Soft privatization

Jordan Hayes jmhayes at
Fri Jul 31 09:03:23 PDT 1998

Tom Lehman wrote:

> According to congressional testimony the bonds held by the trust
> fund are currently paying on average a little over 7% interest.

This is absurd; find me an employee of this "trust fund" -- the Social Security system is funded with current contributions; these contributions presently are larger than current payments and the residuals wind up in the general fund. That is: they reduce the current federal budget deficit.

The residuals from previous years? That money is gone; it's not accounted for separately, and there is no such thing as a "fund" that _could_ be holding bonds (incredible: the govt. charging the govt. interest!).

The supposed 'deficit' or 'bankrupting' of the system comes in years where it is projected that current revenues will not cover projected outlays. The real picture is that FICA contributions are mixed in with "regular" tax revenues, and benefit payments are lumped in with things like "postal worker salaries" -- it's just two different rate schedules for a single purpose: funding the federal budget. I highly regressive one at that.

But technically, it's already "bankrupt" -- if you don't count year-on-year surplusses to some account, you can't say that really the present revenues are separate either. So if your overall federal budget has a deficit, so does SS. And for most of the last few decades, it has. (Interestingly this turns Tom's claim of 7% interest *earning* bonds in the "trust fund" into 7% interest *paying* bonds helping to fund the benefits that are paid).

We can talk all you want about whether the SSA should be replaced with a 'forced savings' plan (I, like Doug, agree this is the wrong question), but please let's stop worrying about whether this mythical 'trust fund' would get dumped into the market.

> I have been trying to obtain copies of this testimony.

Please do try to find this and report back to the list with your findings.


At first glance, the idea of removing the guarantee is appealing: there are certainly many (most?) people in this country who, if given the right incentives, could take a big part of the responsibility for their retirement. This could lead to a smaller and more effective safety net program at the low end for those who cannot. An easy point against it however is the example of the Railroads who tried to 'go it alone' and wound up in a big mess.

But: I see examples all the time of people who get benefits from this program who probably should not for any other reason than it was promissed to them. The question of course is: will that happen? The evidence from the re-work of another big social program (welfare) suggests that it will not.

This talk of formal 'privatization' is largely misdirected: a massive shift in formal retirement planning has occured via defined contribution plans (IRA, 401k, etc.) for which professional money managers are _already_ getting commissions and management fees. All that needs to start happening now is for people who have retirement assets over a certain threshold to start losing benefits, and my cynical crystal ball says that's coming next -- the question is whether or not it will come with, as Doug says, an equitable benefit plan at the bottom.


Tom says that "the trust fund" is a "macro economic tool" -- but to me, it's just a "macro political tool" since it's near-mythical status as an actual "trust fund" is just a fiction; it can be shaped to appeal to any particular set of constituents.


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