Well, I hope you don't judge people for an accounting fiction.
Any treasury bonds held by the federal government (for example, by the Social Security) is money the government owes to itself and has no real-world effect. The only part that matters is treasuries held by private investors.
Less government spending in the past would mean lower government debt (owned by private investors) today. That's only real effect. You can blame people for running up government debt if you like, but might as well skip talking about Social Security.
> Any treasury bonds held by the federal government (for example, by the Social Security) is money the government owes to itself and has no real-world effect. The only part that matters is treasuries held by private investors.
I do not agree it has no real world effect. That money will need to be paid back to Social Security to pay people out. Its either paid by taxpayers, or by everyone through inflating our way out of the debt. Regardless, its an obligation to be paid.
Stop wasting taxpayer money and start using it to take care of citizens. That's what the role of government is.
Money has to be lent to be saved, of course. If the money is not invested in the provider or public sector, then the wealth won't exist later to meet the deferred needs.
I'm not sure you understand the implications of the argument you're making.
> Any treasury bonds held by the federal government (for example, by the Social Security) is money the government owes to itself and has no real-world effect.
That is 100% correct. Which is the point. Those bonds are not a meaningful asset for Social Security; they have "no real-world effect" because they're an IOU payable by the same entity who offered it.
But the promises Social Security made do have a real world impact, and those promises will need to be redeemed. But Social Security doesn't have any assets of the type you say "matter".
As I understand it, the implication is that it doesn't make a whole lot of sense to think of the government as saving money specifically for the future expenses of retirees. At the level of the federal government, it's a pay-as-you-go system. Current taxes and treasury sales (deficit spending) pay current expenses.
(And it's a bit weirder than that because the Fed can retire government debt if it wants to, just by creating new money out of thin air and buying treasuries.)
Looked at from a certain perspective, federal taxes exist mainly to keep the treasury bond market from getting too big due to deficit spending.
So the financial question is really whether the treasury bond market is bigger than it should be, given anticipated expenses. I don't have any opinion on this. I'm not sure the average voter would have any idea either? Low interest rates seem to indicate that the market isn't too worried?
There's really two (equally valid) ways to look at this, from an accounting point of view.
1) SSA is independent. It has liabilities (the promises made to enrollees), and assets (the trust fund). Liabilities exceed assets in the long run, but until then (currently projected as 2034) the system is fine. The federal government, on the other hand, needs to count those liabilities at full value. This means government debt is significantly higher than generally reported, the Clinton surpluses never actually happened, and a lot of spending decision, in retrospect, look quite reckless.
2) SSA is not independent, but is part of the federal government. Social security has liabilities (the promises made to enrollees), but the trust fund is a wash. This means that the lower "net" totals for government debt are technically correct, and that there was a budget surplus in the 90s...but it also means that no provision was made to cover those liabilities; the system is being run strictly on a pay-as-you-go basis. And while they may not be technically debt, given the scale of the liabilities social security represents to the federal government, a lot of spending decisions, in retrospect, look quite reckless.
What's important to note is that these two stories are completely identical. It's like arguing whether a liter of water weighs 1kg or 2.2lbs; the answer is "both". :) In both cases the money collected via the payroll tax was used to fund general expenditures, leaving an unfunded liability. The size of the liability isn't in question, nor is the matter of who has to pay it. It's really just a qyestion of what you label the boxes.
> it doesn't make a whole lot of sense to think of the government as saving money specifically for the future expenses of retirees.
That's not inherent in the concept of a pension system. It could have been run on a funded basis, with actual savings accounts; it was not due to political reasons. I took toomuchtodo to be decrying that fact. Yes, the system we have is a pay-as-you-go system, but in retrospect doesn't that seem like a pretty poor idea?
Also:
> the Fed can retire government debt if it wants to, just by creating new money out of thin air and buying treasuries
That is legally impossible. (It also wouldn't work from an economic POV; it's effectively the same thing as just printing money to pay for SSA liabilities directly, and we know that funding government directly via the printing presses doesn't work.)
You say "unfunded liability" like it's a bad thing, but it's perfectly normal for the government to promise to do things based on future tax revenue.
The choice here is (1) tax people ahead of time, invest in financial markets for X years, then pay it out, (2) wait until the money is needed and tax it then, (3) spend first, tax later (deficit spending).
In case (1) you'd have no government debt (no U.S. Treasury market) and the government owning a large part of the private sector. In (2) you'd have neither a treasury market nor assets. (This is sort of like how non-profits work.) For (3) you have what we have today, which is a huge number of treasuries available, which everyone depends on as a safe investment.
It's not clear that having $13.6 trillion in treasuries available for investors (including foreign governments) to own is actually a problem. Lots of investors like having a safe investment. There's sure to be some level that's too high, but it's unclear what it is.
> actual savings accounts
This is another way of increasing government intervention in the financial system via owning financial assets. (Presumably there would be rules about which investments are allowed and when they can be withdrawn, so the government would still have a lot of control over this money.)
> not inherent in the concept of a pension system
The difference is that individuals and private pension funds need assets because they don't have a guaranteed source of income and can actually run out of money. The main risk for the U.S. government is Congress deciding to start a financial crisis. But that's politics, not being unable to raise the money.
> legally impossible
It happens all the time. Look up open market operations. The Federal Reserve sent almost $100 billion to the U.S. Treasury last year. [1]
(That's just an aside. Compared to $3200 billion total revenue, it's not that much, and I agree that it would not scale to paying off government debt, or even paying the interest. Still, nothing to sneeze at.)
I think you're focusing too much on accounting labels, and need to step back and look at the bigger picture. From the point of view of the economy as a whole, the baby boomer generation retiring is extremely expensive. In general, societies need to budget around extremely expensive events like that, eg, deferring other expenses, making sacrifices, saving up in preparation.
You seem to be arguing that, uniquely, the US doesn't need to do this; they can just promise whatever, then borrow all the money cheaply from foreigners. Perhaps so! And I really, really hope you're right (and all the textbooks, financial models, and experts are wrong).
> they don't have a guaranteed source of income and can actually run out of money.
That income is finite, therefore, the US can most certainly "run out of money", hence why the budget is a nasty political fight every single year. Now, it is highly likely that the politics of social security will make it a priority come what may, and thus I'm confident that money can be found for it, but only at the expense of other things. Hopefully none of them end up being important. But the reality of social security is that the national savings rate when the baby boomers were at their most productive was extremely low. (Even right now, the US savings rate is almost half that of the EU-15.)
In a different universe, the US would have saved more during the long post-war boom, and would be in a much better shape to, eg, pay for the boomers retirement and replace our aging infrastructure.
> It happens all the time. Look up open market operations
The Federal Reserve does not (and cannot) retire or forgive the US debt it holds.
Any treasury bonds held by the federal government (for example, by the Social Security) is money the government owes to itself and has no real-world effect. The only part that matters is treasuries held by private investors.
Less government spending in the past would mean lower government debt (owned by private investors) today. That's only real effect. You can blame people for running up government debt if you like, but might as well skip talking about Social Security.