My Generation Is So Screwed Without Social Security Reform

I support the complete privatization of Social Security, and would favor a lot more radical plans than the Bush administration is likely to propose. Even then, I can’t imagine any sort of meaningful reform will be enacted until it is far too late and the system is on the verge of collapse.

The thing about Social Security is the more you dig in to how the government is planning for the future, the more you learn just how screwed those of us who are going to have to support the retiring baby boomers are. For example, take this unbelievable nugget reported by the New York Times (emphasis added),

Tables published by the government’s National Center for Health Statistics show that life expectancy at birth was 47.3 years in 1900, rose to 68.2 by 1950 and reached 77.3 in 2002. The latest annual report of the Social Security trustees projects that life expectancy will increase just six years in the next seven decades, to 83 in 2075. A separate set of projections, by the Census Bureau, shows more rapid growth.

Claiming that life expectancy will increase by only 6 years by 2075 is ridiculous. The history of predictions on life expectancy is one prediction after another claiming that the previous few decades increase was unprecedented and would not be able to be repeated. Since there is no indication that average life expectancy is anywhere close to the theoretical limits of human life expectancy, estimates that low-ball the increase in life expectancy are foolish.

In fact, it’s likely going to be just the opposite — most of the increase in life expectancy in the 20th century occurred in the first half of the century due to efforts that reduced infant mortality. It wasn’t until the last half of the century that medical developments started significantly improving life expectancy of those already over 65. Since we’ve made so much progress on lowering mortality in the very young, the obvious place for further research — and where it is increasingly concentrated — is on diseases that kill middle aged and older individuals.

I suspect that over the next 70 years, the increase in life expectancy for those over 65 is going to begin to accelerate as information from the human genome, stem cell research, and a wide variety of other areas of inquiry that are still in their relative infancy start to mature and provide treatments for diseases typically associated with aging.

The good news — you’re likely to have a very high life expectancy if you’re relatively young today. The bad news — you’re going to be taxed to death to pay for retirees whose life expectancy is also going to grow.


Social Security Underestimates Future Life Spans, Critics Say. Robert Pear, The New York Times, December 31, 2004.

Bush=Al Qaeda on Social Security?

Talk about bad judgment. The Concord Monitor ran an editorial cartoon bashing George W. Bush‘s position on Social Security. Fair enough, but the cartoon, drawn by Mike Marland, showed a plane labeled “Bush Budget” crashing into two towers labeled “Social Security.” Ugh.

Then the editor of the paper, Mike Pride, goes ahead and offers this explanation of why he ran the cartoon,

I thought that rejecting the cartoon would be censorship. The attack on the trade towers was a singular, devastating event, but my own reaction to the cartoon was not visceral.

Rejecting it would be censorship? So if his editorial cartoonist drew a sexually explicit cartoon Pride would be afraid to turn it down because that might be censorship?

Surely Pride would recognize that as being in poor taste. So how did he let this cartoon slip past?

Enron and the Social Security Lockbox

Andrew Hofer is the first person I come across to note that the way Enron ran its business was very closely modeled on the way the Social Security Administration runs its ship.

Consider, for example, one of the more outrageous deals concocted by Enron to bloat is balance sheet. Enron entered into a deal with Blockbuster to rent movies over the Internet. The joint venture eventually went bust and Enron made no money off of it. But that did not stop it from claiming a profit.

To pull that off, Enron contracted with a second company that loaned Enron in excess of $100 million with the money to be paid back from the revenues that would be earned from the Blockbuster deal. So even though it never made a cent off the deal, Enron could report back to shareholders a $100 million in additional revenue.

These sort of shenanigans have rightly been criticized by many in the liberal and left wing press, but this is similar to the sham claim that the Social Security Administration has more than enough money to keep up with its benefit requirements — a sham which many liberal and leftist commentators have bought in to wholeheartedly.

In the case of Social Security, the SSA long ago lent that money to the U.S. Treasury to use on buying things like military jets and pork barrel projects for Trent Lott’s home state. In return all the Social Security Administration has is an IOU saying that at some point in the future, the U.S. Treasury will pay the money back.

As Hofer puts it,

The Lockbox, or social security surplus, is a fictional accounting entity full of I.O.U.s both from and to the U.S. Government that somehow increases its net worth and keeps nasty truths out of its financial statements. Same idea, huh?

One of the best first steps in making companies use honest accounting methods would be for the federal government to lead the way, and dispense with useful fictions like the Social Security “lockbox,” which make it appear like the program is far more solvent than it really is.


Lockbox Accounting. Andrew Hofer, MoreThanZeroSum.Com, January 28, 2002.

Stop the Social Security Madness

Last week Cathy Young had a very well done article for Salon.Com arguing that at least one good reason for voting for Republican presidential candidate George W. Bush was his solid approach to Social Security reform. She has no illusions about Bush, hilariously noting that, “Of course it would be nice if Social Security privatization had a spokesman other than Bush; the man probably couldn’t make a convincing case for celebrating Mother’s Day, let alone privatizing retirement benefits,” but argues that compared to Al Gore’s “pernicious … handling of the issue” Bush is a solid alternative.

Now, I don’t plan on voting for Bush but Young’s dissection of Gore’s arguments are sound.

First, there is no Social Security trust fund. Look, by law when Social Security has a surplus the only thing it can do with that money is invest in government bonds. So Social Security buys a ton of government bonds, and the government takes the money and spends it. When Social Security wants that surplus it has to redeem the bonds. And guess where that money comes from? That’s right, out of our taxes. Gore recognizes this since his proposal calls for going one step further and paying Social Security recipients in part directly from general tax funds.

Second, Social Security isn’t a “sacred trust” (as I saw Gore call it recently). Rather it’s an investment opportunity that is so bad the government has to threaten people with jail if they don’t contribute. The return on Social Security is in the low single digits. You could probably get better terms from a loan shark.

Third, Social Security is largely an income transfer from the poor to the rich. Gore goes in front of Democratic audiences and says Bush will never be able to privatize Social Security for today’s young workers while simultaneously keeping its obligations to the elderly. But one of the problem is that Social Security transfers income to the elderly regardless of income. The wealthy retired person with an annual income of $100,000 gets the same Social Security benefit as the poorer retired person with an income of $18,000. And yet the idea of actually means testing Social Security benefits so they go to the elderly who truly need the benefit is anathema to Democrats. Apparently it breaks the sacred trust they have to tax the poor to subsidize the rich.

A system that combines privatization for younger workers while means testing benefits for recipients would go a long way to solving the problems with the poor performance of the SOcial Security system while simultaneously guaranteeing minimum income levels for the elderly poor.

(Which probably means it makes far too much sense to ever have a realistic chance of happening.)