If a trillion dollars falls in the forest, does it make a sound? Apparently -- it's the sound of a handful of Privateers who just can't stop repeating the same old crusty myths.

MYTH: Still no trust fund

Alas, there is no trust fund to keep paying benefits until 2041, as claimed by system supporters: All Uncle Sam possesses is a file cabinet full of IOUs from one federal agency to another. These special issue Treasury bonds (which cannot be sold) have been termed an "accounting mechanism" by the Congressional Budget Office. With or without them, the government will have to drastically cut benefits, dramatically raise taxes, or significantly increase borrowing to keep sending out benefit checks. (Doug Bandow, "Making the case for Social Security reform," Town Hall, 4/18/05)

However, as the trustees have repeatedly made clear, there are only three options available to redeem the Treasury securities in the trust funds: raise taxes; borrow the money and increase the budget deficit; or reduce spending on other government programs. (editorial, "The trust funds," Washington Times, 4/15/05)

To hear AARP tell it, the Trust Fund is a big pot of money sitting somewhere that will help the government pay benefits painlessly through roughly 2042. When pushed, AARP acknowledges that's not exactly true but protests that the Trust Fund's self-referential IOUs should be just as secure as other U.S. government debt. But that's exactly the point: the Trust Fund is a debt , not an asset. The most accurate way to think about the Trust Fund is simply as the amount of money that Congress will have to raise in future general tax revenues to pay itself back for the surplus payroll taxes (above current year elderly benefits) it's squandering on other things now. (editorial, "AARP's double game," Wall Street Journal, 4/18/05)

REALITY

OK -- this is really getting mindboggling. We have been documenting Privateers' quest for the "missing" Social Security trust fund for months now, and they still can't find it! How thick are these people? I suppose if our Dear Leader continues to play-act his way through failing Finance 101, then commentators have cover for believing whatever is convenient at the time.

To repeat: yes, Virginia, there is a trust fund. The fundamental continuing deception here is the notion that the government takes in the payroll tax money and, finding a surplus (no surprise, since the surplus was planned to cover the baby boom retirement), just eats the money. I say eats because there is no financial term I am aware of that would account for this mysterious process. Even robbery isn't accurate, since robbery is still a transfer. The way Privateers want to have it, spirit-like money comes and goes in the manner of ghost in a haunted house.

The reality is not so mysterious. The surplus is invested (by law) in Treasury bonds, long considered the safest investment in the world thanks to such guarantees as the 14th Amendment. These bonds are assets held by Social Security. At the same time, the general account now has money from selling the bonds and a debt, in the form of the very same bond. Thus, the nature of moving money around: it leaves a trail of debt, on the one hand, and credit, on the other.

But wait, Privateers say -- you're borrowing from yourself! An infinite loop! A black hole! Well, no. We're not that stupid. The Social Security trust fund (technically, trust funds) is a separate legal entity from the rest of the government, existing for the last seventy years solely for this very purpose -- so that assets can be assigned to the Social Security program. As much as the president likes clowning around in a filing cabinet in West Virginia, ha ha ha, these assets are quite serious -- these are bona fide Treasury bonds, secured by the full faith and credit of the United States.

The process should be clear by now. So what happens, as Privateers stupidly ask again and again, when it's time for Social Security to collect? Why, the same thing as happens when any of our other bond-holding creditors collect -- we pay them. As it turns out, the U.S. is pretty much on easy street when in comes to debt, and if somebody (say, China) wants to cash in their bonds, somebody else (say, Japan) will pick them up. The same goes for Social Security. If, in the future, when Social Security draws on its trust fund, we aren't rolling in surpluses, those bonds will be rolled over and someone else will carry the debt. (Mr. Bandow is disingenuous in claiming they can't be sold -- sure, the trust fund holds special-issue Treasury bonds, but you can bet your ass the Treasury knows how to change them over. You can also think of this as borrowing from one source to pay back another, or moving debt from column A to column B, while the total debt stays the same.)

MYTH: African-Americans "lose" on Social Security

But blacks receive far less in return for their Social Security contributions. One in three will get no benefit at all because he will die before he is eligible to collect benefits. After a lifetime of paying into Social Security, nearly 30% of black seniors are left in poverty, compared to 7% of white seniors. And while the average black male lives to age 67.8--after collecting less than one year of Social Security--the average white male will collect seven years of benefits. In effect, black workers are subsidizing the retirement of whites. The inevitable results of not reforming Social Security--raising payroll taxes or reducing benefits--would only worsen the situation for blacks. (Alphonso Jackson, "It really is black and white," Wall Street Journal, 4/19/05)

REALITY

John DiIulio, Bush's former Faith-Based Initiatives director, famously said of the White House: "What you've got is everything, and I mean everything, being run by the political arm. It's the reign of the Mayberry Machiavellis." So John Snow, ostensibly the Secretary of the Treasury, is tooling around the country "giving speeches to high school students," as Bruce Bartlett puts it, since all the actual decisions are out of his hands. I suppose we can expect the same to be true in other departments, and here we have proof: Alphonso Jackson, the Secretary of the Department of Housing and Urban Development (what -- never heard of him?), is shilling for Social Security privatization.

It is true that blacks are disproportionately affected by poverty -- that is the great American travesty. But Social Security is designed to benefit lower-income workers the most, thanks to a progressive benefit calculation, disability and survivor pensions, and the total security provided by the bedrock guarantee of adequate support, rather than a return commensurate to risk found in a diverse portfolio. It is simply incorrect to say blacks receive less from Social Security, a claim we have dealt with before (see here and here).

In (morbidly) citing life-expectancy statistics to see how long you can expect to receive Social Security, it makes little sense to cite the one looking at expectancy when someone is born -- rather, look at the how long someone aged 65 should expect to live (and get Social Security checks). As Paul Krugman explained when the president made this error a few months ago, "Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood. African-American men who make it to age 65 can expect to live, and collect benefits, for an additional 14.6 years - not that far short of the 16.6-year figure for white men." Not so indicative of a grand imbalance in the retirement system.

In fact, as hinted above, because blacks are disproportionately poorer, they receive better benefits -- SS replaces about 56% of the wages of low-income workers, compared with 42% replacement for average earners and less for high earners. Since low-income workers have little or no flexibility in investing, Social Security's guaranteed support is often the only source of income -- as is the case for one in three African-Americans. More than half of black seniors rely on SS for most of their retirement income. Blacks also disproportionately benefit from survivor and disability benefits, features of Social Security that Privateers never fail to forget.