Moving in the Right Direction, but Still Wrong

Well Robert Barro, a conservative economist at Harvard, has moved a little bit towards the right idea. By publicly denouncing (in Business Week) the idea of private accounts, he counters the less thoughtful Martin Feldstein and Alan Greenspan who still support the plan (that hasn't been unveiled yet), although with hesitations about the fiscal reverberations of the transition costs. That is where Professor Barro and I part ways. He asserts that financing the transition costs with new debt (supposedly just replacing implicit debt with explicit debt) would have no effect is misleading. The fiscal state of America does not leave much room for increasing debt. Much of the (limited) stability of the U.S. economy in the last 4 years has been due to the confidence by the rest of the world (particularly East Asian governments) in the ability and willingness of the U.S. to repay its debts and not print money excessively to reduce the real value of the debt rather than simply a rational look at the path of the U.S. national debt. This good faith is not going to last forever (just remember the "jitters" in the value of the dollar after a few central banks, South Korea and Japan, suggested that they might diversify their central bank reserves which are now almost entirely in U.S. dollars before being quickly retracted) and privatizing Social Security will only add to the burden and speed up a financial crisis in the U.S.