BUDGET BABEL: Missing in action!

FRIDAY, DECEMBER 14, 2012

Conclusion—In search of a liberal framework: At this point, is Social Security adding to the federal deficit?

A recent remark by Senator Durbin set off a renewed discussion of this somewhat irrelevant point. But as Krauthammer, Kessler and Drum talked it out, an important figure was missing in action.

Missing in action as usual.

Who or what was missing in action, away without leave, non-existent?

Who or what else? The liberal perspective or framework was missing in action! But then, this has been the case for at least the past thirty years.

The plutocrat framework on Social Security has never been hard to find. Responding to Durbin’s remark, Krauthammer tickled some very familiar strings in the Washington Post.

The plutocrat framework is very well known. Charles played a very familiar tune:
KRAUTHAMMER (11/30/12): [Y]ou get a sense of the Democrats' [dis]inclination to reform entitlements when Dick Durbin, the Senate Democrats' No. 2, says Social Security is off the table because it "does not add a penny to our deficit."

This is absurd. In 2012, Social Security adds $165 billion to the deficit. Democrats pretend that Social Security is covered through 2033 by its trust fund. Except that the trust fund is a fiction, a mere "bookkeeping" device, as the Office of Management and Budget itself has written. The trust fund's IOUs "do not consist of real economic assets that can be drawn down in the future to fund benefits." Future benefits "will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”
The trust fund is “a fiction,” “a mere bookkeeping device,” Charles quickly said. It's a bunch of IOUs! To help advance this familiar claim, he cherry-picked a much-quoted statement from page 337 of a single budget report from the year 2000.

Charles spared us the familiar talk about the left hand borrowing from the right. Breaking with his tribe’s usual practice, he didn’t repeat the dumbest statement in human history: “The money isn’t there—we’ve already spent it.”

But he did repeat the familiar old saw about what the government will have to do to make payments to that trust find. What will the government have to do to honor the trust fund’s “fictional” “IOUs?” According to Charles’ alarmist script, the government will have to raise taxes, borrow more money or reduce other expenses.

Of course, those are same things the government has to do to repay any of its loans—the loans it repays every day! (Generally, it just borrows more money.) Presumably, Charles understands that fact. He may assume that his readers don’t—and of one thing you can be sure:

He himself won’t be bringing it up.

Neither will anyone else, of course. That elementary fact has long been AWOL, MIA, thoroughly missing in action. Also missing: Any attempt to produce an accessible liberal perspective concerning the endless assaults on this seminal program.

The conservative world has been very active in this long-standing debate. Everyone has heard the standard scripts, including that dumbest of all human statements. Here it is, the standard statement about the “trust fund”—the money the Social Security system has loaned to the federal government:

The money isn’t there—we’ve already spent it.

To the unschooled ear, that sounds alarming. Of course, all the money the government borrows gets spent; that's why the government borrowed it.

When Chinese banks lend the government money, that money also gets spent, just like the money from Social Security. But when it comes time to repay those loans, would anyone ever dream of saying this to the Chinese?

The money isn’t there—we’ve already spent it!

No one would ever dream of making such an absurd, inane statement. And yet, the conservative world has scared the country with this nonsense for decades—as “liberal leaders” looked silently on, unwilling or unable to open their well-stuffed pie holes.

In the coming years, will it add to the deficit when the government repays the large sums of money it has borrowed from Social Security? In one sense, it obviously will—but then, it adds to the deficit any time the government repays its loans! Only in the case of money borrowed from Social Security do the Krauthammers emerge from their well-provisioned caves, repeating their highly effective scare words and bulldozing legions of journalists.

In our view, Glenn Kessler’s fact-check of Durbin’s statement constitutes terrible work—and we've been fans of Kessler's overall work through the years. Eventually, Kessler presents his idea of the conservative
“argument:”
KESSLER (12/2/12): As we noted before, this is partly a matter of theology. Democrats look at those trust funds and see actual assets, built up over time, that must be honored.

In their view, the government's general fund-which is now making payments to Social Security to cover the cash flow shortfall-has benefited greatly in the past 30 years from annual Social Security trust fund surpluses that were invested in Treasury securities. In other words, Social Security has helped finance deficit spending in the rest of government-rather than contributing to those deficits. So any cash flow problem should be viewed as a deficit in the general fund rather than in Social Security.

The counterargument is that this is just paper shuffling among different parts of the U.S. government.

Ultimately, those bonds are part of the overall U.S. national debt. In other words, it doesn't matter what happened in the past with Social Security monies; what matters is whether Social Security is generating enough money today to pay for its bills on its own. The plain fact is that it is not, and thus it adds to the government's overall fiscal imbalance.

For instance, the White House budget documents (see Table S-4) show that on an annual basis, Social Security outlays exceed Social Security payroll taxes, thus boosting the bottom-line federal deficit. (Indeed, President Obama is often careful to say that Social Security is "not the primary driver" of deficits and the debt, suggesting that he understands it does play some role.)
In one obvious sense, that "counter-argument" is accurate. When the federal government repays the money it has borrowed from Social Security, that will “boost the bottom-line federal deficit.” The federal government would have more money if it simply refused to repay that loan—if it simply refused to honor a long-standing, well-known promise.

But look again at the remarkable words Kessler describes as an “argument:”

In other words, it doesn't matter what happened in the past with Social Security monies; what matters is whether Social Security is generating enough money today to pay for its bills on its own.

“What matters is whether Social Security is generating enough money today to pay for its bills on its own?” That would of course be true—if it weren’t for “what happened in the past.” And here’s what happened in the past:

In 1983, many millions of American taxpayers were directed to pay more money in taxes each year than was needed for Social Security. They were told the extra money would be borrowed each year—and that the money would be repaid when their own retirements started.

If those taxpayers hadn’t been told those things "in the past," then the only thing that would matter now might be “whether Social Security is generating enough money today to pay for its bills on its own.” But that promise to repay was made in the past. It's the same promise that is made in the case of all government borrowing.

Kessler isn’t describing an “argument.” He is describing something quite different; he is describing the slippery suggestion that the government fail to honor a very large public promise. He is describing a camouflaged proposal—the proposal that millions of citizens should get conned out of their money.

Elsewhere, this is known as theft. To journalists, it sounds like an argumewnt.

Why do many bright people like Kessler think this sounds like an argument? Because your liberals heroes have been missing in action, away without leave, for the past thirty years.

Journalists have heard Charles' stock scripts for that same thirty years. They have never heard an aggressive liberal perspective simply and clearly explained.

This is where a liberal framework might start:

Thirty years ago, many millions of American taxpayers began to act on a public promise. They loaned vast sums of money to the federal government—on the promise that they would get it back.

But uh-oh! Charles doesn’t want to pay it back! Rather than simply state this preference, he and his type have been pimping stupid but misleading frameworks for the past thirty years.

The money isn’t there—we’ve already spent it! The trust find is just an accounting fiction! These misleading remarks could be made about all the money the government borrows. But these misleading remarks are only advanced in the case of the money borrowed from Social Security—from many millions of American citizens.

Charles and his tribe have loudly proclaimed, again and again. And over here, from our own self-proclaimed Very Smart Tribe?

Thirty years of pure silence!

The professors have been too lazy to address these ridiculous claims. The liberal journals have gamboled and played. Your liberal columnists are largely Potemkin. And this is what Big Democrats still do when this topic is raised:
KESSLER (continuing directly from above): "We come down somewhat in the middle on this debate," we wrote last year. "The fact that the system is running a negative cash flow now—and the foreseeable future—is an important warning sign of fiscal imbalance."

Durbin's office declined to comment.
Cue "The Sounds of Silence," the song we've sung all these years.

For ourselves, we can’t make this framework simple enough today. Simplicity comes from repetition. Propositions start seeming “clear” when people have heard them stated many times.

The liberal world has almost never bothered addressing this nonsense.

Everyone has heard Charles’ claims—the silly claims which get applied to loans from Social Security alone. No one has heard the liberal world’s claims, because we’ve never made them.

Lazy, indifferent, unintelligent, dumb? Feckless, uncaring, self-satisfied, useless? What are the best words to apply to a political class as persistently missing as our own?

If you put on your TV machine thingy, if you read liberal sources on-line, you will see our deluded tribe’s answer: Brilliant, smart, deeply caring, highly moral, upstanding.

Delusionally, these are the attributes we think we see when we look deep into our own eyes, even as we get our asses kicked by the people we love to deride.

They’ve kicked our asses for twenty-nine years. We’re still quite sure we’re the smart ones!

20 comments:

  1. This is nothing more than an intracompany transaction. It is more than familiar to the plutos who run major corporations. Each entity, the Federal Gov't and the S.S. trust fund in this case, reflect it's side of the double entry transaction, but at the top level entity the transaction is eliminated. This is common practice in any corporation that has subsidiaries as opposed to branch offices. Is Charlie K. so dumb he can't understand something so simple? Or is the old harelip running a scam?

    ReplyDelete
    Replies
    1. Is Charlie K. so dumb he can't understand something so simple? Or is the old harelip running a scam?

      Krauthammer is not dumb. He knows exactly what he's doing.

      Delete
    2. Quaker in a BasementDecember 14, 2012 at 2:08 PM

      the old harelip

      Stop that.

      Delete
  2. I thought the SSA was supposed to buy gold with the receipts and bury the ingots under the Roosevelt memorial.

    ReplyDelete
  3. The other way to look at is that the SSA invested the money raised from taxpayers, which is what every pension fund in the world does. Wouldn't they be remiss for not doing so? And the investment is paying off, to the tune of $100 billion plus per year! This unmitigated success should be celebrated not excoriated.

    ReplyDelete
    Replies
    1. If your goal is to "reform" (i.e. slowly strangle) Social Security in order to eliminate it, you don't celebrate any kind of success it might have had. You just continually harp on how we'll have to borrow money and increase the deficit in order to make good on those promises made in the past.

      Delete
  4. "No one would ever dream of making such an absurd, inane statement."

    Ah but they do, they do!

    For what other interpretation can there be when Krauthammer or In_Cal say "in 2012, Social Security adds $165 billion to the deficit."

    They don't mean SS adds to the deficit -- that's absurd. What they mean is: paying your debts adds to the deficit.

    Krauthammer's referring to the interest SS earns in 2012 on its loans to the government.

    It "adds to the deficit" if and only if you consider that ALL holders of US Treasuries "add to the deficit" when they get interest on their loans to the government.

    Maybe we just shouldn't pay!

    Hey, bondholders, we've decided that paying you back is just "adding to the deficit" so we're not going to pay you that interest. In fact, paying back the principal will "add to the deficit" too -- so we've decided not to. Sorry about that!

    I'm going to try the Charles Krauthammer/David_In_Cal approach with my credit cards, I think!

    Hi, Chase cardholder services? Yeah, I looked at my budget, and paying this VISA bill is really going to add to my deficit. That money's already spent anyway, so I won't be paying you of course, you understand. Why ever would I? -- It adds to the deficit. So the sensible thing is to choose not to do it!

    SS adds to the deficit. Bill Gates adds to the deficit. Bank of America adds to the deficit. China adds to the deficit.

    Please, stop loaning us money!

    Paying you back adds to the deficit!!!

    It's madness -- But the ultimate goal, robbery of the taxpayer and the destruction of SS, is so precious that no mendacity is too much.

    ReplyDelete
    Replies
    1. Meanwhile, there seems to be plenty of money to borrow from the future to pay for futile wars halfway around the world or tax cuts for rich people.

      Delete
  5. Quaker in a BasementDecember 14, 2012 at 2:06 PM

    Oddly, the same people who insist "the money isn't there, we already spent it" are the very same people who huff and puff about the 47 percent "who don't pay any taxes."

    It takes blistering dishonesty to try to have it both ways, to declare that the excess payroll taxes collected over the years aren't really taxes but at the same time have already been consumed by government expenses.

    ReplyDelete

  6. I'm still trying to understand why something that I've been paying into for over 40 years is an entitlement.

    ReplyDelete
  7. True, what matters is not whether Social Security is generating enough money today to pay for its bills on its own. But nor does it matter whether Social Security generated more money yesterday than was necessary to pay its bills on its own, and is 'owed money' today by the rest of the government.

    What matters, in all eras, is whether the country has the capacity to provide the real resources (goods and services) that are promised to retirees.

    At a time when the economy is (very conservatively) estimated to be running about $1 trillion dollars below capacity there can be no serious doubt that the answer to that question is a flat 'yes'. There is more than enough productive capacity to provide for today's retirees at the promise level of benefits, and the same is true, in fact, as far as the eye can reasonably see.

    What confuses matters here is the notion that Social Security must 'pay for its bills on its own'. In fact, no department of the federal government does this, for the simple reason that the federal government does not 'finance' its spending from taxes (or borrowing).

    It taxes, to be sure. And it does something that resembles borrowing (makes Treasury securities available for purchase). But these activities have entirely different purposes that getting dollars to spend. The federal government is the world's only source of dollars. It does not need to--and, strictly speaking, cannot--get them from anywhere else (from any source of which it is not itself the ultimate source). And this goes for Social Security as much as for any other federal spending.

    These seeming financial dependencies are all matters of political choice. Focusing on them, in the case of federal spending and taxation, instead of on the underlying questions of real resource allocation and public purpose, is a mystification, pure and simple.

    See e.g.:

    http://www.columbia.edu/dlc/wp/econ/vickrey.html
    http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
    http://www.salon.com/2012/11/08/the_coming_debt_battle/
    http://www.thenation.com/article/defense-deficits#



    ReplyDelete
    Replies
    1. At last the argument every liberal needs to hear and shout from the rooftops. Thank you so much Amilcoj! May you be strengthened.

      Delete
  8. Interesting and useful discussion of the SS Trust Fund by Megan McCardle. Megan McArdle.

    Amileoj -- I agree with you that "What matters, in all eras, is whether the country has the capacity to provide the real resources (goods and services) that are promised to retirees." However, I'm more worried than you are about the country's capacity to provide such resources. Two reasons:

    1. In some theoretical sense the economy may be running $1 trillion dollars below capacity. However, as of today we don't seem to know how to boost the economy up to this theoretical capacity level. There's no guarantee that we will be able to get this extra trillion in the future.

    2. Aside from SS, the federal government is running a deficit above $1 trillion. So, even if this extra capacity is realized, it would be fully used up by the non-SS deficit, leaving little or nothing to pay for the SS deficit.

    ReplyDelete
    Replies
    1. Megan McCardle will do anthing for money - and usually does.

      Delete
    2. Of course McCardle is wrong.

      One wouldn't need to read (as I did) her article to know this: the mere fact that she is cited by our resident lying douchebag finance troll DavidInCal is sufficient to discredit her completely.

      The SS trust fund "doesn't bring anything to the party" McCardle says (the "party" metaphor should give some sense of her intellectual heft), overlooking the fact that it brought billions to "the party" this year alone.

      The SS trust fund is quite real and the interest it earns is already funding SS payments to beneficiaries. Retirees may not really be partying, but trust fund interest is writing checks right now -- and they're getting cashed.

      Delete
    3. On reflection, I think you're right, anonymous. McArdle makes a case that the SS trust fund would become worthless if the federal government went bankrupt. But, the federal government can't become bankrupt.

      Delete