Social Security FUD

My friends Dave and Aaron got to talking about Social Security after my last post. Dave calls it a "busted Ponzi scheme" and wonders why he should support Social Security "when there is virtually zero chance of me ever seeing a penny of it." Aaron calls it "unsustainable."

These ways of thinking about Social Security have been repeated over and over by the program's detractors. They represent an attempt to frame the debate about Social Security, trying to get people to assume that Social Secuity must be "reformed." But, they don't hold up to even modest scrutiny.

In fact, Social Secutiy is not a Ponzi scheme, it's a welfare program. It's a popular welfare program that works, and that's why Bush doesn't like it - he is ideologically opposed to welfare, so welfare that works is abhorrent to him.

It works because we all agree that old people should be able to live with dignity, and that they are no longer capable of providing for themselves. We can niggle about what age qualifies as old for this purpose, but people generally agree on these basic premises.

Under current law, the SSA predicts that the trust fund will run out in 2042, and that's with rather pessimistic assumptions about the future growth of the economy. The well-respected CBO predicts 2050 or so. (Anybody who thinks either of these can predict the economy 40 years out is an idiot, but these predictions are what the fuss is all about.) So, what happens then? The program collapses, right? Dave's checks stop coming? Not at all. Under current law, the SSA predicts that the payroll tax is enough to continue to cover 60-80% of promised benefits. (Which fraction is expected to total as much or more than current benefits, even in inflation adjusted terms. (This is because benefits are indexed to wage growth, not to inflation.))

Dave worries (quite rightly) about the fact that the rest of the government is spending the money borrowed from the trust fund. The rest of the federal budget is grossly out of balance. Social Security is over funded, to the tune of an accumulated trillion dollars. Tell me again how this demonstrates that Social Security is the problem?

Go to morningstar.com to see an evaluation of the risk vs. reward of the S&P 500. They compare the expected return of the stock market to the expected return of the safest investment they can think of. Is that gold? Or maybe Euros? No, it's T-bills, just like those held by the SS trust fund. Are you really suggesting that some politician is going to pass a law that defaults on the debt sold to the trust fund, thus impoverishing lots of hard-working, patriotic, American retirees? This while we continue to pay back the debt held by the Chinese and Japanese central banks?

Will we have to raise the income tax to cover all that debt? We might do that if we ever again elect a responsible politician. But, if we keep electing irresponsible assholes like Bush, we'll just sell the debt somewhere else. Just like we do to fund a war or a big tax cut.

The size of the predicted long-term gap between receipts and benefit payments is about 2% of GDP. Coincidentally, that is about the size of the Bush tax cut. We can afford to pay all the promised benefits if we have the political will to do so. If we don't want to pay those benefits, we can change the program.

Who will make that choice? People who vote. And who votes? Old people. As I come up on retirement age behind the bubble of the baby boom, I predict that Social Security will be better than ever. All those boomers will want their Social Security - they won't want it cut. They will get their AARP magazine every month, read about Social Security, and go out and vote for their benefits.

If there is a threat to my receiving Social Security when I retire, it comes from people like Bush - people who are ideologically opposed to the program and seek to eviscerate it.