A Simpleton's Social Security

The Social Security wars are back.  According to Dr Alan Greenspan, Chairman of the Federal Reserve, benefits should be reduced and made less available.  That's because he believes it is more important to reduce taxes than pay benefits. But, there's nothing in that for President Bush,  because Chairman Greenspan believes something has to give: maybe there have been too many tax cuts.  Meanwhile, George W Bush plans to make Social Security privatization a key element of his re-election campaign. Democrats, of course, are frantically pledging to leave Social Security as it is.

Political Truths

I don't buy any of these highly political statements,  because they are highly political statements.  Here is where I think these folks are "coming from."

Dr Greenspan is at heart a Libertarian, a devotee of Ayn Rand. He believes people should be responsible for themselves;  the government is not their nanny. Thus, he would feel better if there were no welfare at all, no social security, no unemployment insurance, no minimum wage, etc, etc.  On the other hand, if private employers and agencies want to provide these benefits for whatever reason, Dr Greenspan does not disapprove of it.  If private entities do not provide those benefits, that is not a mark against them, either.  It is only government involvement in private lives that Dr Greenspan finds troublesome.

President Bush is the scion of a very wealthy, aristocratic family.  In the 1980s, he underwent some sort of religious conversion and became a "born-again," fundamentalist Christian. In Bush's religion, there is no room for government intervention in private lives except to keep people on the straight and narrow. So, he doesn't believe in government welfare programs,  but, unlike Dr Greenspan, he does believe private charity is a duty.  As Bush sees it,  the churches are more responsible for welfare than business.  Like the Salvation Army, Bush thinks your welfare is best served under the tutelage of a religious organization; i.e., you will only get helped if you are God's servant.  In Bush's vision, the government is not compassionate;  individual and churches are.

Democrats inherit the New Deal from FDR. There are lots of conservative Democrats who, in their heart of hearts, feel much as Dr Greenspan or Pres Bush do.  Nevertheless,  in the short run, they're stuck with the welfare programs on pain of losing their official positions; i.e., their shirts.  So, almost all Democrats say they love Social Security and most of the other welfare programs.  That say that because they're Democrats, which is the party of the people. When Democrats really don't love a welfare program, they volunteer to "fix" it. There's been lots of fixing going on during the last 20 years.

Economic Truths

There really isn't a big problem with Social Security,  or most of the other welfare programs.  Food stamps, Aid to Families with Dependent Children, and the other programs for the poor cost far less than $50 billion annually.  That's less than the cost of maintaining all the nuclear missiles.  Women spend more on lipstick and other cosmetics than the US government spends on food stamps.

Those who audit the Social Security program say it is "solvent" until about 2029, 26 years from now.  That projection assumes US GDP growth averages less than 2%; i.e., almost every year is a recession year for the next 26 years.  If future average GDP growth is more like the last 50 years or more, Social Security should remain solvent at least another  40 years.  A small increase of 1% or so in annual funding, or above average GDP growth, will cover Social Security expenses for the next 75 years.

Is Social Security broke?  NO.  Is it is going broke?  NO.

On the other hand, the cost of MEDICARE is growing by leaps and bounds. This is attributable to increased longevity, increased `use of medical services, improved medical procedures, wide use of improved and effective drugs, and the lack of governmental regulation or control.

In our society, money rations medical care, which has the effect of badly distributing medical services.  The concentration of monetary demand in the highest cost services, most often preferentially made available to the wealthy, has the effect of draining services from the mass market.  In other words, the middle class and the poor have to compete with the rich for services,  in a market constrained by available talent (workers). So the rich, by getting everything they want, create a shortage for everyone else, which creates price inflation because medical care is not easily foregone.

The difference between MEDICARE and most other programs is urgent need.  Reducing welfare payments to below the cost of living will surely starve some of the supported population, eventually.  Denial of medical services is more certain to bring about someone's demise more quickly. The very loud controversy that goes on about medical care is loud exactly because we are dealing with immediate pain and suffering, disability and death.  It is very difficult or impossible to place a dollar value on medical need in most of these circumstances.

As a society, we have yet to agree on how we should handle medical care.  Until we do, there is no way to evaluate the eventual cost of MEDICARE.

When Dr Greenspan advocates reducing the Social Security COLA,  that is a back hand way of having the benefits cut. This already happened the last time Dr Greenspan and others recommended Social Security changes in 1986.  As a result of that Social Security Commission, the minimum age of full benefits is increasing and the COLA was cut.

The COLA is based on the CPI (Consumer Price Index). Greenspan and others invented the clever argument that the COLA over-represented the actual CPI increases,  so Social Security was increased too much every year.  To be fair, the COLA had to be reduced. The price indices on which the COLA is based were adjusted,  and the annual Social Security COLA has been much, much less ever since (1986).

Recently,  the COLA has been about 1%.  The CPI has been running 2-3%.  The COLA does not reflect price increases in such things as food, energy, and medicine, but is adjusted when the cost of mink coats rises.  It is an interesting fact that inflation in the prices of luxury goods has been very low lately.  It is also a fact that the price of milk, bread, eggs, coffee, fish and many other basic staples have increased rapidly for several years.  Most 24 oz loaves of bread are now about $3.19-$3.29 vs. $2.89 a year ago, and $1.69-$1.89 just 3-4 years ago.  That's around a 100% price increase in 5 years for bread.  (But, now we know bread is bad for you.)

Clearly, when the COLA is reduced,  the value of Social Security payments is lost at a faster rate, if inflation continues at the same or even high rate.  In other words, inflation gradually reduces the buying power of Social Security payments when the COLA does not fully compensate for it.  This is a clever way to reduce the "Social Security burden" because it happens gradually, a little at a time, which causes few complaints.  Congress can make such adjustments because most people don't know what is happening.  It's another case of the proverbial frog getting cooked,  because it never jumps out of the pot as the heat gradually rises.

Every year, the full benefit age is going up a month or so until it reaches 67. What this means is retirees pay their own way until reaching the higher full benefit age,  or they must accept a reduced "early retirement" benefit.  Assuming a two person household lives on $2,000/month, 10% above the "poverty line," the additional 24 months from 65 to 67 years old requires $48,000 out of pocket.  Since the "average" American retiree has about $50,000 in net worth (not necessarily savings) at age 65, the increased retirement age is likely to drain a lot of the retiree's resources before Social Security "kicks in."  Of course, this means the retiree is more likely to need public assistance later on in the event of a medical or other life emergency.

About 35% of all Social Security recipients are fairly well off, and indeed expect to live out their "golden years."  For this group, the loss of Social Security is unlikely to put a crimp in their plans.  They have the savings, private retirement plans, annuities, and health insurance they need.

About 35% of all Social Security recipients are not well off, but get by on a combination of private and public pensions and benefits. For this group, retirement is not uncomfortable, but it isn't the dream they hoped for.  This group is at least partially dependent on Social Security and other public programs for survival. A portion of this group is pushed into poverty, immediately or gradually, by inflation and delayed Social Security payments.  Since men die sooner, most of those impoverished are women, especially since survivor's benefits are usually much less than the worker's benefits.

The remaining 30% of Social Security recipients depend entirely on savings and Social Security during their retirement.  Almost all of these live at or below the poverty line.  This group becomes increasingly dependent on their families or public assistance as they grow older.  They die younger than others,  mostly for financial reasons.  For this group, retirement is a best not uncomfortable.  (I am one of these.)  This group is most penalized by reductions in the COLA and delays in granting benefits. They have no voice and little representation in the recent political arrangements of both major parties, so their situation is unlikely to improve.

Despite the increasing age of Social Security eligibility,  and the restructuring of many private retirement programs to reduce benefits, employers are less and less inclined to retain employees over the age of 50.  With the exception of the very top management, most people find themselves being pushed out the door by age 55.  Whenever layoffs occur, older workers are almost never re-hired. They are replaced by youthful faces who work for much lower pay, and fewer, reduced benefits.  American employers have been in a "race to the bottom" for the last 20 years or so,  which leaves older workers unemployed and without benefits more often, and sooner, than anyone expected.

I think the probability of those over 55 who lose their jobs of ever getting another job is about 1/3.  That is, most likely, once you are out, you're out. (A warning to anyone over 50.)

This means there is an increasing gap between useful employment and retirement.  People are dumped out of the system at younger ages, with fewer resources, and have to wait longer to get lower benefits. If there is any Social Security problem, this is it.

Biological Facts

We are leading longer lives.

While we could work more years, there aren't any jobs for geezers.

While maybe we could live on less, many old folks are already living on less than needed.  This might solve the problem of "leading longer lives."

People are born, and start to grow soon thereafter.  They grow older from the moment they are born.  While our perception of time may be flawed in ways we do not now know,  it is universally believed that people get older, never younger.

It's Simple

Therefore, if you live long enough, someday you will be a geezer. As I have proposed before, there are just three things we can do about geezers:

All the talk about Social Security and MEDICARE comes down to those solutions.  Dr Greenspan's proposals, for example, amount to abandonment.  Pres Bush proposes to pay them his way, and abandon those who don't go along. The Democrats want to pay them, if only for their votes.

Very few people are so gauche as openly to suggest killing geezers.  After all, that sounds too much like Adolf and Uncle Joe,  those holocaust people.  But, there is a polite way to do it:  cut MEDICARE.  if you cannot get medical care when you need it,  sooner or later you will croak.  Most likely, you will drop off sooner than otherwise, and "thereby reduce the surplus population" (as Dickens' Ebenezer Scrooge said in quoting Malthus).

The less polite way to get rid of geezers is just eliminate Social Security. This is bound to create a weakened, destitute population in just a few years.  That would surely rid us of the old parasites.  It is hard to maintain the line between "abandonment" and "killing."

It would clarify things a lot, if those yelling about Social Security would tell us what they really believe, what they mean to do.  Until that happens, I evaluate all proposals using my KAP guidelines.

As I often say to the young folks these days:  NEVER GROW OLD.

March 7,2004

Last update: 11/02/2007

© Copyright California Expert Software 2007

All rights reserved.