Friday, December 10, 2004

Paul Is A Glutton For Punishment

Paul Krugman says, How's your wife? is now apparent that the Bush administration's privatization proposal will amount to the same thing: borrow trillions, put the money in the stock market and hope.

Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall.

To which the FLUBA responds, Compared to what? [Paul Krugman, Fuzzy Math (2001), Page 60]:

Even if the federal government were to pay off all its explicit debt, it would still be$10 trillion in the red because of the Social Security system's implicit debt.

So, to answer the esteemed economist's question, even the derisory description of the "Bush...proposal" in today's Op-ed, would be an improvement over what was going on, and is still going on, and will continue to go on until about 2017 unless something is changed. I.e. spending the Social Security excess revenues on current consumption.

Investing in actual assets is rational if the purpose is to have something to live on in retirement, even if you have to borrow to do so (providing one earns a return higher than interest rate one pays). We at the Academy are surprised to hear a John Bates Clark Medal winner thinks otherwise.

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