January 6, 2012   67 notes

Social Security, Bankruptcy, and Insolvency

thecallus:

squashed:

No.

No matter how many times conservatives repeat this, it’s simply not true. The social security trust fund has about $2.6 trillion in assets. Those assets are comprised of long term, interest-bearing U.S. bonds.

Without some changes, the social security trust fund will eventually run out…

Only right-wing idiots mis-speak and state that Social Security is bankrupt. Squashed is correct - it isn’t. The typical charge from more learned observers is that Social Security is insolvent, which is true. It would only be bankrupt if it could not pay its benefits, which will never be true as long as the United States has access to credit markets. Similarly, Lehman Brothers would have stayed open had other banks simply continued lending to it.

Social Security’s cashflow is negative and its liabilities exceed assets. Its funding sources have been drying up for years and years. It also has problems keeping current assets - for example, right now we’re a scant few million from hitting the debt ceiling again. One of the things that happens when we get close to the debt ceiling is Treasury issues a bunch of IOU’s to the Social Security custody accounts and raids them to pay government workers; fine when you can safely assume that the debt limit will be raised.

If the debt ceiling hadn’t been raised earlier this year? Social Security recipients would already have seen life without regular checks. It’s a Ponzi scheme; ask Paul Krugman.

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

Were Social Security a bank, it would be out of business. It will go out of business by the time we receive our promised and paid-for benefits if payroll taxes are not increased and / or benefits are not reduced. And that’s the problem that has many folks in the younger generation complaining that their current payments are going toward current recipients. It’s hard to have faith in an institution with such tenuous finances, and it’s hard to be so dependent on future earnings when it’s costing us all money now.

I don’t think we actually disagree on much here. Social Security will need some changes in the next few years. It will be a lot easier to make those changes now. Short of criminal level misgovernance, we’re not looking at an immediate crisis. The antics we’ve seen lately are pretty close to criminal level misgovernance. The changes needed to make the program viable longterm are significant—but don’t require any kind of radical re-imagination.

  1. smdy reblogged this from reagan-was-a-horrible-president
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    No. No matter how many times conservatives repeat this, it’s simply not true. The social security trust fund has about...
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    There was a story on NPR about this and that in 40 years, Social Security will have only $.75 for every dollar it needs....
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  22. squashedcomments reblogged this from thecallus and added:
    I don’t think we actually disagree on much here. Social Security will need some changes in the next few years. It will...
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