A few years back a poll was conducted which seemed to show that people in their twenties thought they were more likely to see a UFO than they were to ever collect social security.
Now the results of that particular poll were problematic, but it is true that lots of young people take it as a given that they will never collect social security, because by the time they retire the system will have gone bankrupt. I hear this sort of thinking often, and its generally said with a sort of nonchalant cynicism, as if it would be naive to think otherwise.
Well, perhaps I’ve naive, but I expect that when I get old, I’ll be getting my social security check. Here’s why: As currently structured and funded, revenues from Social Security taxes will fall below projected Social Security expenditures sometime around 2018. Once that occurs, the difference will be made up from the “Social Security Trust Fund”. Depending on whose numbers you use, the “Trust Fund” will be depleted sometime between 2042 and 2052, at which point revenues from Social Security taxes will only be sufficient to pay for between 74% and 78% of expected benefits. So whether or not you think the Social Security Trust Fund is a PR sham (and I’m inclined to think that it is), at some point in the foreseeable future Social Security as currently structured and funded will no longer be able to sustain itself. And many people seem to assume, based on the fact that Social Security is currently unsustainable, that it won’t be around by the time they retire.
But this is a faulty inference. If a government expenditures are more than government revenues, there are two simple ways to solve the problem: You can cut expenditures, or you can raise taxes. Personally, I expect the government to raise taxes. The elderly are already such a politically potent voting block and are already so fanatically committed to receiving their benefits, that any attempt at reforming the Social Security system today can be blocked simply by stoking the paranoia of seniors about their not receiving their benefits. The percentage of voters near or over 65 is only going to grow in the coming decades, and I don’t see them becoming any more open to benefit cuts for themselves than they are now to hypothetical benefit cuts that wouldn’t even affect them.
Let’s say, though, that the government decides to cut benefits rather than raise taxes. As noted before, 2042 benefits would have to be as low as 74% of currently projected levels. That’s still quite a chunk of change. Somehow saying “I expect only to collect three quarters of what the government’s telling me I’ll get from social security” doesn’t have the same punch to it that saying you’ll never collect any benefits does. In fact, under today’s projections the benefits I would receive from Social Security would be about 40% more in real terms than the benefits seniors currently receive, due to the fact that benefits are indexed to wages rather than prices (and the former tend to grow faster than the latter). I’m not a math wiz, but 74% of 140% doesn’t sound too bad.
None of this, of course, is to say that we shouldn’t do something now about Social Security’s long term funding problem. The choice of raising taxes versus cutting benefits is going to have to be faced sooner or later, and the sooner we face it the less painful the ultimate choices will have to be. But whether we deal with the problem now or pawn the problem off on future politicians, Social Security isn’t going anywhere.
February 25, 2008 at 9:12 pm
I kind of hope not to receive Social Security, but that’s mostly because:
1) I would like to see social security as it currently exists narrowed to only give benefits to those with financial resources below a threshold level: we don’t really need to be cutting SocSec checks to people with multi-million dollar 401ks.
2) Given the above, I hope to have the means not to qualify for it.
However, I strongly suspect that too many middle to upper wage earners are too attached to the idea that “I put in, so I should get out” and would rebell from any suggestion of cutting payouts to those with plenty of their own resources. So I guess chances are I’ll be pulling checks as well…
February 25, 2008 at 9:21 pm
Means testing both Social Security and Medicare makes a lot of sense. Whether it will actually happen is another story.
February 25, 2008 at 9:31 pm
I’d always understood that the real reason that you’ll probably never receive any social security checks is not social security but medicare. Social security, by itself, is a problem but (as you note) not an insoluble one. However, the fiscal crises created by medicare dwarfs all of that, and makes it nearly certain that the government will have to slash benefits (and once you start, it’s easy to keep going) rather than raise taxes to catastrophically high levels. Is that right?
February 25, 2008 at 10:14 pm
I don’t know that it’s true that once you start slashing benefits its easy to keep going. On the contrary, cutting benefits is something that a government will do only if absolutely necessary, and even then only the bare minimum tends to get cut. And since cuts in Medicare are easier to hide than cuts in Social Security, if anything I’d say that the dual fiscal problem would redound to Social Securities benefit.
I just had a disturbing thought, though. In my post, I say that when Social Security benefits exceed Social Security revenues, the only two options are to cut benefits or to raise taxes. But that’s not true. There is a third option: run the printing presses. Granted, if the federal government tried to cover shortfalls in Social Security and Medicare by simply printing more money the resulting inflation would destroy the economy, but that hasn’t stopped lots of countries from doing just that when faced with huge budget deficits. One hopes that whoever we have running the Fed in 20 years will be smarter than that, but I wouldn’t take it for granted.
Almost makes me want to reconsider my stance on the gold standard.
February 25, 2008 at 10:28 pm
How does your analysis look if we ignore the “Trust Fund” as the illusion that it is?
I don’t actually expect to receive social security because I expect that the most politically palatable solution will be to means test the program for everyone under 50. It will be sold to the voters as an alternative to a big tax hike, will still being fair to those seniors who relied on social security in making their retirement plans, etc. The Boomers will get social security, but after that only the indigent will. My two cents.
February 25, 2008 at 10:29 pm
There is a third option: run the printing presses.
That’s just a combo of your other two, with additional bad effects.
February 25, 2008 at 10:32 pm
I read in the Economist that means testing hasn’t worked so well in Britain because the cut-off isn’t super strict and it has apparently encouraged people to stop saving for retirement.
I think means testing makes the most sense too, but there’s no denying that in effect it rewards people for not saving. To get around the moral hazard you have to couple means testing with forced savings (i.e., personal accounts), though that has its own problems.
February 25, 2008 at 10:51 pm
I don’t think ignoring the Trust Fund (or, rather, recognizing it for the sham it is) alters things much. It means that the problem will arrive sooner, but that it will grow slowly over time rather than coming all at once.
I suppose one advantage of people *thinking* they won’t get social security is that it might encourage them to save more (I assume, and this may be my inner Calvinist coming out, that people don’t save enough). My guess though is that people with enough foresight to alter their saving habits based on Social Security projects aren’t the people we need to worry about.
And at the risk of sounding more and more bleak (this was supposed to be an optimistic post, honest!), I’ve now thought of a 4th option besides benefits cuts, tax increases, and deficit spending for solving the Social Security and Medicare problems. It is detailed here.
February 25, 2008 at 10:56 pm
The commentarait loves talking about the pending social security crisis. There isn’t one. A little minor tinkering (suh as raising the cap) and we’re done. The far larger problem is Medicare (and that’s not because it is government-run; it is because non-demographic factors are pushing medical costs up to unsustainable levels across the board– although single payer systems can keep a lid on this better).
My problem with those who seek to abolish social security (or to whittle it away to obscurity) is that it leaves the saver to bear the risk, which I think is simply wrong. And yes, the notion that you aer on you own the market, that you should plan for your own retirement, and that you should be punished for not saving enough or making prudent investments– yes, that had a tinge of Calvinism :)
February 25, 2008 at 10:58 pm
SS and medicare don’t have cost problems so much as they have funding issues. Eventually, you’ll see both paid out of general revenues. Medicare already is.
February 25, 2008 at 10:59 pm
“Bear the risk” of what? Of living to a ripe old age?
February 25, 2008 at 11:02 pm
To elaborate on MM’s comments, one can’t really talk about eliminating SS until one finds a way to address the indigent elderly. Cities and Counties don’t have the finances to do it. Even States lack the the ability to really address it.
February 25, 2008 at 11:04 pm
M.Z.,
Who’s talking about eliminating Social Security?
February 25, 2008 at 11:06 pm
MM mentioned it in his post.
February 26, 2008 at 2:41 am
My problem with those who seek to abolish social security (or to whittle it away to obscurity) is that it leaves the saver to bear the risk, which I think is simply wrong. And yes, the notion that you aer on you own the market, that you should plan for your own retirement, and that you should be punished for not saving enough or making prudent investments– yes, that had a tinge of Calvinism :)
While repeating the above “who said anything about abolishing social security”, I can’t help asking: What exactly is “simply wrong” about expecting individuals, families and communities to plan for the retirement of those within those groups?
First off, one of the reasons that we’re having this conversation these days is because somewhere along the line we dropped the idea that families were expected to take care of their own. One of the biggest differences at work between the Indian and US-born members of our team is that all of the Indians I know live in 3-4 generation homes. It’s pretty much expected in most more traditional societies that when the parents reach an age where they no longer work, they’ll circulate among their children’s families if they don’t have the money (or inclination) to live on their own off their savings.
Rightly or wrongly, our society has nearly completely dropped that in favor of a much more individualistic societal organization — and so we have the idea that if you don’t have massive savings (it seems like I often hear that people my age will need a 401k valued at around 1mil by retirement) you’ll be either relying on the government or destitute.
So if we’re going to get outside the current paradigm and avoid all nationalistic, gnostic, calvinist and individualist tendencies, we’d expect people to have enough children to support them in their old age and then expect extended families and communities to communally support all those who were unable to have children — or whose children were unable to support them.
February 26, 2008 at 3:14 am
Darwin: you raise some interesting issues, issues that have been percolating in my mind since my last post. The modern conception of the state sees no role for subsidiary mediating institutions, corporate entities that would look after the welfare of its members. Even the notion of “family” has been privatized to encompass a bare-bones nuclear family. So there is practically nothing in between the state and the individual. In this kind of world, a program like social security is the best we can do. If we want to step outside of this, and it would be nice to do so, we need to start thinking subsdiary mediating institutions. But that’s not how opponents of social security think. They believe in a false conception of individual freedom that relies on market outcomes. And that’s the same old paradigm.
February 26, 2008 at 3:22 am
Morning’s Minion,
It is not possible that one of the reason mediating institutions have broken down is precisely because their functions have been taken over by the State?
February 26, 2008 at 3:44 am
“It is not possible that one of the reason mediating institutions have broken down is precisely because their functions have been taken over by the State?”
That seems to be a fairly plausible partial explanation to me. Unfortunately, I don’t think we will ever be able to isolate that factor out of the many dramatic changes that have taken place in the U.S. since 1935. It could be argued that Social Security is a symptom more than a cause of American individualism. Although, the prospect of living with my in-laws makes me sometimes feel that it’s not completely a loss that we do not live in closer proximity; a chance for redemptive suffering lost, I suppose.
February 26, 2008 at 3:59 am
Matthew Fish linked to a really good essay by William Cavanaugh on this very issue in his last post. In a nutshell, the very concept of the modern nation state is one in which there is a direct relationship between the state and the individual (how wonderfully protestant!!). The reason the modern state is unique is that it neutralizes the network of overlapping loyalties and jurisdictions that existed beforehand (think pre-reformation Europe). The common good is reduced to a mere social contract as the individual recognizes the unique authority of the state in return for having individual personal liberty respected. Needless to say, this is a far cry from Aquinas’s notion of the common good.
I would add this: if a social contractarian approach can mimic the common good, it does so best when it uses its natural scale advantage to enact a form of social insurance.
February 26, 2008 at 4:41 am
Morning’s Minion,
If Cavanaugh is right about the nature of the modern state, then it would seem the thing to do would be to oppose the state and seek to limit its power however possible. The last thing you would want to do would be to give it more control over more areas of life.
February 26, 2008 at 4:44 am
The person who has best taken the concept of mediating institutions and applied it modern America, Mary Ann Glendon, has written very well about how the harnessing of state power for “unity” and the “common good” eventually displaces families and communities.
Social justice and human rights begin at home, with morality.
February 26, 2008 at 2:55 pm
If one were to look at returning to a system more based on subsidiarity, on family and community institutions rather than a relationship between the individual and the state, it seems to me that some of the immediate steps would be:
-Make a principled stand against expanding or creating programs which go around such local relationships by creating a direct relationship between the state and the individual.
-Try to reduce dependance on such vehicles by, as much as possible, forgoing available services of that sort in favor of relationship-based help.
Thus, if a family or community comes together to support their own elderly as much as possible rather than relying on a medicare-paid nursing home, they are doing their own small part to return to a more human society. When people get together to help another family through an illness, unemployment, or disability, they restore a more community-based society.
Obviously, though, although these kind of things are good for us, they don’t get us any closer to reducing the state-individual relationship on a wider level. It seems to me that it would take a very long time (or some sort of catastrophic break-down after which people rebuild) to change that sort of thing, if only because people have not been factoring it into their life choices for so long. As Eddie says, few of us find the prospect of having our in-laws (or often even parents) live with us. (I fear I’ll eventually have a few family members living with us long term, but I’m not looking forward to it.) In novels from 100+ years ago, one often reads people remarking that, “You don’t just marry the woman/man; you marry the family.” People haven’t been thinking that way for a long time, and indeed, many of us pretty clearly thought, “Hey, I’m only marrying her — we’ll just have to see the family once or twice a year.”
February 26, 2008 at 2:58 pm
[...] A propos of yesterday’s post on the future of Social Security, I thought I’d say a word about two different statistics often cited in Social Security debates as evidence of the unworkability of the current system that don’t quite prove what people think. [...]