Krugman Gets It Wrong Again, Plastics Might Aid in Weight Gain, and a $20,000 Government-Subsidized Nanny
Paul Krugman still thinks you can pay Social Security benefits with IOUs the government writes to itself. He won a Nobel Prize?
Are plastics making us fat? Probably not.
Government pays nanny $20,000 a year so that welfare mother can get a job earning $20,000 a year. No, that’s not a misprint.
Krugman is an idiot.
To approve of this, you have to really believe that work is important.
I was referring to the nanny subsidy.
Rather than say “Krugman is an idiot”, exactly what did he say that’s incorrect? The percent GDP social security accounts for? His quote from the trustees report?
The fact is that social security has collected a big surplus. What you derisively call “IOUs” are US Government issued debt. Where would you rather the surplus be invested? The stock market? European Bank bonds? Maybe Greek government bonds? If, for some reason, the US Government can’t pay it’s debt obligations, believe me the smallest problem we’ll have to face is social security.
It amazes me to see people referring to debt the government “sells” to itself as investment. How will the government raise the money to pay off the debt? Raise taxes, cut spending or most likely borrow from the public. How is that different from any other spending? The money was spent, any future SS spending will come only in name from the trust fund. I guess people really are dumb enough to believe the lies of Krugman and the trustees.
Don’t worry just keep spending, somebody in the future will pay.
artk. you would be correct if Social Security went into the market and purchased government bonds. That would constitute a real investment with funds that could then not be spent in any other way. But this is not what happens. Social Security literally types up IOUs (what else would you call them?)and lets the Treasury spend payroll tax money on other programs. The IOUs are nothing more than a promise the government makes to itself to collect more taxes in the future.
The IOUs are not “US Goverment issued debt,” at least as most people would understand that term. They cannot be sold on Wall Street. Or to foreign investors. Or to anyone. That are not “assets” in any sense of the word. They are (in the case of Social Security) pieces of paper typed up on a typewriter and stored in a filing cabinet and (in the case of Medicare) nothing more than entries made on a computer.
Almost all US government trust funds (including, say, the Highway trust fund) operate this way. None of them are holding assets that can be sold to pay benefits with.
Bruce, it’s in every way US Government debt. It’s recorded as part of the total debt. They have a real claim on real fund and are backed “by the full faith and credit” of the government. The only way for the government to default on them is by an act of congress, not very likely. Their interest rate is set by a formula based on the market rate at the time of issue. The government has to redeem them at face value, something that won’t happen on the open market.
Sorry, artk, you are way off base on this one. Every “asset” of the trust fund is a “liability” of the Treasury. Summing over both agencies of government, assets minus liabilites equal zero.
Your “full faith and credit” statement implies that there is something of value there that can be used to pay benefits. There isn’t. Also these assets are not part of the national debt, at least not the debt total anyone pays any attention to. When economists refer to the national debt they are referring to the debt held by the public, not IOUs government trust funds create on their own typewriters.
Think of it this way, if the IOUs were really valuable assets that could be used to pay benefits, why not solve our Social Security/Medicare problems by doubling and tripling the number of them — say, by Executive Order.
artk:
I think what Bruce may be referring to is the difference between internal debt (intragovernmental holdings) and debt to the public (you buy a Treasury security).
When you bought the Treasury security, you paid cash for it, and fully expect to get paid back.
What the Treasury did with the money is of no consequence to you. You voluntarily paid for the Treasury security.
When the Treasury borrowed from the trust fund, this did not involve the citizenry. It was strictly an internal, bureaucratic transaction.
We do know that the money borrowed was spent on current expenses, like battleships and education.
When the government redeems those Treasury securitiers, more than likely, the public debt will increase. In that situation, Intragovernmental debt is transformed into public debt.
The public debt would increase even if the trust fund didn’t exist, because the money available years ago was borrowed and spent.
Don Levit