Hacker News Reader

Comment by mattmaroon | Hacker News Reader

Here's 2 scenarios.

a) Government borrows $4 trillion from the Chinese at 2% annually.

b) Government borrows $4 trillion from Americans, by way of Social Security, at 2% annually.

What's the difference in what the government owes after 10 years? Either way the government has to raise $4 trillion (plus interest) in taxes, borrow it, or print it to pay it off. Either way everyone is in the exact same boat, except in boat b, Americans get the interest. In boat a the Chinese do. (Unless you count borrowing from the Chinese, leaving the Social Security money in a CD, and defaulting to on the borrowed money while paying out SS an option, which it isn't.)

I wasn't suggesting that government borrowing is not a problem. It is. They probably should just not borrow the $4 trillion from anywhere. But that's just a different issue that has nothing to do with Social Security, as many economists have pointed out.

View on HN

You're right it doesn't make any difference, but your point is irrelevant.

Social security is only as "sound" as the will of future taxpayers to pay the inevitably increased taxes required to keep it going, regardless of whether the money is borrowed, promised, set-aside, appropriated, recommended, etc.

Since its inception, social security benefits have been cut little by little to the point where middle class people must significantly supplement it with their own private investments to avoid poverty in retirement.

So there still may be something called "social security" in 20 or 30 or 50 years, but chances are it will bear little similarity to the program's initial inception or even to the program people think of it as today.

You also argue that the government should borrow money. Why not just tax today for what we spend today? Had we done that, Bush would never have been able to go to war in Iraq, the "trust fund" would not be in danger, etc.

Not to digress, however. The biggest threat to social security is that congress won't have the will to use the limited available tax revenue for the program, and the public won't want the drastically increased taxes.

Obama wisely suggested switching SS over to be a welfare program and funding it from general revenue, but the initial concept was that it's not welfare and so nobody should feel like they are on welfare when they receive their social security check. This is a fairly significant matter.

The problem is not with the borrowing; the problem is that Social Security's asset base consists of the government's ability to borrow money. It is usually a really bad sign when someone says "I totally can't pay off this loan, but I know this guy who is willing to lend me more money because he has no idea how financially irresponsible I am."

No, the problem is with the borrowing. When our nation borrows that much, everyone's asset base consists of the government's further ability to get money (by borrowing, printing, etc.). That's the way free floating currency works. Having to print $4 trillion to put the money back in Social Security is the same to every American as having to print $4 trillion to give to China.

"a) Government borrows $4 trillion from the Chinese at 2% annually

Either way the government has to raise $4 trillion (plus interest) in taxes, borrow it, or print it to pay it off."

Sadly there's another option. the gov decides not to pay and basically asks for a declaration of war from China...

Which would cost far more than $4 trillion so is not really an option, if you assume it would mean war with China.

Either way everyone is in the exact same boat, except in boat b, Americans pay the opportunity cost of investing at 2%. In boat a the Chinese do.

Well, I certainly wasn't claiming it was a top-notch investment strategy. But for Social Security to work, it has to have periods where it's overfunded, so it can pay out when it's underfunded (and the problem is that it didn't) and that surplus has to go somewhere. I can't think of anything better for it than what they do, which is essentially buy government bonds. It's the only 100% guaranteed investment, since the government can print money to replace it. Just be glad they didn't buy CDOs with it.

Reply on news.ycombinator.com