Paul Krugman on Social Security

"Fixing" Social Security is a hot topic these days. Economist Paul Krugman delves into whether it needs fixing in the first place for the New York Book review. Demographic shifts are a reality but I'm a lot more convinced when people talk about how different projections play out than try to scare you with regurgitated half-baked analysis to backstop their plan to drive the federal government several trillion dollars further in debt. The inability of the government to control spending (dramatically in the past few years) is actually at the heart of the problem:

It's likely that financial markets would be made very nervous by borrowing on that scale, with the prospect of repayment so far in the future. Bear in mind that the debt incurred during the four decades of increased deficits would be a real, legally binding promise to repay, while the claim that privatization would save money in the long run depends on the assumption that whoever is running America half a century from now will follow through on benefit cuts, even if private accounts have performed poorly and left many retirees in poverty. In the real world, the bond market would consider the solid fact of soaring debt a lot more significant than projections of savings through politically determined benefit cuts many decades in the future. In practice, privatization would significantly increase the risk that international investors will stop lending to the United States, provoking a fiscal crisis, sometime in the not too distant future. Even if we ignore the danger of provoking a fiscal crisis, the claim that borrowing to create private accounts will somehow benefit everyone is a remarkable exercise in free-lunch thinking. If nobody suffers any pain, where does the gain come from? If private accounts were invested in government bonds, as Mr. Bush suggested back in 2000, there would be no possible gain; the interest earned by private accounts would be completely offset by the interest paid on the government borrowing to fund these accounts. So the claim that there will be gains from privatization always comes down to this: part of the private accounts will be invested in stocks, and privatizers insist that stocks are more or less guaranteed to yield a much higher rate of return than the government bonds issued to pay for the creation of those accounts.