Now, before the defenders of Krugman go ballistic, I would love to ask Krugman and his followers this question: If Social Security is a legitimate funding scheme, then why is Bernie Madoff in prison? Let me further explain.
Krugman writes the following:
We went through all this at length back in 2005, but let me do this yet again.Well, not exactly. The current "surpluses" from SS are borrowed by the U.S. Government to fund part of its deficit spending. Thus, the government owes the government money. While there are surpluses, the whole thing looks sound, but when there are deficits, the money needs to come from somewhere, and that will be the printing press or the Fed's application of its powers to create "money" from thin air.
Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.
Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.
OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.
And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.
If this sounds somewhat like Madoff's scheme, that is because it is Madoff with its own twist. When Bernie ran "surpluses," he paid benefits to people who already had given money to his "fund." However, at some point, the Madoff stash began to run deficits and everything went to hell after that.
Madoff, of course, could not print money, nor could he borrow from the central bank indefinitely. THAT is the only difference between SS and Madoff, period.
So, Krugman says that those who raise questions about the future of SS are "lying." No, they are not lying. They are those old-fashioned people who think that printing money is not the same thing as creating real wealth. So, who is not telling the truth here?