Wednesday, March 09, 2011

5 Myths of Social Security

Most lists have 10, but for some reason, things pertaining to Social Security contains 5. Here's the Liberal's "5 myths", including this gem:

The Social Security Trust Fund isn't full of IOUs, it's full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.

Here's the conservative take.

Accounting that would be illegal for a private company is pretty hard to defend. The present value of the Social Security deficit is around $7 Trillion. I can see QE3 coming, as the Treasury will probably just issue more debt that will be bought by the Fed. Problem solved!

5 comments:

Anonymous said...

Links to liberal and conservative go to the same place. If it's a joke I'm missing it...

Eric Falkenstein said...

doh! fixed, tx.

Charles said...

There are three ways that working adults support retirees. The first way is through savings and the returns to capital investment financed through savings. The second and traditional way is for children to care for their aged parents within the family. The third way is state-managed intergenerational transfers, e.g., Social security.

The fundamental issue is what level of state-managed transfers is optimal over the long run. The long run is critical because social security programs have demographic effects and create disincentives for parents to invest in the children they do choose to have. These investments are primarily cultural, not financial. Social security also, when financed by payroll taxes, reduces marginal incentives to work.

It's clear to me that social security is on an unsustainable trajectory. The same is true for similar programs in all the advanced welfare states.

Cody said...

What's really funny is this:

Myth: The Social Security Trust Fund has been raided and is full of IOUs

combined with

Myth: Social Security adds to the deficit

Because depending on how you want to account for the trust funds, one of those actually is a myth - but they can't BOTH be myths.

The reasons should be obvious, but if not: If you treat the SSA trust fund as completely separate, then sure, it's full of real assets, but the trust fund surplus is, by definition, a general fund deficit. If you roll the trust fund into the overall budget, then the deficit vanishes, but the trust fund is full of worthless IOUs written to itself. For the trust fund assets to have worth, their accumulation must be an accumulation of liabilities, which requires a deficit. No deficit, then no liabilities, and no assets.

I don't know why, but stupid dishonestly always annoys me much more than the clever kind.

Anonymous said...

Social Security has one investment, with one counter-party, and is invested in low yielding (at least at today's rates) assets. I wonder if the DOL or SEC would approve of such a structure for any corporate or public pension plan or retirement plan?