I have several dozen articles relating to Social Security over the past three years. They all say the same thing. The Social Security system was dealt a hammer blow by the 08-09 recession. At this point there is no possibility that the SS program can be stabilized without significant and prompt action to address the underlying imbalances. Failure to deal with the problem in a timely way will result in a systemic problem for the US economy in less than ten years.
While there are a number of proposals to address the imbalances, there really are only two possible out comes. Either the 60-70% of the baby boomer population who are highly dependent of SS are going to have the benefits cuts, or younger workers are going to have to dig into their pocket to pay for the Boomers for the next 30 years.
Bottom line; either a significant portion of seniors are going to be eating cat food, or the next few generations are going to be paying (unfairly) through the nose.
I have not written one of these critical pieces without getting a bunch of complaints from the big guns who support SS (as it is) and maintain that what I am saying is just bunk. They are wrong, I’ve been right all along.
Charles Blahous, the Public Trustee for the SS Trust Fund gave testimony (Link) to the House Ways and Means Committee on Friday. I think he laid it on the line rather nicely.
The 2011 Trustees’ report is the first in which Public Trustees have ever participated to have concluded that an era of permanent annual deficits has been reached.
This is important. It’s all you need to know. SS has turned a corner. It is headed south. It will continue to head south as far as the broader economy is concerned for the next 75 years (actually SS is in perpetual deficit).
Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. This deficit stood at $49 billion last year and is projected to be $46 billion in 2011.
These are not small numbers. The $100b shortfall in 2010-11 is a fairly big burden given that the rest of the government’s finances are in such a hole. Blahous said something that may have been a “tell” as to what we are looking at in the future with these deficits:
This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
Blahous is not following the SS “script” with this comment. These are the projected deficits based on the SSTF annual report:
Note that the “projected” annual deficits remain fairly small all the way out to 2018. So what is Blahous referring to regarding big deficits post 2014? SS provides an alternate forecast that they call the “High-Cost” analysis. This chart looks at the two forecasts together.
For Blahous to suggest to Congress that the deficits will be “growing rapidly” post 2014 represents (to me) that the real thinking inside of SS is that the actual results will be closer to the worst case scenario. Should that be the result, the cumulative deficit at SS from 2011 through 2020 will be a very lumpy $900 billion.
My own review of the numbers says that we have little chance of achieving even the results of the high cost analysis. It is likely to be much worse than that. The problem is that the economy is simply not producing enough jobs. There are fewer workers contributing to the system. The SSTF is anticipating “a strengthening economy”, I see no evidence of this today and have no expectation for a turnaround in the jobs picture any time over (at least) the next five years. The following graph says it all on payrolls in America. The recession killed us. As of today the number of workers contributing to SS is less than it was in 2000. Look at this at you will understand the problem.
I think that Blahous made some important comments. One’s that will shut up the defenders of SS. The argument that those defenders repeatedly use is that SS does not impact the current deficit. That is flat out wrong:
Social Security operations are currently adding to the unified federal deficit and will add substantially more in the years to come.
The facts folks. SS is adding to the annual budget deficit ($116b in 2011). It is adding to our funding deficit (the amount we need to borrow from the Public). That number was a manageable $49b in 2010 but it will grow every year from now on. In less than a decade it will become unmanageable.
Blahous spoke about the “Assets” of the SSTF. The believers in SS constantly point to the huge $2.6T surplus at SS and say: “There is plenty of money in the piggy bank. There is no need to mess with SS today”. That is not the case at all.
If we look at the bonds from the perspective of the Trust Funds, they are assets. If we look at them from the perspective of the unified federal budget, they are a net wash, as are the interest payments that they receive.
Folks, there are no Assets in the Trust Fund. There are pieces of paper to be sure. But they are just pieces of paper. The merely represent claims on future taxpayers.
The following words are, I think, critical to the debate on SS:
The costs that will be borne by younger generations will grow significantly each year that a new cohort of baby boomers joins the benefit rolls.
I am screaming at the top of my lungs, “How can we let this happen?”
To me, it is absolutely insane to think that the Baby Boomers (I’m one) can put the burden of SS on younger workers. This simply will not work. The result of a policy approach that sticks everyone under 50 with the cost of the Boomers is going to result in deep social divides. We have enough problems in our society today. We don’t need/want Age Warfare to be added to the list. But if the plan to “fix” SS is one that sticks the bill onto young people we WILL have age warfare, it’s inevitable. The social consequences would be greater than the economic costs. Why does no one see this?
Addressing the imbalances at SS will be painful, and no one likes pain. So the result has been that our political leaders just kick this can down the road. I don’t think that there will be any fixes at SS until after 2012. While an extra two years will not result in a crisis, it will result in a higher cost of the necessary fixes. I hope all the defenders of SS read what Blahous has said on this:
Elected officials will best serve the interests of the public if financial corrections are enacted at the earliest practicable time.
Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower- income workers and those who are already substantially dependent on program benefits.
The big defenders of SS call themselves Liberals. Paul Krugman and Dean Baker are on top of the list. But there is nothing liberal about their position. Who is going to be most hurt by what is coming (absent changes)? The answer is clear. Older people who are 100% dependent on SS and younger workers who are on the bottom of the income scale.
The Liberals have to come to understand their dilemma. The more they put their foot down and demand no changes to SS, the worse off will be those that they are actually trying to help. The liberals are shooting their own constituency.
Note: On these matters I consider myself a liberal. But I come to a completely different conclusions than those who actually call themselves Liberals.
My position on this complicated issue:
-We can’t cut benefits across the board. Too many people would be eating cat food. That’s not American.
-We can’t put the burden of the Boomers on younger workers. It’s simply not fair. That’s not the American way either.
-The solution(s) have to be born (largely) by the Baby Boomers themselves. Post the Boomers, SS can be a PayGo concept. But the transition is not PayGo. It is a huge inter-generational transfer of wealth. This means that well off Boomers (there are many, including myself) are going to have to dig into their pockets to support those in their age group who did not fair so well. That, in my opinion, is the only viable solution. That would be more representative of the American way. Fairness.