October 26, 2003


Demography, Disaster and Destiny (Megan McArdle, 10/21/2003, Tech Central Station)

To understand exactly why Social Security is so troubled, it's helpful to stop thinking about our looming fiscal crisis, and think instead about the demographic problem that's causing it. For all the exhaustive arguments about tweaking benefit levels, changing the structure of FICA, or raising taxes, the main problem with social security is devastatingly simple. While there are currently 3.3 workers in the workforce supporting every retiree, in the 2040's -- when the Social Security Administration's projections show the program falling off the cliff into insolvency -- there will be fewer than 2, due to a combination of falling birth-rates and longer lifespans. Any long term solution, therefore, must do one of two things: increase the ratio of workers to retirees, or increase the productivity of the workers so that they can support themselves, and the retirees depending upon them, in the style to which everyone has become accustomed.

Changing the ratio of workers to retirees is probably easier. Increasing the number of workers, indeed, could be a lot of fun; the most obvious way to do it is to make more babies. Barring that, we can import more workers. Social Security is basically a Ponzi scheme; we could keep it going for an indefinite period of time by adding fresh victims to the bottom of the pyramid. [...]

If we can't increase the size of the workforce that much, what about shrinking the number of retirees? Certainly, that would help. Various groups have already suggested two ways we could do this: means-testing benefits, so that the rich are disqualified; and raising the retirement age. [...]

Privatization will be a major component of any long-term solution to the Social Security crisis. Why? Because private accounts increase our national savings. Unlike money given to the government, which overwhelmingly goes into current spending, money invested in the private sector is used to do new research, invent new products, and buy new facilities and equipment -- all of which will eventually make our future workers more productive. When we've gone as far as we can go towards changing the ratio of retirees to workers, privatization can take us the rest of the way by increasing the output of the workers we have left so that both workers and retirees can continue to live in comfort. It can also improve the efficiency of our economy by stopping the Social Security surplus -- which people think is being saved for their retirement -- from being funnelled into wasteful spending by legislators, on things they presumably wouldn't fund if they had to beg their constituents for the tax increases to pay for them.

Of course, if you completely privatized the system then you could have a 1 to 1 ratio, because everyone would pay for themself--though obviously over the course of their lives the poor would have to have contributions made by the government.

Posted by Orrin Judd at October 26, 2003 6:07 AM

I see.

And -- I'm thinking of an event in my own family here -- if you work hard, go to college, get married, have a child and then develop MS at age 26, how do you live the next (and last) 20 years of your life on the savings you acquired during your 4-year working life?

Posted by: Harry Eagar at October 26, 2003 3:02 PM

Shit happens.

Sad, but that's life.

So, what's your solution, Harry? We're headed for a brick wall, and walls don't particularly care about our wails of "it's not fair!"

Posted by: ray at October 26, 2003 4:37 PM

Every Social-Security privatization plan I have ever seen has had a 'safety net' for situations such as that. OJ, I know, has mentioned it numerous times.

But I also know that he'd point out that it should be the family's responsibility. And if he doesn't, I will.

It should be the family's responsibility.


Posted by: Timothy at October 26, 2003 6:35 PM

All Ponzi schemes eventually fail.

Why should this one be any different?

Posted by: Jeff Guinn at October 26, 2003 6:51 PM

What Timothy said. And, I would add, the family should be happy and shouldn't whine about it. Now there is a bar set high, no?

Posted by: Peter B at October 26, 2003 7:09 PM


This is why your can buy whole life insurance with waiver of premium. provisions. If you become disabled the policy continues to grow in cash vaue as scheduled.

Posted by: Robert Schwartz at October 26, 2003 9:50 PM

Well, as it happened, the family did take care of him, with modest but vital assistance from SSI.

You guys should read Mayhew and Roberts. And pray -- I believe you are praying men -- that shit doesn't happen to you.

Posted by: Harry Eagar at October 26, 2003 11:48 PM

Is there any SS privatization proposal that includes stripping out the disability insurance ?
The problem has never been that too many people were becoming disabled.

Please help me, I cannot find the passage in my New American Standard Bible where Jesus says: "Life ain't fair, and you're on your own, buddy".

In fact, has there ever been any successful and long-lasting society whose organizing principle was: Every person for themselves ?

Even in societies, such as the Mayan, where thousands were sacrificed annually, the sacrificees were acting in the community interest, as best as they understood it.

Posted by: Michael Herdegen at October 27, 2003 4:56 AM

Mr. Herdegen;

In your view, then, the only way for a community to care for its members is via federal government programs? Perhaps I misremember my Bible, but I thought that Jesus instructed his followers to care for each other in person and not through some remote, impersonal bureaocracy.

Posted by: Annoying Old Guy at October 27, 2003 9:02 AM

No, I believe Michael is suggesting that we sacrifice those who haven't saved enough to Mayan gods. Of course I could be wrong . . .

Posted by: jefferson park at October 27, 2003 4:37 PM

Friends, countrymen, I come not to praise Social Security, but not to bury it, either.

Orrin's constantly stated theme that national welfare programs only get bigger till they crash is not endorsed by history. They can be shrunken, as happened in Uruguay, where the retirement age is no longer as early as 50. And has happened here, already.

The problem with the market replacement for SSI is that we had that once and the people who needed help did not get it. I recommended Robert Roberts, "The Classic Slum." In particular, I was thinking of the episode in which the man was carrying his father to the poorhouse. He had many children and little money and decided that his old da was too big a burden to keep.

On the way, he set his father down on a milestone. The old man said, "I remember stopping at this stone when I brought my father to the poorhouse."

The son took his father on his back again and retraced his steps. "We'll manage somehow."

Right now I have been defeated in my efforts to help a friend who has a disabling mental illness (obsessive compulsive disorder). It may not be treatable at all. There is an experimental program that might have helped, but it costs $20,000.

When I started trying to help her get into the program, she had way more than that. Now the 700 Club has it.

When I find a Christian minister and a U. of Chicago economist who'll stand up and denounced the stripping of helpless, mentally disabled old women, I'll reconsider my position.

Until then, I'm for SSI.

Posted by: Harry Eagar at October 28, 2003 2:13 AM

Where is SSI helping your elderly friend? Cost/benefit analysis might be helpful here, Harry. In terms of value and the gov't vigorish, SSI is a joke.

Posted by: Tom C., Stamford,Ct. at October 28, 2003 11:44 AM

Don't leap to conclusions, Tom. I did not say she is elderly. She is not.

SSI is now paying her living expenses, the evangelical Christians having plundered her of both the money she inherited from her father and of the savings she acquired while running a successful business for 30 years.

Without SSI, she'd be on the street.

Posted by: Harry Eagar at October 28, 2003 1:02 PM


Absolutely not. That's why the Amish and monesteries do not pay SS taxes.
However, most of American society is not that tightly woven, and it certainly makes sense to spread the risk as universally as possible.

I have no love of the current incarnation of SS, and would like to see it privatized.

Posted by: Michael Herdegen at October 29, 2003 3:26 AM