Blogs > Cliopatria > Social Security: Is There a Crisis?

Mar 10, 2005 2:02 am


Social Security: Is There a Crisis?



We feature a page on HNN about Social Security that will tell you about all you need to know about Social Security: http://hnn.us/articles/9988.html

But is there a crisis? There's no doubt Social Security is facing a shortfall. All are agreed it amounts in half a century to about 25%. To bridge the gap all you'd have to do is move up retirement age by a few years and the gap disappears.

So is there a crisis? No.

But come another decade the government is going to have to stop relying on Social Security surpluses to finance the rest of the government. That's the crisis! It's not Social Security which is in trouble in other words, it's government financing of the rest of the budget.

(There is a Medicare crisis, as this op ed in the WSJ recounts. But unlike the author of the op ed, I don't think that privatizing Social Security helps Medicare. Indeed, it hurts Medicare by putting the government in more debt.)
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John H. Lederer - 3/15/2005

"Those government bonds are real debts. Don't think so?"

The problem is who has to pay them -- the debtor and creditor are the same person.

They are the equivalent of my borrowing from my pension savings and spending the money. When my wife expresses her concern, I carefully point out to her that there is no problem. I carefully placed I.O.U.'s in the account, due when we retire for every nickel I spent, so not only will we have the I.O.U.'s but the generous interest I allowed when we retire.


HNN - 3/14/2005

Those government bonds are real debts. Don't think so?

Then the trustees should stop immediately buying bonds with their surplus monies and instead buy corporate bonds.

The corporate bonds will pay off.

Oh, the pols in DC will moan. We need that money.

Yes, you need that money because you are using Social Security to balance the buidget on the backs of working people.

How about reversing Bush's tax cuts so the wealthy pay their fair share?

As I have explained elsewhere:

Without the Social Security surpluses of the 1990s, President Bush would never have been able to push through his tax cuts for the wealthy in 2001.

In fact, without the Social Security surpluses there would have been no general surpluses in the 1990s.

http://hnn.us/blogs/entries/10169.html


John H. Lederer - 3/12/2005

"To bridge the gap all you'd have to do is move up retirement age by a few years and the gap disappears"

Hmmm. Let's see:

1) This remedy is already in effect. The SS full retirement age moves up in increments (depending on birth date) until it reaches 67 for those born in 1960. So you would extend that to what -- 71, 72,?

2) Each year increase is about a 5-6% decrease in total benefits (longevity for a 65 year old man is about 17 years) so a 5 year increase would be about a 25% decrease in benefits.

3) The good economic effect can easily be wiped out by a significant medical advance in cancer or heart disease (the two main killers) or in the ability of cells to regnerate. These advances seem quite possible in the next 10-20 years.

I do not think raising the retirement age is really a likely solution.


John H. Lederer - 3/12/2005

"But come another decade the government is going to have to stop relying on Social Security surpluses to finance the rest of the government. That's the crisis! It's not Social Security which is in trouble in other words, it's government financing of the rest of the budget."

Well, yes and no. The crisis on the SS surplus -- now treasury notes-- is that we start having to pay it (where do you think government will get the money to pay the notes to social security-- think JohnQ. Taxpayer) , and we will lose a source of easy financing.

Right now we have the equivalent of my borrowing from our retirement funds for wine, women, and song, and assuring my wife that it is OK because I put interest bearing IOU's into the fund for the money I took out.

To me, the need for a surplus, and doing something with it, is much of the privatization argument. Social security needs to change to prefunding rather than being an unfunded pension plan. To do that it has to invest money. Treasury notes "lent" and "borrowed" by different branches of the government is about like Enron hiding debt in subsidiaries.


So it has to be invested in non-government things -- stocks, bonds, securities, real estate. Now would you rather have government choose where to invest or individuals?




John H. Lederer - 3/12/2005

"To bridge the gap all you'd have to do is move up retirement age by a few years and the gap disappears"

Hmmm. Let's see:

1) This remedy is already in effect. The SS full retirement age moves up in increments (depending on birth date) until it reaches 67 for those born in 1960. So you would extend that to what -- 71, 72,?

2) Each year increase is about a 5-6% decrease in total benefits (longevity for a 65 year old man is about 17 years) so a 5 year increase would be about a 25% decrease in benefits.

3) The good economic effect can easily be wiped out by a significant medical advance in cancer or heart disease (the two main killers) or in the ability of cells to regnerate. These advances seem quite possible in the next 10-20 years.

I do not think raising the retirement age is really a likely solution.

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