December 1, 2004

Get ready for misinformation...

I happened to notice this morsel at The Corner, by Peter Robinson
Just had a conversation with my Hoover colleague John Cogan, a distinguished economist who served with Pat Moynihan on the President’s Social Security commission. Ramesh [NRO writer Ramesh Ponnuru] no reader of the Corner will be surprised to learn, is entirely correct: Any new borrowing would simply shift forward, to the present, a portion of the liabilities that the Social Security system has already incurred. Net increase in costs? Zero.
That's a very important point to keep in mind, because we are going to hear, ad nauseam that reforming Social Security will be very costly.

NO! We already owe ALL the money that's been promised to SS recipients. It is effectively part of the National Debt. We are also expecting to receive future taxes (the deductions from your paycheck for SS) to cover a lot (but not all) of that debt.

The reforms proposed will take part of the taxes and put them in private accounts of younger workers. We will then have to borrow money to pay the benefits that would have been paid by those taxes. But we are borrowing to pay obligations that WE ALREADY OWE.

If I owe Peter $1,000, and I borrow $1,000 from Paul and pay off Peter, I still owe exactly $1,000. I haven't increased my debts at all. (Sorry to put this in baby-talk, but the human ability to not-understand economics is amazing.)

The point of the reforms is that those private accounts are investments, and will grow over people's lifetimes. In the long run there will be a lot more SS money, and that will keep the system solvent, and provide larger benefits. (If all the money I've paid into SS over my lifetime had been invested tax-free, I could probably retire right now with comfort.)

Social Security, by the way, was not created to be anybody's retirement plan. It was supposed to be just a safety net, to keep old people from destitution if they had no retirement income. BUT, benefits and taxes have been increased over the years, until the thing has turned into what is effectively a really crappy retirement system. It's not going away, so it's time to fix it. Posted by John Weidner at December 1, 2004 4:58 PM
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