by Dale Coberly
an Op-Ed


A few weeks ago Bruce Krasting published on his own blog an essay claiming that Social Security was going broke and that it would cause the economy to collapse, and the only possible remedy was to means test Social Security.

I replied on Angry Bear that Social Security was not going broke and could never go broke. I pointed out that the Trust Fund was created exactly for the purpose of covering temporary periods of negative cash flow in the regular pay as you go structure of Social Security. That negative cash flow is normally a matter of month to month irregularities in collecting the money and paying it out. A sufficient reserve is kept to bridge extended periods of lower collections and higher payouts caused by, for example, the current recession. And a very large reserve has been allowed to grow in order to effectively allow the baby boomers to pre pay their own retirement.

Because of the demographic “bulge” of the baby boom, the absence of the enhanced Trust Fund, would have allowed a “generational inequity” where the Boomers paid a lower payroll tax to “pay as you go” for the smaller number of retirees in the generation ahead of them; and then the smaller number of workers in the generation behind them would have had to pay a higher tax rate because of the greater number of boomers. The current large Trust Fund is big enough to take care of the retiring baby boomers even during a recession with a ten percent unemployment rate that lasts ten years.

In a private exchange (since published) Krasting seemed to concede this. But he insisted that whatever the justice of the case, the lack of a surplus in Social Security would require Congress to go to the bond market and attempt to borrow money there to make up for the money they have been “borrowing” from Social Security. Krasting predicted that THIS would cause the economy to collapse and the only possible remedy was to means test Social Security.

In my reply to him I said that I was not impressed with claims that the sky was falling, having heard them before, and that the honest way for Congress to make up for the money it could no longer “borrow” from Social Security, if it could not borrow on the bond market, would be for it to raise taxes on the people who had benefitted from the tax cuts that had led to the deficits.

Krasting did not hear this, and instead writes that we are “thick headed” because I at least don’t care very much about his calculation of the looming death of the Trust Fund based his very own assumptions about interest rates. His letter is reproduced below. I can’t see that it has any merit at all. Perhaps someone who can write more clearly than Krasting can help him make his case.

What Krasting does have on his side is that apparently all the advisors to the President and the Congress agree with him that it is better to destroy the workers retirement security… that they pay for themselves… than to cause the least discomfort to bond traders or the high income folks whose tax cuts have allowed them to get even richer “in the markets.” Apparently the rich don’t have to pay their bills. Or even repay the money they borrowed that helped them get richer.

What I sometimes like to point out is that even if the Congress steals the Trust Fund, it would not result in material harm to the workers…. as long as they are allowed to raise their own tax a small amount so they can continue to pay for their own retirement on a “pay as you go” basis. This would be an injustice to them, but it would do far, far, less harm than turning Social Security into a means-tested welfare-as-we-knew-it. And far less harm than raising the retirement age… a perennial favorite among the folks who have jobs they like, and enough money to retire in their forties when their taxes are too high for their sense of what they are owed for their labor.

Conclusion: Krasting apparently wants me to endorse his numbers for interest rates and the death of the Trust Fund. I can’t do that. I prefer to let the Social Security Trustees do all the hard forecasting. All I can do is point out what their numbers mean. In this case Krastings numbers mean precisely nothing: Even if his numbers were right… and I don’t think they are, they have no important significance for Social Security.

When Social Security goes cash-flow negative, or what day the Trust Fund “goes broke” does not matter. Social Security can continue to pay for itself forever, with a modest tax rate that pays for the taxpayers own expected costs of retirement.

This may involve a very modest departure from a kind of “generational equity” that simply does not exist in the real world for any other aspect of life. Only an insane person, or one with evil intent would argue to destroy Social Security because one generation might pay or get a percent more or less. It would be like forcing people to give up farming because the price of bread varied from one generation to the next. Even the stock market does not deliver that kind of intergenerational “equity.”

It has always been understood that the Trust Fund would go cash flow negative. That is what it was created to be used for. If that is now a problem for the Treasury or the bond market, there are honest ways to deal with that problem. Stealing from Social Security is not honest. And destroying Social Security in the name of deficit reduction or shoring up the bond market is not only dishonest, it is maliciously evil.
by Dale Coberly