Freedom Fry

Look at that freedom fry! A collection of political hotlinks and original articles.

Friday, December 17, 2004

Social Security Reform—Don't Fix it if it Ain't Broke

1:27 PM

Social SecurityThe Social Security System is fine; don't believe the hype. In 2000, the US population was 281 million. In 2004 it is projected to be 295 million. This means that our population is growing. We need to stop this eventually (like right now) to limit pollution and resource-devouring, but that's another issue. If the US population in 2004 had to pay for the US population in 2000 to retire, there would be no problem—there are more of us 2004ers than of them. That means that there is usually a surplus! What is more, if the lifespan of a human is roughly 75 years old, then there are only 13% people over 65 (10÷75). That means there are far more people working than retired. So another surplus!

Occasionally a population boom happens. This happened in the 40s, 50s, and 60s. The worry is there won't be enough money being paid into the system to cover this big number of Baby Boomers. However that's rediculous. If we have saved the surpluses from when they have been paying too much into the system, then no problem! The system works. But...we forgot to save the surpluses. We spent it all. Al Gore wanted a lock box on the money. George Bush used the money to cover government spending and then cut taxes (most of the benefits going to the richest 10%).

So...we have a problem with the surplus. However, in the worst case scenario, we will simply have to take a hit to the wallet and pay more taxes to cover this single generation.

In 1960, we had 5.1 workers per retiree. By 2030 we will have only 2.1. But so what? That's still more workers than non-workers! The author of Social Security Isn’t Broken points out that in the 1960s we had 1.05 workers per dependent (including children). In 2030 we will have 1.27 workers per dependent. That sounds feasible to me, and to him. There is, still, for some reason, little dispute that eventually the Baby Boomers will cause a deficit. I'm not exactly sure why. There are, after all, roughly only 26% Baby Boomers out there (76 million÷ 295 million). Isn't this few enough to be supported? The author of that article also points out that productivity goes up by 2% each year:

Suppose each of three workers today produces $1,000 per week and one retiree is allocated $500 (half of his final salary)—then each worker gets $833. In 2040, two such workers will produce $2,000 per week each (after adjusting for inflation). If each retiree gets $1,000, each worker still gets $1,500. The incomes of both workers and retirees go up.
Now of course it's not as simple as that. Not every worker makes the same amount of money. But what is the problem here?

The author points out that the Social Security Trustees are banking on a very low level of GDP growth, a 1.8% rate. However:
If the economy grows at 2.4%—which is still slower than the stagnant growth of the 1980s—the trust fund never goes to zero. The increase in real output and real incomes will generate sufficient revenues to pay promised benefits. By 2042, we will need to lower payroll taxes or raise benefits to reduce the surplus.
Birthrates are lower and lifespans are longer, so yes we need to adjust. We may have to raise the retirement age. I would like to see information on what the percentage of retirees to workers must be.

For a look at what has happend in other countries when they have attempted privatization similar to the kind suggested by Bush, check out Paul Krugman's article.


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