Patterico's Pontifications

3/26/2014

Ezra Klein, 2011: Debt Held By the Public Is Not the Whole U.S. Debt

Filed under: General — Patterico @ 5:52 pm

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?

42 Responses to “Ezra Klein, 2011: Debt Held By the Public Is Not the Whole U.S. Debt”

  1. Ding.

    Patterico (c29bec)

  2. Basically, the whole Vox “explain to the little people” thing has been exposed as more partisan propaganda … what … three days in?

    SPQR (768505)

  3. ==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?==

    Frankly, after seeing it I think most of the target audience will be yawning and thinking, “well that’s two minutes of my life I’ll never get back.”

    elissa (1aca9b)

  4. Maybe if they hired Miley Cyrus….

    elissa (1aca9b)

  5. I really don’t think this whole Voxspainer thing was well thought out. Their target market of liv don’t give diddley squat about policy and math–and the people who do care about policy already somewhat understand that most issues are complex. The latter are not going to be satisfied with short, cartoonish, half-assed videos.

    For propaganda to work you’ve got to have an audience and a story to tell that at least marginally interests the audience (or appears likely to affect them in some way). If this is an example of their wares I think Voxsplainer’s going to be an epic fail. Perhaps tomorrow in two minutes they can explain to their target audience the hydraulics of a jet plane or the lower digestive system of the human body.

    elissa (1aca9b)

  6. It’s up there with attack watch, seems to have ‘life of julia’ graphics package,

    narciso (3fec35)

  7. If you like your public debt lies, you can keep them.

    Elephant Stone (6a6f37)

  8. No attempt to mislead but he puts the 17 trillion GDP figure right next to the 12.5 trillion “national debt.” He knew.

    craig (465791)

  9. Their arrogance that makes them think they are so worldly, and so much smarter, and that they have been called to explain things to the ignernt masses is on full display, narciso.

    elissa (1aca9b)

  10. Personally I doubt the target audience read dweebs.

    gary gulrud (e2cef3)

  11. These two clownish fools
    What an evil disservice
    they do to their own

    Colonel Haiku (57b3ff)

  12. 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.

    Klein is just flat out wrong here. There is no other way to put it.

    The securities held in the social security trust fund are NOT the same instruments available to investors. Among other things, the special issue bonds are not marketable – the can’t be bought and sold.

    So, defaulting on Social Security debt would not mean a default on Treasury debt. That is a fact.

    I have found liberals pathologically incapable of understanding how Social Security actually operates. They literally cannot believe the depth of the fraud, probably because it would undermine their entire belief system in the sanctity of the public sector.

    tommy (b71167)

  13. I think videos like this empower liberals to believe they have real facts so they can speak out about topics — like the public/national debt — on which they might otherwise remain silent. This is ammunition that helps the army of liberal soldiers keep pushing back against conservatives. It doesn’t matter whether it’s true, only that they think it’s true.

    DRJ (a83b8b)

  14. And I’m not saying Klein or Yglesias think this is true. I’m saying their target audience will believe it.

    DRJ (a83b8b)

  15. america’s debt is like one of those bombs the kooky muslims like to put up their butts

    except I’m in the blast radius, which I do not appreciate

    happyfeet (8ce051)

  16. have another taco Mr Feets, you’ll feel better.

    redc1c4 (abd49e)

  17. tonight it’s chicken breasts and turnip greens and

    some kind of salad

    it’s a low-carb thing

    happyfeet (8ce051)

  18. or try some metamucil Mr. Feets. It’s natural or so I’m told.

    daleyrocks (bf33e9)

  19. i buy the mexican kind they make from cacti

    little known fact:

    mexicans are freaking OBSESSED with their bowels

    no comprendo

    happyfeet (8ce051)

  20. I’ve never had the debt blockage Mr. Feets. I wouldn’t know.

    daleyrocks (bf33e9)

  21. @ DRJ,

    I think videos like this empower liberals to believe they have real facts so they can speak out about topics — like the public/national debt — on which they might otherwise remain silent. This is ammunition that helps the army of liberal soldiers keep pushing back against conservatives. It doesn’t matter whether it’s true, only that they think it’s true.

    I agree. And I believe their target audience is the same one that believes Jon Stewart dishes out the real news.

    Dana (9a8f57)

  22. …which would also explain their gullibility to be misled or deceived.

    Dana (9a8f57)

  23. Sorry, Patterico, on this one the New and Improved Klein ™ and Yglesias are right, and you and the old Klein are wrong. The “trust funds” are an accounting gimmick, and the “debt” in them does not ever have to be paid. Congress could abolish the whole Social Security program tomorrow, together with the “trust fund”, and order the IOUs to be torn up.

    Congress does not have the power to cancel the USA’s debts or contractual obligations, but these fake “securities” are neither. They’re just like the IOU Homer Simpson left in his emergency doughnut stash.

    Of course Klein and Yglesias just picked the argument that suited them today, and it’s pure coincidence that it happens to be true.

    Milhouse (b95258)

  24. “The “trust funds” are an accounting gimmick, and the “debt” in them does not ever have to be paid. Congress could abolish the whole Social Security program tomorrow, together with the “trust fund”, and order the IOUs to be torn up.”

    Milhouse – That’s a BS argument. The notes issued to the SS Trust Funds when the participant funds were stolen to pay for general government expenditures are not accounting gimmicks. They are legal obligations of the U.S. government.

    daleyrocks (bf33e9)

  25. How are the trust funds invested?

    By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are “special issues” of the United States Treasury. Such securities are available only to the trust funds.

    In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.

    http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html#a0=1

    daleyrocks (bf33e9)

  26. Oh, the government says it so it must be true.

    Milhouse (b95258)

  27. Milhouse – Why don’t you inform everybody what happens when a trust liquidates to play your BS argument out? Please explain further.

    daleyrocks (bf33e9)

  28. “Oh, the government says it so it must be true.”

    Brilliant argument. When you can’t support what you say, go grade school.

    You never want to go full Milhouse.

    daleyrocks (bf33e9)

  29. The error here is assuming that accuracy has anything to do with Vox’ “explanations” of issues. It is in fact evidently irrelevant.

    As with Klein’s long campaign in favor of national health insurance, every single “fact” is only included if judged to advance the narrative, every chart must support the predetermined conclusion. It’s pure propaganda with a definite objective: to promote their policy preferences.

    Unless you believe they begin each topic with a blank slate and the innocent earnestness of a child, only seeking the truth about the world around them. And if you do, I have some resort property on the moon I just know you’ll want to snap up.

    These two principals are lying leftist propagandists and always have been.

    Estragon (ada867)

  30. for his next trick, Klein will explain how this is a bad thing for Volodya;

    http://hotair.com/archives/2014/03/27/us-intel-putin-move-on-eastern-ukraine-likely/

    narciso (3fec35)

  31. Someday people who lie brazenly in service of an evil agenda will be held accountable. And I want to be there. To help.

    ErisGuy (76f8a7)

  32. The only thing I remember from my statistics class was this. There are three kinds of statistics:
    Statistics, damn statistics and lies.

    The Obama administration has been able to get its unemployment figures down by pushing the long-term unemployed into the next category of “not in the labor force.”

    Klein is doing the same thing.

    AZ Bob (533fbc)

  33. Was Ezra Klein even old enough to vote back in 2011? That aside, obviously all Treasury debts, whether owed to Grandma Senile Democrat in Cleveland, or to Club Fed in D.C., are part of the national debt. Treasury won’t not pay any of those bills, notes or bonds. They’ll all be paid. That the Fed has Enroned its own balance sheet changes none of that.

    As far as LIV’s, etc. are concerned, what’s for dinner?

    Lawrence Westlake (4fc30a)

  34. The key ‘what me worry’ part is the magical printing press. The smart Vox kids will wake up in the middle of the night, panicked, but not able to figure out why they are. Could Vox be a conservative plant, putting out stupid arguments so that smart kids can suss out the truth?

    East Bay Jay (a5dac7)

  35. re: “So, defaulting on Social Security debt would not mean a default on Treasury debt. That is a fact.”

    That is a fact for an entirely different reason – unlike typical corporate debt, there is NO CROSS DEFAULT on Treasury securities (a detail which emerged during one of the debt ceiling cliff-hangers).

    So if the Treasury skips an interest or principal payment on one note or bond, other noteholders continue to hold good, non-defaulted collateral for repo purposes.

    Weird, but true. That doesn’t mean noteholders won’t be selling in anticipation of a future default on their specific bond (or note), but legally, a default on one bond has no impact on the others.

    Tom Maguire (f74d9b)

  36. George Orwell was so spot-on in his illumination of the corruption of language.

    Elephant Stone (6a6f37)

  37. And the debt owed to the Social Security trust fund is public debt as well, it is owed to the public, merely with a government intermediary.

    Loren (1e34f2)

  38. After a few more days of beat-downs, Ezra Klein will be pleading, “Can’t I just eat my waffle ?”

    Elephant Stone (6a6f37)

  39. “Weird, but true. That doesn’t mean noteholders won’t be selling in anticipation of a future default on their specific bond (or note), but legally, a default on one bond has no impact on the others.”

    Tom Maguire – I agree that unlike the corporate world there is no cross default on the Social Security investments and intergovernment notes held by other government retirement systems. The idea is that the trustees of those plans or trusts give them back to the Department of Treasury when they run out of cash and Treasury presumably sells new bills, bonds or notes to raises the cash to send to the plans, thus raising the amount of debt held by the public. Total debt is unchanged.

    daleyrocks (bf33e9)

  40. Comment by AZ Bob (533fbc) — 3/27/2014 @ 8:05 am

    There are three kinds of statistics:
    Statistics, damn statistics and lies.

    That’s actually more usually supposed to go:

    There are three kinds of lies: lies, damned lies and statistics

    The other day we had some statistics about laid off workers, and Social Security 800 number busy signals.

    I woud like to add a fourth, even higher degree of lie:

    Scientific proof.

    sometimes peer reviewed.

    Examples:

    1) Only calories consumed count, and useful calories can be measured by burning food.

    2)Cold weather cannot affect the possibility of getting a cold.

    3) Glasses do not cause myopia.

    4) Most vitamins are not any good for anything.

    5) It is a bad idea, and useless, to give antibiotics in most infections, and giving too many antibiotics to people causes drug resistance. (it almost certainly stems from giving antibiotics to farm animals.)

    6) Vitamin A increases the risk of cancer (beta-carotene, which is NOT equivalent to Vitamin A, does.)

    7)In cold weather, you lose most heat through your head. (yes, if that’s what not covered)

    Sammy Finkelman (2c707f)

  41. “The other day we had some statistics about laid off workers”

    Sammy – I don’t recall statistics. I recall wild, amorphous claims. I provided a link debunking those at least over the past ten or so years.

    daleyrocks (bf33e9)

  42. I’ve spoken to a number of people who think there was no national debt before Bush II took office so there is little doubt that VOX viewers will uniformly now be spouting that the National Debt is only 12.5T.

    What a transperant effort to white-wash the Obama run-up of the National Debt.

    And then they claim it is not mis-leading.

    Well, did anybody belive VOX was really going to be non-partisan?

    Scott (38a3ad)


Powered by WordPress.

Page loaded in: 0.2199 secs.