Sunday, January 30, 2005

Reality Games

Just how "real" is the Social Security trust fund? This issue came up again over at NPR's Talk Of The Nation, and Bob Somerby had a lot of fun with their confusion. I can't clear up the confusion, but I can explain why it is confusing. Let's run through a few alternative reality scenarios.

1) Some people buy US savings bonds to save for their retirement. Anyone who does not think these are real assets can stop reading now--the trust fund is no more real than US savings bonds.

2) The government requires us to buy US savings bonds to save for our retirement. Still real?

3) The government creates a kind of federal insurance corporation to hold these bonds for us. The 'contributions' to this corporation come from payroll taxes. The proceeds are paid out as annuities. Still real? This accomplishes two important goals, by the way: it keeps some people from outliving their retirements. They would otherwise become a burden on future workers--their children and/or communities--unless you think we should just set them on ice flows? It also keeps the children/heirs of those who die young from inheriting the unused bonds; if they did then they would also become a burden on future workers. The idea is to maximize benefits to the elderly while minimizing the burden on the young.

4) At the same time the government creates or raises the tax dedicated to buying bonds to save for the worker's retirement, it lowers other taxes by the same amount. Notice that this is a totally pain-free method for "fixing" Social Security. It has no net effect on either the money supply or on total taxes--for the short term. Its only effect is to create a debt that future generations will be required to pay--to us! What a deal! Is the trust fund beginning to look a little less "real"? Some will say yes. But notice that this is treating future generations no worse than if we run up a deficit and pay for it through method # 1. Notice also that we could achieve the exact same result--in terms of the burden to us and to future generations, if not in terms of perception--by simply passing a law that says that future generations must provide for the elderly. How are the IOU's in the trust fund (or for that matter the IOU's in scenario #1) any more "real" of an asset than the guarantees of such a law?

5) Like #4 above, except that we lower other taxes more than we raise payroll taxes. Otherwise known as the Reagan/Greenspan plan, this saddles future generations with the double whammy of having to provide for the elderly and for the other investors who funded the "roaring eighties" and the not so roaring 0's.


Blogger Daryl McCullough said...


You might want to start an argument with Sebastian Holsclaw, who's on the other side of this argument.

7:41 PM  

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