I keep hearing this argument, including on the front page of my home town paper today: there’s something risky, fishy, corrupt, dark, and secret about the $2.6 trillion Social Security trust fund.
No, there isn’t. It’s a saving mechanism that was intentionally created years ago to prepare for the increase in costs to the retirement system due to the predictable aging of the baby boom. But instead, we read:
“Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees…
…unless Congress acts, its finances will continue to deteriorate as the rising tide of baby boomers begins claiming benefits. The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.”
10 years of escalating debt have crippled the government’s ability to repay the trust fund.” [my bold]
To cast the argument this way intimates that the US Treasury will default on its debt. They are exactly analogous—Treasury bonds held in the Social Security trust fund carry the same guarantee of repayment as Treasury bonds held by private investors and sovereign governments around the globe. You could plug the words “China” or “major American banks and pension funds” for “Social Security trust fund” in the article and the meaning would be the same.
If the editors believe that holders of Treasuries face default risk, then they should probably run articles everyday warning that the end is near. If they do not believe that to be the case—which I am sure they do not—then I don’t understand the news here.
Note that I am not saying Social Security’s finances are fine or should be ignored by policy makers. To the contrary, I have listed many of the ideas on the table to address the financing shortfall, and recommended the ones I think make most sense. Nor am I cavalier about the extent of our own sovereign debt.
But unless you’ve got a good, solid, evidence-based reason to believe a US default is in the works here, I can’t see how this is anything but fear mongering.
On the other hand, the graphic in the piece is interesting and worth a close look, especially the alternative benefit-payment scenarios.
Update: Dean Baker goes into greater detail on what’s wrong with the WaPo analysis.