The defunct National Lampoon Magazine’s best cover of all time (above) portrays Obama’s current strategy on Social Security and the debt ceiling. Obama’s words are a case of life imitating comic art as fiscal tragedy. I am becoming a stickler on language in our nation’s political Kabuki theater. Politicians do not seek to explain simply, but to obfuscate complexly. The more one analyzes their words, the more one is forced to conclude they appear to be running an immoral and corrupt enterprise. The Tea Party movement is in large part a revolt against not just certain policies, but the means by which they are promoted.
Last week, the oleaginous Scott Pelley of CBS asked President Obama whether he “can tell the folks at home that, no matter what happens, the Social Security checks are gonna (sic) go out on August 3rd?”. Obama said “there may not be enough money in the coffers to do it”. Pelley is a complete lackey. The correct question would be to ask the President how he would prioritize what he would cut in the event no agreement on the debt ceiling would be reached. But this would not have given Obama the chance to demagogue. When the State of Minnesota shut down the government, its citizens hardly noticed until they realized restaurants’ liquor licenses might not get renewed. That really got the ball rolling and a deal was struck. Clearly the last thing to be cut in the Land of 10,000 lakes was the right to drink beer while eating burgers and fries.
As I discussed in my last essay, the Federal Government obfuscates on Social Security. The obfuscation is that they call the amount taken from taxes dedicated to Social Security –and spent elsewhere — and call the amount taken a “Trust Fund”. Imagine if I were to sneak into your savings account without your permission, take it, and when you complain, I tell you that I have merely established a trust fund for you that “I promise” to repay. While liquor licenses are the last thing to cut in Minnesota, the last thing that should be cut in a debt limit impasse are interest on debt, the military and, finally, social security. The first two are obvious. The last should be too. Our citizens have paid into the system. According to what the Government tells us, we have paid close to $5 trillion more into the system than has been paid out to recipients. In fact, we currently pay about the same annually into the system as is being paid out. Why should that be cut? It is self-funding. But even the politicians get confused. It is hard to keep track of all the lies one tells.
Obama has unwittingly admitted that Social Security is a scam. He no longer even pretends it is set aside and held for retirement. It’s just another fiscal bargaining chip. And if you don’t follow his lead he just may shoot that dog — or not pay seniors.
It is important we stop thinking of the securities in the SS “Trust Fund” as real. Its only meaning is it measures the amount of money the government has already spent from our SS taxes on items not related to Social Security. That is all it is. This number is recorded as an intergovernmental ledger transfer that simply cancels out to zero. It does not exist. Same with the Medicare Trust Fund. The fact that Treasury could theoretically “sell” an intergovernmental transfer is meaningless in an economic sense; in fact it would be simply selling new debt.
Therefore, our “$14 trillion” of debt is actually an overstatement. We really currently owe about “only” $9-10 trillion (unsecured debt that is—not counting our guarantees to Fannie and Freddie). There is no meaningful way an entity can owe money to itself. That extra $5 trillion or so of debt in the “Trust Fund” does not exist — not yet at least. This is why there is still hope. Also, the very large present value numbers we often see presented as our “true debt” (I have seen present value numbers as large as $50-100 trillion depending on how many years out one goes) is also not real — again not yet at least. Rather, these numbers are simply representations of the present value the Federal Government would owe in the future if no changes were made (ignoring unexpected revenue increases due to higher growth and productivity increases) in our current entitlement programs. But we do not owe it now. That is a real and important distinction even as it is a politically difficult nut to crack. In reality, it is far from hopeless.
Language is important. I believe one of the biggest obstacles to change is the general confusion in our political and economic language. People are smart enough to understand all of this, as they deal with these exact issues in their daily lives. Maybe I am stating the obvious, but most people I know easily see the difference between actually owing money and potentially owing money. Lack of precision in our public discourse is a big part of the problem we face. Laws can change. This does not mean the political fight won’t remain intractable for a while, but that is a far cry from being already dead and buried as a country.
But we do have to start soon — like yesterday.