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April 07, 2005

The Bush Administration Clown Show Continues...

The White House's Charles Blahous confuses Brendan Nyhan, who quotes from Daniel Froomkin:

Brendan Nyhan: Do private accounts really protect you from benefit cuts?: Dan Froomkin quotes Chuck Blahous, the White House Social Security guru, pushing a common administration talking point:

Chuck Blahous, the White House's Social Security expert, took questions on the White House Web site yesterday. He didn't explicitly address whether the trust fund was worthless. But he did suggest a new link between the government's spending of the trust fund surplus and personal accounts:

'The President believes that surplus Social Security money should not be spent, which is one reason why he has proposed creating a system of personal accounts,' Blahous wrote. 'These personal accounts would save Social Security money, protecting it in the accounts of individual workers, where the government could not take it away.'

Think of it as millions of little lock-boxes.

But the government is going to take away most of the gains from private accounts with a clawback that will reduce your traditional benefit by the number of dollars contributed plus 3% interest above inflation annually. What's to stop them from changing that number and taking back more? It's just as easy or hard as cutting the traditional benefit. This argument makes no sense to me.

What's happening is that Blahous is making the ghost of an argument that he doesn't understand--it bears the same relationship to the real argument that... that... that... a cargo-cult "control tower" built of thatch does to a real airport's radar and control tower.

If you go to the real Republican economists, you will find the argument going something like this, where I have turned the frankness-and-blunt-speaking-o-meter up from its usual level of 3 to the Spinal Tap level of 11:

  1. Currently, the U.S. government is running a Social Security surplus--taking in more in Social Security taxes than it spends in benefits.
  2. When the baby-boom generation retires, the U.S. government is going to be spending more on Social Security than it will take in in taxes--so the government is going to have to borrow a lot of money in order to cover the deficit.
  3. The government will only be able to borrow if creditors think (i) the debt is not already too high and (ii) the government will have the will to levy taxes to pay us off when our bonds come due.
  4. Thus it's important that now--when Social Security is in surplus--that the government be not running up but running down the debt.
  5. If the government takes the current Social Security surplus and spends it--doesn't run a big current surplus and buy back debt now--then it will be unable to borrow when the baby-boom retirement payments come do because the debt level from which we will then start will be too high.
  6. The U.S. government--especially Frist, Hastert, Delay, and Bush--have a demonstrated incapability to not spend the Social Security surplus: there is no a snowball's chance in hell that a government run by them will buy back debt.
  7. So we are in big trouble.
  8. If only we could keep Frist, Hastert, Delay, and Bush from knowing that they have a Social Security surplus to spend, they would be forced to cut taxes or raise spending, and then the government would be able to borrow in the future to meet its Social Security obligations to the baby boomers.
  9. So let's set up private accounts. That will cut government revenues now--and so eliminate the Social Security surplus. Frist, Hastert, Delay, and Bush will be forced into fiscal sanity, and so we'll have a lower debt when we really do have to borrow in the future. And we won't have to borrow any more in the future as a result of our private accounts plan because we will cut normal benefits by an amount that is in present value equal to the amount that we're diverting to private accounts.

If Blahous understood the argument he's making--and seriously wanted to communicate it--he would say something like this: "Think of it this way: Bush and Delay and Hastert and Frist are out of their minds, and are on a giant financial bender. They think they can drink up every bottle in the liquor cabinet, but if they do we'll have nothing left for the party we're giving tomorrow. Private accounts is a way of moving some of the good liquor to another cabinet and putting a lock on it so Bush and Delay and Hastert and Frist can't spill and waste it tonight. That's what we are really doing."

And, Blahous says, Bush really wants the bottles moved to the other cabinet--one with a lock on it--so he can't get at them. After all, Blahous says, "The President believes that surplus Social Security money should not be spent, which is one reason why he has proposed creating a system of personal accounts. These personal accounts would save Social Security money, protecting it in the accounts of individual workers, where the government could not take it away." You see, Bush really wants the government to run a budget surplus equal to the Social Security surplus, and we have to enact private accounts to force him to do what he really wants.

Yes. It's a clown show.

Posted by DeLong at April 7, 2005 04:33 PM