigating the New Stage Beyond Midlife” by Marc Freedman. Excerpted by arrangement with PublicAffairs, a member of The Perseus Books Group. Copyright © 2011.

Marc Freedman is the author of “Encore, Prime Time” and “The Kindness of Strangers.” He is the founder and CEO of Civic Ventures, a nonprofit think tank on boomers, work and social purpose. This article was excerpted from “The Big Shift,” in stores April 5.