Yglesias has a post about the rhetoric of The Social Security Trust Fund, in response to a Planet Money podcast on the subject. The puzzle of the podcast is: how can there even be an argument about whether a giant Trust Fund exists or not? Shouldn’t that be sort of obvious? Yglesias is in the ‘it exists’ camp. And I think that’s right.
Here’s the way to think about the Trust Fund, to make it seem it doesn’t exist. The Social Security Trust Fund takes in money that it socks away, for an elderly day, in the form of government bonds. But, since it’s all just the government, that’s your right hand loaning your left hand money. If I am poor, I can’t get rich selling myself a lot of ‘Holbo bonds’. I can’t have my cake and eat it, too, earning money with the left hand, then loaning that money to the right hand, to spend on a piece of cake to be eaten now, while also writing on a piece of paper, ‘the right hand owes the left hand a piece of cake’. That seems like double-counting in the worst way.
Here’s the way to think about it, so it seems like the Trust Fund exists. The parents (government) agree that the child (Social Security) should have an allowance. The child wants to save the money. So the parents keep a running account. Every week, the parents write the child an IOU, which the child dutifully puts in a little box. Over time the box comes to contain a lot of IOU’s from the parents. Meanwhile, the parents are not separately putting funds that would correspond to those IOU’s into yet another box. They are just running the household. But the IOU’s exist, and are backed by the parents.
As Yglesias points out, the second way of looking at it is more accurate. But the criticism will then be: but the second situation boils down to the first! The parents and child are just all part of the same thing. This household is cooking its books! The left hand is giving the right hand money, and covering up for it by piling up worthless paper.
But then the criticism of this criticism should be: maybe, maybe not. It could be that the parents are indeed doing something very stupid. If they are saving for college just by putting IOU’s in a box, never actually preparing to pay for college. But if they are good for the money, eventually, everything is fine.
But now the retort will be: but we aren’t good for the money! These parents are (or will be) broke! The IOU’s will be worthless paper when the time comes to cash them in, so they are already worthless now! But even if the household is (or goes) broke, it seems a bit tail-wags-the-dog to focus on the structural feature of the kid’s box of IOU’s as the root of the problem. (If the family is kicked to the curb, foreclosed on, and everyone is glaring at the kid, clutching his IOU’s – ‘look what you’ve done now, kid!’ – well, that might be the height of comedy, but it hardly strikes me as economically insightful.)
To repeat: it can’t be the mere fact that parents indulge in semi-fictional accounting that’s the problem. I ‘owe’ my older daughter back allowance at this very moment, it so happens. Now in a sense it’s silly to suppose I am the debtor, she the creditor, given that she is completely dependent on me and her mother in every way. Nevertheless, I trust you can see the potential point of this semi-fiction of me owing my daughter a specific amount of money. And the point is similarly intelligible in the Social Security case. And when you see this, you see how off-target the complaints are.
If the US government completely and unrecoverably collapses, as a going economic concern, then the Social Security Trust Fund will be bust – and there will be no United States, too! (The latter is the more consequential concern, I should think.)
If the US government falls on seriously hard times, economically, there may need to be belt-tightening. Maybe the US government will have to break the deal it made, not making good on the IOU’s in the Social Security Trust Fund. Likewise, if our family falls on hard times, I may be driven to spend my daughter’s back allowance money on food for our table, in the sense that I may never pay her that money. (Hope not!) But if that happens I won’t describe the logic of the situation in terms of my daughter’s back allowance having turned out not to have been ‘real’, all along. If I don’t pay her, it won’t be because I don’t owe her – nor because that specific money ‘doesn’t exist’, whereas the money to put food on the table ‘does exist’. Talking that way just takes the minor accounting fiction that starts us out, and inflates it into a major fiction.
If the US government doesn’t fall on seriously hard times, but just finds financial life a bit tight – as it often is – the same point applies, only more so. In the Planet Money podcast the argument is made that breaking the deal isn’t really breaking the deal because the money has really been spent already on the very people who were supposed to get it, e.g. the Baby Boomers, who have benefited from all the stuff the government has bought them over the years. Well, I dunno. Suppose my daughter keeps not collecting her allowance, and not collecting her allowance, to the point where – when I finally pay out – it seems pretty significant. I have to go to the ATM, withdraw several hundred dollars and fork over. Usually paying the kid her allowance is an economically trivial act, from my point of view. Standing at the ATM, loath to suffer the hit to my wallet, I could argue that, in effect, I’ve already paid her the allowance, in the form of a roof over her head, food, medical care, education. It’s true that these are the very things the money I didn’t give her, as allowance, has tended to go for. But that doesn’t seem like an argument that she really never had any allowance to begin with. It seems more like a (distinctly weak) excuse for not paying her allowance. It’s ok for me to do you wrong in this case, kid, because I’ve done you right so many times before! That’s not even an excuse so much as a plea for forgiveness.
That’s pretty much it. The moral of the story is that it’s perfectly reasonable to worry about how the US is ever going to manage to pay for stuff it needs/wants. But accusing the Social Security Trust Fund of being a mere accounting fiction does not 1) do much to explain, analytically, why the budget is tight; 2) provide any justification for dealing with budget tightness by cutting Social Security, rather than some other thing, or by raising taxes. (It could well be that the optimum way of dealing with budget problems it to cut back Social Security in some way, but to talk yourself into this on the vaguely moralistic grounds that mere accounting trickery should be regarded as non-binding is quite confused.)
Is that right?