Why Al Gore's Lockbox Wouldn't Have Saved Social Security

The shocking (except, not really) news that the Social Security surplus is vanishing faster than we thought has some people wishing Al Gore would’ve won in 2000, so he could’ve put his famous lockbox into place.

There may be lots of good reasons to wish the 2000 election had turned out different, but the lockbox — the idea of keeping all payroll tax receipts totally segregated from the rest of the government’s balance sheet — isn’t one of them.

As it is now, Social Security tax receipts are used to pay for general government operations, and in exchange the government gives the Social Security administration infamous IOUs, promises to pay the money back.

But consider the alternative: The government leaves the Social Security money in a lockbox, so instead it has to either raise taxes or go deeper into debt to pay for general expenditures. We end up in exactly the same place we are today, but the balance sheet is slightly different

The blog Winterspeak recently put it well:

Think about it — the Government is a currency issuer, it has no need to “balance its books”, nor will it ever bounce a check. Ever. Even Zimbabwe does not bounce cheques (although with it’s recent move to the dollar, that might change). He is correct that there is no “fund”, as SS obligations are merely part of the Government overall obligations. It certainly makes no sense for a currency issuer to keep a reserve of its own currency. Does American Airlines need to keep a reserve of its frequent flier miles?

I first heard this analogy from Mosler, and it’s extremely helpful. Imagine that the US as 300M retirees, and only one worker. Those worried about the SS “shortfall” (whatever that means) are concerned that the 300M retirees will not have enough money to pay the one worker for all the stuff that they want. This is the “nominal” view, and it is clearly ridiculous — the problem is not how much money the retirees have or do not have, the problem is whether the worker is productive enough to make all the stuff the 300M retirees want.

The bottom line is that we don’t have a “Social Security” problem, per se — we have a problem figuring out how to support all the old people who are retiring along with a diminishing tax base, and plenty of other expenditures we’re making. That’s the issue. Whether the Social Security administration keeps its own cash on hand — which the above example about American Airlines should convince you is silliness — or a bunch of IOUs, or even nothing, is just a matter of accounting standards. What matters is our real ability (and our will) to either make good on the retirement promises we made, or break them, which is also a legitimate option.

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