So what about the Trust Fund, anyway?

Just wanted to highlight something from my write-up yesterday on Falling Short:  the Social Security Trust Fund.

Quite some time ago, there were raging debates on the Trust Fund:  is it real, and, hence, we need only worry about the shortfall in Social Security funds after it is exhausted, many years from now?  Or is it already spent on other things, and the money is every bit as gone as if Congress were an irresponsible parent breaking into his kid’s piggy bank to buy himself some liquor?

Mostly, it’s irrelevant.

Sure, if the Trust Fund had been set up as an actual investment fund, as other countries have built up (Japan comes to mind as a fund specifically for its retirement obligations, and of course the oil-rich nations have their Sovereign Wealth funds), then its funds could now be meaningfully used to pay retirement benefits.  But that wasn’t what happened, of course, which means that the practical effect of the “redemption” of the special-issue bonds will be for the federal government to issue more debt, to “redeem” the bonds and give the Social Security Administration the cash to cut its checks.

If the government could just issue as much debt as it pleases, with no ill effects on the economy, then this nothing to worry about.  But if this were the case, then why are we bothering with any spending restraints at all?  Heck, let’s double benefits, while we’re at it.  And, of course, economists can’t  truly quantify the impact of the debt level we currently have, or higher or lower levels of debt — it’s all a matter of the assumptions which you build into your model, and, unlike a laboratory, these models can’t truly be tested and “proven” one way or the other.

Now, this morning Slate featured a piece on prominent Democrats promoting expansion of Social Security.   And a month ago I wrote about the book Social Security Works.  One of the first steps each of these voices takes, fairly consistently, is to say that we should eliminate the cap in the payroll tax, even as, at the same time, they tell their constituents that they have earned their benefits, fair and square, so that Social Security represent standing on their own two feet.

The reality is this:  the Trust Funds, all of them, are accounting methods only, and shouldn’t trap us into looking at any one of these programs — not Social Security old age benefits, or disability benefits, or Medicare — in isolation.  They are government programs like any other, even if they operate under the fiction that they’re funded by “insurance premiums.”   And someday, when I’ve convinced the country of the soundness of the Jane plan for provision for the elderly (sort of a Netherlands/Australia hybrid), we’ll fund it as part of general government spending.