Wednesday, April 06, 2005

How "real" is the Social Security Trust Fund?

Debate is raging these days about how we should think about the Social Security Trust Fund. What matters, of course, is not how we think about the Trust Fund itself, but what implications for policy our thinking about it in one way or another might have. Fundamentally, if we could determine what set of future policies were best, it wouldn't matter how we thought about the Trust Fund, except insofar as such thinking created issues about the ability to make credible commitments that needed to be part of the determination.
On one side, President Bush took his clown show to West Virginia yesterday, for a photo op at the Bureau of Public Debt Office. This is the place that - to sound like Eric Idle, doing his hilarious documentary-reporter routine in the Monty Python-affiliated Beatles satire "All You Need is Cash" - one can actually visit to actually find where the actual Trust Fund is actually kept. Or at least, the office contains a file cabinet with physical evidence of the bonds that the Trust Fund holds or is deemed to hold (more on that choice of terms in a moment).
Bush, whose expressive range is limited, the poor devil, but who does jejune sneering rather well because it comes from the heart, later stated: "Imagine, the retirement security for future generations is sitting in a filing cabinet."
It is, of course, a bit amusing to have the U.S. President sneering at the reality of U.S. Treasury obligations. Is he also planning to visit the Department of Defense, find a room where weapons procurement contracts are kept, and sneer: "Imagine, the means for our country's future national defense are sitting in a filing cabinet."?
Note, by, the way, that the retirement security for future generations could indeed be sitting in a filing cabinet if, say, the cabinet held sufficient value in bonds that had been issued by foreign governments and were certain to be honored.
Aiding the Democratic side of the debate, the above-linked article notes that, "[w]hile the paper IOUs are not negotiable instruments, they still represent trust fund Treasury bonds that are backed by the full faith and credit of the United States." And Democratic Congressional veteran Charles Rangel is quoted as saying that "Americans who paid into Social Security are legally entitled to have that money fund Social Security until 2052 — as estimated by the Congressional Budget Office — just as all other investors in U.S. bonds are entitled to their return on their investments."
Rangel is wrong as well, however. Now, it is true that, as the law now stands, Social Security claimants will be entitled to receive the benefits on the books for as long as the Trust Fund is deemed to have a positive balance, or until 2052 based on current projections. But Congress could change the law tomorrow by repealing Social Security, and all as yet unaccrued legal entitlements would vanish. This would not be a literal act of legal default in the same sense as refusing to honor bonds held by investors (although it is true that Congress could decide to authorize that as well).
Those taking Rangel's position would understand this if they thought it through a bit. If the two claims were the same, then reducing Social Security benefits effective in 2040, say, would be equivalent to announcing a reduction in the return that will be paid on outstanding U.S. government bonds. Everyone realizes that these two acts would differ, because less of a putatively unbreakable promise has been made in the future benefits case, thus permitting a change without creating comparably serious credible-commitment problems for the U.S. government in the future.
As I have discussed elsewhere, the Trust Fund is neither a "sham," as the Bush side would have it, nor an actual source of paying for future benefits, as the Rangel side would have it. You can't actually finance something with self-owed obligations, or I would pay for my kids' college education by stuffing my personal IOUs into my filing cabinet. The Trust Fund is essentially a historical record of certain cash flows, kept according to a mandated set of rules. But it is meant to create some level of political pre-commitment, albeit less than that which is created by issuing a U.S. government bond to a third party. By the way, this pre-commitment is meant to have elements of a sword as well as a shield, in the sense that Congress is expected to think twice about increasing benefits if the Trust Fund, as officially measured, is not expected to be able to cover them. So it offers something to foes as well as friends of benefit expansion.
In sum, while the Trust Fund does not contain assets of the U.S. government (or equivalently, it contains precisely offsetting assets and liabilities), it does represent a set of conventions that people have agreed to treat as at least somewhat meaningful. Bush's cavalier sneering misses this, just as Rangel overstates the degree to which we have locked in our permissible set of Social Security policy choices.
All this being said, if Bush's Social Security plan (i.e., buying lots and lots of stock on margin) made any sense, I certainly wouldn't regard the defects in his way of talking about the Trust Fund as counting against the plan. He is merely trying to dramatize the crisis aspect, which would be more germane to the debate if not for the fact that, as I noted in an earlier post, his plan "is a bit like saying: 'The house is on fire, and we have responded by drawing some snazzy floor plans for a tasteful renovation.'"

31 comments:

Anonymous said...

Hello. Kinda bored,, but looking for information on forex book. Informative blog, good info. Maybe visit my site if you're looking for forex book related material forex book. Have a good day.

Anonymous said...

You have a great website here, and I'm going to tell all my friends about it.

Anonymous said...

good post

Anonymous said...

Debt elimination services can help consumers who have more debt than they can manage look into options of reducing or negating that debt. When searching for debt elimination, consumers should seek an agency that offers debt counselling and guidance based on an individual's unique circumstance.
If your site is of similar interest contact me and link sites.
Debt Resources Services.

Anonymous said...

Congradulations on a well written, interesting and superb blog! Have you heard about the shocking news? 1000's of real people are earning quiet fortunes from home using the most ingenious automated system ever invented.

Are you curious to find out what this is all about?

Why not? You have nothing to lose.

You can sign up for this system absolutely free of charge and check it all out for yourself.

To start off, we have a video presentation for you to watch. Just turn up the speakers if you can, and click on the link below.

Have fun and open your mind.

It is all right here: premier It successfully covers premier related stuff.

Come and check it out now, Scott :-)

Anonymous said...

Hi! I love your blog! Please take a look at my herbology correspondence courses blog at herbology correspondence courses. I think you will enjoy it! It talks all about herbology correspondence courses.

Anonymous said...

Hello,

My name is not known all throughout the Internet, but your right blog does merit that fame:)

Keep posting... I am sure to place your right blog on my favourite menu.

Sincerly,
right blog

Anonymous said...

Now You Can Have The Profit Power of A Massive Multi-Million Dollar
Internet Empire - At Your Fingertips - with our online money making opportunity

Anonymous said...

It can be a challenge to market real/tangible products in the virtual world, and it's certainly much different than marketing services or virtual products.
Link to this site: internet marketing online advertising
http://www.internet-marketingzone.info

Anonymous said...

Hi,

Please try to create more of this stuff. We are very eager to hear and read more on this blog. After searching on google and even yahoo it was difficult to find some realiable information like the one you have here...

Regards,
fast online money make

Anonymous said...

Hello :)

U have accomplished something that I found very useful... Ur site provides and teaches us the informationrmation I really required......... It is better than the informationrmation I found on websites from google...

Regards,
money make online fast

Anonymous said...

Hello :)

I am very busy person and would be very greteful if I can get notified of new posts that enter this site... Is there a way to do this?

Regards,
money fast online make

Anonymous said...

Hello :)

I would be interested to know if there is a way I can get notified of new posts on this site... I are usually busy but find Ur site nice and need to get notified of something new:)

Regards,
fast make online money

Anonymous said...

Hi!When I wake up in the morning, the first thing I do is, check your webblog to see what�s new!! Thanks,work at home make money

Anonymous said...

Hi Blogger:)

We was out web blogging and Urs was the one We took some more time to read a couple of threads...... It is very well organized..
Congrats..

Regards,
make at money home work

Anonymous said...

Hello. I was blog surfing and your blog caught my eye. I have a cool site that may interest you. If your not interested, then I am sorry for bothering you. Go to free affiliate programs.

Anonymous said...

a great opportunity, no selling, no phoning, no recruiting PERIOD!

Anonymous said...

Hi!

Thank you for everything you have taught me on this great
webblog of yours..

Thanks,
make money at home online

Anonymous said...


esl investment
Investment Securities - Basics of Trust Deed Investing
Want to start securities investing in Trust Deeds - but don't know how to get started?

If you need to secure your retirement, a stock that doesn't return (or downright plunges) can be your worst nightmare. When your money is tied up and not even keeping up with the basic interest rate your savings account would provide you need a change.

Trust deed investors, on the other hand, make money on interest every month. And as high as 10%, outperforming even your best IRA. You can earn 5 times more retirement income than your average savings account can provide with Trust Deed Investment Securities esl investment

Anonymous said...

I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.

Take a look at Wallstreetwinnersonline.com

RickJ

Anonymous said...

Hey just to let you know that yes I am promoting this but if you dont want to save at the pump then dont go to the site but I believe no matter who you are gas is just to expensive.

The goverment is using it and many other huge company's. This is not just some fly by night company or product. This is the real deal.

Anonymous said...

Blog-hopping is a habit I am trying to break since my own real estate work requires a lot of attention to detail. Then I run into a blog like yours and I�m reminded about how the internet expands our views positively. Thanks for the read. Visit my site if you have a chance.

Anonymous said...

Appreciated your thoughts.

Steve @
money making

Anonymous said...

investing in currency market - Did you know that receiving lots of blog comments increases your page rank! Meaning lots more visitors and a more popular blog.

Anonymous said...

Your blog is very nice and unique. I found it when looking for gay teen personals resources on the web.
Regards, Kate.

Anonymous said...

A fantastic blog yours. Keep it up.
If you have a moment, please visit my small business bankruptcy site.
I send you warm regards and wish you continued success.

Anonymous said...

business social networking

Anonymous said...

Great blog on ppc free ware. I've stumbled on a superb money making website. Linkreferral is free to join and drives traffic to your website in an inivitive way (the more sites you visit, the more links you get back to your website.)

I've only been a member of Linkreferral for aproximately 2 weeks but I have already seen the volume of people coming to my site double - if not treble.

Linkreferral is not only driving visitors to my website but as a result my affiliate sales income has doubled also.

I really cannot push this website enough. It is free and it is fantastic!! www.linkreferral.com is a must for money making opportunities online.

Anonymous said...

Really great blog I've bookmarked it - now some really important bits of financial advice - as it is along the same lines I thought I would share this info with you.

We were paying far too much for items like kids clothes, games consoles, car insurance/home insurance/pet insurance, broadband, mobile phones and utilities/loans, home home improvement etc. Then a friend of mine recommended a site called www.bargainplace.co.uk. We were able to get cheaper electricity, gas, mobile phone, broadband and loan deals at bargainplace. Thanks to my friend (and the site) I am saving something like £100 a month and can afford an extra holiday a year. Booked of course on www.bargainplace.co.uk. Thanks bargainplace ;-) !!

PS - I set up a website a couple of months ago and until recently I was getting no traffic at all. Then, I signed up to Linkreferral.com. Not only did I start getting visitors by the truck load, I also joined Affiliatewindow and am now making lots of money by partnering with companies like Argos, Next, John Lewis, Pixmania, Marks and Spencer, LX Direct, Littlewoods, Vodafone, phones4u, phones2u, Sky, NTL, Virgin Media, Talktalk, Woolworths, Empire Direct, ebay plus online gambling sites - you can make pot loads of cash.

Linkreferral.com is absolutelely free and has really helped my business take off.

PLUS!! there are opportunities to make money from Linkreferral as well - sign up for free and check out the website and email received for details

Follow these free tips and you won't go far wrong - that brand new BMW or Mercedes might just be around the corner!!

Anonymous said...

I have a affiliate best internet program site/blog. It pretty much covers ##KEYWORD## related stuff.

Come and check it out if you get time :-)
affiliate best internet programaffiliate best internet program

Anonymous said...

event kid