Wednesday, July 13, 2011

The Money is There . . . Maybe

Since the Social Security Administration was instituted in 1935, participants have been told that the monies collected are deposited in a trust fund. When the time comes for them to retire, the money that they have paid in, plus the earnings on that money, will be used to pay their benefits. The impression given is that your Social Security Account is similar to a bank account, into which you deposit money, the money earns interest, and then is paid out when you become eligible for benefits. Whenever some pundit or politician claims that the Social Security system is bankrupt, or might not be able to meet its future obligations, we are instantly assured that "the money is there."

When President Obama stated that Social Security checks might not be paid, he may not have realized what he said, but he burst the bubble that has been keeping the system going for the past three-quarters of a century. By saying that the checks might not go out, the president contradicted what we've been told over and over again: that the Social Security Administration couldn't possibly be in trouble. The Trust Fund is intact. The money is there.

So, Mr. Obama . . . if the money is there, why are you threatening to withhold payments until your demands are met? Your statement is blackmail, an admission that the money is not there, or a little bit of both. What's the story?

Frankly, the money is not there, despite the fact that we have reassured of the contrary for nearly three generations. Instead, what is there is a pile of government debt, which was used to replace the cash that was collected. To make a long story short, in order to pay out the Social Security benefits that have been promised — and which the government has assured the American people for decades is absolutely safe — the government is going to have to go further in to debt, start collecting taxes to redeem the debt that the Trust Fund already holds, or sell the debt to China . . . if they would buy it. As we've said on this blog before, for every dollar paid out in Social Security benefits, at least two dollars, probably more to pay the interest, have to be collected in taxes.

This is not a bargain.

Now, we're not saying that Social Security should be terminated. Promises have been made, and they must be kept. What we're saying is that Social Security isn't quite as secure as it might be. Nor is it — or has it ever been — adequate to provide more than a near-base subsistence for people who have paid into it for decades.

The real problem is that the government can no longer continue to run on debt. The bill is coming due, and the president himself, for all he doesn't seem to realize it, has admitted that the Social Security system has been bankrupt from the beginning. You don't collect money for one purpose, borrow it from yourself and spend it for something else, and then claim that the money is still there.

True, President Obama is clearly using this as a threat that he cannot make good on, but the implications of it go far beyond the usual political blackmail. The stalemate over the debt is such that anything done within the current framework can only be a temporary stopgap. The problem is not going to go away, nor will it be solved simply by continuing to do what has been done before.

So what's the real solution? If you're a regular reader of this blog, you already know the answer, and it's an answer both to the bankruptcy of Social Security and the debt crisis: Capital Homesteading by 2012.

#30#

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