Re: Dean Baker nonsense about Defaulting on the National Debt

[David Farber <dave () farber net>]

Begin forwarded message:

From: John Levine <johnl () iecc com>
Date: January 8, 2009 5:12:59 PM EST
To: dave () farber net
Subject: Re: [IP] Dean Baker nonsense about Defaulting on the National  
Debt

I believe this originally appeared in TPM Cafe at
http://tpmcafe.talkingpointsmemo.com/2009/01/07/president-elect_obama_suggests_defaulting_on_the_n/

Wherever it was, it's nonsense.  It is quite true that there is a
large accumulated surplus from Social Security taxes, and that under
the CBO's very conservative assumptions, the surplus won't be spent
down for at least 40 years.  Under more realistic assumptions, it'll
probably be a lot more than 40 years, perhaps indefinitely.  SS is no
financial danger in the forseeable future.

Nonetheless, the claim that SS changes would be equivalent to default
on the national debt is absurd.  Were SS benefits to be decreased, the
surplus money would still be paid out to SS recipients, it would just
be paid out later.

There is a widespread misconception about Social Security -- despite a
lot of smoke and mirrors to the contrary, it is not an investment plan
like a 401(K), it is basically insurance.  Its goal, which it meets
rather well, is to ensure that Americans who worked will not die in
poverty.  The account stuff is to track whether you've worked long
enough to qualify for benefits; the amount put in does not match what
you get out and never has.  There are no bonds in the SS surplus with
anyone's name on them.  What you get out mostly depends on how long
you live after you retire.

It's hard to believe that Dean Baker doesn't understand this, so I'm
at a loss to fathom what he's trying to do here.  Cutting Social
Security benefits is bad policy and bad economics, but please, the
issue is complex enough without turning it into a farce.

Regards,
John Levine, johnl () iecc com, Primary Perpetrator of "The Internet for  
Dummies",
Information Superhighwayman wanna-be, http://www.johnlevine.com, ex- 
Mayor
"More Wiener schnitzel, please", said Tom, revealingly.

> President-Elect Obama Suggests Defaulting on the National
> DebtPresident-elect Obama apparently believes that the crisis brought
> on by the collapse of the housing bubble will require defaulting on
> the national debt. The New York Times reported today that Obama
> believes that "changes in Social Security and Medicare will be central
> to efforts to bring federal spending in line."
> While Medicare is projected to face shortfalls because of the
> incredible inefficiency of the U.S. health care system, the
> Congressional Budget Office projects that Social Security will be
> fully funded until 2049 from its own stream of tax revenues and the
> U.S. bonds it holds.
> If Mr. Obama plans to cut Social Security in the near future, then
> this effectively amounts to a default on the bonds held by the trust
> fund which were purchased with workers' Social Security taxes. ...




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