Social Security will not destroy the economy

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On the Economy

Social Security will not destroy the economy

Social Security is threatened by the deficit committee's budget cuts . But the $2.6 trillion Social Security trust fund isn't nearly as draining or risky as many would have you believe

J. Scott Applewhite/AP

Rep. John Conyers, D-Mich., center, accompanied by fellow members of Congress, participate in an event on Capitol Hill in Washington to voice opposition to potential cuts in Medicare, Medicaid, and Social Security benefits as the deficit supercommittee looks for ways to reduce government spending in all areas. Bernstein argues that the Social Security trust fund isn't sucking money out of the Treasury.

By Jared Bernstein Guest blogger

Nov. 01, 2011, 12:27 p.m. ET

I keep hearing this argument, including on the front page of my home town paper : there鈥檚 something risky, fishy, corrupt, dark, and secret about the $2.6 trillion Social Security trust fund.

No, there isn鈥檛. It鈥檚 a saving mechanism that was intentionally created years ago to prepare for the increase in costs to the retirement system due to the predictable aging of the baby boom. But instead, we read:

To cast the argument this way intimates that the US Treasury will default on its debt. They are exactly analogous鈥擳reasury bonds held in the Social Security trust fund carry the same guarantee of repayment as Treasury bonds held by private investors and sovereign governments around the globe. You could plug the words 鈥�China鈥� or 鈥渕ajor American banks and pension funds鈥� for 鈥淪ocial Security trust fund鈥� in the article and the meaning would be the same.

If the editors believe that holders of Treasuries face default risk, then they should probably run articles everyday warning that the end is near. If they do not believe that to be the case鈥攚hich I am sure they do not鈥攖hen I don鈥檛 understand the news here.

Note that I am not saying Social Security鈥檚 finances are fine or should be ignored by policy makers. To the contrary, I have many of the ideas on the table to address the financing shortfall, and recommended the ones I think make most sense. Nor am I cavalier about the extent of our own sovereign debt.

But unless you鈥檝e got a good, solid, evidence-based reason to believe a US default is in the works here, I can鈥檛 see how this is anything but fear mongering.

On the other hand, the in the piece is interesting and worth a close look, especially the alternative benefit-payment scenarios.

Update: Dean Baker into greater detail on what鈥檚 wrong with the WaPo analysis.