The Social Security Free Lunch
Bob Somerby has even more fun with the Social Security debate in his latest two Daily Howlers here and here. The second one reports on Paul Krugman’s excellent New York Times oped and then turns on David Brooks who appeared on This Week:
BROOKS (12/5/04): First of all, we’re not going to increase the debt. The government already has liabilities. What we’re doing with, by privatizing Social Security and with these so-called transition costs, we’re acknowledging the debt the government has already promised, so we’re not actually in real terms increasing the debt. The second thing which is crucial and I think we’ve been talking about the Republicans—
STEPHANOPOULOS: Well, wait, but you are increasing the debt by the cost of the private accounts. This is one to three trillion dollars.
BROOKS: Yeah, but the transition—but the government has already promised that years out. It’s just we’re bringing it up front and acknowledging it. And the question is whether we increase the deficit in accounting terms, whether that causes the markets to panic, which is a real concern.
Let’s be fair to Mr. Brooks – shuffling money around like this does not increase the total Federal debt – just the debt held by the public. But “talking about the Republicans” as Brooks suggests, could they for once be honest about how large the General Fund deficit has become since Bush has become President?
Bob’s post from Monday was called “Return of the Free Money” where he quotes this from the Washington Post:
WASHINGTON POST (12/6/04): Social Security privatization would allow current workers to divert part of the payroll tax into personal retirement accounts. That diversion would leave the government short of money, so…the government would have to borrow more—issuing perhaps $2 trillion in extra bonds over the next generation or so. But, in a soundly designed privatization, this transition cost would generate an equal and opposing transition benefit. The workers who divert part of their payroll tax into personal accounts would accept an offsetting cut in future Social Security payments from the government, thus reducing the nation’s debt to future recipients. In sum, privatization would merely substitute new promises to pay bondholders for old promises to pay retirees. In a properly designed reform, the net transition cost should be zero.
Bob sensibly asks:
After all, most people who promote privatization say it provides a way to address projected insolvency in the Soc Sec program. But if the government spends $2 trillion now—then takes back $2 trillion in the future—how would this help solve this ballyhooed problem?
Bob then turns on John Kasich who tried to claim:
KASICH (12/1/04): We should also create Social Security savings accounts for those under 55. Workers could invest some of their payroll taxes in their own savings account in a mixture of conservative stocks and bonds, much as members of Congress and federal employees do. In exchange for investing a part of their payroll taxes, workers would give up some of their future Social Security benefit—probably about 25 cents for every dollar invested.
Read Bob’s post in its entirety as he explains these issues more clearly and honestly than you will get from the GOP spinmeisters.