Tuesday, June 08, 2010

Washington Post: red herring + dishonor Social Security bonds:

In an editorial bemoaning the debt-monster, the Washington Post says: (excerpts, emp add)
We don't know which way the U.S. economy is heading. Last week's jobs report was discouraging, and bad news from Europe has spooked other parts of the world. Maybe a case can be made for another round of unemployment benefits and other spending that reaches the economy quickly.

But as analysts ponder the mystery of weak private-sector hiring despite signs of economic growth, it's worth asking what role is played by government-induced uncertainty. With the federal government promoting major changes in health care, financial regulation and energy law, it wouldn't be surprising if some companies are more inclined to wait and see than they might otherwise be. And that's especially true when they look at looming American indebtedness and the effect that could have on long-term interest rates.

We'd find the stimulus-now, spinach-later argument more credible if its advocates gave some hint of where the long-term belt-tightening will take place. Even if there is a danger of tightening too soon, any number of measures could be set in motion today that wouldn't take effect for a year or two or even more. ... Adjustments could be made to the formula by which Social Security retirement benefits increase every year ...
"economic uncertainty" is always going to be present as long as we live in a democracy. What if the Tea Party types got into office? They'd really change things. So perhaps the Post is in favor of abolishing elections.

Paring back payments by the Social Security fund is a roundabout way of partially defaulting on the special Treasury bonds the trust holds. But it hurts the poor and unfortunate, not the rich, which is probably why the Post like that idea. Also, there are real cuts that could be made to defense, and health care spending (Medicare, Medicaid) could benefit from a move to a European/Canadian/Japan approach, but the Post ignores that. Instead, they like to (effectively) go after the massive Social Security trust fund surplus, because that's where the money is.


It's worth asking how often Fred Hiatt fondles Karl Roves testicles. In an atmosphere of uncertainty surrounding this central question, markets for knowledge cannot know how to react.

By Anonymous Anonymous, at 6/08/2010 3:45 PM  

Instead, they like to (effectively) go after the massive Social Security trust fund surplus, because that's where the money is.

This is an absolutely bizarre statement. The problem with the Social Security trust fund is that it's where the money isn't! It's a file cabinet full of promises. Promises by the Federal Government to pay the Social Security Administration ungodly amounts of money that it no longer has because it systematically spent it as it collected it.

If the Social Security "trust fund" was "where the money is" -- if it contained actual assets like stocks, gold or barrels of oil instead of debt, then there would be no problem. The Social Security administration could just use those assets to pay benefits.

You have it exactly backwards. Social Security used to be "where the money is." Back then, it was very popular. Gosh, you could even think of it as a sacred trust between generations. Of course, it was a combination sacred trust and golden goose, which is what made it so popular. And sacred. Like a sacred cow. But with golden eggs.

By "where the money is" I meant that it was a revenue generator for the government. It brought in more in contributions than it paid out in benefits. Thus, it provided a rich source of delicious money for the Federal government to so generously spend on the important things that need generous spending on.

Now, it's "where the money isn't", which means that it brings in slightly less in contributions than it pays out in benefits. So every time Social Security needs a little extra juice to make ends meet, it brings one of those happy, smiling bonds to the Federal Government for another fix of that sweet, sweet retirement pudding.

This, of course, completely changes everything. It's the difference between the nice uncle who used to slip you a $20 each time he sees you, and that same uncle who bums a $20 off of you now, cause he isn't quite doing so well. He's the same uncle, after all. But a little less popular. Wait until he needs a hundo every week. Then you'll start screening your calls.

Finally, let's look at how horrible it would be if there were no Social Security trust fund at all!

Let's pretend that the Social Security Trust Fund did not exist right now. Social Security is, of course, running a deficit, so it must either:

1) Reduce benefits
2) Increase payroll taxes
3) Ask Congress for a bailout from the Treasury, meaning that the Federal Government would need to:

a) Raise Federal taxes
b) Roll the presses
c) Take out another mortgage on the grandkids with Uncle China.

Thank God we do have a Social Security Trust Fund. Because of this magical filing cabinet, the Social Security Administration can either:

1) Reduce benefits
2) Increase payroll taxes
3) Redeem a bond with the Treasury, meaning that the Federal Government would need to:

a) Raise Federal taxes
b) Roll the presses
c) Take out another mortgage on the grandkids with Uncle China.

See what a huge difference there is! BTW, once the filing cabinet runs dry, we'll be back to the first scenario. But don't worry, there's virtually no difference between the current scenario and the no-trust-fund scenario other than an internal exchange of a piece of paper, so what could go wrong?

By Anonymous Anonymous, at 6/08/2010 6:57 PM  

Anonymous wrote, "See what a huge difference there is!"

There is a huge difference. People paying into SS and getting benefits out of SS tend to be less wealthy than the people who would pay more taxes under an increase in income taxes.

By Anonymous Anonymous, at 6/09/2010 7:27 PM  

I don't understand your point. My point is that the options available to the Federal Government are identical in the presence and absence of a file cabinet full of bonds. The only difference is the terminology. Right now the federal government has to redeem a bond. Without the file cabinet, it would have the same options available to come up with the money. Only it would be called a bailout. The government now has to provide money to the Social Security administration from the general fund, just like if there wasn't any trust fund. I don't see how your point relates.

By Anonymous Anonymous, at 6/10/2010 9:40 PM  

Post a Comment