Assume two chaps, Vladimir and Estragon. Both have $10 in assets, but Vladimir owes Estragon $12. Vlad's net debt is of course $2, or 20% of his assets.
Est, somewhat concerned by this turn of events, asks Vlad his intentions.
"It is coming!" says Vlad. "I have a plan. I shall take $5 of my assets from the bank and put it under my mattress. That shall solve the problem!"
"How so?" asks Est.
"Simple, says Vlad. "I shall write myself an IOU for the $5. I now have $5 in the bank, $5 under the mattress and my IOU to myself for $5. I have $15 in assets and only $12 of liabilities. I am solvent!"
Est looks befuddledly at Vlad.
"You're a Democrat, aren't you Vlad?" he asks.
You now understand the fraud of the Social Security "trust fund."
...
Assume two chaps, Vladimir and Estragon. Both have $10 in assets, but Vladimir owes Estragon $12. Vlad's net debt is of course $2, or 20% of his assets.
Est, somewhat concerned by this turn of events, asks Vlad his intentions.
"It is coming!" says Vlad. "I have a plan. I shall pay you now $9 of the $12 I owe you!"
"Cool, you rock!" says Est. "I can handle being owed only $3, even if I never actually get all of it. Having that $9 today may not solve the crisis of the $3 shortfall, but it will sure help me out."
"I'll feel better too," Vlad added. "Why not pay what I can, when I can, even if it doesn't 'solve' my net debt problem? Why make our financial arrangements more complicated than they have to be?"
Meanwhile, Paul Krugman, who happens to be sitting under a tree nearby, shouts "Wait! This is a fraud!"
"How so?" asks Est, who, seeing Vlad reach into his wallet, becomes somewhat agitated by Krugman's interruption.
"Look at Vlad's balance sheet!" His net debt was only 20% of his assets before, but if he pays you $9 now instead of waiting until 2045, then he will still owe you $3, but he will only have $1 left. His net debt will now be 300% of his assets! He will have to incur more debt or raise taxes on himself in order to pay you that $3. You would actually be better off if he didn't pay you $9 today so that he could, um, not pay you $12 in the future either. Because this way the system still looks okay, at least until 2045."
Est looks befuddledly at Krugman.
"You're an idiot, aren't you Krugman?" he asks.
You now understand the "why" of personal Social Security accounts.
"There's man all over for you, blaming on his boots the faults of his feet."
--Samuel Beckett
...
Just about everyone who discusses the Social Security with any degree of intellectual honesty acknowledges the following:
--There is in a fact a Social Security crisis. The refusal to acknowledge it does not mean it does not exist.
--Privatized accounts neither alleviate nor worsen that crisis. They merely represent a deleveraging of the program. Forced savings and vested accounts today in exchange for reduced benefits tomorrow may not "solve" the problem, but that does not mean private account reform is not a good idea in and of itself. (Of course, any proposal that would divert FICA taxes into private accounts without a reduction in benefits would vastly worsen the crisis, but that is not what most advocates of reform are suggesting.)
--It would be terribly immoral to cut benefits for current or soon-to-be retirees, for reasons I describe elsewhere.
--The current Social Security system discriminates against blacks (shorter life expectancy), women (disincentive from entering the workforce) and gays (no spousal benefits under DOMA). Private accounts mitigate all those discriminatory effects, even if they have no direct impact on the crisis. This is an unmitigated and undeniable positive in and of itself.
The leading "gets it right" blogger is of course Arnold Kling. The worst "gets it wrong" blogger continues to be Tyler Cowen. Both should be read very carefully.
I, meanwhile, have written quite extensively on the Social Security crisis at my own blog. A recent post with a good archive of previous entries can be found here.
Comments policy