Purposeful Confusion: Demography and Social Security

Neo-conservatives want to get rid of Social Security simply because it is a successful public program that offends their ideological sensitivities. For that attack to be plausible, however, there has to be some quasi-factual claims about the failure of Social Security. Hence the neo-conservative drum beat that Social Security is not sustainable for demographic and financial reasons. As with all effective political propaganda, there is a sliver of fact behind these claims on which, then, completely false conclusions are drawn.

The demographic concern is the coming explosion in baby-boom retirees combined with the decline in the birth rate that, over time, is producing fewer and fewer young workers. As the number of workers available to support retirees declines from the current three workers per retiree to only two, we are told that the burden on workers to both take care of their own families and all of those retirees will just be unsustainable. Social Security will have to be jettisoned to protect the viability of young families in the future.

In evaluating this claim, you must keep in mind that the baby-boom bulge is a temporary phenomenon that will pass. Most of the trillions of dollars in Social Security’s “un-funded liabilities” that the neo-conservatives are trying to scare us with are incurred more than 75 years from now, long after the last of the baby-boomers are dead and buried.

Fifty years ago, our parents and grandparents survived having to cover all the expenses associated with giving birth to the baby-boomers, raising and educating them, and then helping them start their families. Our government survived having to build all of the schools and colleges, new cities, roads, and public services that the boomers’ bulging population demanded. We and our children also will survive helping to support the boomers in their retirement.

In fact, looking back, the earlier burden of supporting the boomers as children was about the same size as the one we will face in the future as they retire. In 1950 each worker supported 1.6 dependents, almost 50 percent higher than today. The projected increase over the next quarter of a century in the burden of retirees on workers is about the same, also 50 percent higher than today. That is, we will simply be moving back to a situation we were able to handle in the past while at the same time we successfully improved our standard of living.

The retiring boomers will represent a burden that will swamp the well being of our future workers only if the productivity of that workforce does not increase in a way that helps to offset the cost of partially supporting the retiring boomers. Over the last fifty years worker productivity about tripled. That same long-term average rate of productivity growth also characterized the most recent decade and a half. That growing worker productivity will allow our workers to both help support our growing number of retirees and enjoy their own expanding standard of living just as rising productivity did when the boomers were children and in need of support.

It is important to realize that diverting social security funds to private accounts does nothing to solve the challenges as the boomer bulge retires. If the return on equity investments is going to be as high as the critics of Social Security claim, then the economy and productivity also have to rise rapidly. If that is the case, we will have no problem supporting the boomers in their retirement. In fact, the economic growth rates implicit in those assumed equity earnings would, by themselves, assure the viability of the current system indefinitely into the future.

If the Social Security critics are wrong about the spectacularly higher returns to be earned on equities and productivity growth rates are much slower in the future than they were in the past, then we do have a problem, but it is not one for which the critics are offering a solution.

The neo-conservatives are seeking to create a sense of panic over something that may or may not happen 25 or 50 or 75 years in the future. Rather than being stampeded into abandoning the most successful public program this nation has ever crafted by partisan speculation about what will be true in the distant future, we should simply focus on making pragmatic adjustments that we know will help now. One of the most obvious is to simply raise the cap on the income that is subject to the social security tax. That would reduce the regressive nature of that tax and, by itself, would eliminate the Social Security deficits projected in the distant future.

Modest, pragmatic adjustment in the current Social Security system is all that is called for. The neo-cons got away with the “weapons of mass destruction” big lie at a brutal cost to this nation, not to mention Iraq. We should not let them get away with a Social Security big lie that is likely to have equally brutal consequences for decades and decades into the future.