RE: Sen. Gregg on 1988 vs 2015

["Steven H. Johnson" <info@sscommonsense.org>]

In his very important discussion on cash flows, Sen. Gregg commented
as follows:

"If an individual puts a dollar away in 1988 and then redeems it
in 2015 to receive retirement benefits, one could make an argument
that only the first dollar should be counted as the cost of retirement
savings.  If, however, an individual simply declared that a dollar
in 1988 was to be allocated for retirement, but instead spent that
dollar on a cheeseburger, promising to pay himself back in 2015,
then the dollar would have to be newly sought in 2015, and would
have to be counted a second time."

I would hope the $800 billion Trust Fund surplus - the Senator
would probably put surplus in quotes - wasn't spent entirely on
cheeseburgers.

More seriously, I think the saving issue is an important one.  From
the point of view of the nation as a whole, the $800 billion surplus
accumulated by Social Security does represent real savings.  By
borrowing $800 billion from Social Security, the Treasury didn't
have to borrow $800 billion on New York financial markets.
Indirectly, that's savings.  That's $800 billion in capital available
to private sector borrowers that wouldn't otherwise have been
available.

Suppose the Trust Fund surplus had been handled differently, starting
in 1983.  Suppose none of it had been invested in Treasuries.
Suppose all of it had been invested in assets on the open market
- state debt, municipal debt, low yield very high grade corporate
debt.  No stocks, just debt.

The Treasury wouldn't have had $800 billion available to borrow.
It would have borrowed $800 billion more on the financial markets.
Social Security would have invested $800 billion on the financial
markets.  The financial markets would have come out basically even.

Now suppose Social Security hadn't run a surplus at all.  Treasury
would have had to borrow $800 billion more on financial markets.
Social Security wouldn't have invested anything in those markets.
There would have been $800 billion less for the private sector.

I think the Social Security surplus has to be counted as real
savings.

Of course, when the time comes to draw it down, if it doesn't get
fixed, the drawdown will have to be counted as real dis-savings.

Which is why it's important to get going with the fix.  Whatever
the fix turns out to be.

-Steve Johnson.