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Politics : Just the Facts, Ma'am: A Compendium of Liberal Fiction -- Ignore unavailable to you. Want to Upgrade?

To: Sully- who wrote (67740)	10/24/2008 11:00:20 AM
From: TimF	1 Recommendation Read Replies (1) \| Respond to of 90947

Tim, the Gov't borrowed funds from money taken in specifically to be spent on those other programs. True but those funds are government funds, so its like me moving money from my right pocket to my left pocket, not really borrowing. But your right about government liabilities increasing, because the way Social Security works government (and by this I mean the whole government, I'm not isolating the treasury and the SSA) liabilities increase all of the time. Also the way they work the government (again the whole government) has to pay for them with current taxation. If the Social Security taxes raise enough than the payments are made from payroll taxes. If (when) the social security taxes don't cover the SSA's payments and the "trust fund" is drawn down, than "drawing it down" means paying for Social Security out of income taxes. Seperate funds is more an accounting fiction than anything else, since we have one government, and money is fungible. "Accounting fiction", doesn't mean totally useless or meaningless, such techniques can be used to organize and manage finances, but they don't change the bottom line. The same thing holds for Medicare, it just right now the SSA is bigger so I focus on it (but eventually Medicare will very likely be paying out more than the SSA). Even if there was a true fund (in other words not government IOUs to itself), government liabilities would still be growing, its just that the government would be adding an actual asset to pay them back. Whether or not the government should do this is a complex multifaceted question. In terms of what I've said above it sounds like a great idea, but it isn't quite that simple. For one thing if the government starts making private investments on a massive scale then you have more political input in to private investment, and while on the whole private investment should easily outperform the current situation in the long run and most medium runs (which is true even if you consider the official interest the bond pays, and which is definitely true if you consider the fact that since the government is paying interest to itself the real return is 0%), over the short run and some medium runs you have market crashes or stagnation. The funds would almost certainly not be 100% in the stock market, but you can have a wide variety of markets perform quite badly over a number of years, esp. if your just talking about investing in one country, even a large country like the US (and putting the money in foreign stocks or bonds would be politically unpopular). Finally being able to pay for SS and Medicare relies on the overall economic growth, whatever you do with the initial revenue from the payroll taxes. If you count on general revenue (mostly income taxes) to "pay back the trust fund", well then you need a large enough economy to support the income taxes to "pay them back" without massive pain. If you invest them in private securities, the investments will be so large that your essentially betting on the market(s) rather than being a very active investment picker. If the economy goes in to the tank the returns will be poor. The government, or even just the entitlement programs, are so big (and getting bigger) that in the end they can't be healthy without the economy being healthy, They feed off the economy. If they where small they could take what they need even from a sick economy, but since they are so large, and are going to be huge (even compared to things like the current conflicts we are fighting or the Paulson plan), they can't get what they need to function as planed unless the economy does well. Not that I anticipate the economy doing poorly for the long term (although if we have to raise taxes a lot to cover these programs that would contribute to under performance in the long run), but even not so long terms could cause problems if the entitlement programs are not reformed (and even if they are depending on the reform, and also depending on how bad economic conditions may get at some point)