How to impress the bond markets

Instead of beating up on retirees by cutting social security, we can reduce deficits by standing up to powerful interest groups

Dean Baker
guardian.co.uk, Monday 21 June 2010 19.00 BST

The deficit hawks have been pushing the line in recent months that we have to make cuts in social security, along with some revenue increases, in order to reassure the bond markets about the creditworthiness of the US government. According to this argument, by taking tough steps (ie cutting social security benefits) we will have shown the bond markets that we are prepared to do what is necessary to keep our budget deficits within manageable levels.

There is some reason to question the merits of this argument. First off, the deficit hawks don't have an especially good track record in the insight category. Not one person among the leading crusaders was able to see the $8tn housing bubble that wrecked the economy. If they couldn't see something so huge that was right in front of their face, we might wonder about their ability to ascertain anything as amorphous as the sentiment of actors in bond markets.

Furthermore, the fixation on social security is peculiar. The Congressional Budget Office shows the programme can pay all future benefits through the year 2044 with no changes whatsoever. Even after that date the shortfalls are relatively minor. If we instituted a fix in 2030 that is comparable to the one put in place in 1983 it would leave the programme fully solvent out to the 22nd century.