It’s the Lockbox, Stupid
By Nathan Smith
Posted On March 17, 2005

Don Luskin thinks he started a meme last week, with a National Review article entitled “Call it a ‘Lockbox’.” Now the Wall Street Journal is using the phrase, too. Actually, Luskin was not the first: Arnold Kling wrote an article entitled “Privatization: The Ultimate Lockbox.” I could never figure out why it didn’t catch on. Was I missing something? If the sound bite is picking up momentum now, all I can say is: Finally! Look, I know it sounds stupid and campy. I know Saturday Night Live made fun of it. I know it’s humiliating to parrot the other guy’s slogan, especially when the other guy is as lame as Al Gore. But Republicans are going to have to swallow their pride and start banging on about the lockbox lockbox lockbox. It’s the pithiest way to make the point that personal accounts are not a harebrained scheme, but just common sense.

Our grandparents, the present generation of retirees, Tom Brokaw’s “Greatest Generation,” who fought World War II and labored to fuel the boom of the 1950’s and 1960s, feel entitled to their Social Security checks. They put the money in, now they’re getting it back out. As far as they know, it was a forced saving scheme. Saving is a good, virtuous thing to do. In their own minds, they’re not welfare beneficiaries, they’re just reclaiming what is their own.

If there’s a problem with the program, it’s that those darn politicians keep spending the money.

I talked to my grandpa over the Christmas holidays. Politics came up. A lifelong Republican, he had been impressed by the news coverage of the “values” vote. “If those evangelicals hadn’t come out to vote, John Kerry would be president right now,” he said, in the tone of a man who discovers he would have been the victim of a gangland killing if he had taken a different street home.

But he didn’t understand why Bush wanted to change Social Security.

I pointed out to him that Social Security was a great deal for him and Grandma, but a rip-off for us, because we would pay taxes into it our whole lives and then the program would go bankrupt. He was saddened by my words. I didn’t blame him for it personally, of course. But it’s unpleasant to find out that the way you’re living is making life hard for your grandkids.

Looking off into the distance, he said wistfully, “The problem is the politicians. They keep spending all the money. If they would just save it, we wouldn’t have these problems.”

There it is. The folk-economics explanation of Social Security’s problems. It’s a widespread feeling, the same one Al Gore tapped into with his “lockbox” phrase. Gore said in the first presidential debate in 2000:

If I'm entrusted with the presidency, here are the choices that I will make. I will balance the budget every year. I will pay down the national debt. I will put Medicare and Social Security in a lockbox and protect them…

I think that we have got to balance the budget every single year, pay down the national debt and, in fact, under my proposal the national debt will be completely eliminated by the year 2012. I think we need to put Medicare and Social Security in a lockbox… I don't think it should be used as a piggy bank for other programs…

I will keep Social Security in a lockbox and that pays down the national debt. And the interest savings I would put right back into Social Security. That extends the life of Social Security for 55 years…

[Bush’s] leading advisor [said that under his reforms] the Social Security Trust Fund could start borrowing. It would borrow up to $3 trillion. Now, Social Security has never done that. And I don't think it should do that. I think it should stay in a lockbox, and I'll tell you this. I will veto anything that takes money out of Social Security for privatization or anything else other than Social Security.

This sounds good. Millions of American seniors know these principles well. They’ve lived by them for decades. Balance your checkbook. Don’t borrow. Don’t spend what you’ve put aside for a rainy day on other things you want. If those principles are good enough for millions of upstanding American households, they should be good enough for the federal government.

But wait. The Social Security Trust Fund consists of Treasury bonds. If we eliminated the national debt completely by 2012, there wouldn’t be any Treasury bonds. The Social Security Trust Fund would still be collecting surpluses, but there would be no Treasury bonds left to buy. Gore’s plan doesn’t make sense.

And this brings me to what I had to explain to Grandpa: the government can’t save.

Think about it, I told him. If the government collects payroll taxes and wants to save them, how does it do it?

When you want to save money, you deposit it in the bank, right? Now, can the government do that? Can the government deposit a trillion dollars of Trust Fund money in banks?

Well, what bank would the government deposit the money in?

Normally banks have to advertise, maintain branch offices, and let people open accounts. People deposit a few hundred or thousand dollars at a time. The bank has to give people their money back on demand. They have to maintain ATMs and pay tellers, and keep cash in the vaults. Those are just the things banks have to do if they want to raise the money to make loans and investments.

Now imagine that the federal government shows up one morning at your local bank and makes a deposit of a few hundred million dollars. And they say they won’t withdraw it until 2018.

That’s great for the bank. They can take the money and put it straight into high-return stocks and bonds, and make a huge profit. Any bank that got Trust Fund deposits would be on Easy Street, so all the banks would lobby for it, and politicians would end up handing out big windfall profits from federal deposits to their friends. You’d get a lot of corruption that way.

Or we could have the government invest the money in the stock market. But then the government becomes the partial owner of corporate America. You’d have federally-appointed Social Security trustees voting to fire or retain CEOs. Instead of the partial privatization of Social Security, we’d end up with the partial nationalization of the economy.

See the problem, Grandpa? You and I can go to the bank and save money because we’re small. We barely make a ripple. The government can’t. It’s too big. It makes a huge splash. Any way the government tries to save money will cause distortions in the economy.

Al Gore had the right idea when he talked about the lockbox. The only problem, Grandpa, is that he would have given the key to the lockbox right back to the politicians, and all they can do is spend. You need to give the key to the lockbox to the people, because they’re the ones who can save.

Well, I really opened Grandpa’s eyes. He understood that the government doesn’t fail to save the Social Security surpluses because of some moral failing on the part of politicians. It’s not that Congress has its hand in the till. The government can’t save. Once he understood that, it was easy to convince him that we needed to create private accounts, because he had thought of the Social Security program all along as a way to save for the future.

Our grandparents are a patriotic, public-spirited lot. They’re proud of all that they’ve done for freedom over the past few decades, and they deserve to be. They don’t want to spoil it now by running Social Security into the ground and leaving their children and grandchildren in a fiscal quagmire. Republicans should talk about the lockbox until we’re all bored to death of it, like Al Gore did. Then explain that the government can’t save for us. If we want saving to happen, we have to do it ourselves. They’ll come around.

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