Social Security: Here's The Problem


By Karl Denninger

You have to chuckle at the so-called “commentators” and “reporters” and “idealogues.”  Listen to this:

Here’s the transcript, if you care to read it….

Guess what: Senator Simpson is correct and Alex is, as usual, trying to spin this issue.  Here’s reality:

Want to argue the facts?  Sounds good.  Let’s do so.

Blow up the above pie chart (click it.)  Notice that the so-called “pre-funding” that the 1983 commission allegedly did was a lie.  The government took all that money and spent it, rather than hanging onto it.  That is, they stole it.

Then the government got even more clever, and manipulated the CPI so as to prevent the indexing that is built into the law from reflecting the loss in purchasing power.

There is no surplus from the Social Security funds and it is not separate.  The government took the money and blew it.  It’s gone.

I don’t care what Alex believes Social Security is (or how many other people believe the same thing); the Supreme Court has in fact ruled that Social Security (and Medicare) is just a tax and can be changed at whim (or even eliminated entirely.)  Social Security and Medicare are not an insurance program and they are not an annuity, despite the commonly-held beliefs of the public.  The programs themselves are nothing more or less than political promises, and we know how often those are kept.

Here’s the reality of the surplus (or deficit) as a whole, including Social Security, going back to the 1990s:

Notice that Clinton’s so-called “surplus” wasn’t real.  He stole the Social Security surplus and spent it.  He wasn’t alone, incidentally, as both Bush’s did too, as has Obama – when he could.  Now, however, Social Security has actually generated monthly deficits, and although it is projected to start returning surpluses again for a short while, it doesn’t matter as the government will simply continue to steal and spend it.

There is no “lock box” where the Social Security funds are kept away from the rest of the government.  If Peter robs Paul but Peter and Paul both live in the same house and eat out of the same fridge, there is no net change in wealth between Peter AND Paul.

So again, with a $4 trillion budget 1.5 trillion of that, or 37% of it, is borrowed – that is, not funded.

Looking at the pie chart, where would you like to get that 37% from?

Well, you can’t get it from interest payments, and indeed right now that interest payment is extremely small due to the very favorable short-term rates – indeed, it’s lower today than it was in 2007.  That won’t stay nearly so favorable, incidentally, so one must plan for that slice of the pie (4.63%) to expand, not contract.

You can take the entire rest of the chart above the interest and remove it – that is, every discretionary spending item and department – and you don’t get here.  Indeed, doing so only consumes about 19% of the budget – but you need double that, approximately.

Which sacred cow(s) would you like to slaughter and BBQ?

Let’s assume that we cut all discretionary programs, without exception, by 20%.  This will produce howls of protest, but we’ll assume we can do it.  We now have 4% of the 37% we need.  Let us also further assume interest rates return to reasonable long-term averages (that is, we don’t get Greece’d) which means interest expense roughly doubles.

Discretionary cuts of 20% of the budget and interest expense increases balance – net zero.

So we need to find 37% of the budget in the “sacred areas” to eliminate.

If you eliminate the Department of Defense, you only get halfway there.

That’s ridiculously unrealistic, so we’ll instead assume that the lefty dream comes true tomorrow, every threat we have to our national security disappears with a wave of Harry Potter’s wand, and we can bring every troop home right now.  This might shrink the DOD budget by half, which would be extraordinary.

Congratulations, you still need to eliminate 27.63% of the budget.

If we eliminate Social Security, we don’t get there – it’s only 19.63%.  Doing so isn’t going to happen, of course, as Granny will grab her shotgun if you try it.

So let’s assume we do not touch Medicaid and Social Security – after all, it’s unfair to get rid of either base pay for old people or medical care for the poor and (especially) the children, and besides, there’s a real risk of an insurrection if you attempt do do either.  Fine and well, but then you must eliminate all unemployment, welfare and other mandatory spending plus Medicare (health care for old folks.)  That adds up to 28.92% – just enough, plus a couple percent for a (tiny) surplus of about $80 billion.

See the problem yet?

What Alex Lawson wants, along with the rest of the left, can’t happen.

It can’t happen because the math doesn’t work.  It is not about “mean people”, it’s not about “tax cuts for the rich”, it’s not about “sacred defense programs.”

It’s about mathematics.  You need to find $1.5 trillion in budget savings and there is no way to get there without digging deeply into promises that were made by the left but cannot be kept, because they were unfunded when made and worse, the very same government STOLE all the temporary surpluses the programs generated and spent them!

President Bush papered over the reality when it was 1/3rd as bad as it is now.  He did so with lies and deceit, and President Obama has now compounded that error by a factor of three, and appears to have built in a $1.5 trillion structural deficit where Bush’s was $600 billion or so.  Neither was able to be funded in perpetuity, and instead of fixing Bush’s idiocy in driving straight toward the cliff at 50mph when President Obama took office he floored it and now we’re doing 150mph – in the same direction.

The math doesn’t care whether you like what it says or not.

It just is.

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