Social Security's Distrust Fund
by Ralph Shnelvar
An abbreviated version of this letter appeared in the January 10, 2005, Rocky Mountain News. Shnelvar's letter responds to a letter in the same paper from December 29.
Daniel B. Chilcoat wrote that "As a result of the past, current and future surpluses, which are invested in government bonds, Social Security is solvent through 2052 according to the Congressional Budget Office."
What Mr. Chilcoat appears not to understand is the difference between accounting and economics. While the Social Security system may appear to be solvent because of money "invested" in government bonds, there is no wealth that the government creates to pay off those bonds. Those bonds are to be paid off by the taxes levied upon future generations.
In other words, there is no there there. It's an accounting trick.
The difference between a government bond and, say, a General Motors bond is that General Motors has to create wealth in order to pay off the bond or the bond does not get paid. Government doesn't do that. It confiscates money (i.e. taxes people) in order to pay off its debts; or it prints money which then confiscates wealth from people holding pre-inflationary dollars.
The government holding $10 in government bonds is just the same as Mr. Chilcoat holding $10 in bonds in Mr. Chilcoat. Doesn't Mr. Chilcoat see the ludicrousness of Mr. Chilcoat owing money to himself? Doesn't Mr. Chilcoat see the ludicrousness of the government owing money to the government and then trying to use that money to write Social Security checks?
Social Security is in deep trouble precisely because people like Mr. Chilcoat believe the kind of silliness that says that you can create wealth by writing a piece of paper that says "Mr. Chilcoat hereby owes Mr. Chilcoat $1,000,000."
Mr. Chilcoat is not $1,000,000 richer when he writes such a piece of paper. Such an accounting trick will not be accepted as money by any sane person because there is nothing there. Unfortunately, it is the same insane accounting trick that says that Social Security is solvent through 2052.
For additional analysis, please see Social Security: Collected links.