Wednesday, January 12, 2005

Good Krugman

Read Paul Krugman's article (PDF) on Social Security privatization from The Economists' Voice. It's amazing how much smarter Paul Krugman gets if you give him more than 700 words (although I could have done without some of the political attacks near the end). Excerpt:
The bigger problem for those who want to see a crisis in Social Security’s future is this: if Social Security is just part of the federal budget, with no budget or trust fund of its own, then, well, it’s just part of the federal budget: there can’t be a Social Security crisis. All you can have is a general budget crisis. Rising Social Security benefit payments might be one reason for that crisis, but it’s hard to make the case that it will be central....

Now it’s true that rising benefit costs will be a drag on the federal budget. So will rising Medicare costs. So will the ongoing drain from tax cuts. So will whatever wars we get into.... What we really have is a looming crisis in the General Fund. Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?

He also agrees with a point I've made before:
Now let’s return slightly more to the world outside science fiction, and ask the question: can we really count purported savings several decades out as an offset to huge borrowing today? The answer should be a clear no, for one simple reason: a bond issue is a true commitment to repay, while a purported change in future benefits is just a suggestion to whoever is running the country decades from now.
Tyler Cowen also agrees.

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