Tuesday, June 20, 2006

More honest account

I've often wondered why those pushing for social security reform do not first push for honest government accounting. The major argument against social security reform is that the system is just fine the way it is, in fact it is in surplus, and if we kept that surplus in a lockbox then we would have enough money for the boomers to retire. If we were to switch from the current pay-go system to a personal savings system, then there would be some "transition" costs involved and where would that extra money come from?

The truth is that there is no lockbox -- money is fungible -- and that the "transition" costs involved when switching systems is merely the current implicit shortfall being made explicit. Social Security is short on money now, and this is hidden because the government uses cash accounting (only looking at money coming in and out in a year) instead of real accounting (which takes obligations in the future and seriously as obligations today).

Angry Bear has a post arguing that Bush's recent deficit cutting is bogus because it's only looking at Unified Budget Deficit, which looks at current borrowing, but does not factor in future obligations, and does include Social Security surpluses. The General Fund deficit, however, does not factor in future obligations either, but also excludes the social security surplus. Angry Bear thinks Bush is misleading on reducing the budget deficit because he's referring to the unified Budget Deficit, and he should look at the General Fund deficit.

I think both of these measures are bogus -- you should look at a number that actually factors in long term obligations.


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