When the brain stops functioning while the heart keeps pumping, the family finds itself at the crossroads of life: Do they keep their loved-one on life support? The decision is not of such finality in the case of Social Security, but the condition of the patient is now the same.
By John Bernardi
Desperate people are moved to do desperate things. The same is true of governments. Such was the condition of the people and the government in the throes of the Great Depression. President Roosevelt in a desperate attempt to find some solution to his peoples’ ills threw program after program against the proverbial wall in the hope something would work. Social Security was one that stuck, and it has been with us ever since.
The idea then was to give the people some hope that as they grew old that the government would take care of them. The concept provided a sense of security at a time of crisis. The year was 1935. Now, 80 years later, it threatens to come unglued to the peril and future security of both the young and the old.
Although Social Security is sometimes loosely referred to as a government imposed retirement system or government trust fund, the description evinces either a lack of knowledge or a lack of honesty. Any investment or program that does not eventually pay for itself is doomed to fail. In the private sector, this failure is called bankruptcy. In the public sector, the result is the same, but through the power of coercion and the euphemism we describe as an “intergenerational transfer,” the patient takes on a life of its own. (The government takes money from the young and healthy and gives it to the old and decrepit). This is government speak for what would more forthrightly be described as a Ponzi scheme. If you disagree, just ask the expert, Bernie Maddox. He is easy to find.
The idea for Social Security was ingenious in its simplicity: take a small amount of withholding from those who work and pay it back to them in the form of a retirement benefit when they grow old. The accountants and actuaries went to work and determined at the outset of the plan that there were 12 workers from whom to collect withholdings for each person retiring from the workforce due to old age.
This ratio of 12 “givers” for each “taker” provided an immediate source of revenue, and the condition of the Country was such that President Roosevelt did not have the luxury of concerning himself with how demographics might affect this ratio in the future. If this became a problem, it would be for future congresses and future presidents to address.
In the beginning there was more than enough money from withholding to pay the benefits of those retiring from the workforce. We were a young country with a growing workforce, and so our government saw no need to save the excess withholdings for a “rainy day.” The excess was spent for other government programs that did not pay for themselves, and these programs then became a parasite on the so-called “Social Security Trust Fund.”
The “rainy day” arrived in the year 2010, yes, five years ago. That was the year worker withholdings were no longer sufficient to cover the cost of retirement benefits. The government is now required to borrow and continue to borrow more and more into the future to meet its commitment to an ever increasing number of retirees, and Social Security has itself become a parasite on other sources of government revenue.
We are told that the Social Security System is projected to implode in the year 2033. This is the year when the non-negotiable government bonds set aside in what is referred to as the” Social Security Trust Fund” will, together with the interest paid on these bonds, be totally exhausted to make up the ever-growing discrepancy between the withholdings and the benefits. But even this analysis is a canard in classic government reasoning.
Think of the so-called “Social Security Trust Fund” in real terms. Assume that you give me $100 in “trust” to hold for your benefit for a “rainy day.” Sometime later you discover that I spent all you r money for what I perceived to be my needs and that I am now penniless. Would you be comforted to know that I put my handwritten note in the safe deposit box which states that I owe you the money with interest? That is precisely what the government has done with those non-negotiable government bonds which contain the promise to pay back your money with interest from some other unidentified source. The truth is that Social Security imploded in the year 2010, and the government is now engaging in a fiction to extend the judgment day to 2033.
Yes, there are short term solutions that can if implemented restore the balance between withholdings and benefits. The government has gone to the well numerous times to extract greater and greater withholdings from workers’ earnings, and it has continued to ratchet up the age for receipt of benefits. At Social Security’s inception in 1935, withholdings were modest as the number of workers far exceeded the number of retirees. In 1950 there were 16 workers for each retiree. This ratio continued to decline over the next 60 years, and by the year 2010 (the crossover year), the ratio stood at 2.9 workers for each beneficiary. Looking forward from 2010 to infinity, the ratio is projected to decline further to 2 to 1.
It should be obvious that the use of these past solutions to the ongoing bankruptcy of the Social Security System will require the continued cooperation and sacrifice of both the “givers” and the “takers,” a grim prospect for any politician hoping to make his living at the behest of his constituents. How much less are retirees willing to accept and how much longer are they willing to wait for their benefits? How much more are working families willing to have withheld from their incomes to be channeled to “strangers” while their own families do without?
Unless Social Security is reformed into a true retirement program, there is every reason to believe we are setting ourselves up for an “intergenerational confrontation” in the not too distant future. When that occurs, the review panel set up to operate under the Affordable Care Act will not be able to jettison seniors fast enough to satisfy the hungry young.
If the current imbalance is not unduly alarming, consider the overload as the baby boom generation continues to make the transition from “giver” to “taker.” That generation of births between the years 1946 and 1965 will increase the eligible group of retirees by 57% while the worker bee population increases by 14%. If this scenario still does not raise your level of anxiety, young and old, then you are lost in the forest and focused on only one fallen tree. Consider that Medicare, Medicaid, Social Security Disability and the college loan program are also on life support.
The question to ponder is how the government can continue to carry these programs on life support when the government is already nearly 18 trillion dollars in debt and running deficits year after year? The answer can be found in the back room of the Federal Reserve Building where the printing presses have been running day and night since the year of the financial crisis of 2008. Speak to someone who had family living in Germany after World War I during the days of the Weimar Republic and they will tell you how this strategy is going to end in financial doom.