Mike the Mad Biologist

I haven’t ranted about the non-existent Social Security crisis for a while. Thankfully, Bob Somerby does some very good myth-busting of the ‘worthlessness’ of Social Security IOUs–that is, the Social Security Trust Fund:

It’s true, of course, that the SS surpluses of the past twenty years (the so-called trust fund) have been borrowed and spent. (That’s the system Congress put in place when it raised payroll taxes in the 1980s.) But then, the federal government borrows lots of money, from lots of sources, and all of that money has been spent! Duh. The government doesn’t borrow money so members of Congress can sit and stare at it. They don’t just let it sit in a vault until they have to pay it back. The government borrows money from the SS trustees and from Chinese banks–and all the money gets spent! That’s why the money is borrowed!

Could we conduct a thought experiment about this remarkable bit of misdirection?

The federal government has borrowed lots of money from Chinese banks down through the years. When those loans come due and must be repaid, do you think the feds will say this to the Chinese: The money isn’t there–we’ve already spent it? There’s just a pile of worthless IOUs in your account? Of course they won’t say any such thing–they’ll repay what’s due, then borrow some more. (Assuming we haven’t gone into balance.) But the same process obtains with the money that’s borrowed from the SS trust fund.

You may not like the fact that the government borrows–but that’s a separate question. There’s nothing magical about the money borrowed from the SS trust fund–nothing that sets it apart from all the other money the government borrows. And yet, a remarkable piece of propaganda was invented decades ago, and it has now wormed its way into the hearts of the populace. Baker’s post proves it again: You simply can’t discuss Social Security without someone reciting the points which have fueled this long campaign. Indeed, young people are sure they’ll never see a penny of Social Security because of this long, slick effort.

This must be the greatest piece of political propaganda of the last fifty years–the greatest bit of misdirection conceived in that period. Everyone has heard the talking-points. Volunteers rush forward to state them.

So how about it? Is it true? Is the trust fund “nothing but worthless IOUs?” Here’s the answer to that question: People! Go ask the Chinese!

Or, to paraphrase Dean Baker, if we’re going to default on government-backed securities, why not start with Peter Peterson’s?

Comments

  1. #1 Moopheus
    April 8, 2009

    “do you think the feds will say this to the Chinese: The money isn’t there–we’ve already spent it? There’s just a pile of worthless IOUs in your account? ”

    Though does seem to be what the Chinese are increasingly worried we are going to say.

  2. #2 Science Avenger
    April 8, 2009

    The issue with the SS IOUs (and I mean the big umbrella, not just OASDI) isn’t that the government will default on them (though my opinion is not universal), but rather that the politicians talk about using the IOUs to pay for the increased burdon on SS brought on by the baby boomers as if the IOUs were really money just sitting there waiting to be used. This diverts people’s attention from making the hard choices of either reducing SS benefits, increasing taxes, or reducing general spending, that we’ll need to pay it.

    This is one of those issues that has infuriated me for years as I’ve watched politician after politician from both parties make nonsensical statements about the IOUs without challenge from the press.

  3. #3 Dean Austin
    April 8, 2009

    It’s quite simple really. Rollback the George W. Bush tax cuts on the rich, then rollback the Ronald Reagan tax cuts on the rich, reduce our insanely high military spending and SS is just fine.

  4. #4 llewelly
    April 8, 2009

    It’s quite simple really. Rollback the George W. Bush tax cuts on the rich, then rollback the Ronald Reagan tax cuts on the rich, reduce our insanely high military spending and SS is just fine.

    In addition to that, we’d have enough left over to build more solar power stations than required by all of North America, and enough to carry out manned missions to the Moon, Mars, and probably Europa.

  5. #5 R E G
    April 9, 2009

    Can someone explain to me why Americans do not believe they own the Social Security program?

    You know, they pay into it all their working life, and vote into office the people who manage it for them. Why don’t they believe they can talk with their votes? Given that nearly everyone is a potential beneficiary, closing it down would leave a lot of angry voters.

    The kind of angry voters who have virtually exterminated political parties in other democracies.

  6. #6 Clayton
    April 9, 2009

    I think lot of this stems form David Walker’s concerns. You may have addressed this already but I couldn’t find where you previously mentioned him.
    For those that don’t know David Walker was the United States Comptroller General (’98-’08), including former Public Trustee for Social Security and Medicare (’90-’95), he warn congress repeatedly of a developing long term fiscal problem. Receiving no reaction he ventured out on his own, speaking at universities, 60 Minutes, an elsewhere trying to warn the public.

    Berkley Lecture:
    The Nation’s Growing Fiscal Imbalance
    http://www.youtube.com/watch?v=Q9ABP2jzeIA