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February 03, 2005

"Lying" and the Social Security Crisis

On MSNBC's After Hours last night, Jeneane "I'm Just Not Funny" Garofalo and some other idiot from Air America continued to claim that Bush was lying-- in this case, about Social Security.

This is a complicated issue that I don't really entirely understand, but I think I get this one part of the dispute. If I'm wrong about it, I'd appreciate corrections from those who know better.

Part of the dispute is the left's insistence that Social Security is "solvent" -- at least for a long time -- because the Social Security Trust Fund contains a lot of "assets" which can be used to pay future benefits.

This is pretty deceptive. Yes, the trust fund does contain a lot of "assets." Lots and lot of assets. But of what sort?

In fact, the trust fund is actually stuffed full of I.O.U.'s from the federal government, in the form (I assume) of Treasury bills.

But Treasury bills aren't money. Treasury bills aren't bricks of gold that can be sold when actual cash is needed.

Treasury bills are debt-instruments issued by the United States Government. Debt-instruments that need to be paid by the US Government when they mature.

So, to say that the trust fund still has plenty of "assets" in it is, in fact, so deceptive as to constitute a lie. The "assets" it possesses are simply piles of debt owed to it by the US Government.

The trust fund can convert these "assets" into cash... as soon as the Government makes good on the debt and and pays off all the I.O.U.'s stuffed in the trust fund.

But how can the government pay off this debt?

Well, there are only a couple of ways, of course. The government can either increase taxes, payroll taxes or income taxes or some new Double-Secret Probation tax, and therefore increase its revenue stream so that it can continue paying out SS benefits as the I.O.U's in the trust fund become due.

Or, the government can simply issue new debt -- i.e., deficit-spend still further -- and replace the trust fund debts with new obligations, new borrowing, new deficits to be passed on to future generations.

The trouble with the latter option is that this is a problem that's getting worse, not better, and as time goes on we'll need to issue so much debt that there may be some question as to whether investors, foreign or domestic, want to risk purchasing a glut of T-bills which are increasingly unlikely to actually be paid off.

Which means that T-bills will have to offer higher rates of return -- making all this deficit-financing more expensive, perhaps to the point of unsustainability.

So back to option one-- raise taxes in order to cover the increasingly-large shortfalls between what the government owes the trust fund and what the government is bringing in as regards fresh (actual) revenue.

A week ago, the nation's "paper of record" published this egregiously deceptive op-ed (you must pay to read) suggesting that the trust fund was in fact stuffed full of genuine assets that merely needed to be sold off in order to pay for future Social Security benefits. The op-ed actually made it sound like this mountain of debt owed to the trust fund by the US government was a genuine hard asset, just sitting their waiting to be cashed in.


Who's "lying" about Social Security?

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posted by Ace at 04:02 PM

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