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January 04, 2005

Comments

Dave Schuler

There's a nice inter-blog discussion of Social Security reform going on between Steve Verdon's site, The Dead Parrot Society,Angry Bear and mine.

TM

Shameless self-promotion is our life's blood. Thanks for the leads - I have read all of those folks at various times, and they are all good. (You, I am not so sure about...)

Neo

I went around on this a while back with another blog.

Their position simply stated is that since the moneis collected for Social Security was "lent" to the federal government, then the federal government will just have to pay it back when it started to become needed in 2018 QED no problem.

The part they fail (or want) to realize is that the federal government has never gone on record as actually "borrowing" this money; it was sort of "between friends" kind of thing.

The best metaphor I have found for this is imagine that the "official budget" is handled in your right pocket, income and corporate taxes come in, bills for HHS, DoD, DoJ are paid out of this pocket. Meanwhile Social Security and Medicare is handled out of your left pocket; wage taxes come in; SS benefits are paid out.
The problem started when the right pocket ran out of cash and it was just easier to "move" a bit of cash from the left pocket to "cover" things. This started under LBJ and as continued since. Most people have no idea exactly how much has been "moved" but its in the tillions.
Come 2018, both the right and left pockets will go empty from time to time. Moving nonexistent money from the right pocket back to the left pocket is not an option. The "where is the crisis" folks say that the federal government owes that money back and it will just have to use the power of the purse to make thing right again (that sounds easy). Thus begins the crisis as all the money "moved" will be paid back by .. just raising taxes .. as the repayment goes on budget as a evergrowing non-negociatible line item (from heck).

Bill Arnold

As TM hints, we need a progressive solution. For instance, a supplemental tax on income above the social security threshold, kicking in 2018. This way, the class that borrowed is the class that pays. The members of the class wouldn't be exactly the same, but it's closer to fair than some of the alternatives. We could work out the details (like what exactly the threshold should be in 2018) between now and then.

Patrick R. Sullivan

"For instance, a supplemental tax on income above the social security threshold, kicking in 2018. This way, the class that borrowed is the class that pays."

Terrific idea. Tax the politicians who did the borrowing.

SaveFarris

Anyone else catch Krugman admitting the Clinton budget surplus was "imaginary"? Somehow I doubt that will get re-iterated when he blames Bush for losing it.

D

Well, we do have to give PK a little credit. The SS trust goes into deficit around 2018. Medicare, OTOH, is in the red as we speak.

Of course that does not mean we can ignore the looming SS problem. I'm just sayin'...

Dave Schuler

You, I am not so sure about...

Join the club. I'm not so sure about me.

Ryan

Krugman's right. I hate scare tactics....

http://www.qando.net/details.aspx?Entry=569

I just hate hypocritical bastards more.


Gabriel Chapman

The larger problem is not SS or Medicare/Medicaid, etc, its government taking on a role it never was supposed to have in the first place, caregiver and nanny to the unwashed masses.

Rob Read

Hey most don't care about privitisation, they just want to opt out and use the money themselves.

Have a default state scheme, which can be opted out of.

The problem is that coerced collectivists want to force others to work for their failure to save.

Tully

Neo nailed it. And right now those current SS surpluses are being "lent" to Medicare to cover the "trust fund drawdown" there.

Jor

Krugman has published a detailed article about SS trust fund in the Economists Voice -- a shrill publication that Mankiw also decided to publish in. He provided a link in the editorial. Can you guys try RTFA before sticking foot in mouth?

TM

Te article is a shrill joke, and next on "To Deplore" list. And nice job, Jor - your useless, non-comtributory insults are delayed a full sentence in this comment. And, no typos!

When I start deleting your comments, seemingly at random and by whim, please understand that it is because of (a) your nearly steadfast refusal to make a positive contribution to the discussion, and (b) your insistence on generalized and irrelevant insults of conservatives, the right, and other commenters. I have lost interest in your non-contribution, and I don't think you are exactly sparking debate. But we will see - this particular New Year's resolution is highly mood dependent.

Jor

Regarding the Trust fund (pg 4), he makes two points, which exactly are the shrill jokes?

The date at which the trust fund will run out, according to Social Security Administration projections, has receded steadily into the future: 10 years ago it was 2029, now it s 2042. As Kevin Drum, Brad DeLong, and others have pointed out, the SSA estimates are very conservative, and quite moderate projections of economic growth push the exhaustion date into the indefinite future.

But the privatizers won t take yes for an answer when it comes to the sustainability of Social Security. Their answer to the pretty good numbers is to say that the trust fund is meaningless, because it s invested in U.S. government bonds. They aren t really saying that government bonds are worthless; their point is that the whole notion of a separate budget for Social Security is a fiction. And if that s true, the idea that one part of the government can have a positive trust fund while the government as a whole is in debt does become strange.

But there are two problems with their position.

The lesser problem is that if you say that there is no link between the payroll tax and future Social Security benefits which is what denying the reality of the trust fund amounts to then Greenspan and company pulled a fast one back in the 1980s: they sold a regressive tax switch, raising taxes on workers while cutting them on the wealthy, on false pretenses. More broadly, we re breaking a major promise if we now, after 20 years of high payroll taxes to pay for Social Security s future, declare that it was all a little joke on the public.

The bigger problem for those who want to see a crisis in Social Security s future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it s just part of the federal budget: there can t be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it s hard to make the case that it will be central.

But those who insist that we face a Social Security crisis want to have it both ways. Having invoked the concept of a unified budget to reject the existence of a trust fund, they refuse to accept the implications of that unified budget going forward. Instead, having changed the rules to make the trust fund meaningless, they want to change the rules back around 15 years from now: today, when the payroll tax takes in more revenue than SS benefits, they say that s meaningless,

TM

You stopped the excerpting just before he took the time to explain that everyone who disagreed with him was intellectually corrupt. Although I have no doubt that you agree, I wonder whether that is really the appropriate tone for an aspiring new economics journal.

I don’t know why this contradiction is so hard to understand, except to echo Upton Sinclair: it’s hard to get a man to understand something when his salary (or, in the current situation, his membership in the political club) depends on his not understanding it. But let me try this one more time, by asking the following:

What happens in 2018 or whenever, when benefits payments exceed payroll tax revenues?

The answer, very clearly, is nothing.

The Social Security system won’t be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. That’s not going to happen. So legally, mechanically, 2018 has no meaning.

Now it’s true that rising benefit costs will be a drag on the federal budget. So will rising Medicare costs. So will the ongoing drain from tax cuts. So will whatever wars we get into. I can’t find a story under which Social Security payments, as opposed to other things, become a crucial budgetary problem in 2018.

spongeworthy

I can't really follow Krugman's point. He claims we're playing it a little convenient here by claiming on one hand the SS is off budget and then on the other claiming the Trust Fund's a myth.

What exactly does that change? How does his argument remove one future liability from the rolls? Which side of the aisle perpetrated the System as a retirement plan rather than a transfer? How can the Lefties come back now and tell us it was always a transfer as far as they were concerned?

There is no argument these people will not make to head off changes to the system, and I am convinced it's because they want to means test it. They need an issue to divide the haves from the have-nots and this is it.

Opinionated Vogon

Dick McDonald does a wonderful fisking of Krugman on his blog http://dickmcdonald.blogspot.com/

Jor

TM, You might have forgotten, but right before the election, somewhere between 1/4th to 1/2 the conservative inteligensia came out against a Bush re-election. After Bush was elected, more of them came out the wood-work, lamenting the administrations gross incompetence (think Kristol, et. al) -- pushing the number closer to 1/2.

So, now lets pretend you aren't conservative, you never agreed with the policies in the first place, and a large number of republicans agree that these policies were executed by retarted 5 year olds. I think that might justify its time to get shrill. I'm not sure why this is hard to understand. If you want examples of the people on the right being extraordinary hacks -- c.f Rush "fraternity prank" Limbaugh. Or perhaps to remain more relevant, Volokh Conspiracy wondering why the right has remained so quiet on torture. OR InstaHack telling us "life long detention w/no evidence seems like a bad idea, but could be wrong". Even freakin republican senators have more integrity than some of the conservative commenterait. So taking all tha tinto account, I'm not sure why you don't expect people on the left to be shrill. If you want to compare -- c.f late 90's and blow jobs.

SW all govt programs are "transfers", welcome to the 21st century, thank you for playing.

J_Crater

If there really is a Social Security Trust Fund as Krugman claims, then why was Al Gore talking about a "lockbox" ?

TM

Al Gore is still my favorite. If I can find it, Somerby recently ran Al's "Plan" to save Social Security. Basically, Al gave an enthusiastic description of the current funding program, and declared salvation. Why didn't we think of that?

Ahh, here we go:

AMES DAO (5/2/00): Mr. Gore also used his Atlantic City speech to discuss his own proposal for keeping the Social Security system solvent.

Under that plan, he would use the system's surplus to pay down the national debt, which in turn would reduce the federal government's interest payments. Those savings would then be put back into the Social Security trust fund, keeping the system solvent for an additional 13 years or more [through the year 2055].

"I will devote all interest from debt reduction to shore up Social Security," Mr. Gore said. "I think it is wrong to cut benefits, raise the retirement age or risk your retirement savings in a game of stock market roulette."

Now, there may be some subtlety that the reporter missed, but what he described is what we do right now.

Paul Zrimsek

It's pretty close to what we do right now-- except that, unlike Gore, we don't double-count the interest on the bonds held by the Trust Fund.

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