Sten Gazette

In all of the heated rhetoric surrounding our Social Security “Crisis,” there are some questions that aren’t being asked, or at least not loudly enough. But first, a brief recitation of the facts.

The Social Security system is not in crisis, it is not in trouble, and in fact is healthier from an actuarial standpoint than it has been over most of its 70 year history. It is working exactly as planned– the “baby boom” generation will indeed represent a bump in payouts as they begin to retire, but we also created a bump in contributions during our working careers. President Bush himself has stated that there is only a problem for “our children and grandchildren,” those born now or entering the workforce now. Here are the key actuarial facts, which have been published by the Congressional Budget Office and widely promulgated.

1. Social Security payments will exceed income beginning in 2018.

2. The Social Security Trust Fund will be exhausted in 2052.

Both of these actuarial events are being cast as “crises” and are said to require immediate, expensive fixes, or else remediation will cost a lot more if it is delayed. This is just wrong, wrong, wrong.

Event 1, the point at which payments are drawn against the Trust Fund, was planned. It’s why there is a Trust Fund. It is exactly like any private pension plan, in that funds are paid into an account, they are invested until they are needed, and they are paid out later. The only “problem” with the arrangement is the way in which the Trust Fund has been invested. By law, the surplus, or funds not needed to pay out current beneficiaries, must be invested in U.S. Treasury Bonds. In theory, those are the most secure investments available to Americans– and for obvious reasons, growth has been subordinated to security. At Event 1, the Social Security Administration simply begins cashing in the bonds, and that is only a problem for the Treasury to the extent that if the Federal Budget is running in deficit, the government will have to borrow money in order to pay out the bonds. Certainly not a problem for the Bush Administration, which will be out of office before any of its current debts can be called in, much less the Social Security Trust.

Event 2, the point at which the Trust Fund is exhausted, is 45 years in the future. So those who the President describes as entering the work-force today will have been retired a few years already– the actuarial proportion of those who will be drawing Social Security benefits 5 or 10 years into retirement is not specified. There is certainly no reason to panic. In the first place, the event point is where lines on a graph happen to cross along the time axis. The lines are projections, based on a number of assumptions, which may or may not be correct. Any business major, CFO, or insurance actuary, will tell you that projecting any economic factor for 50 years is crystal ball stuff. Insurance companies work on the principle of “acceptable risk” which means that their “surplusses,” rougly comparable to the Social Security Trust Fund, are managed in such a way that premiums can always be adjusted to reflect the current state of affars, allowing for “unforseen” or catastrophic situations along the way. Ultimately, what this means is that the crossover or so-called “bankruptcy” date is just a guess. But if necessary, minor adjustments can be made to either income or expenditure to move the date farther into the future. In fact, any slightest increase in Social Security deposits, or income from the Trust Fund, at any time between now and Event 2 will tend to push the crossover date farther back. Any increase in expenditure will bring it forward. But remember, we are talking about increased income or expenditure that is not calculated in the current estimates. The Congressional Budget Office says one thing, and the GAO says another, but both are using (necessarlly) conservative assumptions.

Thus far, we have been reciting facts which are readily verifiable and obviously known to the Bush administration. So why are they hell-bent on changing the system, creating solutions to a crisis that doesn’t exist? They are obviously prepared to lie and distort, to create fear and insecurity, in order to further an agenda of restructuring.

The lies and distortions are not limited to misrepesentation of the actuarial events. Bush has claimed publicly that he has a “mandate” to “fix Social Security.” As discussed in our “Fun with Words” piece (November 10th), Bush does not have a mandate, period. People who voted for Bush because of “moral issues” plus those who voted for him because they thought he was doing a good job, plus those who voted for him because they didn’t like the other guy, all added up to a very slight majority. It is simply not logical to conclude that a majority of Americans want him to “fix Social Security” based on the election. It is much more logical to argue that Bush has a mandate to leave Social Security the hell alone!

So now we get to the unasked questions, which are really pretty simple and won’t require much more
reading.

1. If investment of the Trust Fund in the stock market is such a good idea, why doesn’t
Congress authorize the Trustees to do just that? Why go to the trouble of setting up
individual accounts for contributors?

2. If a reason for market investment is that there has never been a fifty year period in
which the market has lost money, why does anybody invest in anything else? What happens to the
guy who has to buy into the market when it is high, but draws his benefits when it is low?

3. If a reason for such private investment is that Social Security benefits are not
“survivable,” why doesn’t Congress simply increase the death benefit to some realistic
estimate of the earned but unpaid benefits?

4. Why do Social Security benefits go to people who don’t need them?

5. Why does the Administration feel compelled to make this a crisis issue, and ignore real
crises like health care and jobs?

Fortunately, the President cannot change Social Security, which was created by an Act of Congress, has been adjusted by Congress in the past, and will undoubtedly be adjusted in the future. It is also fortunate that few members of Congress will be prepared to put their jobs on the line over a manufactured crisis.

–SG

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This entry was posted on Friday, January 14th, 2005 at 1:40 pm and is filed under Issues, Social Security, The President, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.