Neither Adults Nor Young Adults Need Fear Social Security’s ‘Insolvency’

Critics of Social Security, and there’s much to criticize, use the lack of a “lock box” or actual “trust fund” to make their emotional cases for the program’s looming insolvency, reduced benefits, or both. Actually, the total lack of a “lock box” is the surest sign that future retirees needn’t fear reduced benefits or insolvency.

But first, and about what you’re about to read, please don’t construe it as a defense of Social Security. Quite the opposite. How to defend that which shrinks American paychecks over and over again, and in return for the most minuscule of returns? The world, and the U.S. in particular, is awash in remarkably great private sector retirement programs and plans, only for the federal government to force one on us that offers less-than-zero returns? No, this is not a defense of Social Security.

It’s not really even a defense of a capitalist system that needs no defending. But it will be lightly  defended in light of Washington Post columnist Heather Long’s odd assertion that one reason young Americans are allegedly “so sour on capitalism” (more on the latter in a bit) is that those same young people “have seen the headlines that, if nothing changes, Social Security will start having to reduce benefits in 2034.” What does this have to do with capitalism? Long doesn’t say.

The good news is that the capitalist system has created markets for everything, including U.S. Treasuries. This is important with a lack of a “lock box” or trust fund for Social Security well in mind. Of course there isn’t one. Does anyone seriously think government separated into actual accounts the money it’s long taxed away for Social Security? Plainly not. Which is the point. In the future Social Security will not be paid for with past or existing Social Security taxes, rather it will be paid for out of general revenues. And as yields on the 10-Year Treasury note make plain, investors don’t fear being paid back. At all. Yields on 30-Year Treasuries reveal much the same confidence about the future solvency of a government charged with paying Social Security benefits.

The simple truth is that Treasuries are the most owned assets in the world, and because they’re the most owned, Treasury markets are the deepest and most knowledge-pregnant in the world. Yields on Treasuries traded in those deep markets don’t signal reduced tax revenue collection in the future, rather they signal gargantuan gains. Sadly. But that’s a digression.

At the same time, and for the purposes of this piece, investor confidence about federal debt being easily paid back tell us two things. Readers already know the first. While Social Security’s looming “insolvency” is a popular notion inside think tanks, at editorial boards, and for politicians pandering to small portions of the electorate, the markets know that without regard to the good or bad of Social Security, it will be funded in perpetuity.

With the above assertion well in mind and settled by deep markets, we can then address Long’s odd assertion that “young Americans” are “sour on capitalism.” Actually, they aren’t. Or if they are rhetorically and to pollsters, they aren’t in action. Evidence supporting this claim can be found in the yields on the very Treasuries that signal with utmost certainty that Social Security benefits will always be paid.

Indeed, if young Americans actually felt negative about capitalism and acted on it, yields on U.S. Treasuries would be soaring to reflect this sad reality. And Social Security would actually be hurtling toward insolvency in concert with gruesome projections of negative growth ahead, as opposed to serving as a faux prop for columnists and the deep in thought.

Republished from RealClear Markets

Author

  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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