"Emancipate yourself from mental slavery, none but ourselves can free our mind.” - Bob Marley

Sunday, August 24, 2008

The "Mythical" Social Security Crisis

I've been reading Paul Krugman sporadically for a while - I am very disappointed to see him spout this complete and utter rubbish.

In the August 24 post of his amusingly named "The Conscience of a Liberal" blog, Paul Krugman states:

No matter how many times you try to kill the mythical Social Security crisis, it just keeps coming back.

He goes on to quote from a CBO study:

CBO’s projections indicate that future Social Security beneficiaries will receive larger benefits in retirement...than current beneficiaries do, ... even if the scheduled payments are reduced because the trust funds are exhausted.

Hint to Krugman and CBO: the "trust funds" are exhausted right now.

Per Wikipedia:

Unlike a typical private pension plan, the Social Security Trust Fund does not hold any marketable assets to secure workers' paid-in contributions. Instead, it holds non-negotiable United States Treasury bonds and U.S. securities backed "by the full faith and credit of the government".

[Emphasis added.]

Wikipedia quotes the Office of Management and Budget on this arrangement:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. (from FY 2000 Budget, Analytical Perspectives, p. 337)

[Emphasis added.]

Which assumes that we'll still have taxpayers who can and will pay more taxes; and/or we'll still have suckers investors who will be willing to buy even more USG debt.


The National Bureau of Economic Research chimes in, describing this situation:

The trust fund build-up may not help future generations due to the adoption of the Unified Budget in 1970. The Unified Budget includes trust fund receipts as income and trust fund payments as expenditures. The empirical evidence suggests that attempts to balance the Unified Budget while the trust funds were generating surpluses has led to increased government spending and personal and corporation income tax cuts within the rest of the federal government.
[This also demonstrates that not only are the "Trust Funds" of no use to the future, it demonstrates that the Bush tax cuts at least in part used a regressive tax (the "payroll tax", which only covers the first $102,000 of income) to finance a very "progressive" tax cut, where the benefits flowed overwhelmingly to the well-off.]

As for the best way to internret the worth of the "Trust Funds": Wikipedia states:

If you write an I.O.U. to yourself and count this as an asset, this presents very different issues than if someone else writes you an I.O.U.

And that is what the trust funds are: an IOU from one part of the government to another, with unspecified means of payment to be figured out at some unspecified future date.

It's as if you gave money every year to an investor for a retirement fund, and instead of investing it, he took it - as well as all of his own salary, his HELOC and maxed out credit cards and everything else he could beg, borrow, or steal - and spent it all on meth and hookers. One day, you ask him to see the assets of your retirement plan and he pulls out of his pockets a bunch of IOUs - all signed by him. That's our government.

So the "Mythical" Crisis is very real indeed.
.

8 comments:

Carl said...

Agreed--I'd call it a crisis when the balance turns negative around 2017 and the trust funds are exhausted in 2042 (or 2049 under the CBO numbers). Democrats and the media formerly favored reform--until Bush agreed.

bobn said...

Carl,

You're quoting Clinton and I'm agreeing with Bush. Bizarro World?

Carl said...

Indeed.

OBloodyHell said...

Once you grasp that it's all a big Ponzi Scheme, you grasp that it MUST fail, it's all a matter of who will be left holding the bag when the music stops.

The government and the government alone can fix this (since it created the mess-- Thank you FDR!!], but everyone is too busy passing around the bag to change the rules of the game so as to at least minimize the damage.

I personally think the failure of the GOP to override the @$@#$%#^#^ bastard obstructing Dems on the whole idea of reform was a substantial measure of the backlash that resulted in 2006 -- more important, on subtle levels, than Iraq. With 2006, the GOP showed itself in almost total default on the Contract With America -- the senators ran for a third term (and the Congressbozos had mostly already long-since violated that part), the GOP had the necessary numbers to pass anything they wanted, and a PotUS who would generally side with them, and they failed -- utterly and abysmally, to use those numbers to force the issues to the fore.

They were pissed, and they've been pissed for the last two years. McCain was more of the same, as though the entire GOP was committed to adding numbers from the Left while ignoring the base. Up until recently, the GOP has been more NeoDemocrats than GOPish.

OBloodyHell said...

> If you write an I.O.U. to yourself and count this as an asset, this presents very different issues than if someone else writes you an I.O.U.

P.S. this is what is called GAAP and "non-GAAP". "Generally Accepted Accounting Principles" (or "... Practices").

Businesses are required by law to use them, governments generally don't.

If you look into the history of the state of New York, which solved its balanced budget shortfall some years ago by leasing Attica prison to the state-owned, state controlled "State bond" making arm, you'll see this happens at the state level, too.

If, when, and how it comes time to reform the whole shebang, One distinct rule in the new constitution should be that, barring specific exceptions granted only by plebescite, all the rules for individuals and businesses also apply to the government.

RightDemocrat said...

If many free market types had their way, Americans would have nothing but their shrinking 401K accounts. Social Security is a great program and with a few minor adjustments, working Americans can continue to benefit from it for many years to come.

bobn said...

RightDemocrat:

I'm not against Social Security per se. I am just objecting to people talking about the Trust Funds as if they were real assets. They are not- they are only claims on future assets.

And Krugman has to know that - I was totally astounded to see him ignore this vital issue.

OBloodyHell said...

> Social Security is a great program and with a few minor adjustments

RD:

Social Security is a flat-out, undeniable PONZI SCHEME.

Always has been, and always will be. Nothing else. It is inherently flawed and doomed to failure.

If anyone, other than the government, attempted to run such a thing, they would be shut down in very short order.

I am not saying I have a problem with forcing people to deal with the idea of retirement, and even backing up people who get screwed unreasonably (kinda like the FDIC protectes bank accounts).

But the Government is not the entity to run this. It is guaranteed to screw the pooch, time and again.

The government should mandate that a certain percentage of one's income up to a certain minimum be placed into a limited access account, with special rules as to how it can be invested.

A "forced IRA" if you prefer, maybe with even more stringent restrictions on risky investments.

Phase out the current system so as to screw people as little as possible.

But in EVERY POSSIBLE WAY, the current system of Social Security is headed the same way as the S&Ls, and the FMs... but much, much worse, because of the amount of money involved and the number of people affected. It will require a complete and utter bailout by an overt "F*** Y'all" head tax that is going to screw up the economy for decades (I repeat: Thank you, FDR!!)

Yeah, you and I may well be dead, but your grandkids will be cursing your name for a long, long time.

About Me

I'm a 57 year old geek. I voted Democratic for 20 years, because I disliked the Republicans more. But now, nobody really speaks for me. I'm for Guns, for more correct government regulation of the financial world, against illegal immigration and amnesty. (in 2008 I ended up voting Republican - too many questions about Obama, and voting against anybody who voted for TARP 1.) In 2010 I voted a stright republican ticket because the Democrats have completely lost their minds.