Baseball Crank
Covering the Front and Back Pages of the Newspaper
September 4, 2004
POLITICS: Learning To Think Long-Term

The Wall Street Journal's Holman Jenkins, in the subscription-only Political Diary (a must this season, I would add) had an important point about how current methods of governmental accounting obscure the real costs of transitioning Social Security to a private accounts system:

Point One: A promise to bondholders increases the deficit and the debt. A promise to future retirees doesn't.

Point Two: That's the kind of accounting peculiarity that, in the private sector, leads straight to the hoosegow. Thus the reported national debt is about $3 trillion, but the unfunded liabilities of Medicare and Social Security alone are $11 trillion.

[snip]

The White House itself first put $1 trillion in play as the transition cost, but when measured in light of the $14 trillion indebtedness above, the figure is less impressive than it sounds. More importantly, we're talking about a "refinancing" here -- that is, trading an IOU held by future Social Security beneficiaries (due in, say, 30 years) for an IOU held by bondholders (due in, say, 30 years).

No change in the real net fiscal position of the federal government would be required, just an exchange of invisible (to the uninformed public) debt for visible debt. Better yet, done right, the deal could be a fiscal win-win: Future retirees would have a bigger nest egg (plus ownership and control of how they spend it down, rather than the government dictating terms of their bet with the mortality tables). Meanwhile, the real indebtedness of the federal government would actually go down, not up.

When you tinker with some of the present-value issues - which are beyond my expertise, I can tell you - I suspect the transition from spend-as-you-go to spend-and-borrow-in-exchange-for-cutting-future-obligations is not quite as costless as Jenkins makes it sound, but his fundamental analysis does make an important point about the degree to which the media overstates by orders of magnitude the nature of the transition costs. To my mind, if the transition is something that gives us a better system and fewer long-term costs to taxpayers, then it's worth incurring some additional costs now to put the system on a better footing in the long run.

Posted by Baseball Crank at 11:20 AM | Politics 2004 | Comments (0) | TrackBack (0)
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