Social Security Lockbox Scare Tactic

LockboxMy father has been watch The Roosevelts. And in relationship to it, he told me, “Roosevelt wanted there to be a lockbox on Social Security.” I sighed heavily. Suddenly, I was transported back into the 2000s and 1990s — the last two periods when everyone was talking about the Social Security lockbox. The problem with it is that it is meaningless. Actually, it is worse than meaningless. The idea of a lockbox is put forward to scare people into thinking that the federal government is stealing money out of the Social Security trust fund in order to pay for Cadillacs for welfare queens.

You probably remember George W Bush, in 2005 after his re-election, going around telling people that there was no money in the trust fund. It was just paper — IOUs! Of course, that’s all cash is. But more to the point, that’s all that bank accounts are. I don’t have money in the bank. I have a number on a ledger. In effect, I have an IOU from the bank. And if the bank goes out of business, I would lose that money except for the fact that that the government guarantees it. So what exactly did Bush think would be in the trust fund? Piles of cash?

It turns out that the Social Security Trust fund is currently worth over $2.5 trillion. There is only about half that much in total cash in the United States. So what are we to do with this money? It needs to be invested one way or another. So the Social Security Administration (SSA) does what everyone the world over does with money they need safely stored: they invest it in US government securities. The fact that one government program is loaning its money to another part of the government does not mean that the money is being stolen.

Think about it with regard to individual investors. They generally have a mix of stocks and bonds. Those bonds generally include a lot of US government bonds. No one — Really: no one — says that these investors are just being ripped off by the federal government because it spends the money that it borrows. Rather, everyone agrees that US government debt is about the safest investment in the world. How safe? Right now, US 10 Year Treasury bonds have a yield of 2.31%. That’s with an average inflation rate last year of 1.6%. (Note: inflation has basically been zero thus far this year.)

So what exactly is the lockbox supposed to do? It is a “solution” to a nonexistent problem. Suppose we hired Donald Trump to administer the Social Security program. All the money coming in would go to him. He would then have to do something with that money. I don’t know what he would do with it, and given my low opinion of him, I would expect the worst. But even aggressive investors would take a large fraction of that money and put it into US government securities. This is exactly what the SSA does. Money isn’t being stolen from Social Security. There is no need for a lockbox and people who talk about it are just trying to scare you.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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