April 07, 2005

Educating Neal Boortz - Social Security and IOUs

from - smijer

There are a whole lot of Americans - and I'm included in that group in many ways - who need a Civics Lesson or ten. I don't know how many of them read this blog. Probably not many. But, right now, America is embroiled in a shooting war, an escalating culture war, a war over judiciary checks and balances, and any number of other contentious issues, so I think now is the time to start sharing what we know, in an effort to educate one another.

And, though Neal Boortz will likely never read this, he is one of those who most sorely needs a Civics Lesson. So I will start with a very simple one, for him. Yesterday, he showed his ignorance of how the U.S. Treasury Bond works. He even quoted the President to make his point. I guess a mini-lesson about civics is that the President is free to mislead or misdirect in ways that further his political goals. Bush said, "there is no 'trust fund,' just IOUs that I saw firsthand, that future generations will pay -- will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs." The intended effect of this technically true statement was to direct the thinking of the average joe, who doesn't understand what a Treasury Bond is, and get him to believe that the Social Security Trust Fund is somehow not trustworthy. It worked on Neal Boortz, as evidenced by his statement:

To illustrate this, he looked inside the filing cabinet that contains the Social Security "trust fund." Do you know what is in there? Is it piles of cash, enough to sustain benefits for decades, as the AARP and Democrats would have you believe? Nope....what's there is $1.7 Trillion in IOU's....treasury bonds indicating that the money has been raided and spent by politicians.

To repeat the facts here: there is no trust fund, there is no promise to pay benefits by the government...the lockbox is empty. You would think that people would be jumping up and down demanding private Social Security accounts, because those accounts would not be managed by the government and could never be taken away.

Would you depend on an incompetent and fiscally unsound government to put food on your table at retirement? Apparently most people do.

Boortz has been convinced by the President's rhetoric that "the lockbox is empty."

Well, the fact is that the Social Security trust fund is not quite empty. Instead, it is full of U.S. Treasury Bonds.

For the politically savvy, Atrios has already addressed this (time and again), but he directly addressed the President's remarks twice yesterday: here and, in parody form, here.

The simple point is that U.S. Treasury Bonds, even under a U.S. Government that is racked with war debt, are as secure an investment as any you could hope for, besides, maybe, gold. So Neal's panic really isn't justified. And Neal's suggestion for a remedy really should make him more nervous than he already is, if he had some basic understanding of how things worked. Stocks and commodity futures are great investments for many people, but they are less secure than treasury bonds. Let me repeat Boortz' primary misunderstanding:

You would think that people would be jumping up and down demanding private Social Security accounts, because those accounts would not be managed by the government and could never be taken away.

To an extent, many of us are demanding, and getting, private retirement accounts. We call them 401K's. But for Social Security, a private account won't do the trick. There is no guarantee that the money will be there when you retire. If the economy tanks, then your private account may become worthless - unless you happened to have it all invested in U.S. Treasury Bonds.

What the President is arguing for is to increase the return on most SS accounts by allowing individuals to choose to invest them privately. What he doesn't answer is what will become of the elderly who happen to have their SS invested in a group of stocks that has lost all of its value. At that point, we will have to choose between leaving those elderly to starve and die, or to raise taxes and replace their SS account so that we can pay them a benefit in place of what they lost in the stock market.

Some people, especially those who work on Wall Street, but even some of those who have to sweep the street, may understand all of the facts, and prefer Bush's plan. And that's fine. There are those who don't see the value in social insurance, and prefer more of an individualistic sink-or-swim approach. I'm not one of them, but that's an honest viewpoint.

But we should be about understanding what the "IOUs" that the President and Neal Boortz are talking about really consist of, and how much more secure those IOUs are than the ones issued by private companies in the form of stocks. And that's Neal Boortz' civic lesson for today.

Next week, maybe we can look at some controversial Senate rules.


Posted by smijer at April 7, 2005 07:44 AM

You might wanna think about the nature a a Treasury Bond ...
Unlike the stock of a corporation, which pays dividends on profits, a "T"-bond is payed for with tax revenues. The U.S. government doesn't generate profits. It taxes.
Now, if you tax someone, with the promise that the tax money will be put into a trust fund, but you take that money out, replacing it with an IOU (sorry, a treasury bond ... it's still just a piece of paper, promising repayment.), what money will you use to repay the bond (IOU or whatever you choose to call it)?
That's right. You raise taxes. So, in the end, I will have paid into a fund, which I or my children will have to cough up the cash to replenish what was plundered by the unscrupulous representatives in Washington.

Not only is it an IOU, it is one that they don't have to pay back, because thay don't have any money. They only have what they can take from us.

I guess they don't teach civics or economics in school anymore. It used to be mandatory. Ever wonder why government schools don't want to teach basic stuff like that anymore? Hmmm ...

univar.jpg Posted by Jeff on May 9, 2005 05:10 PM
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Jeff, it sounds like your bitch is with government debt, not the fact that social security is invested in T-Bonds. The simple fact is that, if the U.S. is going to borrow to fill out its budget, it must promise interest in return. T-bonds are the mechanisms it uses. But, it doesn't matter whether the government repays its debts by raising taxes, by broadening the tax base, or by taking repayment out of some other portion of the existing budget - repay it must, and therefore the "lock-box" isn't "empty". These are not "merely" valueless IOUs - they are an instrument of debt and investment. The government cannot even consider the option of defaulting on that debt.

univar.jpg Posted by smijer on May 10, 2005 01:25 PM
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