« Military Spending In the Infinite Horizon | Main | Iraqi Press Monitor Down »
Fiction
Another non-believer in the Social Security Trust Fund offers up an odd metaphor:
This surplus is held in a so-called "trust fund" that is essentially no more than an accounting fiction. (The fund holds treasury securities so essentially the government is borrowing from Line X of their balance sheet and crediting Line Y. This is like taking cash advances on your credit card and depositing them in your bank account and then calling the bank account your trust fund.)I'll grant that it might be odd to call this bank account a "trust fund" if the fiction camp will grant that semantics aside you're going to have to pay your credit card bill or else someone is going to get very upset.
UPDATE: It should be noted that the quotation to which I've objected is drawn from a post (indeed, a blog) which is full of reasonable suggestions for small, progressive reforms of Social Security. It's too late right now (1:26 AM EST) for me to discuss subjects involving numbers, but more on this later.
January 6, 2005 | Permalink
TrackBack
TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345160fd69e200d83438b36853ef
Listed below are links to weblogs that reference Fiction:
Comments
Gawd, enough with the leftist hypocracy. Clinton acknowledged the Social Security crisis. The current Left has shifted their opinion. I guess their only concern is mounting an opposition to president Bush.
Posted by: Al | Jan 6, 2005 8:52:50 PM
A trust fund is an account in which assets are held in trust. What does the phrase 'held in trust' mean?
Unless I'm mistaken, the whole point of designating something as a trust is to prevent the transformation of trust assets into liabilities. The government is pretty clear what constitutes a trust when regulators talk about requiring pensions to be funded in a trust, for example.
Posted by: Jason Ligon | Jan 6, 2005 9:04:41 PM
Gawd, enough with the rightwing hypocricy, Al. Clinton's concerns about Social Security are the only thing about Clinton that you believe. You have shifted their opinion on Clinton's credibility. I guess your only concern is to defend president Bush.
Posted by: Joel | Jan 6, 2005 9:24:03 PM
Seriously, Al. It was almost funny the first time you mentioned Clinton. We've all read it. We've all mocked you. Find a new weak talking point for us to demolish.
Posted by: Hamilton Lovecraft | Jan 6, 2005 9:30:08 PM
It's always struck me as a bit odd, but at the same time understandable, that the people who howl that the government sucks them dry with high taxes can be so philosophically detached about what the government actually -does- with that money.
Let's see. So you 'borrow' money from one line on a ledger and 'lend' it to another one, and then pretend that this was actually a null operation and can be overlooked? Isn't that basically another word for embezzlement?
Posted by: neil | Jan 6, 2005 9:47:24 PM
What is non-fictitious about the trust fund is this: If the trust fund had been used (as Al "Lockbox" Gore proposed) to pay down the federal debt then that would have decreased future obligations of the Federal government, making the pensions for future retirees more affordable.
Anyway, the argument that the trust fund is only paper, not real, is ridiculous: Money is only paper. Stock certificates are only paper. Ultimately, unless you're actually hoarding nonperishable food for future retirees, then all you are doing is setting up a system of future obligations. They only mean something to the extent that future generations honor those obligations.
Posted by: Daryl McCullough | Jan 6, 2005 9:50:58 PM
Soylent White is people!
Posted by: Atrios | Jan 6, 2005 10:20:36 PM
Al, you are a troll. Try reading up on the facts first. Here are President Clinton's Remarks on Social Security for 1993-1998, 1999, and 2000.
The problem with Social Security is not with the Social Security system itself, which is sound. The problem is deficit financing for the general federal budget. If the government is not fiscally responsible, it may not be able to pay back all the money it borrowed from Social Security (or that Social Security invested in US government bonds) when it is needed for the boomers' retirement. Clinton was concerned about this, and his efforts to eliminate the deficit and boost the economy helped Social Security.
I would be willing to cut Bush some slack for inheriting an economy just as the bubble was bursting. Except I can't. It was Bush's cronies who opposed any regulation that would have kept the economy from overheating with so much "irrational exuberance". It was Bush's cronies who made a killing from fleecing small investors on IPOs. It was Bush's cronies who were behind the California electricity crisis, and Bush and Cheney protected them. It was Bush's cronies who were behind the accounting scandals that lost billions of dollars, destroyed millions of jobs, and made everyone question the trustworthiness of our markets.
I don't mean to be overly critical of President Bush. He and his cronies were not responsible for all of the economic bubble, or for all of the ethics violations and crimes that happened. Also, I think that, just as he should be opposed when his policies would be harmful for the country, he should be supported whenever he does anything right. (Contrast that with certain persons attitude towards the previous President if you will.)
Unfortunately, Bush's policies of massive tax cuts and deficit spending have required borrowing from the Social Security surplus without any credible plan for how it is going to be paid back. It is not hypocrisy (sp) to note that Bush is being fiscally irresponsible, especially compared to the progress that had been made under Clinton.
It's hard not to be cynical. The simplest explanation is that Bush wants to "reform" Social Security so he can keep taking the Social Security surplus, funded by payroll taxes paid by working families, use it to give tax cuts for his wealthy cronies and supporters, and stiff the workers so they never get back the money they paid into the system. The key to this strategery is convincing everyone there is a Social Security crisis, so when the piggy bank is broken and the contents disappear, there is noone to blame.
I would be quite happy if my suspicions were wrong. I'd be happy if Bush would come up with a budget that just didn't make things worse, much less undoing the damage he's done so far. Anytime he does something right, I will support him. He is my president, whether I voted for him or not. In the meantime, he'd better keep his grubby fingers off our retirement money.
Posted by: TomB | Jan 6, 2005 10:56:27 PM
I can't believe that so many people fails to understand that if you consider the Trust Fund a fiction, then you must discard the idea that Social Security must finance itself, which eliminates most of the whole "crisis". You can't say that SS is part of the government for one thing and not part of the government for another.
Posted by: Carlos | Jan 6, 2005 11:02:37 PM
"This is like taking cash advances on your credit card and depositing them in your bank account and then calling the bank account your trust fund."
No, this is like setting up an automatic deposit from your moonlighting job into a retirement account that you then use as collateral for a loan. Then you go on a wild trip to Vegas, running up an overdraft in your checking account. The retirement account is an asset, the overdraft is a liability, but the problem is, you need to fix the overdraft some other way than using the retirement account that you already allocated for another purpose. The wild trip to Vegas is the tax cut Bush promulgated and the Republican Congress is the lady of dubious reputation who spent your money at the gambling table.
Posted by: cafl | Jan 6, 2005 11:17:12 PM
The difference is, you don't have the power to universally abrogate the agreement with your credit card company; the government does. Also, most people would recognize that if you tried to retire on your "trust fund", you'd be facing what we might call a "crisis".
Posted by: Jane Galt | Jan 6, 2005 11:22:46 PM
Aye, and if you were facing what we might call a "crisis" you'd do what most sensible and intelligent adults would do - get a job, or raise some money some other way, or quit spending so much on your credit card, i.e. raise taxes or cut benefits. Such a "crisis" is easily resolved.
Posted by: Trickster Paean | Jan 7, 2005 12:58:35 AM
The trust fund isn't just an accounting gimmick. The Social Security Administration actually used the surplus to purchase special T-Bills, which the government is obligated to pay off. Or are T-Bills now just an option? How do you think the Chinese would like it if we didn't pay off a couple trillion in T-Bills? I imagine they wouldn't take it as a good sign.
Posted by: JoeF | Jan 7, 2005 1:27:52 AM
Carlos, that's a great comment. I've never heard anyone make that point before.
I wonder why didn't I hear anyone yelling for all those years that we it was a mistake to put SS "on budget," giving us a false sense of the true size of the deficit?
Posted by: ed johnson | Jan 7, 2005 1:38:06 AM
The reason the social security "trust fund" is seen as fictional is simple: because essentially the same people (the government) hold both accounts. So to draw down the trust fund, we also have to pay it back; we in essence owe it to ouselves. In other words, it doesn't represent real savings, rather it's a promise by the government to shift its budget priorities in the future; in other words, if we just added social security taxes into the general fund and took social security payments from the general fund, the net effect would be the same. Namely, as soon as SS liabilities for a year exceed SS deposits, the government would have to raise taxes (either SS-associated taxes or other taxes), borrow money, cut benefits (either SS-related or non-SS related), or else borrow the difference. The only difference is that with the "trust fund" we tally these diffrences.
In a real trust fund, the money would be invested externally (say, in private stocks or bonds or in the bonds of a foreign country) so that if SS ran a deficit during a year, and had to draw down the trust fund, the money the fund pays out would come from an external source (the company's assets, or the foreign government's assets), not from ourselves.
Posted by: Glaivester | Jan 7, 2005 2:09:12 AM
"I can't believe that so many people fails to understand that if you consider the Trust Fund a fiction, then you must discard the idea that Social Security must finance itself, which eliminates most of the whole "crisis". You can't say that SS is part of the government for one thing and not part of the government for another."
I don't care per se whether or not social security can finance itself. My concern is whether the overall budget picture will become unsustainable as Social Security's obligations grow over the next ten, twenty, thirty years, along with Medicare obligations, etc.
Posted by: Glaivester | Jan 7, 2005 2:15:12 AM
And how does the government pay off these T-bills?
Matt has blithely said by increasing taxes on the rich. Well, then.
I hope that in this political debate, Matt and other liberals are honest about exactly what will be required after 2018.
Let's have an honest debate about whether tax increases or private accounts are better, and let the people decide in 2006.
Posted by: Adam Herman | Jan 7, 2005 3:08:51 AM
OK Sell them!!!
As I understand it the "trust fund" is in US bonds... If the "Kill social security" people want to play that game, then lets just sell the bonds and put the money in EURS. That way we would have no more argument as to whether the US government would honor it or not.
Posted by: Mike Liveright | Jan 7, 2005 3:23:23 AM
Adam writes: Let's have an honest debate about whether tax increases or private accounts are better
That doesn't make any sense---private accounts increase the Social Security shortfall, and so increase the need for future tax increases. That's the basic dishonesty in the President's proposal, and you can't have an honest debate when the fundamental choices are presented dishonestly.
Posted by: Daryl McCullough | Jan 7, 2005 3:50:30 AM
Adam, speaking of dishonesty, here's my capsule summary of the Social Security situation. Back in 1983, in a plan heade by Greenspan at the request of Reagan, Social Security payroll taxes were increased beyond what was needed to pay current Social Security costs. Because social security is a regressive tax, using this money for general revenues amounts to a shift of the tax burden towards the poorest workers.
What were they given in exchange? A promise that this increase would keep the program solvent. Now, the government (some of the same people) is saying: Sorry, we were lying about that. The increase in Social Security payments had nothing to do with keeping Social Security solvent. If that's the case, then pay the social security surplus back to the people it was taken from on false pretenses.
However, Greenspan's increases in the payroll taxes could have been justified in the following way: During the period 1983--2018, Social Security will collect more than it spends. This difference will be used to keep income taxes low. During the period 2018--2042, the reverse will be true, Social Security will spend more than it takes in. The difference will be made up by income taxes.
That would be a fair trade, in a sense. As it is, the people who paid into Social Security between 1983 and 2018 are getting screwed.
Posted by: Daryl McCullough | Jan 7, 2005 4:13:09 AM
My concern is whether the overall budget picture will become unsustainable as Social Security's obligations grow over the next ten, twenty, thirty years, along with Medicare obligations, etc.
Why does this concerns you so much, but not the recent tax-cuts that will have a much greater impact over the next ten, twenty, thirty years or the war/military spending?
Posted by: abb1 | Jan 7, 2005 4:37:10 AM
Ultimately, unless you're actually hoarding nonperishable food for future retirees, then all you are doing is setting up a system of future obligations. They only mean something to the extent that future generations honor those obligations.
Aye! There's the rub!
Posted by: Dick Eagleson | Jan 7, 2005 4:37:26 AM
sell the bonds
Sell $1.7T in bonds... to whom?
Matt has blithely said by increasing taxes on the rich.
Hate to break it to you Adam, but by definition only the rich have the wealth to be able to cover increasing taxes.
because essentially the same people (the government) hold both accounts
it's important to note that the SS surplus came from a tax capped at $40-90k, while the bulk of the general fund is paid by people making more than that. In a very real sense the FICA surplus is funding the 3% reduction in the top marginal rate right now. Class warfare is at its finest when it is invisible to the naked eye.
Posted by: Troy | Jan 7, 2005 4:44:49 AM
This issue is yet another IQ test for the american people. So far, we're not batting very well this decade...
Posted by: Troy | Jan 7, 2005 4:48:14 AM
$100 bills are just pieces of paper. And the US government will not give you anything if you try to "redeem" them. The same government that could refuse to pay back the bonds in the Trust Fund is the same government that could hyper-inflate all the value out of the dollar bills in your wallet, or of the electronic bits that are the reality behind your checking account.
But I suspect that Jane Galt and others would not hesitate to take Benjamin Franklins in exchange for their labor.
It's all just paper and pretending that some paper is more real than other paper is just tunnel vision or dishonesty. What part of "Full Faith and Credit of the United States" are people trying to repudiate here?
Posted by: Bruce Webb | Jan 7, 2005 8:57:38 AM
The comments to this entry are closed.
