In these highly partisan times, policy debates about irrelevant questions are unhelpful in resolving real issues. This is illustrated by the recent commentary by Robert Landreth in which he takes Rep. Barney Frank to task for comments about the “solvency” of Social Security.

To understand the irrelevance of this discussion, recall that “solvency” is defined as “(t)he state of a company being able (my emphasis added) to service its debt and meet its other obligations . . .” (Farlex Financial Dictionary, 2009). This concept, when applied to an economic entity (e.g., a private corporation) that has a clearly defined set of assets and liabilities, is understandable. However, applying this concept to one particular division or program of an economic entity is not understandable. For example, it does not mak e sense to talk about the solvency of the Chevrolet division of GM since Chevrolet is simply one division of the GM Corporation, but it does make sense to talk about the solvency of GM itself.

The Social Security System is not itself an independent economic entity. The system is funded by a stream of revenues from taxes on assets that are not owned by the system. And the system’s obligations (for paying benefits) are not contractual but rather the result of political decisions.

Thus, the question of whether Social Security is or is not solvent is irrelevant. There are real policy questions that need to be faced — questions about the level of benefits, about the appropriate inflation index for adjusting benefits over time, about the appropriate payroll tax rate, and about the level of the earnings “cap” to which the payroll tax is applied. But these questions are not answered by any resolution of an argument over the “solvency” of the system. The answers to these questions are ultimately based on our political judgments.

It is true that the Social Security trustees produce an annual report which is a series of forecasts about the system in the absence of any political decisions to change the current tax rates, earnings cap, benefits levels, inflation adjustments, retirement ages, etc. Thus, the trustees have informed us that under the current arrangements (and making the reasonable assumption that the federal government will not default on its bonds held by the system, which it has never done to date), the system can continue in its current configuration through the year 2037, but that in the years following, revenues projected from the current tax rates will only cover about 80 per cent of projected benefits. This is not a statement about the “solvency” of the system; it is a projection that we cannot maintain the system in its current configuration indefinitely, and we will need to make political decisions about how to modify it in the future.

Mr. Landreth presents several other misguided criticisms of the system. He criticizes the practice of having the annual Social Security surplus used to purchase U.S. government bonds because the government has to actually pay off these bonds by using either tax revenues or new debt (which he calls “printing money”). Of course, this is how the government finances all its debt (not just bonds sold to SocialSecurity). He also argues that using tax revenues in this way would involve the “unacceptable” practice of taxing us “a second time” even though he previously noted in his essay that using the Social Security surplus to buy government bonds “reduce(s) the income taxes which you and I would otherwise have paid.” Apparently, Mr. Landreth thinks that two minus one equals two.

He further suggests that surplus Social Security funds should have been invested elsewhere because of the “incredibly low, essentially nonexistent return” which our payroll taxes earn in Social Security. He gives examples of these low yields, but the examples have several problems. First, the 6.2 per cent payroll tax that employees pay is used to finance not just our retirement benefits but also spousal benefits while we are retired, disability benefits and survivor’s benefits for our spouses.

Second, while he argues that you earn “no interest on your money,” in fact the interest earned by the trust fund on U.S. bonds are used to pay for future benefits to you or other beneficiaries. Moreover, your benefits are indexed to inflation (some economists would say the index is too generous), so having your money in Social Security is a lot better than putting it in your mattress. Third, contrary to Mr. Landreth’s contention, the interest earned by the trust fund (and therefore used for future benefit payments) in fact substantially exceeds what you would get if you put your money in a savings account or a very secure CD. The average annual return for U.S. bonds held by the trust fund over the period 1980-2010 was 4.5 per cent in real terms (over and above CPI inflation). The comparable figure for CD’s was 2.5 per cent. Thus, Mr. Landreth’s suggestion — of “requiring the government to begin repaying the $2.6 trillion it has borrowed and placing these funds in conservative, closely monitored, private sector investments” — would probably earn lower returns unless these investments were riskier than U.S. Treasury bonds.

Finally, Mr. Landreth argues that investing Social Security funds in private sector firms that “actually earn real money to repay borrowed money” would be “a job-creating boon. . . for our economy.” In effect, he is arguing that using government debt to invest in public infrastructure projects would be a waste of resources. It’s a good thing that President Eisenhower disagreed or we would have had no interstate highway system!

In conclusion, I suggest to both Mr. Landreth and Representative Frank that policy issues regarding Social Security need to be faced directly and not under the misapprehensions that the problem is “solvency” and that returns are now much lower than could be safely had in the private sector.

David Salkever is a professor of public policy at the University of Maryland. He lives in Baltimore, Md., and Aquinnah