Sunday, December 26, 2004

Simplification

A question for budding and not so budding economists out there. It has been said that the transitional cost of the President's suggested Social Security privatization plan is around two trillion dollars. That is, when people start diverting some of their contributions to SS into private investment accounts, it will be necessary to "borrow" money from somewhere to make up the shortfall in money necessary to pay the current beneficiaries of SS. The argument from the "reform" crew is that if we don't do this then the SS trust fund will go broke in about 40 years.

My question is this: what would happen if we were to simply borrow that two trillion dollars and feed it directly into the Social Security trust fund? If we did that, when would the trust fund go broke? Would it ever go broke?

If this would fix the "crisis", why not just borrow the money and have done with it? Why add on to it the whole complexity of setting up these forced investment accounts? Especially considering that there is a real question as to whether these accounts would pay better dividends for retirees down the road than the current system.

This is an honest question even though I suspect I already know the answer.

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