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Funding Social Security Obligations

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Jane Galt, commenting on Daniel Gross’s comparison of the Bush Social Insecurity plan to corporate welsching on pension obligations , says that there’s no way to “fund” Social Security (i.e., hold assets that can be used to pay its liabilities) without having the government own corporate equities, and quotes P.J. O’Rourke as linking that to pre-1989 Eastern Europe.

This seems to me to be wrong in two different ways.
First, the comparison of a situation where some corporate equity (presumably in the form of ownership of index funds) is held by the government to the combination of tyranny and inefficiency that characterized Communism is a decent enough wisecrack (though perhaps in poor taste) but unimpressive as economic or political analysis.

Second, the government could fund Social Security by paying down enough of its publicly-held debt now, while the OASDI surpluses are rolling in, to be in a good position to borrow later, when OASDI is running deficits. That’s not technically “funding,” but it’s the functional equivalent, just as a family can save by paying down its mortgage.

Even if by some miracle the entire national debt got paid off, the Feds could then buy state debt, or an index fund of corporate debt, or foreign sovereign debt, or even — God help us — gold.

Remember when Alan Greenspan used the threat that the federal government might pay off the national debt and have to buy common equities to store its extra revenue as reason to support the Bush tax cuts? It was a damned silly argument then, and history hasn’t made it look any wiser.

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