Tuesday, January 04, 2005

Krugman Steps Up to the Plate

Refreshed by a well-earned vacation, Paul Krugman steps up to take on the cretins pushing for social security "reform" in his inimitable way:

So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (www.bepress.com/ev).

The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count.

Bingo. If the US government declares its obligations to its seniors junk bonds, what about the securities held by the foreign governments who own most of our debt? If you think the dollar is in trouble now, just wait for some future Repug to try pulling that fast one.

There's no social security "crisis." The only crisis is the fact that the rich are conducting class warfare on the rest of us - and we're sitting back and allowing them to win.


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