Sunday, February 13, 2005

Santorum's Enron Accounting

So I'm watching Face the Nation's debate on the privatization of Social Security. Sen. Rick Santorum, R-Pa., is on and doing his best to laugh off some very good criticism of Bush's bamboozle plan by Sen. Dick Durbin, D-Il. The debate is starting to focus on the cost of privatization and how to pay for privatization's cost when Bush and the Republican congress already has run up a record deficit, that if it included the costs of Bush's war in Iraq and making Bush's tax cuts permanent, would be much higher than currently stated.

When pressed, Santorum finally admits that he's borrow the money to "fix" Social Security because borrowing the money wouldn't be all that bad. In fact, he goes so far to say it would actually be a good investment and fiscally smart thing to do! Now I'm paraphrasing, but that was the gist of what he actually said. I'd quote him if I could get a transcript.

How do you solve any accounting problem: use Enron accounting.

His argument goes like this:
1. Social Security is like a Fram Oil filter commercial: Pay me now or pay me later. If we don't pay only $1-2 Trillion now, the sky will fall later.

2. That $1-2 Trillion isn't so bad anyway because much of the borrowing for it would be bought up by private account investors buying government bonds.

3. Since these bonds are used to finance government spending, these bonds could then be set aside to pay for Social Security shorfalls.

4. Since the bonds are being bought to pay for Social Security, a government program, they don't really cost the government anything, and hence would reduce the cost of money borrowed by the government.

See how easy Enron accounting is? Yes that really was his argument. I just couldn't make up such logic.

So you see, by Santorum's Enron accounting, government bonds bought by Americans that are used to pay for government programs don't actually cost the government anything. Never mind that government bonds still have to pay out a return beyond their original cost. That doesn't count. Never mind that government bonds still have to be paid to the bond holder be they American, Japanese, Chinese or other. That doesn't count for government programs. Never mind that government bonds will not be the only bonds used to invest for a private account when other more higher paying bonds and securities are available. Since the President has not specifics to his plan, this doesn't count either.

According to Santorum, it just wouldn't cost that much and the government deficit just wouldn't be that large. Just like Enron's debts weren't that large either.

But didn't Enron go bankrupt?