Seeing red

Paul Jacob
Sunday, April 04, 2010

This year Social Security will hit its budget crisis, seven years ahead of schedule. In 2010, the wizards in Washington will have to pay out more to beneficiaries than we’re paying in via our payroll taxes.

During the Bush years, in the wake of proposals to set up private, individual retirement accounts — and not run Social Security as a huge Ponzi scheme — politicians seemed to stand together on one foothold of common ground: 2017 (the prophesied year of redness) was a long way off.

Critics of the administration’s proposal did more than suggest that Bush was out to ruin Social Security. But, ahem, now the crisis is here.

Politicians did think they had some time. The first year of running into the red was thought, then, to be more than a decade away.

Decades just aren’t what they used to be.

It’s obvious to those with common sense (may I say, especially to readers of my Common Sense e-letter?) that timing is important. Hit the brakes before impacting the wall. You prevent disasters, don’t wait for them to happen, and then “heroically” step in.

Enter stage Left: Democrats’ support for their just enacted and signed-into-law medical reform package.

Wise counsel would have them fix existing entitlement programs before inventing new ones. But to excite their base for this year’s congressional elections, the Democrats fiscal fix was to apply for a new credit card, max it out on new spending, and let older debt lurch closer to default.

When I was a kid, such federal government fiddling with an industry smacked of socialism, and was called “red.” Thanks to the late Tim Russert, “red” now stands for conservatism and “blue” stands for “progressivism.“ The color chart has changed.

But not in accounting. This year, Social Security’s accounts go red. And that doesn’t mean anything different than it did 50 years ago. Red is the color of insolvency. And, yet Social Security payments will continue; the money will come from somewhere.

Congress spent the surpluses since the last Social Security fix, giving the Social Security Administration some nicely printed IOUs in the form of non-negotiable bonds. But this doesn’t mean that Congress has the money to pay off the billions needed this year, much less the whole $2.5 trillion borrowed since Alan Greenspan “fixed” Social Security last time. (Greenspan was head of the famous study group that Ronald Reagan set up, and whose advice Congress took in the ’80s.) Congress has already outspent its previous records, putting the federal government into a depressingly dangerous financial condition. Adding this Social Security debt service to the trillions already owed doesn’t make things look better.

Alan Greenspan, now, says that when “the level of the trust fund gets to zero, you have to cut benefits.” Yeah, sure. Of course. Congress has already raised retirement ages a bit, to reflect our increased longevity. That was about time, in more ways than one. But that hasn’t been enough.

My problem with Greenspan’s statement is not the cutting (that’ll be Congress’s problem — you don’t get re-elected by cutting services, political wisdom has it) but that term “trust fund.” The so-called “trust fund” isn’t a fund, and there’s no trust. It is just simple cash-flow accounting.

Beyond that, there are just those IOUs. And there’s no money there. It’s $2.5 trillion on paper. Congress doesn’t have it. To make good those nicely engraved bonds, Congress will have to sell of assets, raise taxes, or go into further debt . . . or engage in deliberate inflation.

Of these, only asset liquidation would not likely hurt American citizens now (taxes) or later (inflation devalues everything, and is the notorious “hidden tax”; debt, to be paid back in future taxes). We could start by selling off some BLM land.

Courtesy of Congress and a succession of bad presidents, we are speedily approaching the worst case scenario now. And if the incumbents in Congress wanted to see another meaning of “red,” they will get their chance. Expect discussions of an “anger index” soon, coming to a bankrupt country near you.