Return to Main Page | Ragout: Social Security Shell Game
A Spicy Stew of Economics, Politics, Data, Food, Carpentry, etc.
Wednesday, December 01, 2004

Social Security Shell Game

NYU Economist Nouriel Roubini has a detailed post explaining why the Bush administration's plan to partially privatize Social Security is a "con" and a "scam." Bush wants to allow workers to put part of their Social Security taxes into a private account. Of course this would create "transition costs," since the government would need to come up with extra money to pay current retirees. Details are sketchy, but it appears that Bush plans to finance the transition costs through borrowing.

The claim is that this scheme will somehow resolve Social Security's long-term shortfall. CNN quotes an administration flack as saying "It's important to view the financing of the transition as a down payment...If we fail to act, we face a $10 trillion gap."

The problem is that this plan doesn't actually do anything. It doesn't solve the funding gap, doesn't increase national savings, and doesn't increase national income.

That's because today's borrowing to fund the transition costs has to be paid back eventually through new taxes. In other words, the private accounts are illusory: they returns they generate will just go to pay the taxes for the borrowing used to fund them. Equivalently, the Bush plan is just a new tax, one that the government returns to workers in the form of private accounts.

What Bush gives with one hand, the private accounts, he (or some future, more responsible President) takes with the other in the form of higher taxes. The "ownership society," he calls it.

Number 1 in Ragout Economics!

March 2004 / April 2004 / May 2004 / June 2004 / July 2004 / August 2004 / September 2004 / October 2004 / November 2004 / December 2004 / January 2005 / April 2005 / May 2005 / June 2005 / July 2005 / August 2005 / September 2005 / October 2005 /

First Team
Angry Bear
Crooked Timber
Brad DeLong
Economist's View
Mark Kleiman
Nathan Newman
Political Animal
Max Sawicky
Brian Setser
Sock Thief
Talking Points Memo
Matthew Yglesias

Second Opinion
Stephen Bainbridge
Marginal Revolution
Andrew Samwick
The Volokh Conspiracy

Third Way

Fourth Estate
Economic Reporting Review
New York Times
Washington Post

Fifth Republic
Le Figaro
Le Monde

Sixth Sense
The Intersection
In the Pipeline
What's New

Politics & Polls
Daily Kos
Donkey Rising
Electoral Vote Predictor
Rasmussen Tracking Polls

Art Sucks
Enzo Titolo
L’esprit d’escalier
A Level Gaze
Approximately Perfect

ragoutchef at yahoo dot com


Powered by Blogger