Cristina’s Folly: A Billion Here, A Billion There

The Economist.com in an October 23, 2008 article entitled Cristina’s looking-glass world reports that Argentina President Cristina Fernández de Kirchner has a plan to nationalize private-pension funds that looks like a cunning, shortsighted effort to stave off another Argentina debt default. While Ms. Fernández claims that she is protecting “our workers and retirees,” many economists and opposition politicians fear that the government’s intention is to raid the pension funds to fill a widening national fiscal hole. The private-pension funds have assets of $30 billion and are the largest investors in Argentina’s depleted capital markets. The demise of the private-pension funds would make it far harder for local firms to raise money.

The concern is that Ms. Fernández is likely to give priority to the short-term claims of the public finances at the expense of impoverishing Argentines and their children in the future. Such a fear of government legally looting of funds designated for other purposes is a problem in the United States as well. For example, currently, Social Security tax surpluses exceed government expenditures on social security, allowing the government to legally loot the surpluses and spend them on non-Social-Security related priorities, thereby depleting Social Security assets, which will exacerbate the projected Social Security deficit in the coming years.

Another issue related to United States policy is Argentina’s agreeing to assume all liability (in the many billions) to citizen pensioners for their pensions. An analogous situation is where the United States through perhaps necessary but socialistic corporate welfare agreed in the Emergency Economic Stabilization Act of 2008 for a bailout of the U.S. financial system. The glib answer is that the U.S. is not economically unstable like Argentina and can therefore afford to take on unreasonable debt in bailouts and unnecessary war and not suffer any adverse credit standing. This road is the economics of the ostrich with its head in the sand. According to Matthew Benjamin, the $700 billion bailout will push the national debt to the highest level since 1954, to more than 70% of GDP. Every citizen’s share of this higher national debt is $37,000 per person.

The late Senator Everett Dirksen of Illinois used to say relative to government expenditure: “A billion here, a billion there, and pretty soon you’re talking real money.” The new spendthrift government motto, while profligately sliding down the bottomless pit of debt expansion with unnecessary war and with bailouts caused by government oversight incompetence is: “A trillion here, a trillion there, and pretty soon you’re talking real money.”