Yglesias: Wrong Again


Though I try to keep the echo-chamber stuff to a minimum, I do often run across things that just cry out for comment. And it seems to happen a lot when I read Matt Yglesias. (Does Brad DeLong really want to push this sort of fundamentally flawed understanding as promising?)

Here he is again:

Of course, I'm not happy with that kind of reporting either. Every time the President gives a speech claiming the system is heading for bankruptcy, I'd like to see news services report, "Speaking today in Canton, Ohio, the President repeated his misleading claim that Social Security is headed for bankruptcy. In fact, even after Social Security's trust fund is exhausted (projected by the Social Security administration to happen in 2041, and by the Congressional Budget Office to happen in 2052) tax revenues will suffice to pay seventy percent of scheduled benefits."

Ah, I'm not sure what he's getting at. "Bankrupt" means "insufficient assets to cover debts." Not some of your debts. All of your debts. For an organization, this means paying out everything it's obligated to (ignoring for the moment that SocSec is a program entirely at the feet of political whims), not just 70%. That is bankrupt (or, more technically, insolvent).

I'm still on the fence about how best to "fix" this system, but bring wrong, and then being huffy while being wrong, certainly doesn't help things.

UPDATE: Ditto from Jane Galt.

UPDATE, Part Deux: Megan says it the way I wish I could have:

Democrats are trying to argue, on the one hand, that the trust fund is real, and on the other hand, that it is not going bankrupt. These are mutually incompatible. For the trust fund to exist, the Social Security Administration must be an independant entity of the US government. Unless the programme is changed, in 2042 that independant entity will not have enough money coming in to cover the benefits it has promised to pay out. That entity will be insolvent--in common parlance, bankrupt.


The difference is that while you may think words like "bankrupt" and "broke" can signify "70% of obligations met," most people take it to mean there will be no payments at all, a muddling Bush has done little to clarify. So when Matthew characterizes Bush as "misleading," he's dead on. Bush may be technically accurate, but is in fact doing nothing to clarify people's understanding of Social Security's actual status in 2042, which will be paying 70% of scheduled benefits. That's the test: is Bush leading people to a clearer picture of SS or just a scarier one? Seems he choses scary and vague over clear every time. But you've already written me off as coming from the echo chamber so...

The point is, SS doesn't have any "debts" in the normal sense. It has a legal requirement to pay certain levels of benefits. The law says (as I understand it) that if revenues + trust fund can only cover 70% of scheduled benefits, then SS is only obligated to pay 70% of scheduled benefits.

So legally, the obligations will always be equal or less than the capacity to pay (assuming that the trust fund does indeed represent capacity to pay).

Tom -- By "echo chamber", I mean that I usually prefer to have original comment in posts, rather than simply a good deal of circular trackbacks to blogs linking to blogs linking to blogs. You can get plenty of that anywhere, I think.

CS -- The argument is circular, then. "There is always enough money to pay out because we promise to pay out as long as we have money". In that case, I think you'd have to get rid of the "70%" argument. SS is always going to pay out 100%. If that were Matt's point, then I might be OK with it. Instead, the use of "70%" implies that there was an agreed on 100% before (which is just the preplanned growth in benefits to begin with, I understand). I'm attemping to use Matt's construction of promised pay-outs. That is, the growth in benefits constitute 100% of a promised payment. To be unable to cover that is, in fact, bankruptcy. Now, if we're simply going to say that the SS payouts are never obligated more than there is the capacity to pay, then no one should be complaining about any attempt to do ANYTHING with it.

This is not the same as the "there is no crisis" lament, because those folks still believe that people should be entitled to ever-growing benefits that can be found through continual small tweaks in the system (such as increasing taxes). Either the system is fine, and we should change everyone's expectations (70% is just fine because no one technically promised you more and it's not our responsibility to do anything), or change the system (because this is a forced savings program that takes people's money and on which they have based expectations).

I think it hinges on how you see the "schedule". Technically, it's nothing but a hope that can be changed by political taste at any time. In which case, I find the whole thing a rediculous system based on grabbing funds from people that might put it to other/better uses. Or, that schedule is an actual obligation since there are people for whom this constitutes their retirement plan. If those obligations cannot be met (and the trust fund is GONE by the time the 70% pay out is in place, so it's essentially the same as you handing over a wad of cash to any eldery person you see), then the system is, truly, bankrupt.

Debts? Currently, the balance sheet of the Trust Fund has no debt but it does have almost $2 trillion in reserves. By 2017, it will have $7 trillion in assets and its interest income will exceed its non-interest deficit for several years. That's insolvent? PLEASE!

pgl -- A link you might find useful.

Double-entry bookkeeping requires an accounting of future obligations. If you're willing to believe that the system does, in fact, have funds obligated. If not, then we really don't have anything to worry about. But there is also no reason to increase the revenues, since if it's perfect the way it is, you dont need any more of my money.


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