No, Social Security Is Not the Cause of the National Debt

Fixing Social Security will not shrink the national debt, or even aid in its shrinkage. And that’s not a defense of Social Security.

It’s just a comment that spending cuts or “entitlement reform” as fixes for the national debt amount to non sequitur. As the title of this piece argues, Social Security is not the cause of the national debt despite what the Washington Post editorial page argued last week, and what the Cato Institute and other right of center think tanks have argued for decades.

Implied in what's consensus is that government debt just happens, and that governments run by spend-happy politicians simply borrow when spending commitments exceed tax revenues. Actually, lenders are ruthless. One senses that the Post’s editorialists, along with the experts at various think tanks, are blithe to this truth. And they continue to write as though Treasury's debt is merely an effect of Congress spending more than it takes in.

What’s odd about these portraits of "politicians who would shame drunken sailors" is that they’ve been painted alongside downward sloping yields on U.S. Treasuries. Translated, the deeper the U.S. has gotten into debt in a nominal sense, the less it’s paid to service that same debt.

Which is entirely logical. Again, lenders are ruthless. The U.S. can borrow in growing amounts at falling rates of interest precisely because those with title to money always look ahead when putting money to work. Their garantuan lending to Treasury implies a view that tax revenues collected by the U.S. Treasury in the present are a pale imitation of what they’ll be. Yes, the surest sign the U.S. isn’t bankrupt can be found in all the money it owes.

No doubt a few readers are sweating with excitement that the author is wrong, hasn’t he seen that Treasury yields are the highest they’ve been since 2007? Yes, precisely. The national debt is nearly six times what it was in 2007, yet Treasury can still borrow at the same rate.

Remember this as the Post editorial page, and think tanks more broadly claim that the fix for the debt is falling Social Security costs. That would be true if governments could just borrow. Except they can’t.

In truth, only governments expected to take in much more revenue in the future can borrow. Thought of through the prism of Social Security reform, unless readers want to believe that the U.S. political class would be parsimonious absent Social Security and Medicare costs left to them by past Congresses, don’t be so dim as to assume reform of one or both will bring the debt down.

Such a simplistic view is yet again rooted in the intensely simplistic narrative that government debt is an effect of politicians spending too much. No, it’s not.

The U.S. uniquely has $40 trillion in debt because its politicians uniquely have taxable access to the wealth of the most productive people on earth, with the debt the consequence. Assuming substantial Social Security and Medicare reform, soaring revenues will enable the creation of new programs along with debt issuance to expand them.

Which means the cause of the debt is both elephantine and unacknowledged. Watch the debt continue to rise alongside falling borrowing costs precisely due to this blissful ignorance.

Originally published on Real Clear Markets.