Now, my sense is that we are dealing with a non sequitur, but Krugman uses those a lot. However, I'm not going to debate the merits of SS today, but rather deal with one statement that Krugman has made regarding the "trust fund." He writes:
About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.Here is the problem: the "special account" is nothing more than short-term government paper that matures every six months. At the present time, most government debt is paid via...more government debt -- plus interest. Now, this looks nice, officially-speaking, but the problem is that the mechanism for turning this bond-laden "trust fund" into cash is for the government to sell the bonds.
But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come. (Emphasis mine)
Now, if I know Krugman, he would say (as would James K. Galbraith) that this is no problem, because the Federal Reserve System can buy the bonds. (He has not said this, I know, but I suspect that would be in his arsenal of answers.) In other words, the ultimate "backing" for Social Security is a glorified and "sophisticated" mechanism of printing money.
So, I would not exactly call this a sound system of "investment." My sense is that Krugman is trying to score ideological points, not promote good finance.