Free Markets, Free People

Krugman in Bizarro land

Paul Krugman has written some bizarre columns in his day but none more bizarre than his column on Social Security today.

It is stunning in its ignorance and simply appalling in its logic.  In it he tries so hard to prove his premise that Social Security proves government isn’t always the problem and is sometimes the solution that he’s left to use “facts” that have been refuted for, well, decades.

For instance:

Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund.

There may “legally” be a “trust fund”, but there’s nothing in it but government IOUs.  The federal government has borrowed every dollar that was ever in the “surpluses”, put them in the general fund and spent them.  Now this isn’t even arguable.  This has been known for literally decades.

But Krugman insists that all the money that’s been taken from us for Social Security (FICA) is in a tidy heap in the “trust fund” which has run surpluses for decades. 

Lord, anyone with the IQ of a penguin knows that there isn’t a dime of real revenue sitting in that account – it is stuffed to the gills with treasury bonds.  To this point that hasn’t been a problem – because it has always taken in more than it paid out.  That’s no longer going to be the case – especially when the baby boomers retire.  So where will the money to pay their retirement come from? 

Debt.  Borrowing.

Oh, and this strawman:

Meanwhile, an aging population will eventually (over the course of the next 20 years) cause the cost of paying Social Security benefits to rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P. To give you some perspective, that’s a significantly smaller increase than the rise in defense spending since 2001, which Washington certainly didn’t consider a crisis, or even a reason to rethink some of the Bush tax cuts.

Well yeah, we’ve been in two wars – or hadn’t he noticed?  Defense spending will go down.  Social Security spending won’t.  Add to that health care spending and other entitlements and you can imagine the chunk of GDP those will consume.

Instead, what you’re seeing here is the end of the life-cycle of a Ponzi scheme.  Bill Gross gives you an indication of what I’m talking about:

First of all, capitalistic innovation fostered productivity, and an increasing standard of living through technology and innovation. Debts could be paid back via profits and higher wages if only because of rising prosperity itself. Secondly, the 20th century, which fathered the debt supercycle, was a time of global population growth despite its interruption by tragic world wars and periodic pandemics. Prior debts could be spread over an ever-increasing number of people, lessening the burden and making it possible to assume even more debt in a seemingly endless cycle which brought consumption forward – anticipating that future generations could do the same.

But while technological innovation – much like Moore’s law – seems to have endless promise, population growth in numerous parts of the developed world is approaching a dead end. Not only will it become more difficult to transfer high existing debt burdens onto the smaller shoulders of future generations, but the overlevered, aging “global boomers” themselves will demand a disproportionate piece of stunted future goods and services – without, it seems, the ability to pay for it. Creditors, sensing the predicament, hold back as they recently have in Greece and other southern European peripherals, or in the U.S. itself, as lenders demand larger down payments on new home mortgages, and other debt extensions.

So there it is – when the population was expanding, the Ponzi scheme worked.  Now that it is stagnating and contracting, the bill has come due.  This isn’t rocket science, although to read Krugman you’d think he thinks it is.

It is absurd for any knowledgeable person to write that Social Security is just fine and dandy, but that’s precisely what Krugman does.  And the pretzel logic and pure and outright nonsense he strings together to justify that conclusion are astounding.  And it all has a point:

Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution.

Really – is that the reason Mr. Krugman? Or is it because the so-called trust fund doesn’t have two real dimes to rub against each other, the government spent it all and is broke, baby boomers are retiring and there aren’t enough workers left to support them and we’re in a deep recession?

Yeah, can’t be any of that – must be they hate it for ideological reasons.

Amazing.

~McQ

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19 Responses to Krugman in Bizarro land

  • It is simply unbelievable that anyone that is even half-way educated doesn’t understand that their is no money in the trust fund.
     
    What happens to the first person in charge to tell the boomers that they aren’t getting their checks anymore?  Most of my generation has known for a long time that none of us will ever see a dime of our “investment” into the SS plan.

    • There is a strong hint that even Krugman knows this trust fund is something else …

      the so-called trust fund

  • By the By, your first link goes to an unrelated op-ed piece (on academic funding), not to the Krugman piece.

  • I know that Social Security won’t be there for me, so I guess I can have a big horse laugh at the rest of the suckers who will be standing around slack-jawed at not getting their checks.  Or I guess I could have that laugh, if only I didn’t know they’ll find other way to take that situation and make it much, much worse.

    • As i understand it, under current law, as long as the so called trust fund can cash its special t-bills, with the money coming from the general fund, Social Security will be able to pay the promised amount.  Some time around 2038, the trust fund will be exhausted and from that point on Social Security can only pay about 75% of what has been promised.
      However, since LBJ created the unified budget to use Social Security surplus to hide the deficit, outside of a brief period in the 1980’s, Social Security surpluses have continue to mask the true deficit.  Starting about 2017, Social Security will need to spend some of that surplus cause the general fund (and Congress) two problems.   The first is there wil be nothing to mask the true deficit and second, the deficit each year will be worse because money will need to be taken to repay the Social Security special treasury bonds.
      Look, Krugman is not stupid enough to believe what he has written.  This is just another in a continuing series of partisan hack columns that have no basis in reality.  Why both Princeton and the NYT put up with this is a complete mystery.

  • This sort of thing is one reason why the country is in trouble: partisan pollyannas insisting that things aren’t so bad.  In fact, they are GOOD.  So don’t worry: be happy.

    Bah.

  • Is there some sort of viral infection that comes from contact with a Nobel Prize ?
    .. or are these folks mentally deranged before they get them ?

  • Or Captain Smith said to the bridge crew, “Send out an SOS on the wireless. Move the passengers to the life boats. And then move some deck chairs to the port side.”

  • We are already seeing this play out in the states with the pension funds (and of course, in places like Greece). My understanding is that the CA pension funds were invested in real estate. At least they invested it, the feds simply spent the SS funds.

  • I found this Krugman “argument” interesting:

    So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.

    Well, the surpluses don’t count because they were spent. If I spent my 401k’s, they wouldn’t count either, would it.

    Future SS deficits are unacceptable because we are running constant deficits already, even when SS surpluses are counted as part of the general fund. In fact, even with SS surpluses, Obama has been running back-to-back $1.4T deficits. If Obama could run a $400B surplus, maybe it would be different and Krugman would have a point.

    What an idiot. I didn’t want to read his article, but then decided I had to before commenting. It was as bad as Bruce said.

  • I could understand when my pig headed father-in-law used to spew about “trust fund” as if it represented liquid assets (and after his generation, and mine,  had worked so hard to spend the hell out of it)  – it boggles my mind that a ‘Noble Prize winning economist’ like Krugman would do it (not really, I have zero respect for Krugman, and this is precisely why…).
     
    It is however, further proof that the Noble Prize as currency for anything has been sorely devalued.

    • The Peace Prize is worse, with folks like Arafat, Carter, Gore, and Obama making it worthless.

      Krugman got his in econ, but perhaps it was deserved. It isn’t impossible to have an impressive contribution to econ while being an absolute idiot on econ as it touches politics.

  • It’s possible you guys are missing Krugman’s point. The federal government can easily produce the money to keep SS’s nominal obligations. It’s just that the money may not be worth much because they’ve had to drive inflation through the roof to produce the money. Then the only fix the federal government needs to make is to cap SS COLA adjustments.

    So today’s forty year old may get his $2500 montly check at age 67, but by then it may be barely enough to buy a six pack of Geritol. However, the government will have nominally fulfilled it’s obligations.

  • This is just one of many, many reasons I find any talk of “saving Social Security” to be intellectually dishonest.  Aside from the geniuses from both parties currently serving in Congress, who seriously believes Social Security can be saved?  In fact, I’ll take it a step further: among those currently serving in Congress, I doubt you could find even a plurality from either party that really, truly thinks Social Security can be salvaged.  Any debate on this subject is merely a charade (much like Krugman’s Nobel).

  • Wait, wait…
    I was told that my SS “contributions” were in a “lock-box”…!!!  Al Gore assured me they were there when I need them.
    But back to reality…Krugman has been in Salvador Dali-land for ever so long.  This is just another in a series of la-la-land cries from the wilderness.
    http://hindenblog1.blogspot.com/2010/04/crash-enron-mavin-proves-hes-idiot-and.html

  • “Krugman in Bizzaro Land”—-you say that like it’s a bad thing (Hey)!
    The more that numbnuts like him make these obviously biased & nonsensical arguments, the more it awakens others to the fact that the guy does not live on the same planet as the rest of us.  As a result, he is a candidate (a w-e-l-l deserving candidate I might add) of our ridicule.