Sunday, November 7, 2010

Hey Republicans! You Can’t Get There From Here!

Besides It Was A Bad Idea Anyway.  The “it” is the Republican proposal to privatize Social Security.  Ever since President Bush based his second term on this idea, I had sincere doubts.  Since the recession started, it has become obvious to me that the idea will never work without burdening our economy with a lot more debt, and since we just celebrated an election where a mandate for less debt was embraced by the voters, well, you get the idea.  Anyone want to be a one-term hypocrite?

Before talking about debt and Social Security, lets discuss a few facts about the program.  When Social Security was adopted in the 1930’s the average life expectancy was 63.6 years.  Today it is 77.5.  In the 1930’s only 5.4 percent of the population were age 65 and above.  Today it is about 12.4 percent.   These statistics say that when Social Security was established, there was a larger population of workers supporting a relatively small number of retirees.  Today, the burden is far greater because there are not just more retirees per capita, but the average retiree is living longer, a lot longer.

So, when Social Security was established, the administrators could pay for the retirees of their time as well as pay the excess into a separate fund for future retirees.  Payments out of the fund are projected to exceed payments into the fund by 2016, and it is projected that the fund will be depleted by 2037 if no other action is taken, including the Federal Government paying back what it has borrowed from the fund over the years (remember the Al Gore “Lock Box”  - remember to say it slowly with a deep voice) after which the year of depletion will extend to 2052. 

Compare this to my previous post on creating a savings account.  We are not collecting enough Social Security revenues.  We have avoided insuring that the fund has enough inflows over time to pay out the funds it is obligated to payout.   We soon will be paying out more than we can without maintain the fund’s balances.  The amount of funds will not cover all the plan’s obligations. 

The significant thing is that beginning in 2016, the amount we pay in will now begin to go out directly to our retirement generation.  In this context, the Republicans want to come along and privatize Social Security.  That means taking the payments that are going directly out to retirees and putting them aside in investment accounts.  This raises the question of if we take moneys that go directly to retirees and divert them, how do we pay for current obligations?  The answer is debt – we borrow it. 

In a time when the public wants public debt to go away, Republicans want to increase debt to restructure Social Security, and they ran on reducing the debt.  As I said in the title, you cannot get to a place where we privatize Social Security from our country’s tenuous financial position. 

In our country, Social Security is a promise from each generation to the next.  We have a promise to keep.  For this reason and this reason alone, any idea that endangers this promise is a bad one.

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