The SSTF And Other Hallucinations

Paul Krugman has always been a hack on fiscal policy, but at this point, I'm becoming concerned about his mental health. First there was the bizarre exchange with Paul Ryan in which he made numerous factual mistakes, now this:

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won't have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program's actuaries don't expect to happen until 2037 -- and there's a significant chance, according to their estimates, that that day will never come.

The only problem with that reasoning is that the SSTF doesn't actually exist, as Krugman must be aware. Far from being "banked," Congress started spending that money every year back in the 1970s. You can't spend the same dollar twice. This is why Al Gore campaigned on creating a SSTF "lockbox" in 2000.

Now, leftists will argue the SSTF is real because there are a mountain of IOUs somewhere in a D.C. fault vault, but the bond markets don't care if you write IOUs to yourself; borrowing to pay back the SSTF money will make even today's alarming trillion-plus deficits seem mild by comparison, as Krugman well knows. That is a real crisis, and when Krugman claims otherwise he isn't merely making a bad argument, he is delusional.

posted by Dave on 08.16.10 at 11:08 AM


"D.C. fault." That is a great description. Trying to redeem all those I.O.U.s will have an economic impact greater the the New Madrid quakes. The dislocation is liable to sink both parties and Washington.

gb   ·  August 16, 2010 11:40 AM

And that's why it's so hard to talk to some people.
You say, "There's no money in the trust fund, it's all just I.O.U.s from the gov't to the gov't."

They say, "Yes there is money in the trust fund."

How can you continue that conversation?
It's a total waste of time.

Veeshir   ·  August 16, 2010 12:49 PM

It is a universe of deception. It grew harder to understand every year and is now impossible.

Our government regards numbers as Inconvenient Facts. One too big or too small is merely changed. A few words are written to prove the discarded number was wrong and the new one is correct. The words are filed away, it must all be done properly.

Governments do not have to follow accepted accounting practices and audits. They can and will say anything that might pacify the public.

The federal government itself has no idea of the cost of what they have promised to others: bond holders, pensioners, guarantees like FHA loans and FDIC, medical plans such as Medicaid, semi-obligations such as sustaining Fannie and Freddie.

The rot is equally deep in many state governments and some local. But they can't print money or create a phony bank like the Fed.

When I say a universe of deception consider a much simpler situation. How the EU got into the Greek debt crisis. Greece lied in order to keep borrowing in world markets. The increasing Greek debt could have been detected but nobody bothered or wanted to know.

KTWO   ·  August 16, 2010 3:10 PM

The entire Social Security trust fund resides in a file cabinet:

PARKERSBURG, W.Va. (AP) -- The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

Kurt Brouwer   ·  August 16, 2010 7:40 PM

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