Social Security and the Deficit

Great Debates
121

I hate this argument becaus seemingly intelligent people can not see the obvious (to me).

There are two ways to look at it:

  1. There is no SS “trust fund”, excess money is simply spent as it comes in. There are no “savings” whatsover. Since all money is fungible and the trust fund is “just an accounting item”, sure, I won’t argue with you. BUT THEN THE DEBT IS NOT 16 TRILLION, IT’S 12 TRILLION. Right now the the government DEBT includes 4 trillion OWED to the SS trust fund. YES IT DOES!! The money that people have “owed to them” for SS isn’t there. ANd the gov’t will have to borrow or tax or cut benefits when the time comes.

Right now the gov’t says it owes 16 trillion but 4 trillion (roughly, very roughly) is money OWED TO ITSELF! Hallelujah! You can’t owe money to yourself, so that “debt” doesn’t exist! Hooray! The obligation to the people on SS still exists of course (unless it’s cut). But the gov’t is LYING!! It only owes 12 TRILLION!! HOORAY!!! It’s committing “accounting fraud” and overstating its debts.

  1. The SS trust fund is a completely separate legal entity than the US gov’t. It’s owed 4 trillion by the US gov’t, because it LENT money to it. Just like Warren Buffett and countless pension funds, China etc., loan money to the US gov’t (which promptly spends the money of course, why else would it borrow it). The SS TF has 4 trillion “in the bank” so to speak. It owns 4 trillion of the most secure solid investment in the WORLD. US treasury bonds. That is an INVESTMENT of the SSTF. SO it did “INVEST THE MONEY”.

And the gov’t did borrow it and spend it. That’s what gov’t do all the time. They spent money that they borrow. Would you expect them to put it in a checking account? Why would they do that? Would you borrow money only to put it in a checking account?

Now what would it have done were it not to have bought these bonds? Built a warehouse and stacked hundred dollar bills to the ceiling? DOes that sound smart? IT did exactly what a normal pension fund does…it INVESTED THE MONEY. ("BUt it’s been “spent!!!”…yes of course it has, gov’t don’t borrow money unless they’re going to spend it).

From the SSTF’s point of view, it has 4 trillion in assets.

So as the bonds mature where will the federal gov’t get the money??? huh? Huh?? Same place it gets all its money, taxes and borrowing!

In the second way of looking at it, the gov’t OWES 4 trillion to the SSTF. The SSTF in turn owes benefits to people but it is does have assets built up.

The gov’t owes 16 trillion (roughly) in total.

In the first way, the SSTF has NOTHING. NOTHING. Just a “worthless IOU!!!”. The SSTF (which is utterly BANKRUPT) owes money to people, but it has NOTHING!!! The federal gov’t owes only 12 trillion though. 4 trillion less than in the second case. Which is about what is owed to people who mistakenly think that the SSTF “invested” (HA HA) the money.

And the “the gov’t raised money, then spent it, then it has to raise more money to pay back the fictional IOU, so none of it makes sense”. Just confusing everything. Under number 1, the gov’t raised money via SS taxes, and spent it. Now the people who paid the money (SS contributors) want a benefit in the future. This benefit will be either paid or cut. And the gov’t if it pays it will have to borrow or tax.

Under number 2, the gov’t SS trust fund raised the money not the gov’t general tax fund, and it invested in a gov’t bond. The gov’t spent the money (of course) and has to pay it back from money from borrowing or general taxation, same as all borrowing. The gov’t has to PAY BACK the SSTF. And it might cut the benefits to lessen the amount (not likely) or it will simply borrow and tax. Same as it ever was.

It’s the same thing.

But if you say that the SSTF is bankrupt “THE MONEY HAS BEEN SPENT!!”, then fine, the national debt is 12 trillion and not 16.

122

A lot of people don’t realize that the bank doesn’t just “put their money in a vault for safe keeping”. They think they have a little drawer at the bank with all “their money” in it.

They have an IOU! Just a little “accounting entry”. By an entity which is more shaky than the US gov’t to boot. Their money has been SPENT! LOOTED! STOLEN!

123

The fact that the SS system is part of the gov’t is treated as irrelevent.

The balance sheets look like:

SSTF:

ASsets: 4 trillion (in high grade bonds! US Treasuries)
Liab: 4 trillion (to SS payers)

US Gov’t (other than SSTF):

Liab: 16 trillion (including 4 trillion to SSTF) to bondholders

If you want to consolidate the two then it looks like this:

Gov’t (including SS TF (which doesn’t exist)):

Liab: 12 trillion (to bondholders other than the non-existent SSTF)
4 trillion (in expcted payments to SS people)

It’s THE SAME THING!!!

THe gov’t does say that it owes 16 trillion right now. SO it is using method #1. So to be consistent, then the SSTF does exist and has 4 trillion owed to it, (by the US gov’t, which is considered one of the safest credits in the world).

So where will it get the money to pay the bondholders (SSTF) (#1) or SS recipients (#2). It will borrow or tax, same as always.

The general level of spending is a valid area of debate, but it’s tangential to whether the SSTF exists or is “an accounting fiction!”.

124

Yes, the basic problem is:

When people want to scream one way, they include SS spending/obligations etc. in “government spending”.

When they want to explain things away the other way, they count SS as a separate entity.

A loan is of course taking money from the future to use today. (Interest is the cost of this.) “I will gladly pay you Tuesday for the price of a hamburger today.”

If you consider “SS FUND SEPARATE” then all the last 3 pages of discussions have been nothing but wind. The government sold binds, an entity called Social Security bought them, expects to be repaid on schedule. The only twist to this story is that if SS does start to go in the hole, even with the fund operating as it should, as if it were independent - then the government will have to shell out for the difference, one way or another.

If you consider “government as a whole” (hole?) then ASSET+LIABILITY=0 and the government can’t really count money it owes itself. The total government debt is much lower.

However, in that scenario it STILL has to pay future SS benefits. One way or another, it will have to replace the funds in the SS fund pocket that it borrowed for current use.

The government (separate from SS) will also have to consider that long before the SS fund is due to go into a deficit, it will have less and less funds surpus to lend - so the government will repay bonds it sold SS, while selling new bonds to China (or, in some fantasy world, it no longer needs to borrow as much). In this scenario, the interpretation of “government as a whole/hole” is that it is borrowing from China to pay Social Security recipients their benefits. Potayto-potahto.

As for “30 years is right-fucking-now” no it is not. I don’t suggest the government stick its head in the sand - but 30 years ago, there was no internet (to speak of); the IBM PC was less than 2 years old and ran on floppies, and more than 64K of RAM was “a lot”. Saddam Hussein was our friend, we’d even overlook little details like him blowing up a US Navy ship. The economy was centered around oil, cars, and manufacturing. Japan was humming. CCCP was our major rival and of course, they would be for decades and decades to come. We were hoping Iran’s revolutionary government would fizzle out any day now. Interest rates had been through the roof.

My point is a lot can happen in 30 years, and applying “today” calculations is simply hand-waving. I would suggest a government look at trends, and if they see problems coming, make some adjustments. The worse the situation looks, the stronger the adjustments. But predicting macroeconomic situations 30 years from now? Who knows, maybe the biggest problem by then will be finding batteries for the electric army trucks coming around to feed us with free rations; maybe our personal robots will run the food-assembly machines in our 4-car garages.

125

(trademark Soylent Green) :smiley:

126

Except the numbers come back around to the same destination. If you say the government owes 12 trillion for “regular expenses” and 4 trillion for the trust fund, the final figure is 16 trillion. But if you say the trust fund shouldn’t be counted as a separate entity, then the government owes 16 trillion dollars.

127

I think we’re in agreement. I never meant to suggest that SSTF was a decision-making body; my questions “what should SSTF do?” should have been phrased “what should Congress instruct SSTF to do?” but the effect is the same.

I’m glad some other Dopers showed up to take my side of this “debate.” I felt like I was getting hoarse. :cool:

Yes. Oddly the very same people who complain that SSTF has “thrown away” its surplus will also insist on the then-inconsistent but scarier $16 trillion debt figure.

Yes.

To echo bri1600bv, there are valid debates about deficit financing and about SS financing; my complaint has been that the peculiar meme of “worthless self-debt” reduces the intelligence of the debates.

Let me repeat One.More.Time that the path to clear thinking is to compare alternatives, not to rely on word play to make it appear that SSTF, like David Copperfield, has made $2 trillion disappear.

128

Repeat it as many times as you wish. But the reality is that the money has disappeared. The word play is that it hasn’t.

129

As for comparing alternatives, that’s a trivial side issue. The real issue is make people people aware the problem exists in the first place. People need to understand the situation before they work on fixing it.

To use Alley Dweller’s example, some of us are arguing the bridge isn’t being paid for and you think the first thing we should settle is what color the bridge should be.

130

Yes and no.

Ignoring SS fund - if the government had borrowed the money from the outside world, it probably would have spent the same. I don’t recall anyone ever saying “we can deficit spend more because Social Security is easy to borrow from.” None of the debates about the rest of government (TROG) spending really caerd about the source of that borrowing. Nobody says “we should cut back government spending because in future we won’t be able to borrow from SS”. Basically, from the point of view of politicians who make these decisions, these are two different and separate entities, not an opportunity to raid a piggy bank.

Similarly, if you consider SS and TROG spending and obligations as one with the universe - then the government’s current debt obligations are much less, but the future ones are much more. Either way it’s the same amount of money.

But - since the people running the show insist of separating out Jekyl and Hyde, and treating them as 2 different creatures, what difference does it make - until they try to play tricks and meld them to minimize the bad optics.

Simply, in this debate… beware of people who use the TROG debt (including what’s borrowed from SS) as “holy crap what a huge debt!” but then proceed to lump SS into spending amounts and other financial calculations when figuring things like how much is being spent by government and what needs to be cut. Either SS is separate or it isn’t. Pick a side and stick with it.

131

No. Debt and future obligation are two separate things. Debt is a fixed amount. Future obligations are handwaving.

If the government closed up shop today and laid everyone off, how many billions would it owe in separation pay, abrogated contracts etc.? If it doesn’t, then it still owes payroll and contract obligations, rents on offices, etc. Either way, the government is on the hook for future expenses that it does not count as “debt”, they are simply future operating expenses.

Some are easy to calculate in macro-economic terms; if nothing changes, SS will be this much, medicare and medicaid based on past trends will be this much, fuel for armed forces operations will be that much, and so on.

Just that under your scenario, “this much for social security in future” is already planned for in the budgets as “pay back bonds sold to SS.” Similarly, civil service obligations and armed forces spare parts or fuel purchases are already allowed for in future budget projections. It’s just that SS is a bit more fixed compared to these other costs.

132

I noted above that the government justified the program by claiming there was a looming social security crisis and the future costs of the program would be unaffordable. So they supposedly began collecting a surplus and putting aside money for the future.

If the government’s original claims were accurate, then the issue of us not really putting aside money is important because we still face those unaffordable expenses in our future. And if the government’s original claims weren’t accurate, we need to consider the implications of that.

133

If we accept that SS and TROG are just one big pocket - then raising taxes the last few years for SS simply means we borrowed less from China. This means that when it comes time to pay that SS in 10,20, 30 years the government also has to pay back less money to China at the same time. Again, potayto-potahto.

134

That is a good point. The gov’t raised the rates to “fund” the future benefit payments. This is exactly what a pension program would do. But according to the “the money has been stolen!” people, the gov’t can’t “prefund” the program, as all money is combined and simply taken. Which I guess is there point…the gov’t hasn’t “funded” social security trust fund…it doesn’t exist! There’s just a “chit, an IOU, a worthless ‘piece of paper’” there.

It seems they expect there to be a warehouse stacked with 100 dollar bills…and that warehouse is titled “the social security trust fund”.

Except that no pension fund or bank or any other financial institution operates that way. A pension fund has no “money”, just “chits”, “IOUs”, etc. The money that went INTO a pension fund has been SPENT! LOOTED! STOLEN! And it has been spent, if the pension fund buys an IBM bond, then IBM turns around and spends the money. They would not have borrowed it if they didn’t want to spend it, right?

So why did the gov’t raise the rate? What was the point of it? By the definition of the “looted” crowd, the gov’t can’t prefund anything. There’s no asset they could buy other than “chits” or “IOUs”.

The only thing I will grant is that in previous years when SS was running a “surplus” (a cash flow surplus, not an accounting surplus) the gov’t would combine that surplus with the general government’s other operations in the deficit calculations. For example if the “other than SS” ran a trillion dollar deficit and the SSTF ran a 300 billion surplus, the gov’t would say it had a 700 billion deficit. This was very misleading. The SS “surplus” is not a real economic surplus, it was prefunding, ie saving, in order to meet the liability associated with it.

135

The surplus was collected for the simple reason that the surfeit of baby boomers like me about to retire meant there would be a decrease in revenue and an increase in expenses. This no more represents a crisis than you putting money into a 401K because you will have a revenue decrease at age 65 or so represents a crisis. Now, if the demographics say not enough is being put away, that could be a crisis, just like you not putting enough away to live on could be. But that is the numbers, not the principle. And I suspect your 401K is just pixels on a screen and numbers on a page, not “real” money. Sure, someone else will have to pay when you cash in your investments, but if you trust a stock or a fund more than the government the market, through rate of return, says you are being foolish.
And of course no one is denying that we might need to twiddle revenue and benefits to make the program sustainable over the long term. And not by much.

What does “really putting aside money” mean to you? And for an entity with taxing authority, “unaffordable” is because lack of will, not any real problem.

136

So if you went into work on payday and your boss said “We’re trying a new program. Rather than us giving you a paycheck for $2000, why don’t you give yourself a paycheck for $2000. It really works out the same, doesn’t it? What difference does it make who gives you the paycheck as long as the check is good and the amount is the same?”

If you believe what you wrote above is true, then this argument should make sense to you.

I would imagine the reason is that it was easier to sell it that way. If the government had said “We want to raise taxes so we can increase government spending” they might have been refused. But by claiming “We want to raise taxes so we can “pre-fund” Social Security” most people thought it sounded like a good idea and didn’t read the fine print.

137

That money is being placed somewhere where it will be available for future use.

Do you have a different meaning?

138

As I pointed out earlier, as in a couple of days ago, that is meaningless in the context of the broader economy. Putting money aside means taking it out of the economy. That is tantamount to pulling it out of the money supply which is just another way of saying shrinking the money supply.

Shrinking the money supply serves virtually no purpose in this context and I challenge anyone to show me how it would.

139

Nor does saving mean “setting aside cash for no other purpose except to be ready in the future.” Ron Paul periodically advocates for a full reserve banking system, and that is pretty much disregarded as being a fringe idea. The idea that the Social Security Trust Fund ought to be fully and 100% backed by cash seems like an equally serious proposal.

140

I agree. Paul’s a loon. The idea of stacking up big piles of cash as a savings plan is pretty bad (and I’ve never advocated it).

But stacking up a big pile of IOU’s to yourself as a savings plan is actually worse.