Don Boudreaux points us to a Charles Krauthammer op-ed decrying the whole Social Security lock-box thing. Krauthammer writes:
"The Social Security trust fund contains - nothing. Here's why. When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone.
In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds. Special they are: They are worthless. As the OMB explained, they are nothing more than "claims on the Treasury [i.e., promises] that, when redeemed [when you retire and are awaiting your check], will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures." That's what it means to have a so-called trust fund with no "real economic assets." When you retire, the "trust fund" will have to go to the Treasury for the money for your Social Security check."
Boudreaux has opined similarly in this video he created:
Somebody oughta forward Krauthammer's article to China. They'd probably be interested in learning that Treasury debt is "worthless". It's amazing this non-issue is still such an issue.
If you insist on thinking of the OASDI trust fund (the "Social Security lockbox") as being the same financial entity as the U.S. Treasury as Don does, that's fine - but then there's nothing to be concerned about - it's as if the bonds were never issued. It's just the way it's written down on paper. Another way to look at it is the government redeeming its own bonds. Corporations do that all the time. All you have is the Treasury paying out the Social Security benefits later. If you really think the Treasury and the trust fund are the same entity, then it shouldn't matter that the Treasury puts up the cash to fund the benefits later.
If the OASDI trust fund and the U.S. Treasury are not the same entity, then who cares if they hold each others' debt? Again, in the corporate world this would just be one company holding another company's bonds. There would be no issue with it whatsoever.
Krauthammer probably just doesn't know what he's talking about. I'm not sure if Don doesn't know what he's talking about or if he does and he's just trying to pull the wool over people's eyes. I don't know which is the more charitable option, so I'll refrain from guessing which.
But here's what Krauthammer and Boudreaux are arguing - they're essentially saying that when FICA taxes come in the U.S. Treasury and the OASDI Trust Fund are the same entity, but that when Social Security benefits get paid out they're not the same entity. I don't care what way we want to think about it. Most policy analysts treat it like the latter situation - that these different funds are different entities. But it works either way. What you can't do is pretend that sometimes they're the same thing and sometimes they're not the same thing. That's what Boudreaux and Krauthammer are doing, and it makes for very bad analysis.