Washington Libertarian Review

Political commentary from the State of Washington with a libertarian perspective.

Monday, January 10, 2005

Renaming the Social Security Crisis

Here is a great column from lefty Paul Krugman showing why there is no crisis in social security.

According to Paul (an award winning economist) there isn't a crisis in social security looming; it's a general budget crisis.

Ok. Whatever.

Remember the Al Gore/George Bush "lockbox"? Well, someone left it unlocked, and the money was taken by politicians; replaced with IOU's - albeit federal government IOU's. It's just shocking, I say, shocking that they would do that again.

Suppose you earn $1,000 a month and that barely covers your expenses. But, you worry about retirement. Hey, no problem.

Take the $1,000 and put it in a "trust fund." If you do that every month, you will have millions when you retire.

Wait a minute. If I do that, how do I pay my current expenses?

Simple. Borrow the trust fund money and give your trust fund notes - IOUs. You can borrow and spend the $1,000 today, and - unless you declare a general default on your notes - you will draw down the "trust fund" balance by cashing the notes to pay your retirement expenses.

Sharp readers will object that hey, the only way to avoid declaring a default on the notes is to just keep working. Ooops, no retirement.

But, as Krugman points out, that's not a crisis with your retirement account; it's a crisis with your general fund. You solve that by asking your kids to pay off the notes.

Hopefully, our kids will turn over to us even more than we turned over to our parents, rather than declare a default on the notes.

In short, we're spending our retirement "trust fund" right now blowing up homes in Iraq, feeding those displaced by the tsunami, funding homeland security, running the Departments of Agriculture, Education, etc., hoping that our kids will play along with the scheme. But then, Paul is right that this is nothing new.

Social Security has never been any real retirement plan; it's just a transfer payment from those working currently to those who no longer work.

Worse, the surplus you and I paid in for years (the real "retirement plan" part of social security) is being spent right now by politicians on today's programs - a surplus that will vanish and be unavailable at a time when our kids are asked to fully fund our retirement needs.

The "trust fund" lockbox turns out to be just our kids' wallets - a bunch of notes on which we forged our kids' names.

As everyone knows, this kind of scheme works fine until the numbers drawing money out creep up on the numbers making contributions - something that will happen when the "baby boom" retires.

Luckily, however, you can sleep soundly. There is no crisis in social security, which is actuarially sound far into the future. The crisis is merely a looming general fund crisis set to explode sometime around 2013 (more or less) when you and I start demanding our lockbox money.


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