Paul Krugman comments on Chile's system
Think Social Security Myths Are Dead? Think Again.
By Paul Krugman Jul 05 2010
The biggest threats to Social Security in the United States these days are zombies — that is, arguments that have been debunked but keep coming back and confusing matters again and again.
Five years ago, privatizing Social Security was all the rage here, and for a while conservatives were in love with Chile — that land of the wonderfully perfect retirement system that proved, beyond a shadow of a doubt, private accounts were the way to go. During former President George W. Bush’s campaign to partially privatize Social Security, he often cited its shining example when explaining how to cure the system’s ills. Then some people started looking closely and discovered that the Chilean system actually had big problems — including very high administrative costs — and that Chileans actually hated the thing. The effort quickly fizzled in the United States. Then in 2008, President Michelle Bachelet, using billions in revenues saved from copper sales, launched pension reforms and supplemented Chile’s troubled private system, finally putting an end to the argument.
Now those zombies are stirring again in the United States. Earlier this year the Obama administration established an 18-member commission of Serious People, led by former Senator Alan K. Simpson, a Republican from Wyoming, to develop plans to bring the federal budget under control. Mr. Simpson quickly resurrected the old nonsense about how Social Security will be bankrupt as soon as payroll tax revenues fall short of benefit payments, maybe even this year. And never mind about the quarter-century of surpluses that started in the ‘80s.
We went through all this back in 2005, but let’s repeat it yet again.
The Social Security program is funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the federal budget, and the dedicated tax as just a formality.There’s a lot to be said for that point of view: benefits are a federal cost, payroll taxes a source of revenue, and they don’t have anything to do with each other. Or you can look at the program in isolation. And as a practical matter, this has considerable significance: as long as Social Security still has money in its trust fund, it doesn’t need new legislation to keep paying benefits.
But you can’t have it both ways.
You can’t say that Social Security ran surpluses for 25 years, but that it didn’t mean anything because it’s just part of the federal government’s budget, then turn around and claim that when payroll taxes fall short of benefits, Social Security is broke, even though there’s lots of money in the trust fund.
What happens when payroll receipts fall short of benefits? Nothing.
The checks just keep going out, drawn from the surplus.
So why has the co-chair of the commission resurrected these lies? Either because he isn’t willing to deal with the public honestly or zombies have eaten his brain. In either case, there’s no point in continuing this farce.
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