The trillion dollar costs that Democrats have been touting as their chief reason for not supporting the President's Social Security reforms are a myth. That is what several prominent economists are saying, including the 2004 Nobel Prize winner Edward Prescott.

They say that the costs the Democrats are citing as "transition costs" are actually the amount the government is borrowing now to pay the current benefits combined with the massive debt already owed to the SS "Trust Fund."

"We hear a lot about transition costs," Arizona State University professor Edward Prescott, 2004 winner of the Bank of Sweden Nobel Prize in Economics, said. "But I'm going to use some economic jargon, not 'political accounting' jargon.

"There are no transition costs," Prescott said at the Cato Institute Feb, 9. "Re-labeling debt is not a cost."

Lawrence Hunter, senior research fellow with the Institute for Policy Innovation, told the Cybercast News Service that he agrees with Prescott.

"There are no transition costs," Hunter said. "There's simply a cash flow crunch that exists and if Congress chooses to borrow the money to alleviate that, it has done nothing more than replace one form of debt ... with another. It's refinanced the debt."

Congressional opponents of President Bush's plan to move part of Social Security payroll tax revenues into personal retirement accounts tout the alleged "transition costs" as a primary basis for their opposition.

Here Hunter explains how Social Security works which helps me a lot because my understanding of the Social Security math is just above zero.

To understand the argument, a basic primer on Social Security is essential.

"One dollar comes in, one dollar is borrowed. Eighty-four cents is borrowed to pay current benefits," Hunter explained. "Because we're taking in more than we need to pay current benefits, the government borrows the other 16 cents to pay for everything from paper clips to battleships."

"The 84 cents, they don't keep track of. There's no accounting of that. It's off [the] balance sheet," Hunter said.

Prescott added that the federal government is being less than honest when it calls the money it has borrowed from current FICA taxpayers to pay retired workers' benefits an asset rather than a liability.

"Firms are required to list pension fund liabilities," Prescott stressed. "I think the federal government should as well."

The 16 cent-per-dollar surplus from FICA taxes is listed on the government's books, in what Hunter called, "this silly IOU scheme." The government "borrows" the surplus from the Social Security Trust Fund by replacing it with a special Treasury bond, essentially writing itself an IOU.

"We've deluded ourselves into thinking that all of those Trust Fund bonds are assets," Hunter said. "They're not assets at all, they're liabilities."

Thanks to Sean Hackbarth at The American Mind for the link.