Privatizing Social Security
A View from the Ozone Layer
2023 contributions to the Social Security and Medicare trust funds totaled 1.82 trillion dollars (https://www.ssa.gov/oact/STATS/table3c3.html). Trust fund balances at the end of 2023 equaled $2.78 trillion. During 2023, trust fund balances fell by $41 billion or 1.45 percent (https://www.ssa.gov/oact/STATS/table4a3.html).
At the same time, the off-budget portion of the federal budget, of which the trust funds are the major component, contributed $66.5 billion in interest income to the federal treasury – over half again the trust funds’ deficits.
Even ignoring the interest income contribution to federal receipts, the trust funds’ deficit for the year was equivalent to only 0.83% of federal on-budget expenditures of $4.91 trillion (https://www.whitehouse.gov/omb/budget/historical-tables/). This is hardly a devastating fiscal problem. There are a lot of larger targets within the federal government if one wanted to efficiently eliminate waste.
Economy-wide, the trust funds’ deficit is less than two-tenths of one percent of 2023 GDP (www.bea.gov). The deficit in Social Security and Medicare expenditures is, at most, a cricket in the federal budget. It is less than a gnat in the economy as a whole.
So why does it get such hysterical attention? Why do wealthy people insist so vocally that it be eliminated? To the extent that the programs are nearly self-sustaining, why do they matter so much to people they seem to affect so little?
Consider the stock market. The answer is there.
According to the Federal Reserve, the wealthiest ten percent of U.S. Citizens own 91 percent of individual stock holdings. They also own 87 percent of pooled investment funds, 73 percent of retirement accounts, and 76 percent of other managed assets (https://www.federalreserve.gov/econres/scfindex.htm).
What do all of these things have in common? The stock market.
On December 21, 2023, the U.S. equities market (the stock market) had a value of $50.78 trillion (https://www.siblisresearch.com) . The Social Security and Medicare trust fund balances at the time were equal to 5.5 percent of equity market value.
Most ordinary people think that money invested in the stock markets builds factories and economic growth – that it increases economic wealth. Unfortunately, that is not true. Money invested in the stock markets merely buys shares of existing factories and economic assets, and, since the shares bought are necessarily sold by someone else, there is absolutely no net change in economic assets or potential growth. Where the sale results in a higher stock price, it generates financial wealth. It does not, however, change the growth trajectory of the economy.
At any moment there is a fixed number of shares that can be bought and sold in the market. Increasing the money chasing those shares will increase the financial values (but not the economic values) of those shares. It is simply inflation in stock prices.
Who does that benefit? That benefits the people who currently own those shares of stock.
Pouring the trust fund balances into the stock market should increase the price (financial value) of stocks by $2.78 trillion. Given the shares of wealth in stock and stock-related accounts noted above, somewhere between 82 percent and 91 percent of this appreciation will accrue directly to the wealthiest 10 percent of the population. This is somewhere in the range of $2.28 trillion to $2.53 trillion dollars in wealth that will come to them as a windfall. They won’t have to do anything. It will just happen.
Pouring this $2.78 trillion into the market will also generate management fees and commissions for financial planners, money managers, and investment firms throughout the U.S. For every quarter-percent in fees associated with this initial transaction, these folks will receive $6.95 billion in fees.
There’s more. Contributions to the trust funds during 2023 were $1.82 trillion. These were matched by benefit payments. Assuming the privatization of the trusts could be done without reducing participation and benefits, this would generate stock market churn of $3.64 trillion a year, every year. Every quarter-percent in fees associated with this churn would generate $9.1 billion dollars in fees annually for these same financial planners, money managers, and investment firms. This windfall would go on forever.
Consider Elon Musk, Jeff Bezos, and Mark Zuckerberg. They have an estimated combined net worth of $922 billion. If they are typical of the wealthiest 10 percent of Americans, they hold 69% of this wealth in the investment vehicles we have outlined above. That would be $636.2 billion. If pouring the Social Security and Medicare trust funds into the stock market would generate a 5.5 percent increase in the financial value of stocks in the U.S. markets, these three individuals would share a windfall of approximately $35 billion. It would be free money. It would be just like magic. They wouldn’t have to do a thing.
Finally, Social Security and Medicaid were never envisioned as investments at risk. They provide services to people who do not generally have large amounts of money for speculation. While Elon, Jeff, and Mark can play the casino with billions of dollars, they also have billions in reserve in case the market goes south. The recipients of Social Security and Medicare don’t have those reserves.
Social Security and Medicare were devised so their recipients could be secure even though they did not have the reserves needed to play the market. They value and require security because they need those benefits. They have no marginal income or wealth to lose. Privatizing Social Security and Medicare would put people who are, by necessity, risk averse into a game played by people who can afford the risk.
Clearly, there would be a lot of winners in funneling Social Security and Medicare into the private investment market. None of them, however, would be the people that need and depend upon Social Security and Medicare. The reason wealthy people want to privatize Social Security and Medicare is not that the programs are a significant burden upon them. It is because the privatization would provide them with a major unearned windfall.