But the Fannie fiasco matters for a less obvious reason. There are other accidents waiting to happen in the social entitlements whose costs also will jeopardize American long-term growth. Social Security and Fannie aren’t often spoken of in the same breath — as programs go, we associate Social Security with the swinging-and-60-plus crowd, not the Swinging ’60s.
What Social Security and Fannie have in common is that both have lived important segments of their lives off-budget. Tax increases are likely to pay for Fannie and Freddie. These increases will remind voters that being off-budget doesn’t mean a program won’t eventually penalize the taxpayer. Burned by Fannie, voters may get ready for entitlement reform.