THE LOGIC OF BORROW AND SPEND! Tierney types a tired old tale. But how should a Democrat answer?
SATURDAY, MAY 7, 2005
THE LOGIC OF BORROW AND SPEND: Weve received e-mails each day this week which sound just like this John Tierney column—a column in which the Times newest typist shows that he doesnt understand the logic of borrow and spend. Does Social Security have a trust fund? Or is that trust fund just a big hoax? Democrats need to understand the logic of these scripted issues. If they want to prevail in this endless debate, Democrats need to understand the logic of borrow and spend.
And quite plainly, Tierney doesnt. What follows is the first of four paragraphs where he makes it clear that he is baffled by the basic concepts involved here. Weve all heard these claims a thousand times. Dems need to know how to answer:
TIERNEY (5/7/05): My Social Security, far from being a guarantee, comes with a political risk that will become clear around 2017, when I'll be 64. That's when the Social Security Administration expects to start paying out more than it collects in taxes.Uh-oh! Boomers were trying to build a surplus which would pay for their retirement. In theory, there is such a fund, Tierney says. But uh-oh! Instead, Congress spent the money! Congress thereby left the Social Security trust fund with a file cabinet full of i.o.u.'s in the form of Treasury bills. Please understand the logic expressed here. In theory, there is a fund. Instead, the money was spent.
But Congress didnt simply spend that money; before it did so, it borrowed it. Congress borrowed that money just as it borrows from a wide array of individuals and institutions—as it does every single year. Every year, Congress borrows money from the SS trustees—but it also borrows from Ross Perot, and it also borrows from big Chinese banks. And duh—after it borrows this money, it spends it. But does that mean that Ross Perot has a portfolio only in theory? No one would say this about Perot—and no one would say that Congress has left the Texas tyro with a file cabinet full of IOUs. But uh-oh! If that SS trust fund is just a theory, then Perots portfolio is just theoretical too. Tierneys logic implies this claim—a claim that is so patently odd that no one on earth would advance it.
Always remember one key point of logic: That money from the SS trustees is borrowed, just like the money from Ross Perot and just like the money from those Chinese banks. The logic will eventually fall into place if you keep that key point in your mind. Indeed, Tierney implicitly acknowledges this when he talks about that pile of IOUs. And as he continues, he looks ahead with dread to the day when the SS money must be paid back:
TIERNEY (continuing directly): It's not a problem now, because for the next few years the baby boomers' taxes will provide an annual surplus for Social Security of about $100 billion, allowing Congress to dole out the extra money for its favorite causes, like farm subsidies and weapon systems and West Virginia buildings named after Robert Byrd. But in four years the surpluses start declining, and they turn into deficits around 2017, when Congress must begin repaying those i.o.u.'s.That cabinet full of IOUs isnt a problem now, he declares. They become a problem in 2017, when the money will have to start being paid back. But duh! Thought Tierney makes this prospect sound menacing, Congress pays back its debtors every year—indeed, it does so routinely, in large amounts, and it has done so for decades. Every single freaking year, Congress pays back the large sums of money it has borrowed from individuals like Perot. And every year, Congress repays the large sums it has borrowed from big institutions, like those foreign banks. So far, Congress hasnt started repaying the SS trustees—but when it starts to do so around 2017, there will be nothing novel or menacing about this wholly familiar process. Indeed, debt service has been one of the federal governments largest expenses for many years. It would be great if we had no debts, but when Congress starts to repay the trustees, it will merely be doing what it has done with other big orgs for the past several decades. Tierney, however, just keeps pretending that this is a new, novel, menacing problem. Just think how much money is involved!!!
TIERNEY (continuing directly): By the time I'm in my 70's, the Social Security shortfall will force Congress to find new taxes or make spending cuts that are more than half the size of the Pentagon's budget. If I make it to age 88, there will no more i.o.u.'s left in the trust fund, so everyone's benefits would have to be cut by 27 percent.Yes, Congress has borrowed a lot of money from the trustees. It will have to pay a lot of dough back. But duh! Congress has been repaying large sums of money to a wide range of investors for years! And no, Congress doesnt normally find new taxes or make spending cuts in order to repay these sums; more often, it simply borrows more money! It might be better if this werent the case—but this is the way it has worked for decades. Will Congress be unable to handle all its debt by the time Tierney dodders at 70? The scribe is too inept and too scripted to speak to that question. After all, why bother addressing an actual question when you can rule by misdirection and fear?
In these four paragraphs, Tierney restates a scripted claim that has driven our discourse for several decades. He pretends theres something novel and strange about the process by which Congress borrows money from the SS trustees. He compares this process to familiar disasters; he makes us think its like Uncle Festus spending the rent money down at the track. But as a matter of fact, it isnt like that. Congress doesnt simply spend that money. Before it spends the money, it borrows it—in just the same way that it has borrowed money from a wide range of entities for many years.
How should Dems respond to familiar claims—claims in which were tediously told that the SS trust fund has already been spent? Dems should remember the logic of borrow and spend; more precisely, they should always remember to insert the word borrow in the discussion. Congress didnt simply spend the money; before it spent the money, it borrowed it. It has borrowed this way for the past forty years, from a vast array of sources. And yes, it has always paid back this borrowed money, just as it will do with the SS trustees—unless trained typists convince us that we should run out on this one narrow part of our debt.
DEFINING DISHONESTY DOWN: Part 3 Monday.