Friday, September 10, 2004

Homer Simpson and the Social Security surplus

In one episode of The Simpsons, a desperately-hungry Homer (is there any other kind?) seeks out his Emergency Donut Stash. The Emergency Donut is missing, however, replaced with a note: "I owe Homer Simpson one donut. Signed, Homer Simpson." Homer shouts out in despair, "Damn that guy! He's always one step ahead of me!"

An little-seen parallel may exist between Homer Simpson and the federal government regarding the Social Security surplus.* While the federal government as a whole is running a huge deficit thanks to the Bush Administration, the high payroll taxes funding Social Security have created a "surplus" where Social Security is taking in more than it spends. The idea is that this surplus will be saved for the future when the Baby Boom generation retires in droves, with a small population of younger workers unable to pick up the entire tab for their elders' SS funding.

The parallel to Homer arises because that Social Security surplus is invested federal government securities, Treasury notes. These are functionally the same thing as bond notes, which are functionally the same thing as loans. So the government is getting real dollars from workers and their employers, converting that money into loans to itself, spending the money now on the Bush deficits, and describing those current liabilities it owes as the Social Security surplus that will pay for Baby Boomer retirement. So is this surplus any more real than Homer's IOU?

Actually, it is somewhat more real, but that does not make everything hunk-dory. If Homer had the ability to tax donuts away from Bart, Lisa, and Maggie, or to reduce spending on their education to help him buy donuts, the analogy to the SS surplus would be a lot closer. I believe the SS surplus is real in the sense that the federal government will never default on Treasury notes, even ones it issued to itself. T-notes are too valuable in international finance to do anything that would reduce their reliability. However, the government will have to find the money from somewhere to pay the T-note obligations. Expect higher taxes and reduced government benefits in return. Baby Boomers may get their Social Security, partly, but will see other benefits like Medicare get cut.

This might seem somewhat abstract at this point, but knowing what you think about whether the surplus is real will help you decide what, if anything, needs to be done to change Social Security. I'm unsatisfied with most of the answers I've seen so far, but that's for a later post.

*P.S. I will swear on a stack of Bibles that I came up with the Simpsons analogy completely on my own. Unfortunately, in the process of writing this I committed my second-ever act of blog research to see if someone else had the idea, and someone did. Damn this guy! He's always one step ahead of me!

P.P.S. Simpsons purists may note some slight discrepancies from the actual TV show. Please don't flail me, I'm writing from memory. Noone could possibly expect me to do multiple acts of research for a single post. Do you think Homer would do that?

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