> Social Security, is in the simplest sense of it, taxing the young, and giving it (without strings at all) to the old.
Except that that's not how Social Security was originally intended to work except at the very start, when there was no trust fund built up. The original intent was that people's contributions would go into a trust fund which would appreciate in value over time, so that payments to current retirees would come largely from the trust fund, not from current receipts from workers.
The problem was that the trust fund appreciated in value so well that our statesmanlike politicians decided they could siphon money from it in exchange for IOUs. Which is why the trust fund is now close to insolvent, because instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury that, as the fraction of the population that's retired continues to increase, the Treasury won't be able to pay back fast enough.
In short, what's morally bankrupt is not Social Security as it was intended, but our politicians who could not resist stealing the money from it instead of using it as it was intended.
Are you sure you understand how pension funds work?
> politicians decided they could siphon money from it in exchange for IOUs
No funds have been "siphoned" out of Social Security. It's not a bank account. When contributions exceed payments, the excess is invested in US Treasurys. When payments exceed contributions, those assets are sold to make up the difference.
> instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury
Is your argument that instead of purchasing Treasurys, some other asset should have been used? Like what, municipal bonds? Corporate bonds? Real estate? Gold?
How do companies and other countries manage their pension funds? Do they not invest in IOUs of governments or corporations?
Are you sure you understand what happens to the cash that the trust fund gives to the Treasury in exchange for the US Treasuries it purchases? The US government spends that cash. That means that, when the trust fund needs to sell US Treasuries back to the US government to make payments, the US government has to get the cash from current funds, i.e., from current taxpayers, over and above what current taxpayers are already paying in to Social Security, or by printing new money. (For quite some time now, it has been doing more of the latter than the former.) This also shows, btw, that US Treasuries are not "securities" in the usual sense of the term, because the cash obtained by the seller (the US government) is not used to finance investments; it's used to pay current expenses.
The above is not how a standard pension fund works. A standard pension fund has to be able to make current payments from the earnings it has collected on past payments. That is originally how Social Security was supposed to work, but it is very, very far from working that way now and has been for a long time.
And yes, of course standard pension funds invest payments coming in in a portfolio of securities; but if the fund is having to sell securities outright (i.e., prior to maturity) to make current payments, instead of just making payments from the earnings on those securities, it has a big problem. Which is exactly the problem Social Security has; except that, because the US government is a sovereign government and can print money and lie about its accounting, it has been able to obfuscate what is going on.
This is no different than if excess contributions were invested in any financial asset.
Let's pretend that instead of buying Treasurys, excess contributions were invested in Verizon bonds or Alabama municipal bonds or shares of Facebook. Those assets would have to be sold years later when payments to beneficiaries exceed contributions.
> what happens to the cash that the trust fund gives to the Treasury
If the trust fund gave cash to Verizon in exchange for its bonds, Verizon would spend it to build networks and cell towers. If instead you go with the Alabama Port Authority, they'll spend the cash on the port. Give cash to Peter Thiel to buy his Facebook shares and he'll spend it building an offshore libertarian paradise.
So what?
Pension funds don't collect warehouses of cash, they invest in income-producing assets. Why does it matter if those assets are issued by Verizon, Alabama, Facebook or the Treasury?
> Pension funds don't collect warehouses of cash, they invest in income-producing assets. Why does it matter if those assets are issued by Verizon, Alabama, Facebook or the Treasury?
Because Verizon and Facebook invest the cash they receive from sales of shares in assets that create wealth. (At least, we're assuming they do for this discussion; to they extent that they don't, they're not good investments, which is my point.)
To some extent the Alabama Port Authority is indeed similar to Verizon or Facebook, although I'd want to see their books to see how much was actually being used to create wealth. But the vast majority of the cash given to the US Treasury in exchange for T-bills goes to pay current expenses, not to create new wealth. It's as if you bought shares in Peter Thiel's latest startup and he used the money to buy groceries or pay his electric bill instead of building infrastructure for the startup.
I can anticipate one objection: surely Verizon and Facebook spend a lot of money on salaries and benefits, office supplies, etc.? Yes, they do; but if they're using cash from sales of shares to do that, they're in trouble. Cash for operating expenses should be coming from operating revenues, not from new investment; if new investment is being depended on to fund operating expenses, we call that a Ponzi scheme.
Except that that's not how Social Security was originally intended to work except at the very start, when there was no trust fund built up. The original intent was that people's contributions would go into a trust fund which would appreciate in value over time, so that payments to current retirees would come largely from the trust fund, not from current receipts from workers.
The problem was that the trust fund appreciated in value so well that our statesmanlike politicians decided they could siphon money from it in exchange for IOUs. Which is why the trust fund is now close to insolvent, because instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury that, as the fraction of the population that's retired continues to increase, the Treasury won't be able to pay back fast enough.
In short, what's morally bankrupt is not Social Security as it was intended, but our politicians who could not resist stealing the money from it instead of using it as it was intended.