Why Is Social Security Going Broke?

Why Is Social Security Going Broke?
by Glen Allport, posted on March 08, 2011
 
In plain language, there is no good reason for the unfolding Social Security nightmare. Yes, the Baby Boomers are retiring, but so what? It's a big group, but this same big group has been paying into Social Security their whole adult lives. It's not like the money hasn't been set aside or anything.
 
Right?

Of course, you know better: the money that should have been set aside wasn't. That is the entire Social Security problem in a nutshell.
 
How did this happen? Government happened (as in, "Be careful not to step in the government"). Ringo's Law happened: "Everything government touches turns to crap."
 
Any demographer could have told you fifty years ago -- or before the start of Social Security during the Roosevelt administration, for that matter -- that a "pay tax as you go" system like Social Security has inherent problems, because (among other things) the generation following any "Baby Boom" group will almost certainly be smaller -- a non-Boom generation, if you will -- and will thus be strained to support the Boomers in their old age.
 
When other government revenues (taxes) are high enough and overall government spending is low enough, surplus tax revenue can paper over shortfalls in such situations -- but this only works if there is a tax surplus.
 
How often does the federal government run a surplus? In recent times (say, the last half-century), the answer is "never." 
 
What about the famed "Clinton surplus?" You will be shocked to learn that this alleged surplus was created by the usual types of government fraud: in this case by counting the money siphoned and stolen from the Social Security trust fund as general income (that money was indeed used in the general fund) and by not accounting for necessary set-asides for various programs (including Social Security, Medicare, and others). In fact, this fraudulent accounting has resulted in the build-up of federal debt to levels that are unimaginable and literally unpayable. Economist Laurence Kotlikoff in Bloomberg.com on the topic:
 
"Based on the CBO's data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our 'official' debt and our actual net indebtedness isn't surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities 'unofficial' to keep them off the books and far in the future."
         Laurence Kotlikoff, U.S. Is Bankrupt and We Don't Even Know It, 8/10/2010
 
My "unpayable" comment requires an asterisk -- it assumes current value for the dollar, which we all know is a poor assumption. Indeed, the federal reserve is working on that problem as you read this, and the dollar's value is quickly headed downward toward its ultimate and intrinsic value of "zero." When the U.S starts printing hundred-trillion-dollar bills because anything smaller won't buy a loaf of bread, then our multi-trillion-dollar debt won't be so hard to pay. Of course, those receiving the payment, including Social Security recipients and bond-holding retirees, won't get much real value, but that doesn't seem a concern to those in our government.
 
 

 

$100 trillion Zimbabwe banknote. Note that the $Zim was actually worth MORE than the $US as recently as 1980 or so. Image courtesy Wikipedia

So, the money for your retirement isn't there. The money should be there because you did pay it. You were forced to pay it, and the rationale was that paying your money into this government program would provide you with some financial security in your old age.
 
But because Social Security is a government program, you know what to expect: waste, fraud, and in the end, an effect opposite to the stated intent. The retirement age was already raised on you -- you won't be getting full benefits at 65; that promise was broken long ago -- and when you finally DO reach the age where they'll let you collect, you'll find the money is, at the very least, a bit thin. As I've already suggested, the purchasing power of your Social Security checks will be nowhere near what you were expecting (despite adjusting for inflation, because the government uses its own not-very-honest figures for the CPI), and nowhere near what would make sense given the dollar amount and the time (assuming compound interest, like you'd get at a bank) that you paid into the system. Most important of all, those monthly checks won't be enough to provide the support you were counting on -- whether as an addition to your savings and pension or -- as is true for millions of American retirees -- as your (gulp!) only support (the government says that description fit 22% of retirees in 2002).
 
The bottom line on Social Security being a government program is that Congress had more important things to do with your retirement money than invest it safely: Congress spent your Social Security money on other things; on war, for the most part, and on throwing people in prison for using pot or cocaine, and on new cabinet-level agencies and on zillion-dollar boondoggles and on sending SWAT teams to farms that Monsanto thought might have some plants that grew from patented seeds that had blown in on the wind from a neighboring farm and on preventing cattle ranchers from testing their own herds for Mad Cow disease and on feeling up your wife at the airport and on preventing you from using a cheap natural vitamin to slow damage from blood sugar because a drug company wants to patent the vitamin and sell it for Big Bucks as a drug and on jaw-dropping perks for Congress and other federal employees and on military bases in a hundred and thirty (or so) foreign countries and on, well, all the many, many other important things that government has been doing with your money.*
 
Let's be fair here: your piddly-old retirement just wasn't much of a priority in light of all that other, more important stuff. Surely you understand.
 
Kotlikoff on the topic again:
 
"This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck."
 
Of course, if you'd been allowed to invest all that money (including the "contributions" your employers were forced to make on your behalf, which they could have otherwise spent on something useful, including perhaps higher pay for you), then you could have put the cash in a bank, collected interest, and retired when you darn well pleased. You also would have been able to pass the remainder (if any) of your retirement funds along to your heirs, and since your money wasn't being spent by politicians and replaced with IOU's, you'd also have a much better standard of living DURING your retirement.
 
But the government decided to take care of you, using its patented "make them pay for it and then spend the money on something else" method for delivery of services. So the many billions of dollars that Baby Boomers were forced to hand over to Social Security just aren't there anymore. The smaller, younger group of people now working are being asked -- by which I mean "forced" -- to fund the retirement of the huge Boomer cohort, but (and here's where the fun really begins) this is mathematically impossible given that workers also have to pay federal, state, and local taxes of many types (gotta keep the War on Drugs, the War on Terror, the Wars on healthy foods and supplements, and all the other wars on the American people going), and -- not that this is very important, but still -- given that workers need SOME income left to buy food and pay the rent. What's left over after all that, even assuming a much lower standard of living for the younger generation, is not enough to cover the money that Congress "borrowed" from the Boomer's Social Security accounts, much less to do that plus set anything aside for the younger worker-bees who now exist solely to fund government programs and to make up for the missing Boomer Social Security money.
 
Adding to the angst of all this is that unlike, say, our Aid to Dependent Dictators program or the oceans of free money given to banks and other corporate entities, Social Security is not a welfare program. Social Security is a retirement program that Americans have been forced to participate in. Retirement programs are perfectly ethical and sensible, but in accordance with Ringo's Law, government involvement in such programs spells disaster. Boomers have every right to expect that government will provide retirement income to them at a level commensurate with what they've been forced to pay into the system, and the idea that Social Security payments for the Baby Boom generation are a burden in any way angers the people who already paid the money.
 
The anger is just getting started, of course: as the situation gets worse, as living standards for both retirees and workers fall, and as it becomes even more clear that this disaster happened only because Congress handled Social Security money the way Bernie Madoff handled his client's money, the anger will intensify.
 
Fortunately, the federal government has prepared for this eventuality. Homeland Security, the TSA, warrantless surveillance of many types, those Halliburton-built domestic detention camps, the Patriot Act, and a great many other laws, regulations, agencies, and policies are aimed directly and blatantly at monitoring and controlling the American population. This seems reasonable proof that government does know what it is doing (bleeding the people dry for benefit of coercive elites in and out of government) and that it does plan ahead carefully -- it just has different and less honorable goals than it claims to have.

If we are to have any hope at turning things around -- at increasing our liberty, compassion, and prosperity instead of further destroying those qualities in the United States -- then people must begin to understand the most basic truth about coercive government: that it is based on coercion and thus behaves in criminal fashion, by definition. Force, aggression, violence -- these are the hallmarks of government, from its methods of funding (even for "nice" programs) to the way it supplies "compassion." The DrugWar, for example, is supposed to be protecting us from the evils of drugs (a compassionate goal) but instead involves ruining the lives of millions with prison and with violence, not only in the United States but in Mexico, Columbia, and indeed throughout most of the world to one extent or another. "Compassion" has nothing to do with the DrugWar, other than this: the DrugWar is a wrecking ball that smashes compassion to bits wherever it swings. With government, that's par for the course.
 
Whether it's aggressive foreign war that murders civilians without qualm (it's only collateral damage, after all) or a safety-net program like Social Security, the end result of any government action is to take money from the citizens by force and fraud and then spend that money in ways that hurt people and which the citizens would almost always reject if given a choice. When people are allowed to spend their own money directly, they spend it in ways both wise and foolish, but what they don't do is invade other nations, use drones to launch missiles at the homes of other families, build detention camps, spy on everyone in the country, throw their neighbors in prison for using pot, or run massive cons on millions of citizens the way Congress has with Social Security. (When individuals do set up such a Ponzi scheme, it is tiny compared to government efforts and the perpetrators can and usually do end up in prison).
 
Because government is only a way to do things by force, it can never be a long-term good. Thoreau was completely and profoundly correct: "That government is best which governs not at all." Coercive government crushes compassion, corrupts both business and charity, and brings poverty, violence, and despair to millions. Our present economic plight -- and worse, what's coming -- are, at bottom, entirely caused by government action, from mal-regulation and corporatism to running a military larger than the entire planet needs; from illegally turning the dollar into a dishonest fiat simulation of money to taxing and mal-regulating people and businesses to the point where productive activity is highly discouraged in the United States. Our bizarre and draconian banking and financial laws make even investing in this country seem foolish; our TSA and other police-state agencies and policies make visiting America about as appealing as a vacation in Guantanamo. Does any of this sound like a prescription for prosperity, or compassion, or freedom?
 
For more than a century after the American Revolution, the United States was a genuine beacon to mankind, a haven for the downtrodden, and a true (if horribly inconsistent) champion of liberty and human rights. During that period the U.S also became the wealthiest nation the Earth has ever known because it fostered non-coercive, civil society by keeping coercive government small and restrained. Now our government is huge and frighteningly unrestrained; coercion and centralized control have largely replaced liberty and the organic, decentralized decision-making that society needs to function properly. Love and freedom are being pushed out of American life in favor of cruelty and tyranny in a modern blend of corporatism, fascism, and coercive socialism.
 
The coming train wreck of Social Security (and Medicare, and other mandated but hugely underfunded programs) is only one symptom of this nation's slide into tyranny. If we don't reverse that slide and begin moving in the direction of love and freedom -- and soon -- I see little hope of salvaging any of the positive elements of our heritage.
 
Love and freedom, or cruelty and tyranny: It seems an easy choice.

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