Social Security's "bankruptcy"

I shall use dgiese's comment as an excuse to expand on the trust fund post. Mister Giese is critical of politicos who use the word "bankruptcy" to describe Social Security's situation.

I agree that the word is inapt. Social Security does, after all, currently run twelve-figure annual surpluses (payroll taxes less benefit payments). On that score, it hardly seems bankrupted. And yet looking forward in time and computing the present value of the trust fund and all the program's anticipated revenues against liabilities (again, all in terms of present value), the best estimate is that the program is underfunded by $10.4 trillion. Bankrupt? Maybe, but in that sense when has the program ever not been bankrupt? Either way, the word just isn't a good fit for what we're talking about.

Here's an interesting thought experiment, and perhaps it will help in thinking about Social Security's future. Fast forward to 2018, or whatever year it is when payroll taxes become insufficient to cover benefit payments. This is the fiscal year in which the program starts using the T-bills from its trust fund. So let's be precise. The Social Security functionaries send a bundle of their long-stashed T-bills back to the Treasury, demanding money in return with which to pay retirees. The federal government has five choices for coming up with that money, of which only the first three are likely to be used:

(1) Cut it from some other program.
(2) Increase taxes.
(3) Increase debt (by finding someone to buy the T-bills).
(4) Print the money (inflate the currency).
(5) Sell (privatize) a real public asset (e.g. national forest).

Some combination of the above can be used, but those are the choices.

Now, suppose again it is 2018, but disaster strikes the Social Security bureaucracy. Barbara and Jenna Bush, armed with flamethrowers, infiltrate the trust fund bunkers and incinerate every last trust fund T-bill. How does the government, now without the trust fund, come up with the money to make up the year's difference between payroll taxes and benefit obligations? The federal government has five choices:

(1) Cut it from some other program.
(2) Increase taxes.
(3) Increase debt (by finding someone to buy new T-bills).
(4) Print the money (inflate the currency).
(5) Sell (privatize) a real public asset (e.g. national forest).

This is what people mean when they say the trust fund is bogus. The government is faced with the exact same options, with the exact same shortfalls, whether the trust fund T-bills are used or vanish utterly. There is no difference.

At minimum, I recommend chanting the following aloud: "The trust fund is not an asset. The trust fund is not money. The trust fund is not wealth." It won't fix the problem - but at least when the crunch comes you'll understand why.