Friday, March 18, 2011
I hate saying this but "The Hammer" gets it all wrong.
Here is why "The Hammer" is wrong. I hope I never have to say that again....
Let me try it from this angle...suppose today the government wanted to spend $500 for defense, entitlements et. al. and social security wanted to spend $500 today and $500 25 years from now. One way to finance this would be to raise $500 in general revenue through income taxes now and $500 in social security taxes now and then $500 in 25 years from social security taxes. Your tax bill (without compounding) would be $1500 total as the tax-paying public. Now suppose that the government wanted to spend $500 today and social security wanted to spend $500 today and $500 in 25 years but social security had $1000 in total revenue sitting right there, now, on their balance sheet. One thing that could be done is for social security to spend the $500 now and loan the government $500 now to pay for their spending. Look at what has now happened...you no longer have to pay the income tax bill of $500 for the general government spending since an intra-governmental transfer happened. Then in 25 years the government would raise $500 in income taxes to pay social security what it is owed. But look at the net result...in both cases your tax bill was $1500. So from the point of view of the tax-paying public...it is the net public debt that really matters. And it is not an empty lock box.