25 March 2010
When We’re 85
I am traveling this weekend, up to the Wolverine state for a short visit with the folks.
Mom and Dad are in their mid-80s now, and that caused me to do a little math. See, the Social Security Trust did something it hasn’t done before this month. Outlays exceeded income from the payroll tax- the dreaded Federal Insurance Contributions Act, or FICA.
It is nothing to be alarmed about, at least this week. We all know there is a demographic crisis coming. We have known that for years as we kicked the can down the road. President Bush tried to alter the basic structure of the Social Security system, adding individual investment accounts. I think that would have left a lot of people really cranky now, since the stock market tanked.
It has come back a bit, but as with all investments, you have to let time sort things out. If you happen to need to liquidate in a time of crisis, you are going to get your butt kicked.
The economic downturn is what caused the discontinuity in the Trust this year. More people were forced onto the system earlier than they had anticipated since they lost their jobs. Simple, really, but it changed the forecast from the system going negative from 2016.
By dollars paid, the U.S. Social Security program is the largest government program in the world. It is also the single greatest expenditure in the federal budget,. It is bigger than discretionary defense spending and Medicare/Medicaid, which accounts for about 60% of the whole budget. Portrayed against gross domestic product, it accounts for about 7% of the whole shooting match.
That is less than health care is going to consume, but for the moment it is still the biggest single insurance scheme on the planet.
None of this would be a problem if the money collected by FICA had actually been tucked away or earning interest. The Congress has been looting the Trust for years. Remember the famous “lock box” discussion?
Most folks seemed to think that things were just fine the way they were. We have a remarkable facility for knowing completely incompatible truths and accepting them with equanimity. We are completely OK with the notion that The System will be there for us when the time comes, and we also know it is going to collapse.
Maybe that is just true for those who have lived with the system all our lives. My son just snorts when I mention it. He knows it is going to be gone, or radically changed by the time he is my age.
Once we go negative, and stay there, the fund will diminish until it is gone.
Of course, something can be done and that is a fair distance away. We can ignore it. But if we don’t do something, the whole thing is going to go bust.
According to the latest forecast, that will come in 2037, the year the class of 1951 turns 85, just like my folks.
Copyright 2010 Vic Socotra
www.vicsocotra.com
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