How bizarre that Hillary Clinton can now be called a "moderate" while keeping a straight face. She has achieved this illusion not by changing her own views in the slightest, but rather by the arrival of the Angry Left -- a faction of the Democratic Party that makes her look moderate, if only by comparison. Krugman is the Angry Left's spokesmodel. On Meet the Press, Time's Joe Klein has some advice for Krugman and his clients:

MR. KLEIN: Paul, I have a question for you: What was it about the peace and prosperity of the eight years of the Clinton administration that you didn't like?

MR. KRUGMAN: No, I liked the way the country ran.

MR. KLEIN: I think that he had a real governing philosophy. It wasn't triangulation. It was moving us from the industrial age to the information age, and that's where the Democratic Party is going to have to move...

MR. KRUGMAN: There's a radical right...

MR. KLEIN: ...if it wants to have any role in American politics.

MR. KRUGMAN: There's a radical right challenge to America as we know it that's under way, and I think the Democrats--I mean, maybe Hillary Clinton can do this. I'm actually not opposed to her, right? But they need to make clear that they are going to turn back that tide, not blur it.

MR. KLEIN: The answer to a radical right challenge isn't a reactionary left response.

Krugman and the Angry Left surely won't take this advice. They've staked their very identities on the notion of representing a radical response to a radical threat. Good news for Hillary. But maybe bad news for the party, which in the end is bad news for Hillary, too.

When tax rates get really high, people stop working and saving altogether. At that point, everyone can see the system's nuts.

The public knows there is an insolvency problem. A recent New York Times/CBS poll shows that 68% of Americans believes there is either a "crisis" or a "serious problem," and 55% believe it's so serious that it needs to be addressed right now. So it's up to the advocates of reform to make the case that personal accounts are part of the solvency solution.

Frankly, the White House has done a poor job of making this case so far. White House policy wonks have mistakenly conceded that personal accounts don't address the solvency issue -- which the Left takes every opportunity to point out. But as with everything else the Left has said in this debate, their rendition of the White House's concession is greatly exaggerated. Sure, the White House conceded that putting money into personal accounts that would have otherwise gone into the Social Security Trust Funds doesn't create new money to bolster the system. But that doesn't mean that personal accounts invested in private markets wouldn't strengthen the system another way -- by prefunding future benefits will real economic resources.

There's a way that the advocates of reform could easily make this case. All they have to do is borrow a famous buzzword from none other than Al Gore.

No, I'm not kidding. The fact is that personal accounts are nothing less than a Social Security lockbox. Yes, a lockbox -- just like Al Gore went on and on about in the 2000 election.

It's obvious when you think about it. When your payroll tax dollars go into your own personal account -- which you can invest in private markets, and in which you have heritable property rights -- that account is a lockbox. Government can't spend the money, because it's yours, and you've invested it.

Under the current system, some of your tax dollars go to pay for the benefits of today's retirees. Whatever's left over goes into the Social Security Trust Funds, which use the money the buy Treasury bonds. That means, effectively, that the Trust Funds get an IOU from the general fund of the government -- and the government gets to spend the money.

Sure, as the Left always points out, those IOU's are legitimate moral claims on the government, just like any Treasury bond. But they don't represent actual savings -- because the government spends the money the moment it is received. When it comes time to redeem the Trust Funds' bonds to pay benefits, the government will have to either tax or borrow to raise the needed money.

This should make it clear that the Trust Fund represents no prefunding of future benefits at all. Social Security is now, in fact, nothing but a pay-as-you-go system. As the Congressional Budget Office put it in a June, 2004 report, "positive trust fund balances indicate the legal authority to pay benefits but not the budgetary resources to do so."

Your Social Security personal account, on the other hand, will be true savings. You'll have the opportunity to really invest your money in the private economy -- corporate stocks and corporate bonds, real diversified investments that don't require anybody paying higher taxes or borrowing more money when it comes time for you to sell during your retirement years.

The Left always calls reform "privatization," to create the impression that the Bush administration wants Halliburton to administer the Social Security system on a no-bid contract. And they always call personal accounts "private accounts," as though there were something furtive or shameful about them. But what the Left doesn't want you to know is the true importance of that word "private" -- investing in the private economy is the only lockbox there can ever truly be.

Some of the cagier spokespeople for the Left understand this, and so they advocate letting the government invest in the private economy by holding stocks in the Social Security Trust Funds. For example, Paul Krugman wrote in 2001 that "the federal government must accumulate claims on the private sector, which can eventually be used to pay benefits."

But what kind of lockbox would that be? Can the public sector every really make private investments? Can the same government that sues the tobacco industry out of existence also be a major shareholder in tobacco companies on behalf of millions of retirees? No joke -- Bill Clinton recommended both investing the Social Security Trust Funds in the stock market and suing the tobacco industry in his 1999 State of the Union Address.

The only true lockbox is the one that you can hold in your own hands -- your personal account. Or, let's just say it -- what the hell! -- your private account. And there lies a true key to Social Security's solvency problems.

Posted by Donald L. Luskin at 7:19 PM | link  

Posted by Donald L. Luskin at 1:16 PM | link