Funding Social Security obligations

We can “fund” future Social Security obligations by paying down the national debt.

Jane Galt, commenting on Daniel Gross’s comparison of the Bush Social Insecurity plan to corporate welsching on pension obligations , says that there’s no way to “fund” Social Security (i.e., hold assets that can be used to pay its liabilities) without having the government own corporate equities, and quotes P.J. O’Rourke as linking that to pre-1989 Eastern Europe.

This seems to me to be wrong in two different ways.

First, the comparison of a situation where some corporate equity (presumably in the form of ownership of index funds) is held by the government to the combination of tyranny and inefficiency that characterized Communism is a decent enough wisecrack (though perhaps in poor taste) but unimpressive as economic or political analysis.

Second, the government could fund Social Security by paying down enough of its publicly-held debt now, while the OASDI surpluses are rolling in, to be in a good position to borrow later, when OASDI is running deficits. That’s not technically “funding,” but it’s the functional equivalent, just as a family can save by paying down its mortgage.

Even if by some miracle the entire national debt got paid off, the Feds could then buy state debt, or an index fund of corporate debt, or foreign sovereign debt, or even — God help us — gold.

Remember when Alan Greenspan used the threat that the federal government might pay off the national debt and have to buy common equities to store its extra revenue as reason to support the Bush tax cuts? It was a damned silly argument then, and history hasn’t made it look any wiser.

[Corrected to attribute the argument criticized to Jane Galt rather than Daniel Gross.]

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: