Media Use the Social Security Surplus to Hide the Budget Deficit

It is common for people to complain that politicians are using the Social Security surplus to hide the true size of the federal budget deficit. In fact, this is not possible. The media decide which budget numbers the public hears on the news and reads in the newspapers. If they believe that the appropriate deficit numbers include the money borrowed from Social Security, then it is a very simple matter to report this number, regardless of which deficit numbers politicians happen to use. Reporters don�t even have to do the simple arithmetic of adding two numbers together. Every official budget document shows the deficit including the money borrowed from Social Security (the �on-budget� deficit) right alongside the more commonly reported unified budget deficit. All the news reports on the new deficit projections from the Congressional Budget Office that I saw avoided any mention of the money borrowed from Social Security. For example, the deficit now projected for 2006 was reported as $260 billion. The projected on-budget deficit, which is right there for anyone to see, is $437 billion. If you don�t think that we should be using the Social Security surplus to hide the true size of the deficit, then this is the number that you care about. The other major defect in budget reporting is reporting the number in billions. This is incredibly irresponsible. Apart from a small number of budget wonks, no one has a good sense of how much money $260 billion or $437 billion is. It would make just as much sense to write �really big number� everywhere that �$260 billion� appeared. The simple way to make a deficit number meaningful is express it relative to the size of the economy. This is what matters. A $50 billion deficit is trivial for the United States � it is less than 0.4 percent of GDP. It would be a very big deal for Argentina (more than 20 percent of GDP). Every economist would agree the absolute size of the deficit is a meaningless number, it only matters how large it is relative to GDP. So, why do reporters insist on reporting a number that is meaningless to the vast majority of people who hear it or read it? For the record, the $260 billion unified budget deficit is equal to 2.0 percent of GDP. The $437 billion on-budget deficit is equal to 3.1 percent of GDP. This is larger than can be sustained indefinitely, but hardly off the charts by historical standards. It is about half the size of the current account deficit.