Subway Tokens and Social Security
There is a wide-spread belief that Social Security surpluses must be saved for future retirees. Most believe that this can be done by accumulating a Trust Fund and ensuring that the Treasury does not spend the surplus. The saviors of Social Security thus insist that the rest of the governments budget must remain balanced, for otherwise the Treasury would be forced to dip into Social Security reserves.
Can a Trust Fund help to provide for future retirees? Suppose the New York Transit Authority (NYTA) decided to offer subway tokens as part of the retirement package provided to employeessay, 50 free tokens a month after retirement. Should the city therefore attempt to run an annual surplus of tokens (collecting more tokens per month than it pays out) today in order to accumulate a trust fund of tokens to be provided to tomorrows NYTA retirees? Of course not. When tokens are needed to pay future retirees, the City will simply issue more tokens at that time. Not only is accumulation of a hoard of tokens by the City unnecessary, it will not in any way ease the burden of providing subway rides for future retirees. Whether or not the City can meet its obligation to future retirees will depend on the ability of the transit system to carry the paying customers plus NYTA retirees.
Note, also, that the NYTA does not currently attempt to run a balanced budget, and, indeed, consistently runs a subway token deficit. That is, it consistently pays-out more tokens than it receives, as riders hoard tokens or lose them. Attempting to run a surplus of subway tokens would eventually result in a shortage of tokens, with customers unable to obtain them. A properly-run transit system would always run a deficitissuing more tokens than it receives.
Accumulation of a Social Security Trust Fund is neither necessary nor useful. Just as a subway token surplus cannot help to provide subway rides for future retirees, neither can the Social Security Trust Fund help provide for babyboomer retirees. Whether the future burden of retirees will be excessive or not will depend on our societys ability to produce real goods and services (including subway rides) at the time that they will be needed. Nor does it make any sense for our government to run a budget surpluswhich simply reduces disposable income of the private sector. Just as a NYTA token surplus would generate lines of token-less people wanting rides, a federal budget surplus will generate jobless people desiring the necessities of life (including subway rides).
L. Randall Wray Professor, Economics Dept Senior Research Associate, Center for Full Employment and Price Stability211 Haag Hall 5100 Rockhill Road University of Missouri--KC Kansas City, Mo 64110-2499 phone 816-235-5687, fax 5263 email email@example.com
November 18, 1999