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Call It a “Lockbox”!
That's right: A Social Security personal account would be a true lockbox.


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Donald L. Luskin

Of all the lies we hear over and over in the Left’s attack against Social Security reform, the most dangerous and profoundly untrue is that personal accounts would do nothing to help cure the system’s insolvency. It’s an odd lie for the Left to tell, considering that they also claim that there is no insolvency problem in the first place.

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The public knows there is an insolvency problem. A recent New York Times/CBS poll shows that 68 percent of Americans believes there is either a “crisis” or a “serious problem,” and 55 percent believes it’s so serious that it needs to be addressed right now. So it’s up to the advocates of reform to make the case that personal accounts are part of the solvency solution.

Frankly, the White House has done a poor job so far of making this case. White House policy wonks have mistakenly conceded that personal accounts don’t address the solvency issue — which the Left takes every opportunity to point out. But as with everything else the Left has said in this debate, their rendition of the White House’s concession is greatly exaggerated. Sure, the White House conceded that putting money into personal accounts that would have otherwise gone into the Social Security Trust Funds doesn’t create new money to bolster the system. But that doesn’t mean that personal accounts invested in private markets wouldn’t strengthen the system another way — by pre-funding future benefits with real economic resources.

There’s a way that the advocates of reform could easily make this case. All they have to do is borrow a famous buzzword from none other than Al Gore.

No, I’m not kidding. The fact is that personal accounts are nothing less than a Social Security lockbox. Yes, a lockbox — what Al Gore went on and on about in the 2000 election.

It’s obvious when you think about it. When your payroll tax dollars go into your own personal account — which you can invest in private markets, and in which you have heritable property rights — that account is a lockbox. Government can’t spend the money in there, because it’s yours, and you’ve invested it.

Under the current system, some of your tax dollars pay for the benefits of today’s retirees. Whatever’s left over goes into the Social Security Trust Funds, which use the money to buy Treasury bonds. That means, effectively, that the Trust Funds get an IOU from the general fund of the government — and the government gets to spend the money.

Sure, as the Left always points out, those IOUs are legitimate moral claims on the government, just like any Treasury bond. But they don’t represent actual savings — because the government spends the money the moment it receives the money. When it comes time to redeem the bonds in the Trust Funds to pay benefits, the government will have to either tax or borrow to raise the needed money.

This should make it clear that the Trust Funds represent no pre-funding of future benefits at all. Social Security is now, in fact, nothing but a pay-as-you-go system. As the Congressional Budget Office put it in a June, 2004, report, “positive trust fund balances indicate the legal authority to pay benefits but not the budgetary resources to do so.”

Your Social Security personal account, on the other hand, will be true savings. You’ll have the opportunity to really invest your money in the private economy — corporate stocks and corporate bonds, real diversified investments that don’t require anybody paying higher taxes or borrowing more money when it comes time for you to sell during your retirement years.

The Left always refers to the proposed Social Security reforms as “privatization,” which creates the impression that the Bush administration wants Halliburton to administer the system on a no-bid contract. And they always call personal accounts “private accounts,” as though there were something furtive or shameful about them. But what the Left doesn’t want you to know is the true importance of that word “private” — investing in the private economy is the only lockbox there can ever truly be.

Some of the cagier spokespeople for the left understand this, and so they advocate letting the government invest in the private economy by holding stocks in the Social Security Trust Funds. For example, Paul Krugman wrote in 2001 that “the federal government must accumulate claims on the private sector, which can eventually be used to pay benefits.”

But what kind of lockbox would that be? Can the public sector every really make private investments? Can the same government that sues the tobacco industry out of existence also be a major shareholder in tobacco companies on behalf of millions of retirees? No joke — Bill Clinton recommended both investing the Social Security Trust Funds in the stock market and suing the tobacco industry in his 1999 State of the Union Address.

The only true lockbox is the one you can hold in your own hands — your personal account. Or let’s just say it — what the hell! — your private account. There lies a true key to curing Social Security’s solvency problems.

– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your visit to his blog and your comments at [email protected].



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