The right way to fix Social Security

First, we must identify the problem with Social Security.

The problem is that we are currently promising future retirees whose numbers will grow by rather a lot over the next several decades that their real benefits will keep on increasing forever, and delivering on these promises will impose an ever-increasing burden on younger generations.

That’s it. We’ve made foolish promises, and it wouldn’t be right to overburden those future younger workers by keeping them. The question is, how do we unmake those foolish promises?

One idea that I like (but haven’t heard suggested by anyone else) is to hold constant the percentage of the population collecting benefits – then let the “retirement age” fall where it may. Another one that I like is to switch to price indexing rather than wage indexing – the current standard of living of retirees is such that I wouldn’t have a moral problem with the amount we provide them remaining (in real terms) the same regardless of what gains those who continue to work earn for themselves. I think we’re meeting all conceivable moral obligations to the elderly, and I don’t see any reason to suppose those obligations increase without limit just because we earn more money.

One idea that I most emphatically do not like is the idea of adding in a “personal” account. First, it’s not really yours if it can be used only at the sufferance of the Social Security administration. Second, having the government direct the flow of that large quantity of investment capital, however indirectly, is just asking for trouble. The reason that our investment system works is that people attract investment by convincing people not only that their investment will make money, but that their investment is the best possible use of the investor’s money, better not only than “approved investments”, better not only than any other investment, but better than any other possible present use of that money including consumption. Let bureaucrats who won’t even be gaining or losing their own money have a say, and (much more) money will start flowing to enterprises based on pull rather than merit and profitability, and a lot of the money that would otherwise have gone to fund growth and technological advancement will instead go to waste.

And third, any way you slice it, it will represent an increased burden on those younger workers. They’ll have to keep sending checks to current retirees, and they’ll have to forego even more money to invest whether they have a better use for that money or not. That’s a burden, almost as if they were being taxed, and never mind that they’ll get it back in 40 years if they live that long. If they thought investing in a company on the approved list was the best use of their money, they’d do it without prodding. If not, that means they had something better in mind, perhaps having an additional child, perhaps investing in medical research that could help remove the necessity for retirement in the first place, perhaps an activity that they won’t be able to enjoy at all when they’re retired and their health is failing. Believe it or not, there are more important things than retirement, and continuing to work is not the worst thing in the world. (In fact, there are indications that retiring can itself be detrimental to your health)

Right now the burden of Social Security and Medicare is somewhat less that 15% of one’s income, the balance going into the general fund to pay for other government expenditures. If things don’t change, that burden will in the foreseeable future exceed 15% of your income, by rather a lot when all is said and done. That’s significantly more than 15% of your income being used for no other purpose than to send checks to retired people – that’s before anyone’s paid to defend you, before any roads are built, before any public research is done, before any MRE’s or bombs or bullets are even bought, much less shipped to the field, before any thwarting of the evil plans of the rapacious capitalists can be done, before anyone can be punished for putting dangerous things in their mouths…

Okay, so it’s not all downside :) But isn’t that too much? If not, how much would be too much? And why do retirees have a right to eternally increasing support anyway, and why do workers have an ever-increasing obligation to them? And shouldn’t we cut back on those extravagant promises now, before the people given those promises have come to depend on them and have no good way to adjust?

10 thoughts on “The right way to fix Social Security”

  1. “But isn’t that too much? If not, how much would be too much?”

    The real problem with political allocation of resources versus the free market is that the question of “how much is enough” is always, “as much as you grab.”

    If you can summon up enough political support, you hire somebody to gin up a rationalization as to why taking from other people is the right, just and better-for-everybody-in-the-long-run thing to do.

    The thing I really fear about SS is that when that big knot of boomers hits in the next decade, they are suddenly going to decide that 15% of workers income isn’t near enough to repay them for all they put in and that the “government” owes them a lot more.

    With political allocation, the sky’s the limit.

  2. The largest tranfer of wealth this country has ever seen is coming.

    Maybe we should “means-test” until we’re over the hump.

  3. I take it, Ken, that your idea is to find some reasonable way to make SS solvent, and then cut the payroll tax as much as possible so that individuals can do as they choose with their money? If so, not a bad idea.

  4. We must finally admit that Social Security is a welfare program, not a retirement insurance apparatus. As a welfare program, it should be means tested like every other welfare program.

    The idiots who believe they are just getting the money back they paid into the system do not deserve to impoverish tomorrow’s generations, if they have any other source of income whatsoever.

  5. Ken, we must repeal this system – slowly, steadily and pragmatically – but it must be undone. Any accomodations we extend to the system will only prolong its demise, legitimize its frail continuance, and hearten its defenders.

    Bill, until someone can explain, without inserting the derogatory implication that American consumers are stupid, dependant diaper-bound, naifs, why in the world the American government is in the business of Retirement Planning, all points go to you, bud.

    And Shannon you’re dead right. Just watch a feeding station in a Kenyan chimpanzee reserve.


  6. Social Security is a good program but lacks political transparency. The “fix” will require the elimination of either Party’s benefit from the system, a benefit today enjoyed by the Democrats. Instead of arguing the merits of the system, recognize that it isn’t going away and the constituency dependent upon the system is growing. Our responsibility is to develop the financial restructuring today that will insure future GDP is large enough to absorb the transfer payments to non-factors of production. If nothing is done, the United States economy in the 2020’s will look very much like the 1970’s, stagflation and jeopardy of the full faith and credit of the United States. Those of you who think you have nothing to worry about are delusional. If add-ons is the only way to increase private savings, so be it. This will have an immediate impact on the current account deficit as well as building future potential GDP. A second provision that needs to be discussed, the public delivery system of K-12 education. Any deal the Administration cuts with the Democrats must provide for a substantial increase in the pool of skilled high school graduates capable of attending college. This will kill two birds with one stone, 1) stop the deterioration of the income gap, 2) raise future potential GDP.

  7. I’ve heard SS described as a big Ponzi-scheme; i.e. the gov’t promises everybody who joins the system today a minimum benefit some time in the future and this benefit is expected to be paid for by the people who will join the system at that future time. Current investments are used to pay past obligations.

    One way of managing this type of system is to continually try to increase and decrease the investments and obligations to keep them synchronized – this is what the government has essentially been doing over the years. Until now, however, the choices have been easy because the obligations haven’t outweighed the investments and these decisions could be made according to ad-hoc criteria.

    A very well written set of rules for making these adjustments as the obligations begin to outweigh the investments might have a chance of working as long as successive governments can resist the temptation to change the rules for political expediency. Any set of rules need to be self-correcting. Letting the “retirement age fall where it may” could be one of these rules.

    Private accounts may be a bad idea for all the reasons you describe but my understanding is that they would at least make a start in better synchronizing the investment with the obligation so that todays obligations are at least partly funded by todays investments.

    Perhaps there’s a better way to line up today’s obligations with today’s investments, however it’s accomplished it seems like the best way to remove some of the political meddling in the system.

  8. I support privatization of SS because it would halt, at least in part, some of the massive transfer of wealth that SS has been since its inception. This plus the hope that as people see these investments increase in value, their support for the SS overall will decrease.

    The portion of SS taxes going to the general fund can disappear to make up for it, thereby pointing out just how much of this money has been misdirected in the first place.

    The privatized funds will go to “safe Government approved” vehicles. So what? The pressure to broaden can grow as participation increases.

    I don’t see a way to end SS without this measure.

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