Wednesday, February 09, 2005

PBS Social Security discussion between a liar and an expert

Online NewsHour: President Bush Touts Private Accounts for Social Security Reform -- February 3, 2005

The liar had the audacity to make the following claim:

    the trust fund has no real assets in it.

    What it is, is sort of a collection of IOU's. It is a promise that some day in the future the government will tax someone in order to pay those benefits.

    As the president made clear, in 2027, the federal government will have to redeem some 200 billion dollars' worth of bonds in order to continue to pay benefits, and it doesn't have that money.

Those IOU's are in the form of government bonds. Never in the history of our republic has the government defaulted on a bond, and it will not default on the Social Security trust fund's bonds either.

Anyway, in the PBS discussion, reason and facts immediately prevailed:

    In 2027, the president noted the current system requires $200 billion. Under his account system it would require $300 billion, and by the way, the tax cuts, if they're extended, are $344 billion in that year alone.

Here are some more fun facts from the program to use on your conservative friends (eek!) and coworkers:

    In the first ten years in which the accounts were in existence, that is, starting in 2009, they would cost about a trillion dollars. In the second ten years, they'd cost more than three trillion dollars.

    What's most interesting is the straight itself has now admitted the accounts do nothing to improve the long-term deficit in Social Security. So talking about the long-term deficit in Social Security on the one hand, the accounts on the other, is a non sequitur. The accounts do not do anything to reduce that long-term deficit.

    JEFFREY BROWN: What about at a more universal level for the system.

    Isn't one of the key questions here and controversies whether doing this helps the problem that we now have or hurts, whether it adds money or takes money away? You think it hurts the problem?

    PETER ORSZAG: Well, the administration itself says it doesn't help. And what we would have is a very significant increase in debt today, coupled with a very back-loaded reduction in debt, which just washes out over the long run.

This is precisely the point that I've made to my friends and coworkers. All other things being equal, privatization will have a net zero effect on the solvency of Social Security. Follow the logic to its only conclusion:

  • The stated problem with Social Security is that it is going to become insolvent, unable to pay its debts
  • The stated solution is to privatize
  • Therefore, you may divert 20% of your contribution into a private account
  • When you retire, you will presumably receive 80% of your originally-planned compensation from the general fund
  • This has absolutely no effect on the solvency of the general fund
  • You've diverted 20% and received 20% less. This has an effect of zero.
  • Now, the administration is actually saying that benefits in general will decrease. So if you divert nothing and opt to rely on the traditional system, you will receive less than 100% of what you would receive were nothing to change. So, if you divert 20%, you will receive less than 80%, etc...
  • Privatization has had absolutely no effect on the solvency of the general fund, but will in fact destroy the program itself if given enough time
  • Only by adjusting contributions upward and/or adjusting compensation downward will Social Security become solvent.

So, the conservative, while ceded the point, dances around the issue with the following:

    MICHAEL TANNER: We're doing it because we can provide a better rate of return, a better retirement benefit and ownership and control to individuals than what we would do if we simply cut benefits or simply raised taxes.

    If all you care about is solvency, you can do exactly what Peter suggested. We can cut benefits enough and we can raise taxes enough to keep the system in balance.

What nerve this guy has! "If all you care about is solvency"??? Is it just me, or had this same guy just finished saying "Well, within the 15 years, Social Security will begin to spend more money on benefits than it's taking in, in revenue. There will be more money going out than it has coming in. Most people would recognize that's a problem."???

What a formula this is!

  • Define a problem and claim that it absolutely must be solved
  • Propose a solution that does nothing to fix the supposed problem
  • When called out, admit that it doesn't fix the problem, then come up with another reason to do it anyway!

Doesn't "We're giving freedom to Iraq" sound just the slightest bit different to you than "The smoking gun may come in the form of a mushroom cloud"? To my ears, each of those justifications has quite a different ring than the other. Typical, typical, typical.


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