The following article by economist
L. Randall Wray explains why the concept of saving Social
surpluses makes no sense, and what really needs to be done for future
There is a
widespread belief that
Social Security surpluses must be "saved" for future retirees.
believe that this can be done by accumulating a trust fund and ensuring
that the Treasury does not "spend" the surplus. The "saviors" of
Social Security thus insist that the rest of the government’s budget
remain balanced, for otherwise the Treasury would be forced to "dip
Social Security reserves.
Can a trust fund
help to provide
for future retirees? Suppose the New York Transit Authority
decided to offer subway tokens as part of the retirement package
to employees, say 50 free tokens a month after retirement. Should
the city therefore attempt to run an annual "surplus" of tokens,
more tokens per month than it pays out today in order to accumulate a
fund of tokens to be provided to tomorrow’s NYTA retirees? Of
When tokens are
needed to pay future
retirees, the City will simply issue more tokens at that time.
only is accumulation of a hoard of tokens by the City unnecessary, it
not in any way ease the burden of providing subway rides for future
Whether or not the City can meet its obligation to future retirees will
depend on the ability of the transit system to carry the paying
plus NYTA retirees.
Note also that the
NYTA does not
currently attempt to run a "balanced budget." Indeed it
runs a subway token deficit. That is, it consistently pays out
tokens than it receives, as riders hoard tokens or lose them.
to run a surplus of subway tokens would eventually result in a shortage
of tokens, with customers unable to obtain them. A properly run
system would always run a deficit, issuing more tokens than it receives.
Accumulation of a
Trust Fund is neither necessary nor useful. Just as a subway
surplus cannot help to provide subway rides for future retirees,
can the Social Security Trust Fund help provide for babyboomer retirees.
Whether the future
burden of retirees
will be excessive or not will depend on our society’s ability to
real goods and services, including subway rides at the time that they
be needed. Nor does it make any sense for our government to run a
budget surplus. That simply reduces disposable income of the
sector. Just as a NYTA token surplus would generate lines of
people wanting rides, a federal budget surplus will generate jobless
desiring the necessities of life, including subway rides.