In a story on savings in the US in the New York Times (free registration required), there's a quote about the Social Security system:
More likely, the government would have to borrow trillions of dollars over the next several decades to pay full benefits to retirees who earned them under today's system.Except that the statement is wrong on at least one thing - retirees did not "earn" many of the benefits they're receiving.
The federal government has steadily increased the scope of Social Security over the past few decades so that it not only would be almost unrecognizable to those who created it in the first place, but also to the point where benefits keep growing and growing. Social Security is, at heart, only little removed from a Ponzi scheme (it is, given demographic trends, a form of pyramid scheme). Disability benefits? Not there originally. Survivor benefits? Same thing. Medicare itself is an expansion of Social Security. The prescription drug program that came into effect a couple of years ago is yet another expansion of the costs of the Social Security/Medicare system. So current retirees have not earned everything they're going to be paid, and the same is true for soon-to-be-retirees (unless you think your Social Security/Medicare taxes have suddenly increased with the passage of the prescription drug benefit program?).
I'm working on a post about demographics and the future of retirement that will go into more depth on the economics of the retirement system. Hopefully it will be up this week.
Posted by Tom Nugent at March 13, 2005 06:13 PMBut isn't this what almost (almost) all socialism eventually leads to. I recall reading that Sweden is on the verge of total economic collapse in the next 20 years because they no longer have the population (the next level in your so-called pyramid scheme analogy) to pay off the previous level. I would guess this is the same in many post World War II nations that are agng. Of course our generation will pay the price.
Posted by: Tom at March 14, 2005 05:17 AMYes. In fact, Japan is in the worst shape, because their population has aged so fast (that is, birth rate fell so rapidly that the fraction of the population over 65 is increasing faster than any other industrialized nation).
And I also believe that our generation (Gen X) is going to pay the price. Social Security will be revamped some day, even if Bush doesn't get his way in the next couple of years. Gen Xers will be stuck, in their prime earning years, paying under the old system to support retirees, and then have the system scaled back so that they don't get out most of what they put in.
Posted by: Tom Nugent at March 14, 2005 08:45 AM