The discussion of Social Security is largely an exhausting exchange of politically motivated hyperbole, designed to create the illusion of concern without making a meaningful contribution to the discussion.
It is in effect the Chinese food of politics. You can spend as much time as you like consuming it, and you are just as hungry as when you started.
If you do not see that as a problem with a dysfunctional debate, keep in mind that those currently retired have been promised benefit cuts in the mid-2030s for nearly 30 years. As a consequence of the rhetorical sideshow, policy makers have made little progress on a solution.
One example of the faux debate deals with the Social Security trust funds. On one side, supporters would have you believe that the trust fund is Gringotts, while opponents would have you believe that it is a different type of wizardry, where the trust fund is an illusion, “an accounting device”, designed to shift money to buy other things.
The Social Security trust fund was created to hold a reserve of investable cash with the only caveat that the fund has to invest its money in government securities. Policy pundits have traded jabs over the reserve ever since the inception.
The Social Security Trust Fund likely peaked in 2021 at slightly more than $2.9 trillion. While that sounds like a lot of money, it is effectively the economic equivalent of parsley – roughly a nickel to a dime of solution for every dollar of problem embedded in the system.
And Washington is bickering over whether the nickel is real. In terms of policy, the pros and cons are the two sides of a useless coin. Whether Social Security is invested in real assets or not is a useless discussion, you can’t expect a dime to do the work of a dollar – unless you are a politician facing election.
It is a logical 3-card monte: the bonds are assets to the Social Security Administration, but equal liabilities to the Treasury where the net effect is zero. Thus, no financial resources are created. The problem is of course that the Trust Fund is not an asset of the Social Security Administration, and benefits are not a liability of the Treasury. Other than that, it is a sound thought.
The second part of the non-sequitur is pretty important to those of us who are 79 and younger. If Social Security benefits were an actual obligation of the Treasury, no one would be talking about automatic benefit cuts.
The only obligation of the government is to pay benefits when money is available. That does not make future benefits a liability of the Treasury. Infact, the Supreme Court of the United States has already ruled that benefits are not “an earned right” back in 1960. The narrative is designed for suckers, who wish to believe that benefits will be paid whether there is money there or not.
The vendors of noise want you to believe that Social Security would have worked fine on its own. It was those pesky politicians who broke into the Gringotts and spent the money on other things.
The Social Security Administration provides information on the cashflow of the system dating back to 1937 which shows how the money was collected and spent. Since inception, Social Security has collected slightly more than $24 trillion. That revenue falls broadly into three categories of revenue: payroll tax revenue ($20.7 trillion), general fund subsidies ($0.7 trillion), and interest on loans ($2.4 trillion).
According to the SSA’s records, the agency has distributed ($21.1 trillion) to eligible beneficiaries. In other words, zero dollars of your payroll taxes has been spent on “other things.” In fact, Congress has spent nearly $1 trillion on General Fund subsidies to keep the program going.
We love the storyline that our money was stolen because the fabled scheme dovetails into what we want to believe anyway. People like Social Security. People dislike Congress. This story sells like telling a 6 year-old: yes, Virginia there really is a Santa Claus.
Why we believe is a mystery to me.
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