What Really Supports the Elderly? (Hint: It’s Not the Trust Fund)

UNCOMMON SENSE 29 © October 2014

By June Zaccone, Economics (Emerita), Hofstra University, and Executive Committee, National Jobs for All Coalition

Many discussions of Social Security support the fallacy that money is what sustains us and provides our standard of living. Both Republican and Democratic plans for “saving” Social Security depend on acceptance of this fallacy–that all we need to do is to provide funding. If this were the answer, then the government has the power to create money, and thus eliminate the assumed problem. Of course this is not true, and put in this way, no one would recommend it.

But what exactly is the problem with it?

Suppose you were stranded on a desert island with $1 million in cash, but no food, clothing, shelter or tools. Wouldn’t it be obvious that until a ship comes by or you get back to an area where you can buy something or make something or grow something, the million dollars will be useless? That what you need is goods and services, and cash is only a way of financing, not of providing them. And that you might be willing to exchange all your cash for bread and water?

What Determines Our Standard of Living?

What keeps us alive and gives us the consumer goods and services we need or want is what we produce and what nature provides us. Our standard of living depends largely on our capacity to produce goods and services and to make use of the bounty of nature. How much our standard of living increases depends on how much we have invested in people and factories and machines, and how well we have protected our soil, water and other resources. Lack of good health care or underfinancing education for our young people undermines their future and ours. Starving research or leaving it to the private market does, too.

We Can’t Save Social Security by Buying Stock

Those who talk about “saving” Social Security by using its funds to buy stocks to get its higher returns forget this simple truth. Many stock owners, brokers and investment houses believe that they are the source of productive wealth. They can’t believe that the values they trade in depend on marketing ability, animal spirits, and money available for speculation, and are only loosely related to the real world of production, skills, and investment which really provide our wealth. However important for startups, the stock market is nearly irrelevant to established businesses, which either use retained earnings or borrow to finance their investment. In fact, since the mid-1990’s, stock buy-backs by non-financial corporations have exceeded new stock issues. [See Note. Buybacks help to keep up a company’s stock prices.]

What Needs to Be Done

This truth is that we depend on our output of goods and services, not money, to get what we need to survive. And our failure to protect and enhance our ability to produce in the future imperils Social Security and much besides.

Note: US Flow of Funds: Equities , Figure 9, p.6, Yardeni Research ________________________________________________
Editors: Helen Lachs Ginsburg, Economics (Emer.), Brooklyn College, CUNY and June Zaccone, Economics (Emer.), Hofstra University