If you want to start a heated debate among policy wonks, just ask them about the Social Security trust fund. A large contingent of people will tell you that it’s real government debt; another large contingent will tell you that a government can’t borrow from itself and that the trust fund is little more than an accounting fiction.
I’ve never been entirely comfortable with either attitude, but haven’t been able to conceptualize something better — until now. Zubin today quotes Merrill Lynch’s David Rosenberg, who has a great way of viewing Social Security:
This debt represents a promise (incomplete according to the trustees) of a government-run pension plan. Rather than representing "real" debt, it is simply a promise to issue real debt when these promised pensions must be paid out.
In other words, the money hasn’t really been borrowed, yet — the obligations of the trust fund aren’t tangible obligations fungible with other government debt. But at the same time they are obligations: they oblige the government to issue debt in the future, insofar as its tax revenue won’t be able to cover its pension promises.
A real bond, on this view, is one issued in exchange for real cash. The pensions will be paid out, in cash — but until then it doesn’t make a lot of sense to consider Social Security debt to be as big of a deal as the equivalent amount of already-issued Treasury bonds.