April 11, 2005
The Bush Administration Social Security Clown Show Continues
Judd Legum is bemused by the White House's Charles Blahous:
Think Progress: Astoundingly, the White House is still trying to claim that carving personal accounts out of Social Security will not cost money. Yesterday, Chuck Blahous, Special Assistant to the President for Economic Policy, took questions on the White House website. Here is what Ira from Kirkland asked:
Mr. Blahous, why do we need an expensive new federal program when there are existing options for investing in securities?
Here was Blahous’s response, on behalf of the White House:
Ira, the President has not proposed a new federal program, nor to increase the costs of existing Social Security.... The personal accounts that the President has proposed would be fiscally responsible because they would be used to fund retirement benefit obligations that would exist under the current system.
What Blahous is saying is, in the words of the plumber from "Moonstruck": "Even though it costs money, it costs money because it saves money"; or maybe he's saying that it saves money even though it costs money, because you have to spend money to save money; or something like that. Blahous's claim is that even though you're diverting $2 trillion of Social Security revenues from paying benefits to funding private accounts over the next two decades (and so borrowing at addition $2 trillion on financial markets), in the long run of three, four, five, six, and more decades from now the clawback of the compounded value of funds diverted to private accounts reduces the traditional Social Security benefits of those choosing private accounts by enough that you come out even.
This is, however, wrong. As Glen Johnson of AP reported earlier this week:
WASHINGTON (AP) -- Future high-wage earners could see their traditional Social Security checks replaced by the proceeds of the personal investment accounts proposed by President Bush, according to a report by the nonpartisan research agency used by Congress.... Both trends would have the effect of eliminating the Social Security check for a hypothetical group: someone born next year who goes on to a career as what Social Security considers a "scaled high earner," which this year is a person with annual average earnings of $56,091....
"For these individuals, their entire Social Security income would be comprised solely of their individual account proceeds," said the report....
If the clawback of the private-account contribution reduces the traditional Social Security benefit to zero for somebody making $56,000 a year, that means that for everybody making more than $56,000 per year there isn't enough traditional Social Security benefit to offset the cost of the extra government borrowing made necessary by the shift of contributions to private accounts. For everyone making less than $56,000 a year, Blahous is correct in the sense that the long-run reduction in benefits offsets the short-run and medium-run diversion of revenues. But for everyone making more than $56,000 per year, the cost to the government of the extra borrowing in the short and medium run exceeds the value to the government of the reduction in the traditional Social Security benefit in the long run--even if the government claws back the entire traditional Social Security benefit.
I think that Charles Blahous really is not up to the job--that he genuinely thinks that the "personal accounts that the President has proposed would be fiscally responsible," because he doesn't understand what private accounts mean for those making more than $56,000 a year, and nobody has been able to enlighten him. The gain from misrepresenting the situation in a small-scale online chat is very small indeed...
Posted by DeLong at April 11, 2005 01:01 PM