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Karl Denninger prison-rapes Paul Krugman

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August 22, 2010 – Comments (5)

Vox Day breaks the story.

In which Karl Denninger prison-rapes Paul Krugman's bizarre meanderings on Social Security:

Seriously. This tripe is so bereft of logic and actual mental acuity that it is unworthy of graduation from elementary school:

"About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole."

Baloney. This is called fraud in the private-sector. First, there is no dedicated funding. Second, all the money taken in over the years was not "invested", it was spent.

"Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund."

That so-called "trust fund" is a fraud. It does not exist.

Here's what actually happens (and Krugman knows this, which makes him a damned liar besides):

1. Your tax dollars go to Treasury
2. Treasury keeps them and issues "special" Treasury bonds to the Social Security "trust fund."
3. Treasury counts these tax receipts against the federal deficit, making it look (much, until the last year) smaller than it really is.

Note the slight-of-hand here. Social Security gets an alleged "bond" but they can't sell it to anyone but the Treasury. That is, legally it is an IOU, not a bond. A bond can be marketed in the open market to anyone who is willing to buy, for whatever they're willing to pay. These are unmarketable (intentionally) and thus can only be redeemed in one place - at Treasury.

The problem is that Treasury spent the money and thus doesn't have anything with which to redeem the IOUs!
Seriously, even people who don't pay any attention to either politics or economics knows that the Social Security "trust fund" is nonexistent and that Congress has been operating on a pay-as-you-go system all along. I can't even pretend to understand what Krugman was thinking when he wrote this ridiculous column. The money in the so-called "lock box" isn't there because the box doesn't exist either. The money is nothing more than yet another government debt as it was all spent years ago.

Labels: economics, trainwreck

5 Comments – Post Your Own

#1) On August 22, 2010 at 10:58 AM, whereaminow (< 20) wrote:

Krugman, his supporters, and similar thinking economists suffer from Polylogism.  There is a government-sector logic and there is a private-sector logic.  The contradictions are not contradictions because they exist in separate realities.

Krugman is a barbaric relic of the pre-Internet age.  He is a fraud and a tool.  He performs mental gymnastics for the few ignorant souls that remain unware that the Keynesian positivist model of economics is not the only model they can learn.  Only the Toilet Paper of Record would employ such a loser. 

David in Qatar

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#2) On August 22, 2010 at 2:54 PM, rd80 (98.26) wrote:

That so-called "trust fund" is a fraud. It does not exist.

For proof that the 'trust fund' is a fraud and worthless, consider the following:

First, the current system with the 'trust fund.'
When SS outlays exceed revenues, the SS administrator opens the file cabinet in West Virginia, pulls out a handful of special bonds, goes to Treasury and redeems them.

In order to redeem the bonds, Treasury needs to issue new gov't debt since it has no spare cash laying around.  I'm not positive, but budget authority from congress may be needed for the payment to SSA.

Now, imagine that the system has no 'trust fund.'
When SS outlay exceed revenues, the SS administrator goes to congress and lets them know s/he can only pay x% of benefits.  The AARP mounts a massive ad campaign.  Congress scurries about, holds hearings, tries to blame everyone but themselves, and passes emergency legislation to fund the shortfall.

Treasury issues new gov't debt to cover the expense.

Exactly the same outcome either way.  The only difference is the SS program has a little, very little, stronger claim on putting the gov't deeper in debt with the 'trust fund.'  However, unless you think the congress is going to cut benefits for the most reliable voting block in the country, the outcome is identical with or without the 'trust fund.'  

Since the ultimate outcome is the same under both scenarios (Treasury issues debt to cover the shortfall), the trust fund adds no value to the SS program.  Those special bonds might as well be toilet paper - except toilet paper has some value and a practical use.

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#3) On August 23, 2010 at 6:33 AM, Mstinterestinman (< 20) wrote:

One thing I don't agree on is increasing the retirment age anymore. As much as the argument is made life expectancies are increasing for a lot of lower teir manual labor workers 70 might just guarantee there only retirement is in death my grandfather did this work all his life he'll be lucky to make 70..lol

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#4) On August 23, 2010 at 8:41 PM, FleaBagger (29.21) wrote:

ozzfan1316 - when Social Security was first started, it was a small minority of workers who were expected to live long enough to collect back more than what they had paid in. It was supposed to be there for people who lived an extremely long time.

Of course, it is as morally bankrupt as it is fiscally bankrupt, being a pyramid scheme in which people are forced o participate at the point of a gun. It should be abolished. 

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#5) On August 26, 2010 at 6:47 PM, rockynicky (< 20) wrote:

Krugman is so full of crap, you can smell him before he goes to the bath room.

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