We keep hearing about the failings of the U.S. education system. Economic columnists give us endless examples of such failings. Alan Sloan, a columnist for Newsweek, the Washington Post and MarketPlace radio gives us a beauty in a column that appeared in some form in all three venues (here's the Newsweek version.) Sloan notes that Social Security is projected to need to draw on its trust fund in about a decade. He says that at this point "we'll fix Social Security by again increasing payroll taxes and trimming the benefit formula." Now, if Mr. Sloan understood how government bonds worked, he would know that they have value, that's why people all over the world hold them and in fact are willing to hold them at a very low rate of interest. When Social Security starts drawing on the trust fund it will simply redeem its bonds at the U.S. Treasury, just as tens of millions of people, corporations, and banks have done over the years. Of course, the Treasury will need the money to repay these bonds, just like it need money to repay the bonds held by individuals, corporations, banks and foreign governments. The bulk of the money the Treasury gets to repay its bonds comes from individual and corporate income taxes. Now, if Alan Sloan had some basic understanding of how U.S. bonds work, he might want to point out that the debt of the government and the annual deficit are considerably larger than the conventionally used numbers which only refer to bonds held by the public (the debt an deficit are approximately $3 trillion and $200 billion larger, respectively). But, this is not an issue about Social Security financing, it is an issue about the general budget. If economics columnists knew how government bonds worked, perhaps the public would be better informed on budget issues.
--Dean Baker
