On Senator Ron Johnson Vs Krugman – Bruce Krasting - InvestingChannel

On Senator Ron Johnson Vs Krugman – Bruce Krasting

Paul Krugman had another of his nasty moment on TV Sunday when he took on Senator Ron Johnson (R, WI)� (ABC -Link). The topic was Social Security. I want to throw my two cents into this fray.

Senator Johnson made the comment:

Social Security is in danger of “going broke” unless action is taken. “When I hear people saying Social Security is solvent to the year 2035, it’s not.”

Krugman fired back with:

Your facts are false. The Social Security thing—Social Security, it has a dedicated revenue base, it has a trust fund based on that dedicated revenue base. You can’t change the rules midstream and say, ‘Oh well, suddenly the trust fund doesn’t count.’� ” Is SS going broke as the Senator claims? Or is Krugman right, when he says that SS is solid because it has a big Trust Fund?

There is not much ‘out-there’ on this topic that could could convince either side. You have the vast majority of the conservative thinkers/writers who have concluded that the SSTF is a sham, and you have all of the progressives who see it in precisely the opposite light.

I would like to use two credible sources on this issue in an attempt to determine who’s correct. TheOffice and Management and Budget� (OMB) has opined on this, so has the� Congressional Research Service� (CRS). I think these sources are as credible as can be had. The CRE is supposed to be apolitical, while the OMB is decidedly political. The following information from OMB comes from 2010, a period when Peter Orszag was the boss at OMB. Given that Pete was running the show, one would have anticipated� a Populist ‘spin’ from OMB on the question of TFs;� not the case at all.

Neither OMB or CRS have said anything relevant regarding the Social Security Trust Funds. The observations were made regarding the Trust Fund for the Federal Employee Retirement Fund (FERS). I’m not going to spend a 1000 words convincing you that FERS = SS.� (But if PK asks me to, I will). They are very similar entities, they collect revenues, they invest surpluses in Special Issue Treasury Securities and they make benefit payments to covered workers.

CRE had this to say about the TF for FERS� (Link): The assets in private-sector pension funds represent a “store of wealth” that firms can use to meet pension obligations as they come due. The� CSRDF, however, is not a store of wealthfor the federal government. Got that PK? The CRE says there is no wealth (aka money) in the TF: The OMB� provides more clarity on TFs. From the� Budget of the United States Government, Fiscal Year 2010: Analytical Perspectives� (Link) Balances in the trust fund are available for future benefit payments and other trust fund expenditures,� but only in a bookkeeping sense.

Ah! There is no money in the TFs. They are bookkeeping entries. OMB concurs with CRE – TFs are not a store of wealth. More:

The holdings of the trust funds are not assets of the Government as a whole that can be drawn down in the future to fund benefits.

How many ways does OMB have to say this to convince PK? Another:

The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits. Is this getting through to progressives like PK? This is not the tin hats talking PK. This is your “guys”.

Senator Johnson made the statement that the SSTF accounting was similar to a person who writes themselves an IOU for $20, and then somehow believes he actually has an asset. PK objected. This is what the OMB has to say about it; no wiggle room for PK with this:

These trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury,� netting to zero for the Government as a whole.

Got that PK? The Senator was correct. Writing an IOU to oneself nets to zero. If the OMB was the arbiter of the TV debate, it would have said that the Senator had the facts, and Krugman was blowing smoke.

Krugman, on the other hand, is claiming victory. He still believes that the SSTF has real fairy dust in it. He maintains that� he alone has the facts. In his typically snarky manner::� (Link) I have to say, it’s extremely telling that conservative Republicans don’t seem able to make their case without resorting, right from the beginning, to� obviously dumb fallacies.

Who’s right? PK or the Senator? Which side is suffering from “dumb fallacies?” This is a critically important point to resolve. Either we continue to live in PK’s fantasy land, or we recognize that SS is a here-and-now issue. There is no middle ground. One side or the other is “right” on this one. For the US, it’s a make-or-break issue.

Note:

Where did the ‘money’ go that PK thinks is available today?� It was spent years ago.

The ‘economic miracle’ of Bill Clinton was bought with money looted from SS. Bill sucked out $565b in his eight years.� No one even noticed.

George Bush really raided SS. A total of $1.5T leaked out during his years. Who ‘paid’ for Iraq and Afghanistan? SS did.

If anyone is upset about the status quo, they can point to either a Republican or a Democrat. They’re equally to blame. But looking backward, and laying blame, is a fool’s game. The fact is the money is gone and SS is Paygo today. It’s running big annual deficits. SS will produce $75b of red ink in 2013 (equivalent to 10% of the deficit).� The deficits will pass $100b in 2016 and explode from there on. The beast is howling – and Krugman thinks it’s his cat purring. The