Ignoring Social Security Will Not Fix Its Problems

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Democrats have long touted Social Security and Medicare as the crown jewels of both the New Deal and The Great Society.  While both parties have voted for these programs, their design and implementation have, for better or worse, largely been a project of the Democrat Left in this country.

If they can take the credit for these programs, then it is fair for them to take the blame for the financial instability and mammoth costs of these programs.  Several fixes have been required along the way, in the 1970s and early 1980s, and now the program again faces insolvency in a little more than a decade.

Both Medicare and Social Security were designed poorly and have had their design problems compounded by Congress extending benefits without a requisite increase in revenue.  Politicians have played politics with our retirement security.

With Social Security, unlike private pensions, the benefits have little to do with contributions.  The assets are not invested for a rate of return, rather they are “invested” in nonmarketable treasury securities, that historically have had a poor rate of return.  But with Social Security buying these bonds, it helped hide the true size of the fiscal deficit.  This, in turn, helped Democrats add additional expensive programs to the budget during the era when deficits were a political negative.  Now that Social Security is liquidating the “trust fund”, it will add supply to a treasury market already struggling to absorb the huge spending of Bidenomics.

Today it seems, neither party seems to care much about deficits.  There are complaints to be sure, but nothing is done about it, and in fact, deficits have expanded greatly as Democrats signed on to what they like to call Modern Monetary Theory.

Private pensions are funded by the people who receive the benefit.  In the case of Social Security, it is a “pay as you go system”i.e., you paid for your parent’s benefit, and your children are paying for yours.  Since younger generations pay for the retirement of older generations, this sets up an actuarial risk at the heart of the program.  What happens when the number of young people shrinks and the number of elderly expands?  We are finding out.

For most of the history of Social Security,  the population was growing so it was not an issue, but now the population is dropping fast and hard.  People are not forming families, those that are formed are much older and have fewer children.

Compounding the problems, Democrats have ruthlessly attacked anyone suggesting reforms of these programs were necessary.  It is common knowledge that even suggesting changes constitutes the “third rail” of American politics.  We all remember the Paul Ryan look-alike “throwing grandma off a cliff”, as shown in Democrat television ads.  As political theatre, the Democrats get an A+.  For statesmanship, then get an F-.

This is true in other countries as well.  Major riots ensued in France for example, when President Macron suggested rolling out the retirement age just  two years.  He did succeed in that modest effort. It seems benefits once promised, are hard to modify.

To his credit, after being elected for a second term, President George Bush said he had political capital, and he intended to spend it reforming Social Security.  He got his political legs cut off.

Democrats, having done such a good job of demagoguing the subject, timorous Republicans have not seriously brought up the subject since. It has now been 20 years.

Donald Trump is also fully aware of the toxic nature of the subject, and he will not touch it either.  He indicated he was open to cuts and immediately had to back off.

The problem is that neither party is willing to discuss problems in Social Security, and if they are not addressed, in about 9 years, there will have to be about a 23% cut in benefits.  Most of us have learned the hard way in life, that ignoring a problem, will not fix it.

But because of the political toxicity of the politics, we are rolling towards a cliff and no one wants to either admit there is a problem or do anything about it.

While much of the problem is political,  in basic terms, it is a math problem.  More money is going out of the system than is coming in.  In a sense, it was designed as a giant Ponzi mechanism and hence it has all the inherent weaknesses of such a pyramid scheme.  For Ponzi investors to get paid, there must be an increased flow of new investors.  But for Social Security, the number of new participants is shrinking.

Unrestricted immigration is not the answer either although we wonder if that is not one of the secret motivations of its advocates.  The costs are huge because welfare state benefits are now being given to people who have not paid a dime into the system.  New illegal immigrants can get a substantially better deal than citizens.

Let’s look at some charts to simplify and explain the basic problems Social Security faces.

In the early 1950s, about 14 people were working supporting every Social Security beneficiary. By 1960, it was five workers per beneficiary.  Now it is well below 3 and headed to 2.  Imagine the payroll taxes on young workers if just slightly more than two workers have to support a retiree, plus have money left over to support their own families and retirement.

This is because of two demographic trends: declining birth rates and older people living longer than expected.  It’s math, not politics.

However, the low birth rate is a social issue.  It is mainly a result of feminism, environmentalism, and secularism. 

The expense of children is often cited as the issue.  But religious people live in the same expensive society as those who are not, yet they have more children.  It is more a question of life priorities.  Women are largely in control of this decision, and with various forms of birth control, they have a lot of options.

Meanwhile, people are living longer because of better healthcare, diet, and knowledge.

Many people want the good life it seems, they just don’t want new humans to have that.  Or, they think of people largely as a mouth to feed rather than a brain that can produce.   As a generation, we produced more than we ate. Young people can do it too.  But the fear among many is that having children will harm “the earth.”

Whatever the complex reasons are, there is little evidence these trends will change any time soon and certainly not fast enough to shore up the programs in question.  Therefore,  our leaders must act prudently and decisively.  Sadly, that doesn’t look like it will happen.

Income flowing into the program is not keeping pace with the outflow.  Cash flow has turned negative.  Current projections show that Social Security will exhaust its “trust fund” in about 13 years. When that point is reached, wrenching change will be necessary.  It will mean either a huge cut in benefits, a large increase in taxes, the use of currency debasement to plug the holes (inflation), means testing of benefits, or likely a combination of all the above.

To continue benefits, shortfalls in Social Security will have to be supported out of the general budget, creating an even greater budget crisis.

Unfortunately, Democrats, by sending deficits out of control for other things, are putting key trust funds in jeopardy. Their actions have removed what limited flexibility we had to deal with the crisis.

That means we soon will have to deal with multiple crises. With all this new spending, where is the revenue going to come from to shore up these “trust funds.”?  As mentioned previously, huge Federal borrowing is already disturbing the bond market.

The Highway Trust fund will run out in 2028, Medicare by 2031, and Social Security by 2033.  Over the next decade, these three programs face funding deficits of over $3 Trillion, according to the Committee for a Responsible Federal Budget.

This is not a small problem.  Millions of Americans,  especially the vulnerable elderly who can’t return to work, depend on these programs for both income and health care.  Citizens were promised a benefit and our government knows they are in jeopardy. Yet, nothing is being done to fix them, and politically, nothing apparently can get done.

Without change, a 23% drop or more in benefits will be necessary.  Such a drop in spending by the huge number of retirees would seriously impact consumer spending and the economy as a whole.  Additionally, to break a promise of this magnitude and duration, would cause social upheaval and political anger on a scale rarely seen.

Inflation would impact all of us negatively and the young are in a no-win situation. They will have a lower standard of living than previous generations, something quite new in America.

Besides, there is also something deeply immoral about passing on a staggering burden to our grandchildren, without either their knowledge or consent.  We no longer put children in debtor’s prison for the sins of their fathers, or do we?

This is what happens when politicians design a program vital to all and then ignore the routine maintenance necessary to keep the machine dependable. Irresponsible does not seem like a strong enough term to describe the venal exploitation of voters.

At the end of the day, it is our fault for letting them get away with such a massive con job.  As voters, we reward those who spend and punish those who have had the temerity to point out we are headed for fiscal catastrophe.  You get the kind of leaders you vote for.

Now we are borrowing money just to pay interest on our debt and face the tremendous challenge of funding the trust funds in danger.

Thanks, Democrats. Yet these “entitlements” are now eating most of what remains of the Federal Budget.  Between this so-called “mandatory” spending,  interest due on the debt, and defense; only about 15% of the budget is up even for Congressional debate.  Not only is the fiscal car rolling towards the cliff, but it is largely doing so on automatic pilot.

At least Thelma and Louise decided their fate.

One of the few exceptions to this cruel ruse being pulled on both the retired and the young is Arizona Congressman David Schweikert, who had been ringing the alarm for years.  Tragically, too few are listening.  We hope you will listen to his recent remarks.



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