Now it’s getting ridiculous

Recall the problem: there’s $1.5 trillion in the Social Security trust fund. Currently Social Security revenues are greater than benefit payments, so the trust fund is projected to grow over time (to the tune of about $150 billion a year). But starting around 2027, revenues (including interest) fall below benefit payments, so the trust fund starts to decline. By 2041, the trust fund will be exhausted. The system is insolvent. The Bush “plan” (I’ll put the quotation marks in because in fact there is no concrete proposal before Congress or the public) is in a nutshell to borrow a bunch of money, plunk it in private accounts, cut benefits starting around 2041 to solve the insolvency problem, and cross fingers in hope that the rate of return on the private accounts is at least as high as the rate of return on traditional Social Security minus the future benefit cuts. The public and probably a majority of members of Congress hates this plan because with the government already borrowing $500 billion a year to finance everything outside of Social Security, who really wants to borrow a couple of trillion more to deal with Social Security?



So now here come Senator DeMint and McCrery with a plan by which the government can finance private accounts without that nasty borrowing. Just take the money from the trust fund! The money is just sitting there, right? So allow workers to put money into private accounts instead of the trust fund, and voila, you’ve got yourself a privatized Social Security system. Of course any idiot (and there are a lot of us out there) can see the fallacy in this plan: the trust fund is extinguished that much earlier, so at that point we’d have to borrow enough to replace the funds that went into private accounts rather than the trust fund. This is like financing the purchase of a house by cashing in your pension rather than taking out a mortgage loan. This shell game might be great politics (if you (a) didn’t follow the analysis above, and – this is important – (b) don’t realize by now that the Republicans are a bunch of snake oil salesmen, you might just believe that there’s $1.5 trillion in free money that can be used to solve the Social Security problem) but it’s lousy, really lousy, economics. Also an idiotic way to run a government.