The Wall Street Journal (5/17) carries a letter from the AARP criticizing private accounts. Extract: “To compensate for the less of Social Security revenue into private accounts, the federal government would have to borrow significant sums in order to pay promised benefits–$754 billion in the first 10 years, and $3.5 trillion in the following decade.”
AARP suggests as an alternative (1)raising the wage cap on SS taxes, and (2) “diversifying the Social Security Trust Fund investments to get a higher return.”
To the extent that SS Trust Fund inflows are invested in corporate securities to get that “higher return”, they would not be available to fund other government shortfalls–thus, the government would have to issue additional debt to cover these shortfalls. Just as in the case of private accounts, the money going into the private accounts would have to be made up by other debt. Whether the money is invested by the government or by private account holders makes no difference on the amount of new Treasury debt that would have to be issued to offset it; the only thing that changes is the legal status of the account ownership.
Also: one variant of private accounts would require that the money be invested in Treasury securities. In this case, the money would still be available to fund other government shortfalls…just as if it were going into the Trust Fund.
The tradeoff with stock/bond investments is probably-higher returns in exchange for more issuance of government debt to cover the money no longer flowing in from SS payments. This applies whether the investments are made in the form of individual accounts or whether they are made thru a government pool.
We need more clarification of what the SS alternatives really mean, which requires good-faith attempts to elucidate complex financial matters. There’s been far too little of this and far too much political posturing, on both sides.