More Talk Radio on 05/23/11

More Talk Radio
Air date: 
Mon, 05/23/2011 - 8:00am - 9:00am
Short Description: 
Social Security: Beyond the Doom and Gloom

Host Celeste Carey interviews Max Richtman, Executive VP/Acting CEO of the National Committee to Preserve Social Security and Medicare.

Richtman says, “It’s important that Americans understand the [just-released] 2011 Trustees Report which confirms that Social Security and Medicare continue to fulfill their mission, providing retirement and health security to millions still suffering during the worst economic crisis of a generation. Beyond the doom-and-gloom news headlines and calls to cut these programs in order to ‘save’ them, the fiscal facts in this annual report show that Social Security has a $2.6 trillion surplus which continues to grow."


I'm sure that he means well, but...

I'm sure that Mr. Richtman means well, but in fact Social Security is dying.  It is dying because:

  • Payments out to retirees exceeded receipts in from workers by at least $41 billion (SSA 2010 report estimate) to $76 billion (Charles Hughes Smith independent estimate), and that is not going to change materially going into the future.  2011 may return briefly to positive cash flow, but overall the inexorable decades-long trend has been toward insolvency.  The Baby Boomer bulge is real.  Increasing numbers of people are retiring - and retiring earlier than expected in our poor economy - and fewer workers remain to fund the system.  You can nibble around the edges of the problem by raising the income limit beyond which wealthy people are not FICA taxed, but you can't outrun the basic math.
  • Although Mr. Richtman believes that if he put a box of Trust Fund IOU's in front of a room full of people the fact that people would grab them and take them proves that they have value, in point of fact they are not marketable securities that can be sold for cash.  He makes much of the fact that they are "backed by the full faith and credit of the United States Government;" yes, but how does the US government back them?  It does so by taxing its citizens or borrowing from the bond market.  It does not fulfill its Social Security obligations by withdrawing cash from some stored account.  The Social Security surplus of prior years was transferred to the general revenue fund and SPENT.  The US Government runs a $1.7 TRILLION dollar annual deficit right now, and it has accumulated more than $14 TRILLION in accumulated borrowings (aka the debt ceiling).  So it is really a political question: how long can we continue to run up ever-increasing deficits without incurring a bond market blow-up?  As more and more doubt emerges about the US government's ability to tax its citizens enough to maintain cash flow, never mind pay down principal, the countries that loan us money (think: China, Japan) will demand higher interest rates to compensate for greater perceived risk.  Thus we enter a spiral where doubt leads to interest rates increasing leads to worse cash flow, which feeds more doubt.  That's how the financial world works.
  • Yes, it is true that Obama's lower payroll taxes did not impact people that receive benefits.  It did not impact the SSA system because the Treasury borrowed money on the international market (as it does for approximately half of US government spending!) and gave that money to the SSA to distribute.  And I would grant that lowering the payroll tax was probably an efficient way to get money circulating more quickly in the hope of generating some sort of economic recovery, but it is also absolutely without question accelerating the insolvency of the Social Security system - money that doesn't come in from workers is money that has to be claimed from the "IOUs" in the trust fund, and that in turn is money that is borrowed from creditors in the bond market.

I have ten years to go before I will be eligible to draw SSI.  I am convinced that I will never see meaningful returns on the thousands upon thousands that I've paid into Social Security.  Do I like it? No.  Do I think it is fair? No.  Do I think that by lobbying Congress I can get this changed? Sadly, no.  The money is either there, or it isn't.  Social Security has always, always been first and foremost a political fraud, a way to buy votes today by pushing a huge problem into the future.  Well, guess what?  Once the cash flow goes negative the future is here.

If you're interested in digging deeper into issues around Social Security, I recommend the writings of Charles Hughes Smith:

The Fraud at the Heart of Social Security

To Fix Social Security, First Ask Why It Is Deep in the Red

In case you're not interested in clicking through the links, Charles actually is in favor of fixing Social Security.  He believes that we're well overdue for an honest accounting of how Social Security operates, and I suspect that he would agree with me that the prognostications of your guest are simply not helpful.  It is only when we recognize that Social Security shortfalls (i.e. "using up the Trust Fund") compete with other general revenue spending for precious dollars that we can start to make hard choices.  And I completely agree with Charles Smith that it is completely appropriate to slash the bloated portion of the government budget devoted to "defense."

Kurt Liebezeit


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