Lockboxes and Lunchboxes: Krauthammer vs. Social Security

Charles Krauthammer wants you to know two things: There's no "lockbox" for Social Security and there's no such thing as a free lunch. He's wrong about Social Security, but first things first: Let's do lunch.
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Charles Krauthammer wants you to know two things: There's no "lockbox" for Social Security and there's no such thing as a free lunch. He's wrong about Social Security, but first things first: Let's do lunch.

Here's Krauthammer last Thursday, rebutting White House Budget Director Jack Lew: "There is no free lunch." And here's Krauthammer in 2004, in a piece called "Tax and Drill": "There is no free lunch." And in 2009, writing about the health care bill: "...(I)n medicine, as in life, there is no free lunch."

And here's Krauthammer in June of 2007, saying that politicians will never support a gas tax because it would be "too honest and open an acknowledgment that there is no free lunch." He says in the same piece that ethanol is "another free lunch," and bemoans Congress' desire to "perpetuate the fantasy of the tax-free lunch." (The piece was called "The Tax-Free Lunch.")

Then there's Krauthammer on Bill O'Reilly's show last year, discussing Obama's budget: "It's all good stuff, but as you know and I know, there's no free lunch. " And in March of 2010, sarcastically lamenting the "disagreeable absence of a free lunch." (The name of that piece was "No Free Lunch," in case you're wondering.)

There may be more Krauthammer "free lunch" references out there, but I have to stop. I'm getting hungry.

Oliver Twist's Pay Stub

Good thing Krauthammer wasn't around when Oliver Twist said "Please, sir, I want some more." His near-echolalic repetition of the free-lunch mantra seems more than a little obsessive. Remember H. L. Mencken's definition of a Puritan as "a person who lives in the fear that someone, somewhere, may be having a good time"? Krauthammer seems to live in fear that someone, somewhere, might be eating a pastrami on rye without picking up the tab.

If the "free lunch" fixation seems miserly in a Dickens novel, it's a non sequitur when it comes to Social Security. Nobody's asking for something "free." Social Security is funded by the people who collect its benefits, along with their employers. If young Oliver had pointed at his pay stub (did the Artful Dodger issue pay stubs?) and shown a FICA deduction for "two servings of gruel," who could possibly have objected to that?

Charles Krauthammer, apparently.

Jacob's Letter

Krauthammer's most recent column on the subject of Social Security, "It's still an empty lockbox," is a 750-word "sez you!" to OMB Director Jacob Lew, who had responded to a previous Krauthammer piece.

Lew says all the right things about Social Security. He notes that "Social Security benefits are self-financing, paid for with payroll taxes." He points out that planners dealt with the cost of retiring baby boomers in the 1983 overhaul of the program, and adds that "Treasury bonds (in Social Security's trust fund) are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are." Lew observes that "The government has just as much obligation to pay back the bonds in the Social Security trust fund as we do to any other bondholders."

Whether those words translate into White House action remains to be seen. That seems to depend on which way the wind blows in the Senate, and that body has no shortage of wind. But Lew makes a clear and concise argument in defense of the Social Security Trust Fund, and for Charles Krauthammer, that must not stand. The trust fund, he responds, is "empty, indeed fictional." Lew is providing "intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in."

To use another favored Krauthammer word: Nonsense. (See his Lew rebuttal for an example of his use of the word. And a piece called "Ungovernable? Nonsense." And "Impeachment Nonsense." You get the drift...)

How to welsh on a debt

Krauthammer's counterargument rests on several claims, each of which is easily addressed. First he argues that Social Security's surpluses were "siphoned off to the Treasury Department and spent." Emotionally loaded language is a common diversion in the anti-Social Security crowd. Treasury didn't "siphon off" the money, any more than your piggy bank "siphoned off" your pennies when you were a kid. The Treasury Department has been issuing legal instruments -- bonds -- for that money ever since Social Security was created in 1935. The money could have been placed with private investments instead of Treasury bonds but, ironically, FDR thought that investing Social Security's money in the Treasury would make it safer from being raided by what he called "the damn politicians" -- a crowd for whom Krauthammer is now an apologist and spokesman.

The inconvenient existence of those legal instruments forces Krauthammer into the next stage of his argument: They're worthless. Why? Because they're not included "in calculating national indebtedness." That's true, since national indebtedness measures the government's debts to the private sector, not the debts one part of government owes another. But that doesn't mean the debt doesn't exist. The debt has been documented, terms (including interest rates) have been established, and legal documents have been executed -- with, as Lew says, the "full faith and credit" of the United States government.

That leads to Krauthammer's next line of attack: "If we default on Chinese-held debt, decades of AAA creditworthiness are destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina... On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing."

Leaving aside the disparaging characterization of cash-strapped retired Americans as "angry grumbling," it's a weak argument. Krauthammer usually doesn't think much of "troublingly adversarial" China, but here he gives it moral precedence over American retirees. Why? Because Krauthamer is saying the financial markets -- what Paul Krugman calls the "Invisible Bond Vigilantes" -- wouldn't react negatively if the Treasury Department welshed on elderly Americans, but it would be upset if the same thing happened to China.

"We could get away with it" isn't usually used to justify breaking a contract with anyone, much less people who have worked all their lives and contributed to a fund for their own retirement. So what moral justifications does Krauthammer provide for breaking American people's Trust Fund -- and their trust?


The Safecrackers

Here's what Krauthammer doesn't tell you: He and other conservatives want that Trust Fund money because they've run up massive debts through tax cuts for the rich and wars like the one Krauthammer so enthusiastically supported in Iraq. The price tag for that war alone would cover the entire Social Security Trust Fund.

They don't want to raise taxes for the wealthy, even to cover the costs of tax cuts that disproportionately benefited the wealthy. Krauthammer, a doctrinaire Pete Peterson-style conservative, is happy to propose raising taxes on the middle class through measures like a gasoline tax. But when he expresses support for the recommendations made by the co-chairs of the deficit commission -- recommendations he, like so many others, misleadingly ascribes to the commission itself - he's supporting deficit-busting tax cuts for corporations and the wealthy.

To be fair, Krauthammer was also outraged by what he called Obama's tax-deal "swindle" last December (which, he observed, was a "free lunch.")

Raiding the Social Security Trust Fund would change the last thirty years of FICA taxes from a designated social insurance fund intro a regressive, retroactive tax on people who aren't the wealthiest of Americans -- that is, people whose earnings were all or mostly below the payroll tax cap.

They don't care. They want that Social Security Trust Fund money. Without it, the right wing might be forced to pay for its multi-trillion dollar free lunch.

It's Hammer Time

In his rebuttal, Jacob Lew referred to Charles Krauthammer as "the Hammer." Do they really call him "The Hammer"? I thought that nickname belonged to Tom Delay - or to the 90's-era emcee of the same name.[1]

The words "free lunch" seem to be Krauthammer's "Rosebud." But even as the fireplace crackles in his personal Xanadu, the American middle class is feeling a chill. They've lost the other pillars of their retirement security, home value and savings, thanks in large part to the deregulation frenzy promoted by the right. And now the right is coming for the rest of it.

Krauthammer's not preventing someone from getting a free lunch. He's raiding your refrigerator.

Social Security's trustees, led by the Secretary of the Treasury, are entrusted with its financial well-being. Next time the Charles Krauthammers of the world try to raid the Trust Fund, Mr. Geithner and the other trustees should repeat the words to MC Hammer's big hit. You remember them, don't you?

You can't touch this!


[1] When I first moved to Los Angeles I had the same insurance agent as MC Hammer. I told her that in those big floppy pants, he looked like he should be saying "You can't find this!" She said "Ooh, he wouldn't like that ... "

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Strengthen Social Security campaign. Richard also blogs at A Night Light.

He can be reached at "rjeskow@ourfuture.org."

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