Social Security is not “going broke” because Social Security cannot go broke

Dan Crawford commends John T. Harvey’s blunt reminder, “Why Social Security Can’t Go Bankrupt.”

It is a logical impossibility for Social Security to go bankrupt. We can voluntarily choose to suspend or eliminate the program, but it could never fail because it “ran out of money.”

… It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be – there is no other possible way for it to work.

… This is how Social Security actually operates. As you can see, this needs no prior financing or savings, nor would that appear to be particularly helpful. At the national level, maintaining a class of retirees (whether via Social Security or private pensions) means redistributing existing output, not putting money under your mattress. Although you can run out of money for retirement, we, as a nation, cannot.

What, then, you may ask, is the Social Security Trust Fund, the pool of money that people say will dry up and make it impossible for anyone to receive their Social Security payments? It is the surplus that resulted from having collected more in taxes than was necessary to pay out to retirees. Let me say that again: it is how much existing workers were overtaxed relative to the need to pay retirees in the past. It was never the source of the money we’ve been paying to Social Security recipients all these years. Strictly speaking, it’s completely unnecessary if we are able to precisely and continuously match tax revenues and pay outs.

Yes. Please remember this: Anyone who tells you that Social Security is “going broke” is either lying to you or, at best, does not have the first clue how Social Security works.

Social Security is not going broke. Social Security cannot go broke.

It is not an account that can be depleted, it is an arrangement between generations. As long as there are generations, then Social Security will continue to exist.

There is no debt or deficit that can interfere with that arrangement. The arrangement, like any promise, can be deliberately broken, but it cannot go broke.

Only two scenarios can be imagined to make Social Security stop working:

1. Our grandchildren all turn out to be selfish assholes and oath-breakers, deciding en masse to screw over their retired parents and grandparents while also being so short-sighted as to invite their own children and grandchildren to screw them over in turn upon their retirement. If all of our children turn out to be evil and stupid, then Social Security will not be sustainable. But then if all of our children turn out to be evil and stupid, nothing else will be sustainable either.

2. Some kind of science-fiction, P.D. James, Children-of-Men scenario in which the human race mysteriously becomes incapable of reproducing. That would mean no future generation of workers to pay for Social Security benefits, and thus would entail the end of Social Security. But since it would also entail the end of everything else, including the human race itself, it’s hard to view such a potential problem as a flaw in the design of Social Security.

 

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  • Gotchaye

    I don’t understand the focus on discrete generations.  When Baby Boomers are on Social Security, Gen X isn’t going to be the only group paying payroll taxes.  I think the projection is that the ratio of covered workers to retirees is going to go from a little under 3 now to about 2 over the next few decades, and then be pretty stable.  So it could be fully paid-for if each worker contributed only 50% more in payroll taxes.  But the system was designed so that they wouldn’t even need to do that; that was the point of the trust fund.

    Also, it’s absolutely bizarre to claim that Europe’s troubles are due to an aging population.  That’s not the least bit plausible.  Argument, please.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    If you believe the official measure of GDP growth, then the USA is back to growing at around 2% per year.

    Given that you’re adding 2% per year to a base of around $10 trillion, it’s not hard to figure that the USA is definitely going to produce enough to keep pace with population growth and thereby also produce enough incomes to tax to keep up with Social Security.

    Chicken Little alarmism about Social Security reveals a profound lack of understanding that just as the SS fund produces a surplus right now and gives money to the government, the government can always give money to the SS fund when it goes into deficit.

    No crisis.


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