Fixing the Border Crisis and Social Security in One Go
Stay with me here. Because I am almost serious about this proposal. Or at least it highlights the contradictions (while not Heightening the Contradictions).
The Border Crisis: tens of thousands of unaccompanied minors crossing the U.S. border.
Social Security ‘Crisis’: per ‘Reformers’ one that is driven by pure demography – too few future workers to support longer living large cohorts of retireees.
Solution? Keep the kids while excluding the parents. That is launch a campaign in Central America with the following messages:
One. It is very dangerous to send your kids to El Norte. Many of them might die on the way, almost all will be abused and exploited in one way or another, and all at the cost of your life savings and borrowings.
Two. If they manage to make it alive the U.S. will allow them to stay. But will not grant them any rights to sponsor their parents until they are adult citizens who are both financially secure enough to be sponsors and having undergone the naturalization process. Congratulations! Your kids are Americans now. But you may never see them again. Maybe they will write and post pictures on their Facebook walls.
I don’t know whether this will work in stemming the flow. But it might counteract the known sales pitches of the human traffickers that simply getting a kid into America makes them an automatic sponsor.
Turning to Social Security. One of the major contradictions in Social Security projections is that in the face of a declining worker/retiree ratio the Office of the Chief Actuary has consistently projected a drop in immigration in both absolute and relative terms from its peak. But unless you are an outright Nativist this makes little long term sense at all. After all if we need future workers to take care of increasingly aged Boomers where better to find them than overseas? Or better among the pool of new workers graduating from American high schools who arrrived here as unaccompanied children?
Now of course there are lots of missing pieces here, so many that even the outlines of this may seem farcial. And maybe I do have a tongue tucked into a cheek and am engaged on a little ‘epater la bourgeousie wingnutte’. Still there is room for WAY out of the box thinking on a lot of issues, and these two among them.
Bruce
there is one small point i think is important to keep in mind:
it is NOT that there will be ” too few future workers to support longer living large cohorts of retirees.” but that
there will not be enough future workers to subsidize the payroll tax to the extent that a growing population has subsidized it in the past. this would require future generations… all of them… to pay a little more “tax” in order for there to be enough money to support them in their longer retirement… they will be living longer… at the higher real rate of benefits they will “need” to keep up with their rising standard of living.
the whole Big LIe about Social Security is that “we can’t afford it.” this begins to look a little suspicious when one realizes that the arithmetic shows that “affording” it means raising the tax about eighty cents per week while wages are going up eight dollars per week per year, and that the tax increases stop while the wage increases continue, such that future generations may have to pay an extra 2% for their Social Security out of an income that is 100% larger and growing.
There is something sick about people believing… or being told… that they can’t afford to pay an extra 2% out a paycheck that is twice as large as what they earn today, to pay for the normal expenses of groceries and housing after they are too old to work.
If, after adopting the NW Plan, it turned out that immigration was higher than expected (for whatever reason), the result would be that the needed tax increases would come more slowly.
For those not coberly or Bruce, that is because the plan includes automatic triggers. The outlook has shifted up and down as the economy has overheated and underperfomed over the last 30 years and that wil continue. Most of 17 increases from coberly’s post yesterday will happen before the last Baby Boomer dies, but some will continue at stretched out intervals to give the Trust Fund a soft landing at 100 percent of one years costs. Normal economic variation will always give detractors the ability to cast doubt, but triggers will help remove some of the politics and will allow actual results (including changes in the size of the workforce) to define when adjustments are needed.
Curious minds need to know. If the median income were 20% higher than it currently is, what would be the effect on Social Security tax flows in the present. And how would that effect compare with the various suggestions to raise the payroll tax rate in order to maintain/restore the Trust Fund over the long-term horizon?
It seems to me that the Social Security trust Fund is losing revenue not simply because there are fewer workers relative to retirees. It seems equally significant that working class income has stagnated, thereby seriously reducing the pool from which the Trust Fund assets are expected to flow. Maybe there is no need to raise the rate, but rather a serious need to raise the incomes to which those rates are applied.
“One of the major contradictions in Social Security projections is that in the face of a declining worker/retiree ratio the Office of the Chief Actuary has consistently projected a drop in immigration in both absolute and relative terms from its peak.”
As more efficiencies come into play and robotics kick in, you will never be able to employ in the same numbers as what was. What you can do is insure more of the productivity gains which were supposed to go to Labor actually do go to Labor. This was the offset to the improved efficiencies and throughput.
If America put up a sign saying, “Bring us your children and drop them off at the border. We will give them citizenship, healthcare, housing, food and education”, the tide of child immigration would explode.
There would be very significant costs to this. These children would be wards of the state. The costs to provide the services would be significant. The costs to society of creating these wards would also be high. To have any consequence on future SS results the number of wards would have to be measured in the 100rds of thousands. The country is already ripped apart over immigration. This step would deepen the divide.
To me, the biggest cost would be that America would be breaking up relations between mothers and children. We would be creating orphans. How would these children grow up?
We would do this so that there would be a future benefit to SS? I can think of a dozen steps that could be taken to bolster Social Security that are far superior to opening the floodgate of child immigration. That policy would fail.
Economists once said that the US had an advantage over other industrialized nations in its ability to attract immigrants. European countries have low birth rates which are getting lower every year. So, maintaining their industrial workforce is becoming difficult. Problem: plenty of jobs–not enough workers.
Here, however, here we have a shortage of good jobs and too many workers. The unionized workforce has shrunk and few high paying industrial jobs are being created. The economy we have now is engineered to produce high returns on stocks, bonds, and other financial investments. Problem is that the health of the stock market has little to do with the economic well-being of the workforce as a whole. So, our middle class is dying for want of of investment in educational and other vocational training opportunities for middle and working class young people.
It’s probably true that a properly managed and designed economy would be able to take advantage of a new influx of young immigrants provided they would be eligible for the legal protections of a good immigration policy. But, this economy is being managed for the benefit of the 1% who don’t need or want an economy based on industry or commerce. (That is, industry/commerce in the US with a US workforce–they prefer to locate their production facilities elsewhere.)
I agree with Bruce in principle. But I don’t see how people like our particular 1% can see their way to sacrifice their guaranteed future gains for the benefit of the 99%. The reason that SS must go is that it doesn’t make money for the Koch’s and Petersons of the world. They will never give up until they abolish it along with any vestige of government programs which support the working and middle classes. NancyO
While I have to agree with the statement “I can think of a dozen steps that could be taken to bolster Social Security that are far superior to opening the floodgate of child immigration,” I think that this one “The costs to society of creating these wards would also be high” is somewhere between meningless and wrong.
The benefits to society of each new citizen is higher than the costs. At least as economists would measure it. GDP grows faster than population.
If the benefits of the new citizens accrued to the citizens rather than the business owners, it would benefit SS. But that is true of changes to the economy that don’t involve new citizens.
I would like to see society change our attitude toward near retirees as well. Many people would like to work part time prior to retirement if it did not damage their benefits. If such were encouraged, it would be good for those workers and good for SS.
I also think the original concept of SS as insurance to support savings and to support pensions could use some help. Unfortunately the savings and pensions are declining. Growing SS might be valid, but what about strengthening the other two?
And how is it that high school students can take required finance classes and still come out believing that Trust Fund depletion is the same thing as no benefits at all?
Krasting thanks for taking the hook. I hope the process of extracting the barb from your cheek wasn’t too painful.
Bruce
I imagine that your tongue was half way through you cheek as you wrote that post. Combine two tough issues into one impossible argument and resolve both? I don’t think so. Maybe you’re only kidding. I hope so. But it doesn’t make discussion any easier to propose a rube goldberg approach to fixing issues that are contentious to begin with.
run, “What you can do is insure more of the productivity gains which were supposed to go to Labor actually do go to Labor.”
And labor’s share of productivity gains would likely be a good forward step to increasing median income. And what is likely to be the effect of increased median income on the cash flow into the Trust Fund, now and in the future. Raising the minimum wage would immediately increase effective demand and secondarily, but equally as important economically, would raise each low wage worker’s contribution from FICA deductions. The cap need not be raised if all incomes below the cap increase from productivity gains and minimum wage improvements.
Jack:
Walgreens is on the cusp as to renouncing its US citizenship to become Swiss and to avoid US taxes. Most of the companies which have moved manufacturing overseas are avoiding US taxes and the costs of laid off workers. The multinationals bring their product back into the largest consumer market in the world to sell their product. What would you do to gain back the lost income and taxes?
Jack the answer to your question can be found in the Tables of the Social Security Report by comparing Intermediate Cost to Low Cost.
From 1997 to 2005 one way of looking at the ‘Low Cost Alternative’ was as the answer to ‘How could Social Security self-fund through improvements in Real Wage?’ And the answer in short was “1.5% Real wage and 4.5% unemployment”. This compared to Intermediate Cost’s 1.0% and 5.5% respectively.
The answer is not so easy today as newer versions of Low Cost don’t show SocSec self-funding entirely. And Real Wage and Unemployment numbers that seemed like low hanging fruit in 1997-2000 are hanging high on the tree today (Thanks Bush v Gore and the Supremes!). Still a huge part of the actuarial gap in SocSec could be back filled via my new favorite slogan:
“More Jobs. At Higher Wages.”
This would offset needed FICA hikes in much the same magnitudes (or more) as the various combinations of FICA increase and cap lifts scored by CBO in this response to Hatch. And of course a four way combo slogan of “More Jobs. at Higher Wages. With a Modest FICA Increase. And a Cap Increase” would allow us to thread the needle quite neatly.
With all respect to Dale and his aversion to ‘alternatives’ it doesn’t have to be a dual debate between “Phased FICA” and “Scrap the Cap!” Because any injection of “More Jobs. At Better Wages” lowers the needed input from either.
There are more differences between Intermediate Cost and Low Cost than just Real Wage and Unemployment. There are also demographic differences and because the models require that ALL variable move for solvency (Low Cost) or against solvency (High Cost) the result is sort of a kludge where you can argue that Low Cost is too pessimistic on economics (my view in 2009) but too optimistic on demography (in part Arne’s view back then) which combination made my then plan of ‘Nothing’ unrealistic. Which in turn led to the merger of Coberly’s FICA based plan, with my ‘Nothing Plan’ into a Northwest Plan incorporating Triggers, themselves in large par the contribution of Arne. Under NW if I am right on econ the Trigger gets pulled later or not at all, while if Arne is right on demographics the Trigger gets pulled slightly earlier than a straight NE based on Intermediate Cost would. While if both Arne and I are right things unspool closer to Intermediate Cost. NW having a built in mechanism to accommodate all reasonable variations in outcome.
Bruce
more jobs at better wages would certainly solve the problem. i have to work within the parameters offered us by the Trustees Report. If they were predicting more jobs at better wages they would not be predicting an actuarial shortfall.
but you might want to think about this… if by some magic, wages were increased all at once, and everyone who wanted a job had one..
the effect would be that SS would be fully paid for at the level of the status quo ante. And it wouldn’t be long before you started hearing that benefits were too low. People could not live at the new higher standard of living on the lower level of benefits. And you would hear calls for “expanding” Social Security to cover more identified “needs.”
and presently what you would get would be the same thing at a new level. people are never satisfied with what they have, and they sure as hell are not satisfied if they have less than the next guy, or less than they expected… so they will always have a grudge, and there will always be Petersons who exploit that grudge to try to gain a huge advantage for themselves.
I prefer to deal with the existing problem to dealing with an infinity of imaginary problems… and alternate solutions. (equally imaginary.)
And more jobs at better wages would work very well with the northwest plan as you know… the nw plan contemplates raising the tax ONLY when needed. with more jobs at better wages, the tax raises would not be necessary.
Responding to gaffed and gutted BK.
The Right can make the argument that Social Security is doomed by demographic shifts that include decreased fertility rates and so a shift in worker/retiree ratios. Well okay there are numbers to support an argument based ultimately on labor shortages.
The Right can equally make the argument that immigration at its present rate or (God forbid) increase rates will have a crowding out effect on employment and so leading to a labor surplus. Well okay even some on the Left agree that unrestricted immigration will without regulation allow wage suppression and employment displacement .
But you can’t really argue that Social Security is doomed because of a labor shortage and America is doomed because of a labor surplus from unrestricted immigration. Not when any overall labor shortage can be addressed by immigration. Now there are lags effect and we could have a reasoned discussion based on data. But as it is the Right wants to promote Social Security ‘crisis’ on “Too Many Boomers – not enough Night nurses” while urging the U.S. to enforce the border against the best available supply of those Night Nurses’
And while this post was slightly tongue in cheek you could in fact address the future gap in labor supply due to aging Boomers and the current wage suppressing effects that have Big Ag and Silicon Valley pushing for farm workers and inexpensive STEM folk from Mexico and India respectively by importing and training that future labor supply in the persons of children too young to take current jobs.
So while I am perfectly willing to reel in gullible fish like BK that doesn’t mean I am a thoughtless fisherman. There is more than one barb on my hook.
Coberly I take your point.
On the other hand I am perfectly willing to risk cases of widespread ‘Affluenza’ breaking out among the 99% as Real Wages and so Real Baskets of Goods increase even though people still find out they can’t buy a 90′ yacht.
The 50s were not all Happy Days and Leave it to Beaver. On the other hand most of the Greatest Generation seemed content enough to come home from war with the prospect of getting an education, or a job that would allow their kids to get one at a State School, even as they bought a house to raise those kids in, which house’s 30 year mortgage would be paid off in time for that 60% pension plus SocSec to kick in. Now obviously not everyone even then had the prospect of that pension. Not everyone retired to a Condo in Florida, but many or most people seemed satisfied that they at least had a shot at the middle class.
These days the game seems rigged against the middle class. Because it actually is. And I suspect more people would settle for Leave it to Beaver lifestyles even now.
Bruce
pretty sure i agree with you about some of that. maybe enough of it.
i don’t think the fifties were “happy days.” but i do know that we got by on a lot less than people think is absolutely necessary today. and we were mostly happy. limited in some cases by real hardship, and in others by what i can only call “imaginary” hardship…. the eternal human tendency to want more than they have… normal, but not quite sane to make yourself sick about it.
i am fairly sure any future rise in general standards of living will be attended by continued real hardship among some people, and continued “imaginary” hardship among most people.
It’s not obvious to me that an increase in wages will improve Social Security’s finances, except in the short run. It will cause taxes raised to increase immediately, but it will also cause future benefits to rise. And because all wages a person earns are adjusted by the average wages in the year the person turns 60, if wages suddenly went up now, the benefits earned in the past by people 60 or less (when wages and taxes were lower) will also increase. [For example, if average wages went up this year by 50% and I turned 60 this tear, my benefits would go up 50%, even if I only have the higher wages (and therefore taxes) for a few (possibly none) years.]
Mike B
I think you are essentially correct. Pay as you go with wage indexing provides an effective interest due to the fact that wages rise over the forty years you are paying taxes, so that even if the tax RATE does not increase, workers will be paid benefits out of a pool of money that is much larger than it was when they were paying in their taxes.
One of the reasons for the projected “actuarial deficit” is that wages are not expected to grow as fast as they have in the past. This will reduce the amount by which future wages are greater than past wages, which is where the “interest” comes from. This is also where interest comes from in the economy at large, though in that case investors get to place bets on which parts of the economy will grow the fastest.
The fix for this is to raise the tax RATE a bit. This transfers a little more money from your present self to your future self. But it doesn’t mean that your present self has less money in total. It just has less than in “might have had.”
Even if the rate of growth of wages was so slow, or even negative, increasing the tax might be a good idea, as long as you expected to need the money more in the future than you do now.
Meanwhile, fixing the economy so that workers experience “normal” wage growth is a really good idea. Just don’t wait for it to succeed before you make sure that whatever happens you will have enough to retire on…. without counting on the stock market or the generosity of “the rich.”
one of the things that drives me crazy is the way liberals take the Big LIes as a starting point and come up with “fixes” that might be worse than the problem, if any.
if there are “not enough workers to support the aging population”, you might expect that wages would go up, or unemployment to go down.
you would not instantly run out and import more “workers” who will work for low wages, unless of course you were the sort of person who fell in love with the first “idea” that popped into your head.