Thursday, June 01, 2006

Social Security Trust Fund: Accounting Fiction?

There's a debate over at Dean Baker's blog about the Social Security Trust Fund. I think both Dean and his detractors are actually both correct. Dean took issue with the description of the fund as an "accounting fiction." With respect to the government as a whole, it is. The fund is made up of government bonds, so the government owes itself money. It's no different than if you wrote yourself an IOU for $100, you'd be no better off. Read the comments to both of his posts (here and here) for some background on where people are coming from. But I think Dean's also right. I commented:

"I think what Dean Baker is trying to say is that with respect to social security (and ONLY social security) the assets are real. I think he's right there. It's probably better just to look at the trust fund as a government commitment, commitments which must be financed by issuing more debt or raising taxes when the time comes.

"Of course what is an asset to SS is a liability to the general government, so the government as a whole is no better off. The money isn't really saved, which is why the language of a "trust fund" is so deceptive. The situation we have today is no different than if the government committed to pay for future benefits through issuing debt and increasing taxes. Yet that does not mean these commitments are fiction, they are real, but instead of money sitting in a bank the commitment is the promise of more debt and higher taxes. "

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