The Wall Street Journal about 20 years ago had a cartoon of a man explaining the value of the dollar to his son. The son replied that he wanted his allowance in Swiss Francs. I thought of this cartoon as I read the latest from Kevin Hassett on why privatization is so crucial. Hassett and co-author Maya MacGuineas concede there is no free lunch but they also write:
The Social Security system is loaded with a confusing mishmash of IOUs, both implicit and explicit. Reforms tend to rearrange the liabilities in this crazy quilt. Do the labels on the IOUs matter? … The unfunded liability is the amount of money that we would need to put away today in order to generate a large enough revenue stream to fill in the growing gap between program benefits and revenues. It is important to understand that this implicit liability is completely different from other types of debts, such as the government debt owed the public. Unlike a government debt resulting from borrowing, this implicit debt is not binding because participants have no legal right or claim to their Social Security benefits. While the benefits have been promised (or implied), they are not owed, need not be paid, and can be changed at any time … The borrowing that would take place to jump-start a system of privately owned individual accounts would create a new explicit debt. A dollar diverted into such an account would, ignoring dynamic effects, lead to the issuance of a dollar’s worth of Treasurys on the open market — an additional dollar of debt for the government. Opponents of reform often point to this and assert that the government’s asset position would be worsened.
Intellectual foul – I say. The real argument here is that the General Fund deficits are so massive that almost any kind of U.S. Federal bonds might become worthless. So whether the debt is implicit or explicit is not the issue. Rather the issue is whether the political masters that Hassett and MacGuineas are pimping for have the courage to admit that income taxes must be raised. For a “liberal dose of fiscal discipline”, see the latest from Max Sawicky.