Want to fix Social Security? Thank me later.

Posted on September 17, 2011

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With the Republican primary race in need of a punching bag and not wishing to waste ammunition on the President, it seems attention has become focused, at least temporarily, on Social Security and it’s legitimacy. This isn’t something we should worry about particularly, Republicans make their living bashing the social safety net but it has lasted 70 years so it’s unlikely to be taken down by the exact same rhetoric as it has weathered since its creation. No, the problem isn’t what politicians and lawmakers say about it, the problem lies with what economists and other scholars, established or not, are saying.

Today I read an article in which Peter Morici claims Social Security is a Ponzi scheme, however unlike Rick Perry, he doesn’t believe it should be privatised. Instead he asserts that Social Security should not be demonised for its structure though the retirement age should be raised instead to counteract the aging population. Professor Morici’s only posits that the real fault of Social Security is the way in which it was set up, by having current workers pay for current retirees yet his solution does nothing to address this, it only extends it. In fact the only two popular solutions that exist are raising the retirement age or raising the taxable income cap. Yet these do nothing to fix the source of the problem.

When Social Security was created there were millions of retirees who were to be placed on the state pension scheme yet had not paid anything into it, the only way to pay for this was to have current workers pay for retirees, the system that has existed for so long. Yet now that claims are beginning to exceed taxes this scheme will no longer work unless people start dying younger again. It would seem the success of the system had prevented anyone from noticing that this was a structural problem of the system and was only meant to be temporary, however the system was no flexible enough to allow the change.

This is no longer the case, Social Security has a $2.5 trillion surplus, one that can be used to support retirees until 2036, that’s 25 years to move young workers onto a new system in which they collectively invest their payroll taxes in a social safety net specifically for their generation. There, three paragraphs to explain, one sentence to fix.

Well we’re between banks right now so just make those cheques out to cash.

Michael Galloway, we’re done here.

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Posted in: Economy, Politics