March 19, 2010

Social Security Almost Breaks Even!

I’ve walked and I’ve crawled on six crooked highways
I’ve stepped in the middle of seven sad forests
I’ve been out in front of a dozen dead oceans
I’ve been ten thousand miles in the mouth of a graveyard
And it’s a hard, and it’s a hard, it’s a hard, and it’s a hard
And it’s a hard rain’s a-gonna fall.

Bob Dylan, "A Hard Rain's A-Gonna Fall."
Social Security, which as recently as a year ago had projected its reckoning day - the point at which annual outgo exceeds withholding tax revenues and interest income - would not approach until at least 2017. No worries, right mate?

Then SSA revised its forecast, advancing the crossover date (in the absence of any program changes) to 2016, a year earlier, but still a long time away in Washington, D.C. years where time virtually crawls. SSA also earlier in the fiscal year estimated its FY 2010 and FY 2011 shortfalls would be about $10 billion. Now the 2010 deficit alone may triple to nearly $30 billion.

Now the
Associated Press has "discovered" the day of reckoning already has come and gone, six years early, in a folksy, oh-don't-worry-about-any-of-this piece which seems to find it more interesting that actual, printed, intra-governmental bonds, $2.5 trillion of IOUs, are kept in three-ring binders in the bottom drawer of a locked filing cabinet in West Virginia of all places than the disturbing reality of an insolvent pay-as-we-went retirement entitlement program. Keith Hazelton, Anecdotal Economics

That's what I thought had happened, but you know how it is. How could I possibly be right if the official forecast claimed that Social Security inflows would exceed outgoes until the year 2017? It's not as if the government, which does these things for a living, could ever get its stats that far off, right? Seven years? Yet it develops that the Social Security Administration did indeed miss this thing by a mile. Which implies that my reading of the Treasury's monthly statements was more or less accurate.

There's a simple solution, of course: stop reading the monthly statements. What good can come of such a morbid preoccupation? Still, it does appear the problem is already here with us, and it's difficult to imagine that a confluence of negatives could possibly be worse for this FDR-era King of the Entitlements. The leading edge of the Baby Boomers trying to quit, a demoralized (and massively unemployed) younger labor force (on whom the leisure-loving Boomers depend for their monthly stipend), and with roughly half of the Boomers with no other means of funding their Golden Years. It's surprising, under these circumstances that the issue doesn't command more attention.

Of course, to beat a dead horse (poor old Trigger): the government, and the "Progressives" trying to protect Social Security from Right Wing assault, cover their eyes and talk about the $2.5 trillion trust fund which should be good "until 2037." Why oh why do grown people talk this way? The Trust Fund should be marked with an exhibit tag and cordoned off with yellow tape as a crime scene, but it has no financial significance whatsoever. The trust fund has about the same commercial marketability as a ransom note.

Yet I would venture to say that almost no regular financial writers in the major newspapers ever quite figure this out. One must recall that a majority of the American people believed, in March, 2003, that Saddam Hussein was behind the attacks of September 11 for a full appreciation of how easily the folks here at home, including the punditocracy, can be traduced into believing utter nonsense. So that if we simply keep repeating that the S.S. system is solvent "until 2037" we can stop thinking about it. It isn't solvent now.

So, in the absence of Official Explanation, I would surmise that the book-cooking at the Treasury proceeds in this fashion: In February, for example, the Treasury received about $49 billion in FICA taxes. The outgoes were about $62 billion. The difference of about $13 billion is covered by an "On Budget" credit entry on the income side. What is this money? My somewhat educated guess is that this $13 billion represents a subtraction from the "accrued" "principal" and "interest" from the $2.55 Social Security "Trust Fund." Leaving one question: since there is no actual money in the Trust Fund, is the shortfall funded from Treasury sales, adding to the national debt, or is the Treas/Fed simply monetizing this amount (that is, willing it into existence by fiat)? I've never seen an explanation of that lacuna. And, understandably, no member of Congress likes talking about it, since it's the essence of the corpus delicti.

There you have the basic delta between the treadmilling younger workers, struggling to make ends meet, struggling to find employment at all, many no doubt trying to stave off foreclosure and destitution, yet nevertheless required to keep paying, off the top, this onerously regressive FICA tax; and the eternally grateful seniors and the somewhat nervous Boomtown Rats insinuating their way into early retirement, and trying to discern among the sullen masses of younger workers the two or three who will finance their social security payments.

I ask you, as a fair-minded person: does this sort of dynamic tension sound like something that's going to last? Do the Boomers actually think that the younger generation, as they increasingly come into power, are going to sit still for a system which they can predict, to an absolute moral, actuarial certainty, has no chance of ever supporting them? I sense you probably agree with me then.

Wait till this one becomes fully realized in the national consciousness. If, as a matter of reality, the Social Security payments disbursed now are only about 79% funded (49/62), would not that support the immediate reduction of benefits paid by 21%, as opposed to the fantasy of any COLA increase? That's where we really are. Get out your steel-reinforced umbrella: A hard rain's a-gonna fall.

1 comment:

  1. W.S.,
    If the money I put into SS during my working years had been just put in the bank at 3% or so instead of being ripped off to support operating expenses, would there be any problem in paying me my measly $1,700 per month? In other words, would Social Security be OK now if the ripoff had not occurred?