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.
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?
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.
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