The actual Social Security problem
Dec. 21st, 2010 10:55 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snousleI've been coming across a lot of articles lately discussing the Social Security funding problem, and whether the "trust fund" exists in any meaningful way. A few points worth understanding.
When you're the federal government, financial strategies appropriate to individuals or businesses are no longer meaningful. In particular, the government can't transfer wealth forward in time by accumulating money. You might say that the government doesn't have money, the government is money. Critics of the social security trust fund often fault the investment of the surplus in treasury bonds; essentially, the government loaning money to itself. But they rarely offer an alternative suggestion, because figuring out what you should do is kind of hard.
It's not like the government can just hide the surplus funds under the mattress. No matter how you jigger the accounts, you're faced with a more fundamental problem: fewer workers supporting more retirees. Retirees don't actually need money itself. They need physical products such as food, gasoline, and houses, and in order to make sure they get those things, their payments are indexed to inflation.
Money is just an accounting tool; it's the goods and services that matter. This is a physical problem, and efforts to transfer "money" from the present to the future don't change the fact that under any plausible scenario, workers in the future will have to surrender more of their production to non-workers than they do today. Maybe a lot more.
One way to transfer "surplus" wealth from the present to the future is to construct durable assets that will maintain their value for decades. That means roads, buildings, trains, that sort of thing. If local investment of the surplus does not produce anything of lasting value, then it doesn't matter what column you write it down in. If it does, then future workers are relieved of the burden of building those durable things, while the retirees get to use them.
Another way is to send physical goods overseas, in exchange for foreign currency that can be held and traded for other (imported) goods in the future. It's worth noting that China faces a similar demographic problem - a huge number of future retirees - but with their high savings rate, much of it in American dollars, this is actually the strategy they are using on us.
I have read an enormous amount of blather over accounting methods, and exactly zero discussion of how to solve the problem of accumulating and transferring any durable form of wealth into the future. So it seems to me that the discussion is running at ninety degrees to the actual problem, and can't even hope to produce a workable solution.
When you're the federal government, financial strategies appropriate to individuals or businesses are no longer meaningful. In particular, the government can't transfer wealth forward in time by accumulating money. You might say that the government doesn't have money, the government is money. Critics of the social security trust fund often fault the investment of the surplus in treasury bonds; essentially, the government loaning money to itself. But they rarely offer an alternative suggestion, because figuring out what you should do is kind of hard.
It's not like the government can just hide the surplus funds under the mattress. No matter how you jigger the accounts, you're faced with a more fundamental problem: fewer workers supporting more retirees. Retirees don't actually need money itself. They need physical products such as food, gasoline, and houses, and in order to make sure they get those things, their payments are indexed to inflation.
Money is just an accounting tool; it's the goods and services that matter. This is a physical problem, and efforts to transfer "money" from the present to the future don't change the fact that under any plausible scenario, workers in the future will have to surrender more of their production to non-workers than they do today. Maybe a lot more.
One way to transfer "surplus" wealth from the present to the future is to construct durable assets that will maintain their value for decades. That means roads, buildings, trains, that sort of thing. If local investment of the surplus does not produce anything of lasting value, then it doesn't matter what column you write it down in. If it does, then future workers are relieved of the burden of building those durable things, while the retirees get to use them.
Another way is to send physical goods overseas, in exchange for foreign currency that can be held and traded for other (imported) goods in the future. It's worth noting that China faces a similar demographic problem - a huge number of future retirees - but with their high savings rate, much of it in American dollars, this is actually the strategy they are using on us.
I have read an enormous amount of blather over accounting methods, and exactly zero discussion of how to solve the problem of accumulating and transferring any durable form of wealth into the future. So it seems to me that the discussion is running at ninety degrees to the actual problem, and can't even hope to produce a workable solution.
