Just Because It’s Cynical Doesn’t Mean It’s Wrong

Josh Marshall on SSRI:

… The United States has a bit over $7 trillion in accumulated national debt … After 1980 we started borrowing money big-time to finance our deficits — in large part because of tax cuts on high-income earners. However you want to slice it, we started spending substantially more than we were taking in in tax revenue.

So where’d we borrow the money?

… I believe about $4 trillion of that debt was borrowed on the open market — individual Americans have them in their investment portfolios, or pension funds hold them, or the Chinese, Japanese and the Saudis and others have them in bonds.

But about $3 trillion of those dollars we needed to fund the 1980s and 1990s deficits we managed to borrow closer to home. We borrowed it from the Social Security (and a few other government) trust fund(s).

Almost the entirety of President Bush’s Social Security phase-out plan comes down to a simple proposition: finding out how not to pay it back.

… Before discussing that aspect of the question, consider a hypothetical. Let’s say there’d not been a Social Security — President Bush’s dreamworld. We’d still have had the same deficits. The difference would be that we’d have had to borrow from private borrowers in the US and abroad.

Think we’d just be able to decide not to pay them back? Not likely. The Joneses and the Smiths with their 401ks probably wouldn’t like that. And the Japanese and Saudis probably wouldn’t like it much either. Of course, defaulting on our entire national debt would also certainly trigger a seismic international financial crisis…

The next time you read an article claiming that Social Security is in a crisis, or will be insolvent in the next decade, read very carefully (see e.g., the Post’s Jonathan Weisman; commentary here and here). The author’s claims most likely rest on the idea — either implicity or in order to mislead — that the government will default on its debt obligation to future retirees, retirees who explictly paid more in payroll taxes in order to partially pre-fund their retirements.