Also, Donald Luskin gave me a research paper from the U. of Pennsylvania on the trust fund topic.
It is too large to post here (41 pages), but a good read if you want the "scholarly" take on the situation. PM if you would like a copy and I will forward it on.
Here is the abstract
Quote:
Abstract
With over $1 trillion in assets, the U.S. Social Security trust fund is the largest pension
reserve in the world, and potentially a model for other developed countries facing future
financing problems. But are those assets actually “worth anything?” This question has
generated a heated debate in the U.S. as policymakers debate options for Social Security reform,
with the understanding that the characterization of the trust fund influences these decisions.
Some observers claim that the trust fund is not worth anything while others argue that it is
valuable. However, different reasons are given for the same position.
This paper provides a unified conceptual framework for thinking rigorously about the
assets accumulated in the trust fund. Multiple perspectives of the trust fund are identified and
are summarized under two categories: (I) storage technology arguments and (II) ownership
arguments. Storage technology arguments focuses on whether the trust fund surpluses actually
reduce the level of debt held by the public or, alternatively, are used to “hide” smaller on-budget
surpluses. Ownership arguments focus on property rights, i.e., how trust fund credits should be
allocated regardless of whether they reduce the debt held by the public.
Only the storage technology argument can be empirically tested, as we do herein. We
find that there is no empirical evidence supporting the claim that trust fund assets have reduced
the level of debt held by the public. In fact, the evidence suggests just the opposite: trust fund
assets have probably increased the level of debt held by the public. Moreover, the adoption of a
“unified budget” framework in the late 1960s appears to play a statistically significant role in this
result. We show how this counterintuitive result can be explained by a simple “split the dollar
game” where competition between two political parties exploits the ignorance of voters who
don’t understand that the government’s reported budget surplus actually includes the “offbudget”
Social Security surplus. To be sure, this evidence is based on a limited annual time
series (1949 – 2002) and so the results should be interpreted with caution. But the empirical tests
are, if anything, biased toward finding a reduction in the level of debt held by the public, and not
the increase that we find.
The Wharton School
University of Pennsylvania
Philadelphia, PA 19104-6218
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