A Respone to Paul Krugman

Well it appears that NRO has beaten me to the punch regarding a critique on Paul Krugman's latest article of deception. However, I am quite disappointed with the job they did because there are a number of important factors that they left out.

There's nothing strange or mysterious about how Social Security works: it's just a government program supported by a dedicated tax on payroll earnings, just as highway maintenance is supported by a dedicated tax on gasoline.

I believe that Mr. Krugman is correct in his assumption that there is nothing strange or mysterious about Social Security. The only problem is that he believes that it's a wonderful example of how a welfare-state program can work when in reality Social Security is nothing more than a mere pyramid scheme.

The grain of truth in claims of a Social Security crisis is that this tax increase wasn't quite big enough. Projections in a recent report by the Congressional Budget Office (which are probably more realistic than the very cautious projections of the Social Security Administration) say that the trust fund will run out in 2052. The system won't become "bankrupt" at that point; even after the trust fund is gone, Social Security revenues will cover 81 percent of the promised benefits. Still, there is a long-run financing problem.

The tax increase wasn't quite big enough? This is the whole problem with looking at economics from a strictly academian, or textbook, standpoint. Raising taxes in an effort to cover shortfalls will usually hurt more than it helps. Moreover, as previously explained, tax hikes will typically accumulate less revenue for the government. Why is it that Mr. Krugman fails to recognize this? Because Krugman does not not take into account the human dynamic in his analysis of the implications of a tax hike. A tax increase causes a withdrawal of capital from the economy, fails to create more revenue for any government programs, and creates problems elsewhere in the economy.

Moving on, Krugman states that the SS revenues will still "cover 81 percent of the promised benefits" after the trust fund dries up. So Krugman is basically unknowingly admitting the failure of this program he says "works." If this government program works, Mr. Krugman, why is it that 19% of the promised benefits will not be received? If the program works, Mr. Krugman, why is it that you need to raise taxes to cover its funding shortfalls. And, if the program works, Mr. Krugman, why is there any need to write editorials trying to justify the ongoing existence of the program? If there is a "long-run financing problem" when the program is designed to give the taxpayer what they have invested it is a failure.

But it's a problem of modest size. The report finds that extending the life of the trust fund into the 22nd century, with no change in benefits, would require additional revenues equal to only 0.54 percent of G.D.P. That's less than 3 percent of federal spending - less than we're currently spending in Iraq. And it's only about one-quarter of the revenue lost each year because of President Bush's tax cuts - roughly equal to the fraction of those cuts that goes to people with incomes over $500,000 a year.

This statement suffers from two major logical fallacies. First, it is stated that there would be no change in benefits. Don't get me wrong, a lack of change in benefits would be great if the current benefits weren't terrible to begin with. Social Security was a program that was designed to force people to save their money in an effort to keep them financially stable when they became elderly. However, the current fashion in which Social Security works is economically immoral. Most of the principles of a successful economy or good fiscal policy come from the moral decisions surrounding how to use one's money.

Social Security violates a number of economic decisions that are, at heart, an individual's moral decision. A person should decide what they do with their money, it should not be the government's decision. Whenever the government has authority of how money should be used (government spending) it is managed very inefficiently. Thirty percent of all revenue that our government receives from you and me is wasted. It is no different with Social Security. Our grandparents are not getting the same amount of money they put into the system back. When it is our turn to receive the "benefits" of Social Security we shall receive even less, regardless of what statistics Krugman or any other supposed economist of his kind would like to manipulate.

Double taxation is another major violation of economic morality in the case of Social Security. Social Security is funded through a payroll tax. But the money that individuals and business put into the fund is taxed yet again when the elderly receive their "benefit" checks. Where's the benefit in getting taxed twice to fund a failing government program?

There is no justification in comparing Social Security spending to that of the expenditures of the war in Iraq. It is like comparing Reagan's increase in military spending to bankrupt the Soviet Union with Social Security expenditures. Krugman's statement lacks any economical argument, and rather serves as a jab at Bush's foreign policy. Krugman is not an economist, he's a liberal political columnist.

The current Social Security system needs to go. Though fairly promising in its conception, it is now nothing more than an example of the failure of socialist economic policy. An individual should have control over their own money, and that is one of the many reasons why privatization is the solution to the failure of our current Social Security system.

~ Rich Ferber

I am hoping to write an article regarding the benefits of privatization over Christmas Break, however, I make no promises.