Let's End the Myth About Social Security's Looming Bankruptcy
Before the heads of any readers explode, it should be made clear that what’s about to be read is not a defense of Social Security. Social Security was always a terrible idea for countless reasons. While in the real world our individual savings add to the capital base on the way to innovative new companies and jobs that don’t feel like work, Social Security amounts to an extraction of wealth from employees and employers that redounds to immediate government consumption of wealth.
It’s also useful to point out that Social Security is superfluous. As evidenced by abundant American savings reflected in the enormous valuations placed on asset managers and investment banks, Americans plainly don’t need a law to save for when they’re not working. The retirement “crisis” floated by those for whom everything is a crisis is yet another one of those ridiculous myths.
It’s also worth pointing out as some will that we don’t really own our Social Security accounts. Look it up. Somewhere along the way the Supreme Court ruled that those accounts we’re paying into aren’t really ours.
So while a defense of Social Security is indefensible on many levels, the notion that this superfluous, forced retirement plan is hurtling towards bankruptcy isn't serious. It’s not.
To see why it isn’t, imagine if it were suddenly decreed that we officially own the accounts we’ve been paying into all these decades and years. Some heads are exploding as they read this given their correct belief that “there’s no money in the lockbox,” that those Social Security accounts we’ve been paying into are empty, that newly decreed ownership of Social Security would amount to an IOU on a piece of paper. All true.
But by the above measure, “there’s no money” in our savings accounts at banks either. Banks don’t pay us to warehouse our savings as much as they pay us a rate of interest so that we’ll delay the spending of our money, and then they lend our savings out to those with immediate consumptive or productive desires. If our money was always stashed away in a lockbox at banks, then it’s certainly true that we would be paying banks for warehousing our money as opposed to banks paying us for the right to lend our money. So while our money isn’t specifically sitting at banks, we have a claim on it plus interest.
Back to government, and Social Security specifically, the forced savings plan is yet another way for government to attain immediate funds to consume. Rather than do as banks do, government just consumes. In short, of course there’s no lockbox. That there isn’t is immaterial for a government that has arrogated to itself a nice piece of the production of every working American, the savings of every American, the investments of every American, etc.
So assuming a sudden decree that the Supreme Court’s ruling was bogus, that we in fact own our Social Security accounts as administered by the federal government, this scenario would plainly reveal that there’s no looming bankruptcy for Social Security. That’s the case because future claims on future income streams care of the federal government would be easy for us to liquefy now.
We know this because the federal government can already borrow at the lowest rates in the world for five, ten, and thirty years. That which owns a piece of the production of the world’s most productive people can borrow easily.
That Treasury can borrow so cheaply is a market signal that federal revenues are sadly very high now, and worse, they’ll be much higher in the future. Banks, central banks, pensions, insurance companies and other asset managers want reliable income streams in concert with riskier ones, so they would gladly buy from us at near full value those IOUs sitting in lock boxes, and that represent a claim on future federal inflows.
To which some will reply – correctly – what a shame it is that Americans and their employers have had to suffer forced savings. What if the 6.2% hit on income and employers had long been directed into a private account with equity exposure. Think about all those decades of stock markets moving higher. Think of the wealth accumulation we’ve missed out on. Rather than an IOU, we’d have future claims on real shares of real companies, mutual funds, and ETFs in our own accounts. We’d have a lot more accrued, and subsequently to draw on in the future.
Which also speaks to why there’s no looming bankruptcy for Social Security. Indeed, imagine if this superfluous forced savings plan had an enlightened quality to it whereby the Social Security Administration had been buying for each account specific companies, mutual funds and ETFs. As in, imagine if the lockboxes were full of market securities that would eventually be ours upon retirement. If so, the reality is that a future claim on equities, mutual funds and ETFs in the future would come at some kind of discount for today’s buyer. It would because while stocks outperform over the long-term, they can be very volatile in the near-term. Think March of 2020.
This should not be construed as a knock on rational retirement planning with equities at the center of retirement planning as much as it’s a comment on just how much ownership the federal government has of our present and future production. Precisely because it does, an IOU that represents a claim on future federal revenues would be easier to liquefy today at full value than equities that aren't always a sure thing at all times, and that could be shrunken in value at the time of retirement.
So there you go. No looming bankruptcy for Social Security. Quite the opposite, really.
Which is why the present Social Security debate as one about the U.S. being the proverbial Titanic heading to the iceberg is such a waste of time and intelligence. The federal government has no debt problem. It plainly collects way too much in the way of revenues. Let’s end Social Security not because of IOUs that can’t be fulfilled, but because they can be.
The federal government already owns too much of our income. It shouldn't own so much of our savings too.