Where Left Is Right / The Old Site

Paul Krugman, who is in theory the NY Times columnist on economic subjects -- as we saw in 2004, he is in fact fearlessly level-headed on just about every issue (especially the Iraq fiasco) which even remotely touches on the economy -- discusses why the whole rush to a Social Security "fix" is bogus: bogus in its foundations, and bogus in its implementation.

Here's the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which [they claim] are "meaningless i.o.u.'s."
. . .
... [But] the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

Krugman promises this is only the first in a series of columns on the subject, culminating with an "outline [of] a real plan to strengthen Social Security."

If you really want to understand Krugman's whole take on this in one gulp, rather than strung out across a series of weekly columns, check his full-length article (195KB PDF; requires Adobe Acrobat Reader) in the current issue of The Economist's Voice, an on-line journal of economic opinion and research. Do not let yourself be dissuaded by the seeming mind-numbingness of a journal of economic opinion and research; if you ask me, Krugman couldn't write an unreadable sentence if he typed with his eyes closed.