Earlier today, I busted Ezra Klein’s Vox outfit for publishing a video that opened with the following statement:
The United States’s national debt is 12.5 trillion dollars.
As I noted, the actual U.S. debt is $17.5 trillion, not $12.5 trillion. When Matt Yglesias says in the video that the debt is $12.5 trillion, he is using a number for “debt held by the public.” An accompanying graphic accurately shows the $12.5 trillion number as “debt held by the public.” The effect of the statement — together with the graphic — is to falsely imply that “the United States’ national debt” is equivalent to “debt held by the public.”
In an email to me, Klein suggested that the graphic actually cures Yglesias’s misleading statement, rather than creating a false equivalence between two very different numbers, as I believe it does.
This all got me wondering: does Ezra Klein consider “debt held by the public” to be equivalent to the U.S. national debt? Put a different way: does Klein consider debt not held by the public — intragovernmental holdings of U.S. goverment bonds — to be an accounting trick that doesn’t truly represent a debt that must be repaid by the government?
Because today, Ezra Klein doesn’t seem to consider bonds held by Social Security to be a debt that Treasury has to repay.
How did Ezra Klein feel about this in 2011? Thankfully, we don’t have to wonder. Here he is from the Washington Post, his former employer, from March 2011:
There’s an interesting argument going on today between my colleague Charles Krauthammer and OMB Director Jack Lew. Krauthammer makes a case for both the ease and necessity of Social Security reform, and in particular a case against the Treasury securities that the Social Security program invests its surplus in. “They are worthless,” Krauthammer writes. “As the OMB explained, they are nothing more than ‘claims on the Treasury.’ ”
Lew fires back over at the White House blog, noting that “these Treasury bonds 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, making them anything but ‘worthless IOUs’ as Krauthammer suggests. 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.
Klein says he is “sympathetic to arguments against trust fund accounting” but says that Lew has a point.
When you hear that investors are making a “flight to safety,” it means they’re buying Treasury securities. The same Treasury securities that the Social Security system purchases. If the government defaults on those bonds, the economy will fly into a tailspin.
Krauthammer knows this well. “You can’t not pass it,” he said of an increase in the debt ceiling. “It is catastrophic.” What would be catastrophic in that scenario is the Treasury failing to pay back holders of its securities. We won’t do that. We can’t do that. And that’s true for the bonds that Social Security holds as well as the bonds that investors hold. They are not worth less when the government buys them than when private investors buy them. And, incidentally, Treasury yields are very low right now, suggesting that investors think the government overwhelmingly likely to make good on its IOUs.
Now, that judgment is really saying that the market is confident that we’ll eventually make the decisions needed to bring total government revenue a lot closer to total government spending. That might require changes to Social Security, though it doesn’t strictly need to require changes to Social Security (Social Security could be funded through revenue from the income tax, for instance). Either way, the Treasury bonds that Social Security is holding aren’t worthless, or, if they are worthless, we’re in much worse shape than most people realize.
What he’s saying here is: individual investors hold government bonds (debt held by the public) but the government has an equal obligation to pay back the bonds that the Social Security “trust fund” holds (“intragovernmental holdings”).
Or, to put it in simple language: debt held by the public is not the entire U.S. debt.
That’s according to Ezra Klein from 2011, ladies and gentlemen.
Now, this is a very complex topic that 99% of Internet readers don’t understand.
What are the chances, do you think, that the unsophisticated target audience of Vox’s graphics-heavy two-minute cartoon are distinguishing between U.S. total debt and the smaller “debt held by the public” figure?