Not My Default

I just noticed that Matthew Yglesias says my last column "advocates defaulting on the [Social Security] Trust Fund debt." This is a strange interpretation, since I explicitly said, "The point is not that the Treasury will refuse to pay off its bonds but that doing so will require lower spending, higher taxes, or more borrowing (which ultimately will mean higher taxes)." Yglesias, through creative use of ellipses, conveniently omits this sentence, except for the "higher taxes" part, from the passage he quotes.

For the record, I think it's a bad idea for the Treasury to start selectively defaulting on its bonds (although the resulting loss of confidence certainly would make deficit spending a lot harder). I assume the Social Security shortfall that's expected to begin in 2018 initially would be covered by general revenue. But the money has to come from somewhere, which is why something (spending cuts, higher taxes, or more borrowing) clearly has to be done prior to 2042, when the "trust fund" officially runs out, to continue paying scheduled benefits. In fact, as several readers have pointed out, some sort of adjustment in the rest of the budget will be necessary even before 2018, as the Social Security surplus (expected to peak in 2008) starts to decline, leaving less and less money for other programs to borrow.

You could say the real problem, at least until 2042, is the Bush administration's reckless spending, as opposed to the demographic changes underlying Social Security's long-term weakness. Either way, something has to give.