There is a wide-spread belief that Social Security surpluses must be
"saved" for future retirees. Most believe that this can be done by
accumulating a Trust Fund and ensuring that the Treasury does not
"spend" the surplus. The "saviors" of Social Security thus insist that
the rest of the government’s budget must remain balanced, for
otherwise the Treasury would be forced to "dip into" Social Security
Can a Trust Fund help to provide for future retirees? Suppose the New
York Transit Authority (NYTA) decided to offer subway tokens as part
of the retirement package provided to employees—say, 50 free tokens a
month after retirement. Should the city therefore attempt to run an
annual "surplus" of tokens (collecting more tokens per month than it
pays out) today in order to accumulate a trust fund of tokens to be
provided to tomorrow’s NYTA retirees? Of course not. When tokens are
needed to pay future retirees, the City will simply issue more tokens
at that time. Not only is accumulation of a hoard of tokens by the
City unnecessary, it will not in any way ease the burden of providing
subway rides for future retirees. Whether or not the City can meet its
obligation to future retirees will depend on the ability of the
transit system to carry the paying customers plus NYTA
Note, also, that the NYTA does not currently attempt to run a
"balanced budget", and, indeed, consistently runs a subway token
deficit. That is, it consistently pays-out more tokens than it
receives, as riders hoard tokens or lose them. Attempting to run a
surplus of subway tokens would eventually result in a shortage of
tokens, with customers unable to obtain them. A properly-run transit
system would always run a deficit—issuing more tokens than it
Accumulation of a Social Security Trust Fund is neither necessary nor
useful. Just as a subway token surplus cannot help to provide subway
rides for future retirees, neither can the Social Security Trust Fund
help provide for babyboomer retirees. Whether the future burden of
retirees will be excessive or not will depend on our society’s ability
to produce real goods and services (including subway rides) at the
time that they will be needed. Nor does it make any sense for our
government to run a budget surplus—which simply reduces disposable
income of the private sector. Just as a NYTA token surplus would
generate lines of token-less people wanting rides, a federal budget
surplus will generate jobless people desiring the necessities of life
(including subway rides).
FOR FURTHER READING
"The Emperor Has No Clothes: An Analysis of President Clinton's
Proposed Social Security Reform," Jerome Levy Economics
Policy Note 1999/1, L. Randall Wray.
"How Can We Provide for the Baby Boomers in Their Old Age?" Jerome
Levy Economics Policy Note 1999/5, Dimitri B. Papadimitriou
and L. Randall Wray.
"More Pain, No Gain: Breaux Plan Slashes Social Security Benefits
Unnecessarily," Jerome Levy Economics Policy Note 1999/8, Dimitri B.
Papadimitriou and L. Randall Wray.
"Does Social Security Need Saving? Providing for Retirees throughout
the Twenty-first Century," Jerome Levy Economics Public Policy Brief
No. 55, 1999, Dimitri B. Papadimitriou and L. Randall Wray.
"Can Social Security Be Saved?" Jerome Levy Economics Working Paper
No. 270, May 1999, Dimitri B. Papadimitriou and L. Randall
"Abolish the Surplus," Center for Full Employment and Price Stability
Policy Note 99/01, L. Randall Wray.