FB friend D.G. posted this:
I've generally dismissed the Social Security trust fund as a meaningless accounting identity. Kevin Drum makes a great point: it's not a store of value, it's a distributional contract. http://www.motherjones.com/kevin-drum/2012/11/no-social-security-trust-fund-isnt-fiction
Me: True it is fund that facilitates wealth redistribution, but most of the left still represents the trust fund as contain real cash assets. Example: http://www.huffingtonpost.com/rep-bernie-sanders/as-social-security-turns_b_1776451.html
Since the trust fund contains bonds which have to be paid back, it is a liability, not an asset.
B.C.: I gotta say I'm grateful for this trust fund, as I am on Social Security Disability and Medicare due to fibromyalgia.
D.G.: Rich, this may be just a difference of semantics, but I wouldn't say that trust fund is a liability or an asset. The bonds are both a liability and an asset; the two sides cancel each other out. The real liability is the promises that we've made to citizens; i.e. expected future Social Security benefits.
Me: Astute analysis. I would say, though, that although a typical government bond has value, there are two things worth mentioning here. One is that a bond's value comes from the issuing organization's ability to repay the bond. The second is more important: These particular bonds are unique in that only the trust fund can buy them. They are not a marketable instrument, which means they really have no true value.
Ultimately, we are talking about an accounting device by which the government can convert the cash assets of the trust fund into the general fund. It spends that money immediately, while offering only a pile of IOUs to the trust fund. So you are correct. The liability is what will be paid to future recipients, the source of which is supposed to be the trust fund. However, that liability will be paid by the taxpayer, which has already paid once before via the payroll tax.
Me: By the way, once again I must say I appreciate discussing things with you. You are clearly a person who thinks about things.
D.G.: Thank you! Let me play with these concepts a little more and see what you think.
Let's say I choose to save for retirement. I do so by setting money aside, and investing it. Fundamentally, I am taking my share of societal resources, and deciding that instead of consuming those resources, I am going to use them to make the economy grow. If I'm wise or lucky, I then receive back a portion of the increased resources I helped grow in our economy.
Now let's say the government wants to make sure that people save for retirement. There are three major ways it can do that:
1. Incentivize or mandate people to invest in private accounts. We currently incentivize 401(k)s and IRAs.
2. Pool resources, and invest them directly. This is called a Sovereign Wealth Fund. Generally the countries that have those funds are small countries that are unable to impact the world economy. My understanding is that the consensus among economists is that having such a fund in the US would be a bad idea.
3. Shift taxes in a way that promotes economic growth. This is what the Social Security Commission chose to do in the early 80's. By raising the payroll tax and putting the surplus in the general fund, they allowed for the reduction of income and capital gains taxes; in other words, they shifted resources away from consumption and towards investment.
In the case of personal investment, when I retire, I need to start drawing down my investments. Similarly, as we age as a country, we need to recover returns from our investment. We do that by reversing the investment process: we use money from income and capital gains taxes to supplement the payroll tax.
If Greenspan et al were right, the extra economic growth we had over the last few decades means our economy is now large enough that we can afford the cost of the Boomers' retirements. If that's not true, then we're in the same position as someone who invested their 401(k) in Pets.com.
Me: A couple of corrections: You are not taking a share of societal resources, you are taking a share of your own resources. And you are not using them to make the economy grow, you are using them to make your own portfolio grow. If you are wise or lucky, then your resources grow to your benefit.
There are investments that do not benefit the economy. That's how Soros made his money, by betting against the economy.
Something else before I analyze rest of your post. Government incentives to saving are on the chopping block: http://blogs.wsj.com/washwire/2012/11/26/401k-groups-try-to-block-tax-law-changes/
Me: 1) I don't think government should incentivize saving. Or buying a house. Or getting married. Or saving energy. Or lowering caloric input. Or giving to church. I don't like the idea the government's preferences ought to be mine.
2) This is similar to the proposals to allow SS money to be invested, that is, "privatization." I think it would be better if we didn't have to give it to government to begin with. But the problem with privatization is that the government would have to acknowedge the reality of the assets it holds on behalf of the people. Right now, SS benefits are not a matter of rights.
3) I'm in favor of shifing taxes in order to encourage economic growth. But I am not in favor of this continual tinkering with the tax code. It creates uncertainty in the economy, and it's not good for any of us if a business owner can't plan for the future because of uncertainty about how the next legislative whim will affect him.
I'm not sure if Greenspan was right. I don't see any way possible that we can afford the boomers.
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