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Social Security will not destroy the economy

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J. Scott Applewhite/AP

(Read caption) 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.

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

No, there isn’t. It’s 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—Treasury 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 “China” or “major American banks and pension funds” for “Social Security trust fund” 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—which I am sure they do not—then I don’t understand the news here.

Note that I am not saying Social Security’s finances are fine or should be ignored by policy makers. To the contrary, I have listed 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’ve got a good, solid, evidence-based reason to believe a US default is in the works here, I can’t see how this is anything but fear mongering.

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

Update: Dean Baker goes into greater detail on what’s wrong with the WaPo analysis.

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