by Dale Coberly
A few years ago, now getting to be many years ago, I solved a crime. Not because I was a Great Detective, but because I happened to be standing across the street where I saw it committed and took the number of the getaway car. Since then I have tried to tell the police what I saw, but they don’t want to hear about it.
I don’t want to go too far with this parable, just wanted to let you know in advance that I don’t claim to be smarter than anyone else, but what I am talking about is not an opinion and is a verifiable fact.
So back to facts. Sometime in the late 1990’s I heard on public radio (“radio for intelligent people”) an expert claiming that Social Security was bankrupt, a huge burden that was going to crush the taxpayers, especially the young.
Intuitively that didn’t seem very likely to me. How much could it cost to pay for the basic needs of retired people? I did a few calculations and saw that it wasn’t likely to be very much and certainly not unreasonable.
The simple equation to set some parameters goes something like this: If you expect to live twenty years after you can no longer work, and you can live . . . comfortably . . . on about 40% of what you were making while you were working . . . the kids are grown, the house is paid for, you don’t need expensive vacations . . . you can save enough money while you are working for forty years (age 25 to 65) by putting away 20% of your wages:
20% of wages times 40 years equals 40% of wages times 20 years
This neglects inflation and also neglects interest you might earn on savings or “win” in the stock market. It also neglects the possibility that you might live more than 20 years after you retire, or that you might not make enough while working in order for your savings to add up to enough to pay for basic needs when you can no longer work. [Because of growth in the economy, the amount you would need to save is about 16%, and because of Social Security, you would only “see” half of that.]
This is not a new problem.
In the long ago past . . . back to Neanderthal times . . . this problem was solved without anyone thinking about it (I assume: Those Neanderthal might have been better thinkers than we imagine). What people did then was raise their children. Feed them. Teach them to hunt. Build or find a shelter. And when they got old, their children, now grown, and strong, and knowing how to hunt, and having a shelter already built, would feed and shelter their now aged parents. Maybe they were grateful or maybe they just loved them, or maybe they figured that if they took care of their parents, their kids would take care of them in their turn.
This was such a good idea it lasted through the millennia and was coded into religious law: “honor thy father and thy mother so that thy days will be long in the land . . . ’ and to make sure people understood it when they began to drift from the old ways another religious teacher came along and reminded them that it was “all about the money . . .” [oddly enough, he said take care of your parents before you give to the church].
And that worked well enough until the age of capitalism which broke apart families, and whole families often did not make enough money to care for themselves let alone their mother and father.
I mention this history because when John Kerry was running for President, he said something about “honor your mother and father” when he was talking about Social Security. And the reporters and commentators said “what the hell does that have to do with Social Security ?!!”
So now you know.
For a hundred years or more before the present, working people tried to save enough to retire. Roughly they expected to live about another ten years after they could no longer work, so they tried to save about ten percent of their income for their old age: 10% times forty years equals 40% times ten years.
But because they lived in a world with inflation, they had to try to find a way to earn interest on their savings that would at least keep up with what their savings lost due to inflation. The trouble for them was the banks failed, and the stock market would let them down at the worst possible time. Also, they might lose their jobs, their health, or even their children.
And this happened often enough that it became a “national” problem. One of the reasons governments are constituted among men.
To shorten this story somewhat, in 1936 the government introduced a system of insurance whereby the government protected the savings of people so that most people would not face dire poverty when they were too old to work (and note that usually meant “when they got old and no one would hire them”).
Franklin Roosevelt, the President at the time, insisted that this government program not be “the dole.” That is, the government would NOT pay for it. The workers would pay for it themselves by a payroll deduction, called a “tax” by the press, but more properly thought of as a mandatory savings and insurance plan: the workers got their money back, with interest, insured by each other against inflation, market losses, and all the evils cash is heir to.
This system has worked very well for eighty years, but it has been under attack for all of those years by people who either don’t understand it or just hate it for “ideological” reasons: either they are genuinely afraid of “the government (of the people, by the people, for the people)” or they just hate the sight of a lower class person not working . . . even if he has paid for his own retirement.
And that is where all the noise about Social Security being broke, flat bust, a crushing burden on the young, has come from: It is simply a Big Lie and carefully constructed by “nonpartisan expert” liars.
To check my facts I actually read the Trustees Report . . . the one they claim predicts Trillions and Trillions of dollars of unfunded debt, and I discovered that . . . yes indeed, at the present payroll tax rate, with the expected increase in life expectancy, the income to Social Security will fall short by about the year 2034. It turns out the shortfall can be prevented, completely and forever by simply raising the payroll tax rate one tenth of one percent per year until it again matches the costs associated with increased life expectancy.
One tenth of one percent of the current average wage is about one dollar per week. If we start now, we will never see a shortfall in Social Security, and there will be other benefits (the government will never have to repay the money it has borrowed FROM Social Security…the so-called Trust Fund.) The tax raise will not continue indefinitely but will stop when it reaches about 2% of payroll in about twenty years when real wages will have increased by over 20%.
As I said in my parable, no one wants to hear about this. The politicians and pundits are all in the thrall of the Big Liars.
And sadly, tragically, the “friends of Social Security ™” have been telling the people that a better solution is just to make the rich pay for it, and in fact to pay more for everybody whether they work or not. There may be some cosmic justice in this idea, but in American politics it will guarantee that “the rich” will kill Social Security entirely. And the poor (“us”) can’t seem to understand that if they pay for it themselves, “the rich” (aka Big Liars) can’t take it away from them.
I think this will be the year you will hear that Social Security is in “short term actuarial insolvency.” This means that in ten years the Trust Fund will fall short of the 100% prudent reserves against economic downturn. That means it is the last year that one tenth of one percent per year will avoid that shortfall. But even this is not a catastrophe, it just means it will take a little more than a dollar per week per year to get us back to “solvency.”
If we wait too long, it will take a sudden twenty dollars per week. By that time wages should be about two hundred dollars per week higher than they are now, but no one will notice that then. There will just be howling and scrambling about the crushing burden of an extra twenty dollars per week out of an income of twelve hundred dollars per week to pay for a retirement that will give back about five hundred dollars per week for twenty years or more.
Do the math. But DO the math. Think about what it means to you in the real world.