DeMint Soc. Sec. Proposal: NRO Corrects an Error

I wish to amend for two errors of omission in this post. The first was not mentioning the same day op-ed from Eric Pfeiffer. While I disagree with much of what Mr. Pfeiffer wrote, I appreciate the fact that his definition of the Social Security surplus included interest income. The second was my failure to mention that Lawrence Hunter’s coauthor was Phil Kerpen who also wrote this op-ed.

While Hunter-Kerpen omitted the Trust Fund’s interest income, Kerpen now shows the impact of including the interest income. Alas, Kerpen is not officially conceding that Hunter-Kerpen erred. Instead, he is saying that an analysis the DeMint plan should exclude this income as if DeMint is implicitly proposing to default on the accumulated bonds in that file drawer. If that is what Senator DeMint is really suggesting, then I can understand how his proposal would reduce the General Fund problem – by diverting assets and the associated interest from the Social Security Trust Fund, which would implicitly be either a benefit cut its proponents do not admit to or a move that would increase any alleged insolvency issue.

We have seen lots of this kind of bait-and-switch accounting from the privatization crowd. Of course, we have seen lots of bait-and-switch discussions on asset returns such as what we discussed yesterday. I’m sure Mr. Kudlow knows that a 9% nominal return is not superior to a 3% real return if inflation is 6%. Alas, the writing from the free lunch crowd seems to be based on the premise that their readers do not know the difference.

Update: Phil Kerpen emailed me asking me to take a look at the document labeled “Stop the Raid – Start the Accounts…Without Adding to the Deficits”, which can be found here. Notice this document begins by saying the Social Security surpluses are only $69 billion per year, which excludes the interest income. Mr. Kerpen says the DeMint proposal would not include the current Trust Fund assets, which basically means DeMint is proposing to worsen the solvency issue – not improve it. Also note that this document is proposing to reduce government spending by over $140 billion per year. It’s fine for a private citizen to HOPE the GOP led Federal government would be so fiscally responsible – but there is no evidence that President Bush and the House leadership has any intent to follow these proposals.