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Wednesday, May 04, 2005

The Social Security Trust Fund

This TCS article explains why the Social Security Trust Fund is irrelevant in terms of policy debate:

And that's why the Trust Fund is irrelevant. To buy the bonds in the Trust Fund from itself, the government must get the money from somewhere. It has four options. It can reduce other government spending. It can sell assets. It can increase taxes. Or, it can sell bonds. In other words, the Trust Fund has no effect -- zero -- on the government's financial situation. Let's make it more concrete with a personal situation that many people can relate to. Say you're planning to send your kid to college. You have ten years and think you need $100,000. In Scenario A, each year you put an IOU for $10,000 in a jar. At the end of ten years, you pour out the jar, swear a bit more than is proper, and then scramble to come up with $100,000, either through borrowing, selling assets, earning more, or spending less. In Scenario B, you skip the jar and IOU charade and advance to the final step: you swear and scramble. The IOU charade was irrelevant. ... If it were true that the Trust Fund can help save Social Security, then there's an easy solution: quadruple the Trust Fund and save Social Security for much longer. Why stop there? Medicare is in more trouble than Social Security. Let's set up a multi-trillion dollar trust fund for Medicare. The answer is clear. The fact that money changes hands between two branches of the federal government and bond certificates are printed is irrelevant. A bond is an obligation and an obligation to yourself is flimsy and easily broken. A bond becomes binding only when it is sold to another party. The Social Security OASI Trust Fund is irrelevant because the government's actions will be the same with or without it.
If the Social Security Trust Fund had been invested in the stock market, or gold, it would represent a tangible asset that the government could sell to fund it's future liabilities. As it is, it is useless as a tool to help us fund this upcoming problem. And that is why the real crunch will begin in 2018 and not 2042.


Blogger Cubicle said...


"I repeat there is not problem with social security. We will not even see the trust fund decline until 4042. Global warming is more of a threat than the eventual failing of social security"

5/04/2005 11:18:00 AM  
Blogger Dave Justus said...

Oops! I'm going to correct the post.

For historical records, I typed 4042 instead of 2042 by mistake

5/04/2005 11:56:00 AM  

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