Transparency: an example on how to deal with Social Security problem
Regional, Analysis, 6/22/2005

I've outlined previously how transparency can be a most effective instrument to discipline government and business in such a manner so as to provide the simplest and least intrusive but most effective instrument to deal with a problem.

I have given illustration of how transparency can be used to reform an educational system to be more effective. Now I will tackle a very difficult problem that is of a very different nature. Also, this problem happens to exist in one of the most advanced political systems in the world. I deal with this problem to illustrate, that even in such advanced society, there is great deal of deficiency in the use of the transparency principle.

Definition of the problem: The United States is supposedly facing a very serious problem in how to deal with its aging population and the decline of the number of workers that would be supporting retirees in the future. The Congress, Republicans and Democrats, agreed in the past to deal with this problem by increasing taxes and to take the surplus from the government's budget, to be put aside, invested, so that this surplus will be available for future retirees. But specifically, they decided to invest this surplus in "special" government treasury bonds. These "special" treasury bonds are not marketable, and are bought by the government itself! So what the congress in effect did, is to spend the surplus it has at the mean time, while promising that it will pay it back in the future. But how can the congress pay it back? It can only do so by substantially raising taxes on future generations, as the government is the holder of these treasury notes.

No one wants to acknowledge what the problem is. Democrats and Republicans spent and are spending money that is supposed to be stored for future retirees, without having to incur new taxes on the workers at that time. Neither party seems willing to deal with the real issue involved, each aiming for political advantage in "claiming" to want to deal with this issue. The democrats see the social security issue as a "social," that is a community retirement program, a program that depends on the role of the government, and thus brings political support for the role of government in public life, while the Republicans see this as an opportunity for the opposite, that is, to privatize Social Security to create a great stake for citizens in the private economy and their own private savings, and thus lessen people's dependency on government and thus lessen support for its growth. (I am not addressing the rates for return from bonds versus stocks, etc. these are completely separate issues.) Every side in this political conflict is looking for its interest, and neither seems to be looking for the interest of the public. There is much at stake, and the political debate is intentionally confused because it hides these political motives. And meantime, the problem is said to be very complicated to solve, and requires yet additional complications by the suggesting that the Social Security problem be solved along that of Medicare problem as a package solution. You can see how a complex problem is being even made more complex. Why? to hide behind such complexity to avoid presenting the public with the reality of the situation.

So what is the solution. The solution is to cut through all these diversions, to focus on bringing transparency to the implications of these "special" treasury bonds that the budget surplus buys. Congress by creating these special treasury notes, has created a smart way to, in essence, to hide the true nature of these bonds. The congress does so because these bonds are not marketable, and thus, do not bring to bear on the congress, the forces of the private economy that can give a true accounting of what the future value of these bonds. The congress has chosen to shield itself from the market forces that will determine the true value and yield of these treasury bonds. Buyers of tradable treasury bonds in the private market make very calculated assumptions and projections about the government's future spending and budget status to determine if they will buy tradable treasuries or not. So, by simply changing a single word in the law that deals with safeguarding the surplus of social security, we can solve the problem. By forcing the government to make the treasury bonds "marketable," this will unleash all the needed market forces of the economy to give a true future value of these bonds, which will in turn force congress to deal with this issue head on, because the future value of these bonds may not turn out to be what the congress claims it will be. These issues may be complex for the public to grasp, but they are not for the private bond market and stock market analysts. And the private market will get the word out to the public and congress that it has to face and deal with the reality of the problem, as the interests of the private bond holders will be at stake.

Therefore, by changing a single word, in the law, we can cause a wave of market forces, and in turn public forces, that will lead to the desired effect.

Furthermore, while Social Security is the main issue being bandied about as the important and urgent problem to be dealt with, in reality, experts say that Medicare is a much bigger and more urgent a problem than Social Security. Again, the public is not being presented the facts, as a list of problems and their priority, because they are afraid of how the public will react to the size of the problems that they have tucked away. Politicians don't like to deal with such realities unless they have to. I will leave it to those who care about these issues to figure out potential solutions to this issue through the principals I outlined.

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