Posted by
Always To The Right on Tuesday, December 02, 2008 11:35:02 AM
In the wake of the stock market collapse, one theme emerged almost
immediately — that derailing George Bush’s reform and privatization
plans for Social Security saved retirees from disaster. People saw the
steep drop in stock prices over the last few weeks and figured that
retirees would be eating cat food by Christmas. However, that ignores a
couple of realities, and in fact we may wind up wishing we’d listened
to Bush in the long run.
First, the people who were close to retirement weren’t eligible for
privatization anyway. In fact, the first stock purchases under the
2005 plan wouldn’t have been made until next year, and those
only for people whose retirement dates were still years away. Anyone
within ten to fifteen years of retirement had to stick with Social
Security with Bush’s transition proposal. Having that money flowing
into the markets now would have provided some welcome capital flow
during a recession, and the portfolios could have bought some real
bargains.
The bigger issue, I’m told, is the wage-growth assumptions made by
economists to declare Social Security solvent in the first place. The
CBO’s analysis of SocSec’s insolvency date assumed a higher long-term
growth than anything seen in the last 40 years in order to produce an
insolvency date farther out than the one predicted by the Social
Security Trust Fund trustees. The financial collapse has proven those
assumptions wildly optimistic and unreliable. Not only that, but the
Trust Fund itself has taken a big hit, thanks to a plunge in Treasury
return rates.
The much-derided Trustees’ projections for cash flow deficits (2017)
and insolvency (2041) are not going to prove to be wildly pessimistic.
More likely, the burst of the housing bubble will bring those dates
significantly closer. Not only will we wish that Congress had taken
action with Bush to effect Social Security reform, we may have run out
of time to get it done without putting people’s retirements at risk now.
In the meantime, let me share a couple of tables with you from the Social Security Administration. The first shows the unfunded obligations just for past and current participants — with a $15 trillion shortfall. The second
shows that the Social Security shortfall is NOT a hypothetical,
maybe-it-will-happen-someday event. It’s on the books NOW in the form
of the excess of benefit promises over revenue collected for people who
have entered the system already. Future generations don’t contribute
to the problem at all — even if they get everything they’re promised,
and even if they’re spared a tax increase (both impossible given the
current shortfall), they’d put more into the system than they’d get
from it, in present value terms.
Keep these tables and links handy. These tables may not survive the change in administration.