The Social Security Debate: A War of Lies

The battle over restructuring America's Social Security system into individual, privately managed accounts is heating up again. So the winds of change keep blowing, foreshadowing what may be the most profound economic transformation since the Reagan tax cuts of the 1980s.

The battle line was drawn last week over revised budget estimates showing a shrinking federal budget surplus. Democrats charged that the Bush administration is raiding the Social Security cookie jar to create the appearance of any budget surplus at all. The Bush administration countered by declaring their continued support for a Social Security lock box, saying that under no circumstances would they dip into this Social Security Trust Fund. Yesterday the Congressional Budget Office agreed with the Democrats.

But if this is the battle line, it's a line drawn in shifting sands with a squirt-gun filled with invisible ink. Arguments on both sides of it are fictions built on lies predicated on fantasies.

Of course anything having to do with the federal budget is utter madness. A public company that reported its financials to shareholders the way the federal government reports to citizens would find its CEO and CFO sharing a jail cell. But when it comes to Social Security, you move up into a whole new level of fraud.

Yes, it is the case that the Bush administration has changed the rules by which it characterizes Social Security tax revenues, and without that change, the existing rules would show the budget dipping into Social Security funds.

But that just doesn't matter. Because the truth and the fact is that there is no such thing as "Social Security tax revenues" and there is no such thing as a "Social Security surplus" and there is no such thing as a "Social Security Trust Fund" and there is no such thing as a "Social Security Lock Box."

These are just accounting gimmicks. No, they aren't even that real. They are just words. No, they aren't even that real. They are just lies.

Truth: all revenues received by the federal government from whatever source is simply interchangeable income, to be spent by the government any old way it chooses.

Truth: there is no Social Security surplus, and never has been. The present value of the system's liabilities is greater than its assets by trillions of dollars.

Truth: any money invested in Treasury bonds to pay future Social Security benefits -- whether in a "trust fund" or a "lock box" or, as Johnny Carson used to say, in a mayonnaise jar on Funk & Wagnall's porch -- isn't invested at all. It's just an IOU from the same government that claims it will use the proceeds from that same IOU to pay benefits.

There is only one true "trust fund" or "lock box." It is the individual, privately managed Social Security account. It would not be the government's property, subject to the whim of today's particular accounting maneuvers and spending plans. It would be your property, just like your 401(k) account. Yours to own. Yours to invest. Yours to spend. Or yours to pass on to your children.

It's tragic that in a matter as important as Social Security privatization President Bush doesn't have the full courage of his convictions.

Yes, to his credit, last week Bush repeated the familiar warnings that Social Security is facing a crisis, and said that bold action is required. And firmly grasping the highest-voltage third rail of American politics with both hands, he said that his support for private accounts is a political plus, and one of the reasons he was elected, as he put it, was "…because I had the courage to tell that message. We must give younger workers the option to manage their money in the private sector if that's what they choose to do."

But he'll never create that option until he has the courage to stop perpetuating decades of lies about Social Security. He must tell his budgeteers to stop traipsing up to Capitol Hill and bowing to the lunacy of "surpluses" and "trust funds" and "lock boxes."

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Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.