During Monday’s Republican debate
(transcript)
in Myrtle Beach, SC, former Speaker of the House Newt Gingrich
offered a bold vision for allowing Americans to voluntarily
contribute the “employee portion” of their Social Security payroll
taxes into personal investment accounts, while the “employer
portion” would continue to be paid into the Social Security Trust
Fund — a fund that only Al “Lockbox” Gore and Congressman Xavier
Becerra (D-CA)
think actually holds anything like
real money.
Gingrich made accurate and important points that such a
change would hugely benefit the country:
Now, what does it do? It gets the government out of
telling you when to retire. It gets the government out of picking
winners and losers. You save — it makes every American an investor
when they first go to work. They all have a buildup of an estate,
which you do not get in the current system.
And the estimate by Martin Feldstein at Harvard, who was
Reagan’s chief counsel and economic advisors, was you actually
reduce wealth inequality in America by 50 percent over the next
generation because everybody becomes a saver and an investor and
you have a universal investing nation.
Former Senator Rick Santorum responded:
[T]here’s nobody for the last 15 years that’s been more in
favor of personal savings accounts than I have for Social Security.
But we were doing that when we had a surplus in Social Security. We
are now running a deficit in Social Security. We are now running a
huge deficit in this country.
Under Congressman Gingrich’s proposals, if he’s right,
that 95 percent of younger workers taken, there will be hundreds of
billions of dollars in increased debt, hundreds of billions of more
debt being put on the books, which we can’t simply — we’re going to
be borrowing money from China to fund these accounts, which is
wrong. I’m for those accounts, but first we have to get our fiscal
house in order, balance this budget and then create the opportunity
that Newt wants. But the idea of doing that now, is fiscal
insanity.
Santorum is epitomizing what Frederic Bastiat would have
called “a bad economist.” In his seminal 1848 essay
on the difference between the bad economist, who considers
only “that which is seen,” and the good economist who “takes into
account… those effects that must be foreseen,” Bastiat presaged
Monday’s battle between Santorum, who didn’t offer a vision past
tomorrow, and Gingrich, who reminded us that whatever his other
faults he remains the deepest thinker on the podium:
Yet this difference is tremendous; for it almost always
happens that when the immediate consequence is favorable, the later
consequences are disastrous, and vice versa. Whence it follows that
the bad economist pursues a small present good that will be
followed by a great evil to come, while the good economist pursues
a great good to come, at the risk of a small present
evil.
It’s true: The United States has a huge budget deficit and
debt. Some of that is already due to Social Security because its
payout requirements now exceed its income from payroll taxes. It’s
about to get much worse.
According to USA
Today, based on the 2011
Social Security and Medicare Trustees
Annual
Report:
Social Security’s long-term shortfall grows about $1.2
trillion annually — a sign of an imbalance between the number of
young workers and older beneficiaries, according to the Social
Security trustees’ annual reports. The $21.4 trillion unfunded
liability represents the difference between all taxes that will be
paid and all benefits received over the lifetimes of everyone in
the system now — workers and beneficiaries alike. This is the
measure corporations and insurance companies use to assess
financial adequacy of their retirement programs.
The number differs from the $6.5 trillion, 75-year
shortfall that Congress uses to assess Social Security’s health.
Congress’s 75-year figure is smaller because it counts taxes
collected from future workers — those toiling from 2050 to 2085,
for example — but doesn’t count the benefits they will get in the
76th year and beyond.
In addition, Congress reduces its estimate of Social
Security’s shortfall by counting the $2.6 trillion in IOUs the
government has issued to the program’s trust fund. However, the
government’s audited books, issued by the Treasury
Department, don’t count that money as
having any value to the federal government because it is a debt the
government has issued to itself — like paying off a car loan with
a credit card.
In other words, if you believe Newt Gingrich’s math — and
Santorum didn’t challenge it — that his plan of allowing voluntary
personal accounts would make Social Security solvent in the long
run, then Santorum is worried about a relatively paltry (by
President Obama’s spending standards) couple hundred billion
dollars of additional annual deficit for some number of years in
order to save as much as $20 trillion over the long
term.
And like all bad economists (including Keynesians and
Democrats), Santorum ignored the massively pro-growth aspects of
Gingrich’s proposal: The multi-trillion dollar increase in
privately saved wealth will provide a major adrenalin
boost to the American (and world) economy, causing increased
employment and GDP growth, translating into higher tax revenues
that will offset at least part of the increased deficit that a
“static” model would predict.
Santorum makes another major mistake, subject to the same
criticism some have made of Republican attacks on Romney’s Bain
Capital: he’s using an argument that we would expect from, and that
should be left to, Democrats.
Democrats are deeply antithetical to anything that would
increase the number of Americans who have a financial interest in
understanding government regulation, intervention, spending, and
taxation. They are, as economist Don Luskin puts it, part of the
real political conspiracy, namely the coordinated effort
by the left to keep you poor and
stupid.
Do you think the nation would have tolerated Dodd-Frank if
another 10 or 20 or 50 million people of voting age suddenly
realized that federal regulation actually impacted them
rather than just “the one percent”? How about cap-and-trade, or the
out-of-control NLRB, FCC, or EPA? How about Obamacare? No, a nation
of investors is a nation without a Democratic majority and don’t
think Nancy Pelosi and friends don’t know it.
If Rick Santorum were as much a free-market capitalist as
he claims to be, he would, rather than making Obama’s arguments for
him, be championing Newt’s personal Social Security account plan
while pressing the Speaker a little harder on details of how to
deal with the short-term budget impact of increasing long-term
economic liberty and national fiscal solvency. It is a trade
manifestly worth making, bad economists notwithstanding.
