Obama and Social Security

Social Security just turned 75. President Obama used the opportunity to accuse Republicans of trying to destroy it. In fact, just one Republican, Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee, has proposed allowing younger citizens to put some of their money into private investment accounts rather than into Social Security. President Bush made a similar proposal and Obama mis-characterized it, also. In 2008, after the stock market crash, Obama told a crowd of seniors that Bush's proposal would have wiped out their savings. Since Bush's proposal only applied to people who were decades from retirement, this was an outright falsehood. Obama's characterization of Ryan's proposal is also knowingly false.

To recap, since it's founding, Social Security has taken in more in taxes than it pays out in retirement checks. The difference is put into special bonds which are payable on demand. Starting this year, the program is no longer running a surplus. The specials bonds have enough money to support the program for the next 27 years. The problem is that the bonds are payable from the general fund which is already borrowing $41 out of every $100 spent.

Ryan's proposal is to back some of Social Security with real funds instead of the general fund. There are obstacles to doing this. It would mean diverting funds from the current program into private investment. That would squeeze the current program, causing it to cash in more of its bonds and squeezing the general fund. Most politicians resist this because it would mean less money to spend now in favor of future benefits.

Paul Krugman's reaction is typical.

{...} Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won't have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program's actuaries don't expect to happen until 2037 — and there's a significant chance, according to their estimates, that that day will never come.

You would never know from that summary that the trust fund is paid from the general fund.

Obviously there is a concerted effort at misdirection about Social Security's solvency. Why is that?

On President Obama's part, some of it is that he is morally opposed to seeing private industry do something (and make a profit) that the government could do. This was his reason for changing the student loan program from a private/government program to an exclusively government program.

Krugman gives a different reason. Look at the reason that he thinks that conservatives hate Social Security:

What's really going on here? Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution. But they receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic.

Let's turn that inside out. I've already shown why Krugman's own arithmetic is off. So, why is he fighting so hard to keep Social Security the way it is? Social Security was one of the great achievements of the FDR era and is often given as an example for how effective government can be. If Krugman, or Obama, admits that the system is flawed then they undercut their own progressive agenda. It is especially important for them to keep up the illusion that there is nothing wrong with Social Security. If they admit that Social Security, as currently structured, is a multi-generational income transfer and ponzi-scheme then they have to explain why they should be trusted on other vital programs.

Think about Krugman's column and Obama's attack. These men have to know that the current program is unsustainable but rather than admitting it and trying to fix it, they question the motives of anyone who dares to point out the truth.