MYTH: Repaying Trust Fund bonds would be 'inflating the currency'

"There is no trust fund — just IOUs," backed by no economic assets whatsoever, Bush noted. Senator Jon Corzine (D., N.J.) called the president's remarks misleading. In a conference call with journalists, Corzine said: "U.S. Treasury securities have the ability to be paid under any circumstances based on the ability of the government to print money." While Corzine's press secretary denies this comment was a concrete proposal, at this writing, the senator proudly highlights this quote on the front page of his website. So, as Corzine sees it, come 2041, when the federal government's plunging tax revenues will cover only 70 percent of its exploding pension obligations, Washington will trigger Treasury Department printing presses to finance Social Security checks.

Inflating the currency is a dreadful idea that has landed much of Latin America in massive trouble. [Etc., etc.] (Deroy Murdock, "Stop the presses," National Review Online, 4/12/05)

REALITY

He goes on to quote a few economists on the dangers of printing too much money. It's incredible the lengths some people will go to make a point that is false. If you read Murdock's own article, you can see Corzine is responding to the president, who made the bizarre claim that the trust fund doesn't exist because he didn't find any gold bars. Corzine, former CEO of Goldman Sachs, felt obligated to make the obvious point -- that the U.S. can indeed redeem the bonds ("Treasury securities") it issued.

Just to make perfectly clear that he doesn't understand what he's talking about, Murdock claims that Corzine's plan is to "trigger Treasury Department printing presses" "come 2041," i.e. when the Social Security trust fund will supposedly run out. But, as is obvious from Murdock's own article, Corzine is talking about the trust fund itself, which Bush just said doesn't exist. He's not talking about "2041," he's talking about "2017," when we might have to drawn upon the trust fund.

So, here's the amazing idea Corzine came up with: the U.S. government will pay back the debt to the trust fund when the time comes the same way it pays for anything else -- with money. And where will we get this money? Well, unless we start running large general account surpluses (e.g., if a Democrat is elected), we're going to sell the Trust Fund bonds to the public (e.g., China) -- bringing in money the same way we do now, with our deficit.

Over at the Bureau of Public Debt, you can see our public debt (aka national debt) is divided into two columns, debt held by the public (e.g. Wall Street, China) and intragovernmental debt (Social Security trust fund, Highway trust fund). If we need to redeem Social Security bonds held by Social Security and we (the general account) don't have the revenue to repay them, then we will have to move debt from column B (intragovernmental) to column A (publicly-held). Fascinating, no?

This process by which we'll roll over our debt to Social Security might affect the money market, sure. But the market has had plenty of warning. Our own "maestro" of the money supply, Alan Greenspan, was the very same person to concoct this plan more than 20 years ago in beefing up the trust fund to be redeemed when baby boomers retire.

And as much as our deficit-ridden government might expect bad news from the market come more deficits --- witness the falling dollar -- there is something even worse to fear. How would public investors react if the U.S. government decided that Treasury bonds were "worthless IOUs"? Do you think investors would want to buy "worthless IOUs"? That's exactly what Bush, the idiot oilman, proposed, and what Corzine rebuked.

MYTH: Privatization has been proven successful in Chile and Texas

The Galveston County, Texas, municipal employees are laughing all the way to the bank when they retire, because many of them have earned two to four times what a person on Social Security would receive for the same lifetime contributions. The small country of Chile switched to an optional system of personal retirement accounts in 1980 and workers are retiring at 80% of their pre-retirement income. (Herman Cain, "Ownership: an unalienable right," Town Hall, 4/12/05)

REALITY

For a little while, Privateers regularly cited the success of Chile's pension privatization scheme -- until somebody actually looked at what happened down there. From the New York Times (1/27/05):

For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system.

Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system.

And so on. High volatility in a developing country, high flat fees hitting low-income workers hardest, and inadequate returns for around 40% of participants. Because the privatized system failed to make everybody rich -- or even provide a modicum of support -- the government has to overlay a social security system on top of the private system that was supposed to replace it. I'd call that a failure.

Meanwhile, the Galveston, Texas, municipal government opted out of Social Security in the early 80s, instead providing a privately-managed defined-contribution plan. As you might expect, wealthier people did better under a private system than they would have under Social Security, and the less fortunate were, well, less fortunate:

Outside experts, including researchers for the Government Accountability Office and the Social Security Administration, have found that workers earning less than $17,100 a year in 1999 would have done better under Social Security, mainly because of annual cost-of-living adjustments. The Galveston plan offers no such increases. (Washington Post, 3/19/05)

This makes sense. Social Security taxes are regressive, but the benefit calculation are somewhat progressive, focusing on providing adequate security to all rather than "returns" proportionate to contributions. Without the progressively-defined benefit, of course people who pay more are going to get more, and people who pay less are going to get less.

In addition, Galveston simply has more money: the county taxes almost 14% of payroll, rather than the 12.4% taxed by Social Security. At the same time, SS-like features such as disability insurance and survivors' pensions are limited by contribution -- which will be small if your working life is cut short. And all municipal workers are also covered by a state pension.

So let's see -- Galveston workers pay more taxes, get fewer guarantees (but they all happen to get a state pension), and not everyone winds up better off. Some success.

And how come nobody mentions Britain's privatization? Oh, yeah -- that was a failure too.

CALLING STAR PARKER: Someone is stealing your line ...

Regular readers will remember Town Hall commentator Star Parker's repeated line that Social Security is like slavery. (See this debunker, last section.) This outrageous comparison seemed to be solidly her turf, given that no sane person would be willing to make such an idiotic statement. Well, Ms. Parker, there's a new kid on the block...

It took our nation nearly 250 years to end slavery and live up to the self-evident truth that all men are created equal. It should not take us another 250 years to cease the involuntary negative return most working people receive from Social Security, or the involuntary servitude imposed by the oppressive income tax code. (Herman Cain, "Ownership: an unalienable right," Town Hall, 4/12/05)

That's right -- forced hard labor, trading humans like chattel, beatings and killings at will -- those are the first things that come to my mind when I think that I might possible get a "negative return" if I calculate the amount I've paid into Social Security, annuitize it, and fail to adjust for anything close to reality. Yeah, whenever I see grandma filling her perscriptions, I just can't get the sound of "Swing Low, Sweet Chariot" out of my head. And when I pay my taxes, I think to myself, I'd rather by working in the fields, fearing for my life, with no hope of changing my condition, than have to write a check to Uncle Sam for police, roads, and retirement security.

Of course, when liberals mention that Privateers want to shift retirement risk from the population as a whole to individuals by carving out uncertain investment accounts from the traditional, surplus-ridden system, while putting the country trillions into debt, they say we're demagoguing the issue.