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Social Security: Minor Shortfall, or Major Rip-off?

Politicians are a species with a famously short attention span; usually 2, 4, or 6 years at most. So when a politician starts talking about problems that are 10, 20, 40 years away, watch out - chances are, he’s trying to pull a fast one. Which is exactly what’s going on with the so-called social security “crisis”.

On-line at the Social Security Agency itself, you can find a surprisingly clear description of the SSA's finances. It can meet all expected obligations for the next 30+ years, until 2042. After that? The same site says that "to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased ... 1.89%, [or] benefits could be reduced 12.6%." Or clever men with computers and sharp pencils could work out some combination of these, to be phased in over the next few years. Only a very timid and excitable accountant would call this a "crisis".

Ah, but there is a crisis, some say. A crisis that we will face not in 2042, but much sooner, in 2018. What about that crisis? Well, to understand that "crisis", we need to bring in a little of the backstory on how social security works.

A hundred years ago, your "security" in old age was your family: you took care of your parents as an adult, and in turn you were cared for in your old age by your children. Social security is the same policy, but done by our country, our society, not by individual families. And it has worked pretty well, so far.

But, soon the "baby boom" generation will start retiring, and the relative number of retirees will increase. Fortunately, there is a plan to handle this: for years, the SSA has been saving up money in special accounts called trust funds. Right now there's $1,500 billion in the trust funds. This money has been saved expressly to cover the unusual expenses caused by baby boomers, who will retire between 2010 and 2030. And the funds will be exhausted, as planned, in 2042, when costs will once again be increasing at a manageable pace.

The real crisis, some say, will begin in 2018, when SSA starts spending money from the trust funds. Why? because the money's not there, they say: it's just a bunch of IOU's. Your retirement money, his retirement money: it's really not there at all.

Now, when a stage magician starts talking, watch his hands. And when a politician offers to help you out of a "crisis", grab your wallet; there's some sort of sleight-of-hand coming up for sure. And here it is: the people saying that there's a crisis, that the trust fund is "just a bunch of IOU's", are the same people that have been writing those IOU's for the last four years - and that expect to be writing them for the next four. So when they say that the trust fund is an "accounting fiction", what they are really saying is: "Look, we weren't really borrowing that money after all. We never expected to pay it back. We were stealing it."

It's a pretty clever trick, as these things go. I mean, if someone came up to you and said, "I'm going to steal $1,500 billion of your money" you'd be angry; but when someone says "I have a plan to solve the social security 'crisis'", you're positively grateful. Or maybe you'd like to argue, and suggest a different plan - but anyway you answer, any rescue plan you propose, you've already missed the trick. By accepting that there is a "crisis", you admit that you don't expect them to pay the money back either. And if you don't expect to get it back, and they don't expect to give it back - well, that lays the groundwork for the theft actually becoming real. It's a little like the old chestnut, "have you stopped floggin your wife yet?", adapted to the goal of grand theft, trust fund.

So where does this leave us? Now that we can see the trick, should we just stop worrying and relax? Absolutely not. First of all, not everybody seems to see it: like I said, it's a pretty clever trick. We need to make sure that everyone sees the sleight-of-hand. Secondly, this is not a crisis, friends, but it is certainly a wake-up call. The fact is, $1,500 billion is a lot of money to leave lying around - especially in Washington DC. It's like leaving 1500 billion candy bars in the same room as 100 sixth-graders and 500-odd second-graders: a powerful temptation. And even though our representatives in Washington love funding programs that teach teenagers abstinence, the record shows that they themselves are not all that good at controlling their baser instincts.

Not that I expect Congress and our President to really, truly, steal all that money - but for their own good, we ought to move it out of their reach. We should find some clever men with computers and sharp pencils to build a legal lock-box that Congress can't pick. (I'm not clever but here's one idea: but how
about if we privatize the trust funds, and turn them over to someone like Fidelity - someone that actually knows how to keep track of other people's money?)

And as for the crisis-mongers in government now: sorry, fellows, but Washington is enough of a three-ring circus, and life is enough of a balancing act - we just don't have any use for an Incredible Disappearing Safety Net. And anyway, 1,500 billion is a rather steep price for an artificial emergency, with all these real ones we could find you for free. Take your pick, my clever lads, what'll it be - global warming? health care? Iraq? More help is always welcome, just sharpen your pencil, and roll up your sleeves...that's right, roll up those sleeves. And, keep your hands on the table.

Posted by William Cohen at January 7, 2005 6:02 PM