NY Times Inconsistency

When talking about government debt, commentators often make a distinction between total government debt and net debt held by the public. Total government debt includes monies owed to other government organizations of the same country. For example, the Social Security trust fund owns billions in treasury notes. These billions are included when discussing total debt. But many commentators think that when talking about the size and sustainability of debt, it is more useful to net out such debt. It is the amount of debt the government owes to the public that matters, they say.

Ok, boring, I know. But here is why it matters:

Yesterday the New York Times ran a piece on Social Security that included the following statement:

By 2016, Social Security will begin paying more in benefits than it collects in payroll taxes, according to the annual report of government trustees; reserves in the form of government i.o.u.’s will be exhausted by 2037, after which incoming taxes will cover three-quarters of benefits.

The problem with this statement is that it makes it seem like there is some sort of massive trust fund that will help us straggle along to 2037. And as far as I can tell, a problem that is not a problem until 2037 is not really a problem at all, at least in Washington.

However, the majority of commentary about America's debt does not count money owed to social security as real debt. The thinking is that since the government owes itself the money, it doesn't count. Using this logic, America's total debt of over 100% of GDP is made to look like the much more manageable sub 70% of GDP often cited in the press. I don't have a strong opinion on the right way to classify debt owed to social security and other government agencies. But I do know that you cannot have it both ways. If you think social security has enough money to get us to 2037, then America's government debt is a Greek-like 100% of GDP. If, on the other hand, you think the debt is closer to 70% of GDP, then social security will most likely be broke within 6 years. The NY Times and other media outlets should address this inconsistency in their reporting so that readers can better understand America's budget problems.