Rational Action returns

"Field of Dreams" was on cable, and during commercial breaks I was checking my blog via Technorati. I saw he made a reply to my reply.

I didn't intend to become another member of PK's legion of defenders. But alas, Eidelblog leaves me no choice! He comes out first with this zinger:

If the shoe fits...

The problem is that Krugman's point didn't begin with his assertion that "the payroll tax is just another tax". In the section I cited, Eidelbus says…

Nor did I ever say Krugman began with that! Once again, RA misrepresents me. But it's interesting to note that he won't admit to his original misrepresentation: he had erroneously written that I said Krugman made this "point" while he "rambled incoherently." Feel free to check my original post, and you'll see I used the word "then":

Krugman rambled incoherently for a minute, and I really didn't understand what his point was. Then he said the payroll tax is "just another tax."

So is RA admitting guilt by silence? Anyhow, RA defends:

During this "incoherent" ramble, Krugman was laying the groundwork for his construct that we could view government as one giant cauldron or as a bunch of separate pots. When Krugman then said that the Payroll Tax was "just another tax," he was explaining how it would work in the former view. Now, if you weren't paying attention while Krugman laid the groundwork, then yes, it would sure sound like he wanted the Payroll Tax to be "just another tax." Fortunately, I was listening.

It's nice that there's the official, though edited and therefore suspect, transcript from NYSEC. I believe it's in the bottom part of page 18 when Krugman started his incoherent rambling. And it was certainly incoherent -- go see for yourself. Krugman's reply was as meandering as a sine curve along the x-axis, until he finally got to the crux of his argument. Someone once said Jeff Goldblum is stereotyped as an excitable Jewish scientist, but at least he could make a concise point in his movie roles. If Goldblum's band played music like Krugman unrehearsedly drives home a point, a chord would last a dozen beats.

Like I've now said several times, after a minute of his usual meth-addict-like rambling, Krugman then got to the point: he wants Social Security to be thrown in with the rest of the federal budget. That way, general tax revenues can be used to shore it up. And that's completely dishonest about a system that was always supposed to be funded by its own tax. Even Krugman admitted during that rambling, "Social Security is a program financed by a dedicated tax." So if it's a dedicated tax, why does it need more funding from other tax sources, and why won't politicians admit it isn't solvent by its own "dedicated tax"?

Let's say I'm a retail store owner. I advertise all my products at slightly lower prices than all my competitors. I claim I save you money. But I tack on 10% at checkout, so in the end, you pay more at my store than elsewhere. Meanwhile, I continue to claim to have the lowest prices. In the real world, that's called false advertising. It's fraud. It's a lie. (There's a store chain in Utah that used to do this, but that's another story.)

Well, that's exactly the case if the federal government secretly makes Social Security "solvent" with other tax revenues. I don't understand why RA won't admit the moral problem here.

Eidelbus continues, conflating my supposed views with those he projects upon PK:

First, I have no need to "project" anything on Krugman, who has never failed to make his views crystal clear. Second, the shoe still fits.

Let's be clear on this one. Once Social Security starts running yearly deficits, it will begin redeeming its treasury bills. As this happens, it will worsen the government's fiscal position. Is there a soul who wouldn't agree with that statement — Krugman's soul included?

I really wish this anonymous blowhole would stop misrepresenting my arguments and making straw-man arguments. Never have I said this wasn't a problem. Quite the contrary, it's what Michael Tanner, I and many others have warned about. Tanner is the one who brought up in the debate that in 2027 alone, we'll need to redeem $200 billion worth of those low-grade Treasury bonds (barring benefit cuts). Just for 2033, we'll have to redeem $300 billion worth, again if we're not to cut benefits. Never have I ignored this problem; indeed I've harped all along on the crisis of having to repay this giant loan to ourselves, a.k.a. I-Owe-Me.

In sharp contrast, Krugman during the debate said Social Security is solvent through 2028, because of the "interest" on the bonds. Um, Paul, just who pays the interest again?

Dear heavens. For a supposedly world-class economist, Krugman certainly lacks a practical knowledge of money.

That said, the whole point of the Payroll tax hike of the early 1980's was so that at some point in the future Social Security would be able to draw on its trust fund. If the rest of government ran any deficit at all during this saving period, then when it came time for Social Security to draw from the Trust Fund, other taxes would have to go up (or the Federal Government would have to issue public debt.)

Actually, the main point of the 1983 payroll tax increase was simply to make Social Security solvent. It was already requiring a (relatively) small amount of money from the General Fund. The plan to generate a surplus sufficient for the Baby Boomers was secondary. We've since discovered things won't be insufficient for anyone beyond 2018, because Congress surreptitiously helped itself to the surplus, and we'll have to pay ourselves back. I don't see what's so hard for RA to comprehend: if company executives did this to a pension fund, they'd go to jail.

Eidelbus wants to say that as long as paying out Social Security requires some kind of transfer into the system via any tax increase — even if money was transferred out of the program in the past — then the Social Security system is not solvent.

It isn't. Not by itself, and once again, it's a lie to call the 12.4% a "dedicated tax" when you actually need other tax revenue. There's no effective difference between raising the payroll tax to make Social Security "solvent" and raising other types of taxes. The only difference is in incidence.

I disagree. I say that Social Security is solvent until roughly 2041, because its deficits until that point equal its [I assume totally] transferred-away surpluses between roughly 1983 and 2017. I make this claim at the expense of the General Fund, which is currently a fiscal trainwreck in great need of repair. If we were to put the General Fund into balance until 2041, then Social Security would have no trouble paying its benefits.

And who pays back the bonds plus interest, Santa Claus? Claiming it's solvent because it holds bonds is like saying my maxed-out Visa is no problem, because I'll meet the payments with cash advances from my Discover. What happens when I have to pay back the Discover?

The General Fund has been running especially large deficits because it could count on a portion of its budget to be financed by Social Security's automatic investment in tresuries. General Fund taxes have been artificially low, as Payroll Tax income helped make the deficits smaller. To repair the General Fund, the taxes which pay into it must go up. As the General Fund pays down its debt, some of its income will be transferred into the Social Security program.

Who pays down the General Fund's debt, perhaps Santa Claus or the Tooth Fairy?

The money will come from us, one way or the other. We'll either have to raise taxes, and quite dramatically, or we'll experience huge cuts in spending at the same tax rates.

Eidelbus says: This is evidence that Social Security is not solvent, because taxes will have to go up! I say, this is evidence that Congress managed the money poorly and made the General Fund insolvent, using Social Security's solvency as a mask.

Both statements are true; they're not mutually exclusive. I've talked all along about Congress being able to loot the trust fund. Luskin mentioned it on Kudlow & Co. on March 15th, saying a hidden benefit of privatization is that it will promote fiscal responsibility.

P.S. No explicit personal insults! Perry Eidelbus, I see your "twerp" and I… fold!

RA, you said that I "woke up," which I take to be an insult, and you've constantly misrepresented my arguments under the comfort of anonymity. So don't be surprised when I call you a twerp, when most people would have taken greater umbrage and called you worse.

I am reminded of what my favorite economist of all time, Bastiat, wrote: "Good Lord! What a lot of trouble to prove in political economy that two and two make four; and if you succeed in doing so, people cry, 'It is so clear that it is boring.' Then they vote as if you had never proved anything at all."