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.

 

  • P J Evans

    The only way to avoid the fund going broke is to either raise the social
    security tax (considerably), or to cut the benefits being paid out
    (equally considerably).

    Nope. That’s wrong. So is your statement that it’s a stack of IOUs.
    It’s a TRUST FUND and it’s invested in 3% T-bills.

    Now, how many other talking points have you collected from the deficit hawks that want to give money to corporations and the rich, and take it from everyone else?

  • http://twitter.com/lesterhalfjr Chris Hadrick

    ha! I knew it

  • EllieMurasaki

    And your point is…

  • http://blog.trenchcoatsoft.com Ross

     And, just to reiterate, if the US government can not redeem T-Bills, we al have far worse problems than Social Security insolvency.

    The “But it’s government IOUs and they might not have the money to pay them back!” argument is exactly as valid as “But a meteor the size of texas could hit the earth in 2037 causing a mass extinction on par with the K-T event, and how will the government pay out social security then?”.  Yes. It could happen. But the scenario in which it happens is the total collapse of our society. Social security isn’t the problem.

  • Daughter

     Not necessarily. Undocumented immigrants can qualify for an ITIN (individual tax identification number) in order to increase the work options, and the IRS will not share that information with other agencies. And once they’re in the system, they’ll pay payroll taxes and perhaps income taxes.

  • Daughter
  • EllieMurasaki

    *nods*

  • ohiolibrarian

     OTOH, Boomers are less likely to have spent 30 years at hard physical labor than their parent’s generation and the medical technology and knowledge available is likely to make their old age healthier. Active seniors are more likely to  voluntarily continue to work or begin another career/business thereby continuing to contribute to Social Security and Medicare.

  • Lori

     

    extreme longevity is not as far off as you might think.   

    Possibly extreme longevity for the top few percent of wealth-holders, not for the rest of us. This is an argument for lifting the FICA cap, not for fundamentally changing the system.

  • Lori

     

    We didn’t take to the streets in huge masses over a war because there
    was no draft, and because there weren’t nearly as many of us as there
    were of Baby Boomers, and for that we get pilloried as not caring. But
    it is bullshit.  

    This. We didn’t protest a war/draft that effected us (because there wasn’t one). We protested apartheid, which didn’t effect us directly. And we’re the selfish ones.

    I’m thoroughly over hearing about how the Boomers Ended The War and we’re a bunch of do-nothings. Because they only sort of did and we definitely aren’t.

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

    GUYS

    FOR THE LAST FRAKKING TIME

    FLOWS NOT POOLS

    So stop with the “Ponzi/pyramid scheme” thing mmkay

    This sort of ridiculous crap is why I wish governments would explicitly use the cash basis of accounting; they depend on a flow, not a pool.

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

    *Cough*

    Born in the 1970s here and not checked-out :P

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

    You do know Social Security IOUs are like writing on a piece of paper that you took 25 cents from your left pocket and put it in your right pocket so you owe yourself 25 cents.

    Think for a second how absurd it sounds on a personal level and you’ll see why the IOUs effectively artificially raise the national debt.

  • Lori

     

    “Boomers” radical and revolutionary when they were our age?  

    Some of them were. Some of them were proud to be Okies From Muskogee*, and most of them just went to school and got jobs and got married and had kids, with some of them getting the dreaded all-expense paid trip to SE Asia along the way.

    Honestly, what Boomers mostly were was incredibly numerous. Only a certain percentage of them were radical and revolutionary, but there were so many of them in absolute numbers that they made a huge amount of waves and the whole generation got credit or blame, depending on your POV, for the actions of some (not a majority).

    *http://www.youtube.com/watch?v=3UZUJQ5i8gk

  • Albanaeon

     Fiat currency.  Learn it.  We have the money we say we have.  It really is that simple.  There’s no way we can “run out of money” because its a great imaginary way to define the priorities of a government, and it can imagine as much as it needs to accomplish that.

  • Daughter

     And life insurance, of course, protects against a completely predictable event: everyone dies. You may not know when, unlike having a general idea when you’ll retire, but you know it will happen.

  • reynard61

    “The first person to retire paid 25 dollars and got 225ooo in return.”

    Nope.

    And in the case that you didn’t even bother to correctly cite, Ms. Fuller lived well beyond her statistical expiration date; so, yes, she came out on the better end of that particular deal. But not *everyone* on Social Security lives that long, and odds are that quite a few people who *do* pay into the system die *before* they retire and get to collect their benefits.

  • Daughter

    I’ll speak up as another Gen-Xer. I’m currently reading Steven Pinker’s The Better Angels of Our Natures, which explores the  causes of violence in human societies  throughout history, as well as the factors that lead to increases or decreases in violence.

    He notes that certain aspects of violence are common across time and cultures. For example, in all cultures and time periods, the vast majority of violent offenders are men, and the preponderance of violent acts are committed by young men in their 20′s.

    What does this have to do with the topic of Gen-X? Well, I’ll just note that violence declined precipitously in the U.S. starting in the 1990′s – just as the young men of Generation X were reaching their 20′s. And that decline was per capita as well as in absolute numbers, so it wasn’t simply a factor of Gen X’s fewer numbers.

    The young men of my generation bucked the trend.

  • Daughter

    (hoping there is no italic issue)

    If anyone has read the book, let me clarify: the trend has been toward decreasing violence around the world for several centuries now, due to factors such as more effective governments, the growth of commerce, cosmopolitanism, and the increasing power of women.

    So the trend Gen X bucked wasn’t a decrease in violence – that was already happening. It was a decrease in violence specifically among young men.

  • Turcano

    According to the Strauss-Howe generational theory, Generation X is a Nomad generation, whose defining characteristics include coming of age during a period of social decline and largely being the children of a Prophet generation (in this case, the Boomers), who as a general rule are really lousy parents.

  • Baby_Raptor

    Okay, you toted out your tired, disproven Republican talking point for the article. Do you feel better now?

  • Baby_Raptor

    “One generation has no right to force its will upon a different generation”

    So you don’t support restrictions on a woman’s right to choose, or who can marry whom, or pot, right? Because the younger generation is all for bodily autonomy, marriage equality and the decriminalization of weed. It’s the older generation that is trying to legislate these thins into oblivion. 

    Should the younger generation be able to make it’s own laws to live by, since this is obviously a case of one generation forcing it’s will on another?

    Or do you only say that when it comes to things like “big government”?

  • Baby_Raptor

    I didn’t consent to let those people speak for me. And my relatives were in Italy at the time. My family didn’t get to America until…I want to say the 1940s? My grandfather’s parents, so we haven’t been here long. 

    So, hey. I guess this means I’m not bound by the Constitution!

  • Sgt. Pepper’s Bleeding Heart

    They adjusted the system, back in 1984, to allow for increased life expectancy. (It turns out that the average lifespan after retirement hasn’t actually increased that much. Most of the increase is because fewer people die before adulthood.)

    If that’s true, then wow, the American demographic picture is very different to the Australian one.

  • Sgt. Pepper’s Bleeding Heart

    (Someone else has probably already addressed this, but I have 120 more comments to thread through; anyway it can’t hurt to be said twice)

    Why does the generation who wrote your constitution have any right to inflict their will on subsequent generations?

    (…aaaand, Lori said exactly that 2 posts later. Bravo on the reading ahead, self)

  • Sgt. Pepper’s Bleeding Heart

    Baby boomers certainly seem to think they are, and that the world will end when they do. *grumble* Can one be a curmudgeon about one’s parents’ generation?

    You can if you’re Gen X! Resenting Baby Boomers is one of our things.

  • Carstonio

    Mostly I stay away from generational chauvinism, because there’s nothing unique or objective about it. It may be natural for each generation to believe that it invented sex and recreational substances, to see the previous generation as ignorant and backward and to see the succeeding one as clueless and indolent. There were probably older Cro-Magnons who used the standard what’s-with-these-kids-today rant when the younger ones began using fire to cook meat.

    A huge percentage of the Tea Partyers are old enough to remember the waning days of legal segregation and the battles over civil rights. Still, I’ve heard the same resentment over losing privilege from people as young as 17.

  • Carstonio

    What period does the theory define as social decline? I hear right-wingers use that term to bash the reforms of the 1960s.

  • http://twitter.com/lesterhalfjr Chris Hadrick

    “You know, I’m still not clear on why a coin with “$1 TRILLION” stamped on it getting minted, deposited in the Treasury, and put on display in the Smithsonian is an invalid means of being rid of the debt, including what the Treasury owes the SS trust fund.”

    you don’t think that concept is at all ridiculous and contrived just on it’s face? I mean, as opposed to the conventional way of paying back debt. 

     it’s a Wall Street type gimmick. You pay debts by paying them back not pulling a rabbit out of a hat.

  • EllieMurasaki

    The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; [...] To borrow Money on the credit of the United States; [...] To coin Money, regulate the Value thereof, [...]

    I’m sure we’d all rather the debts got paid with the taxes collected, but collecting enough taxes to pay the debts is not politically possible with your party insisting that raising taxes on the people who can pay higher taxes (without cutting important things like food and rent) is a no-go. Coining money is also within the government’s power, and that’s another way to get hold of enough money to pay the debts.

  • Turcano

    No, this would be during the 1980s, specifically the Culture Wars.

  • AnonaMiss

    Speaking of Cro-Magnons and the kids these days rant, SMBC Theater had a great sketch on the subject that also spawned a minor meme. http://www.youtube.com/watch?v=i_APoSfCYwU

    BIGGEST GENERATION IS BEST GENERATIONAnywhodle as a member of the Millennials I have an observation about a subset of us and our ‘group psychology’ with some overlap into Gen Y. In my limited and mostly internet-based experience, the border set of Gen Y and Millenial, roughly those born from 1980-1990, have a different outlook from those born before and those after. I attribute this to becoming aware of the world after the Reagan years, but before 9/11. I feel like we have a different idea of “normal” than those who started being aware of the world during the cold war, and those who started being aware of the world when the War On Terror was in full swing. Our “normal” is the Bush I/Clinton era; our collective Good Old Days, what we’re subconsciously trying to reproduce the same way the Boomers try to reproduce the 50s, was actually the good old days in this country, objectively better than what went before and came after, in terms of rate of technological development & public adoption, economic growth, civil liberties, etc…

    I was born near the end of that border interval, so I have a hard time articulating how damaged, how far from my baseline “normal” the world feels like it has become. I suspect y’all, who are mostly older than me, will know what I mean – the watershed in our culture that 9/11 became.

    The younger Millennials – 1990-2000 – don’t remember what the country was like before 9/11. Endless fearmongering, reactionary Christianism, warrantless wiretapping, etc, are normal to my little sister. And while the younger Millennials share many values with the older Millennials/younger GenY – e.g. comfort with rapidly changing technology, free culture, relaxed attitudes towards QUILTBAGs – they don’t have the context to understand in their bones that the culture has regressed. They don’t remember what it regressed from. And of course, for those old enough to have normalized the Cold War mentality, the Bush I/Clinton years were a blip, a temporary sunny spot in a baseline fearful worldview.

  • Lori

     

    you don’t think that concept is at all ridiculous and contrived just
    on it’s face? I mean, as opposed to the conventional way of paying back
    debt.
     

    No. Because unlike some people I bothered to learn why the $ttillion coin was being considered. I understand Obama’s reasoning for not doing it, but I consider the idea ridiculous. Contrived, yes, but since it was in response to an incredibly contrived crisis that seemed rather fitting to me.

     

     it’s a Wall Street type gimmick. You pay debts by paying them back not pulling a rabbit out of a hat.   

    A) The coin was not intended to pay back debt. 

    B) You still don’t understand how government debt works.

  • Carstonio

    How would the culture wars fit the definition of social decline? Those were groups with privilege based in personal characteristics fighting against attempts to reduce that privilege. Unless the folks using that definition are on the side of those groups. One can make a case for social decline in the 1980s, but based on the increasing gap between rich and poor and the rise in homelessness and gang violence.

  • Carstonio

    Wow. Excellent point about regression. I view the 1960s, the Clinton years and the Obama years as generally struggles to reduce privilege, and the Reagan Revolution and the GWB years as backlashes aimed at preserving or expanding privilege. DADT may have been discriminatory but it was an improvement on what came before. And until the 1990s, it was very rare for women to become Senators through general elections.

  • Kubricks_Rube

    you don’t think that concept is at all ridiculous and contrived just on it’s face?

    I think the problem the coin would address- hitting the debt limit- is ridiculous and contrived on its face. And like Paul Krugman said, the $1 trillion coin would be a silly but benign way of solving that problem while the GOP solutions would be just as silly but not at all benign.

  • http://twitter.com/shay_guy Shay Guy

    It’s irrelevant. The idea behind the $1T coin was circumventing the debt CEILING, not paying off the debt. Since the coin would’ve been useless for anything but trading between the Fed and the government, the Federal Reserve would’ve expected the government to eventually buy it back, presumably in exchange for $1T in bonds — and then it’d just be a matter of normal government debt. In the meantime, the Fed would’ve sold some of their other assets as usual, just as if the coin were a giant bond. (A zero-interest bond, but these days that’s not far off from the reality.)

    Effectively, then, the coin would’ve been an IOU for IOUs.

    You want to know the actual plan for dealing with the debt? Simple.

    Step 1: Get the economy running at full capacity and full employment.
    Step 2: Balance the budget. Do not skip step 1 before this one.
    Step 3: Outgrow the debt like we did after WWII. This takes long-term planning, but it’s doable in principle. Double the GDP under a balanced budget and the debt won’t be worth worrying about.

  • http://twitter.com/shay_guy Shay Guy

    Huh? I thought Generation Y and the Millennial Generation were the same thing. (Wikipedia seems to agree.)

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

    Corporations issue “new money” all the time.

    Whenever a corporation creates new shares to sell to the public, and people believe the shares will improve in value, they purchase said shares.

    Nobody thinks that spells doom and gloom, it’s just called “diluting the stock” because the ownership of the company gets spread across more people. But it can be a way for the company to get magic extra money to do things like pay off debt. :P

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

    the Bush I/Clinton years were a blip, a temporary sunny spot in a baseline fearful worldview.

    That’s something someone I was talking to commented on. He said in the 1990s, it felt like we all breathed out and relaxed a little bit.

    And now we’re back to being paranoid of the 5 Muslims collectively representing the jihad on this continent.

  • P J Evans

     It’s to pay the bills Congress already racked up. We have the money, but Congress doesn’t want to pay its bills.

  • AnonaMiss

    I find it intriguing that you completely left out the 70s. What’s your opinion on them? And in case I’m coming off as accusatory (“Y U NO MENTION 70S?!”), that’s an honest question driven almost entirely by curiosity and a tiny bit by a concern I’ll get to below.

    OK so I’m a little bit concerned by the idea of the 1960s as a time of struggle to reduce privilege. Obviously I didn’t live through this stuff and am just going off of what I’ve absorbed so please correct me/give your opinions/don’t think I’m telling you NO IT WAS THIS WAY.

    When I think of major social movements of the 60s I think of 3 things: racial civil rights, the anti-draft movement, and sexual liberation. 

    Racial civil rights falls squarely in the struggle against privilege/prejudice/etc., no argument there. 

    The anti-draft movement seems the opposite to me, though. We know what the class/privilege makeup of a ‘volunteer’ army is: even more lopsided than a draft with college deferment. As far as I know, no one was protesting the privilege that the wealthy and/or white-and-smart (because merit-based scholarships were still big enough and common enough to pay your way…) could get deferments, while the rest of the country could not. So the university-centered anti-draft protests strike me as being born out of privileged youth’s fear for/desire to keep their privilege and their friends’ privilege (of not having to risk their lives in the war) past graduation. Or is that too cynical of me?

    As for the sexual revolution, the time gap between “You can have sex with as many people as you want and that’s OK!” and “You need to listen to a woman when she says no” (heteronormativity sic) becoming cultural memes is deeply troubling to me. There’s about 10 years there of the privileged being “liberated” to pursue the underclass as they wished, without cultural acknowledgement that the underclass had the right to say no. This also strikes me as being the opposite of a struggle against privilege.

    This was the tiny bit of concern I had about you leaving out the 70s entirely, because the 70s were when women’s lib/feminism came about in a big way, which I would have thought would make the list.

  • AnonaMiss

    Huh? I thought Generation Y and the Millennial Generation were the same thing. (Wikipedia seems to agree.)

    My bad; read that as X then! (I thought it went boomer -> X -> Y -> Millennial, but my observations on the Millennials and their immediate predecessors remain the same whatever you call their immediate predecessors ^^.

  • Carstonio

    You’re right that the women’s liberation movement had its largest push in the 1970s even though it began earlier. I think of the movement as more 1960s in spirit. And the modern gay rights movement began in 1969. The 1970s are when the backlash against those movements started – school busing protests, the Bakke decision, and the birth of the religious right.

    So the university-centered anti-draft protests strike me as being born
    out of privileged youth’s fear for/desire to keep their privilege and
    their friends’ privilege (of not having to risk their lives in the war)
    past graduation. Or is that too cynical of me?

    Not only cynical but inaccurate. That’s mostly right-wing anti-intellectual revisionism. The polls I’ve seen from the period show that people with higher levels of income and education actually supported the war more, and this included college students. Poorer people, and college students from poorer backgrounds, tended to oppose the war more. Makes sense, given the disproportionate impact on the latter.

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

    The anti-draft movement seems the opposite to me, though.

    Are you forgetting the part where it’s mostly rich old white guys who can start wars by sending poor young any-color guys off to fight them?

  • mud man

    The purpose of the SS Trust Fund is to provide a pool of money that the Operating Government can borrow from without increasing the National Debt. (And incidentally to stabilize payments vs. receipts, if it hasn’t all been loaned out already.)

  • Consumer Unit 5012

     This is the background to the fights over the debt limit and sequestration.

    No, the background to those fights is that the Republicans will say and do ANYTHING to impede the Democrats, especially the Kenyan Usurper. 

    Note how much they cared about deficits when Bush was in charge. 

  • http://twitter.com/lesterhalfjr Chris Hadrick

    “Effectively, then, the coin would’ve been an IOU for IOUs.” nothing late stage empire about that thinking.  Sorry I mushed up the coin with debt/ debt ceiling. My point was about the ludichrisness of the whole thing. 

    PJ – don’t rack up the bills then. Why are we facilitating this with gameage? 

  • EllieMurasaki

    Yes, the debt ceiling fight absolutely is ludicrous. Do you suggest we abolish the debt ceiling entirely, so we don’t have to have that fight again?

  • Carstonio

    You’re right about the obstructionism. But you’re implying that these folks understand macroeconomics and simply act like they don’t, just to appeal to the prejudices of their base. No, they’re probably just as willfully ignorant on the subject as the people who elected them.


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