4 Small Rivers

If the question du jour is the wisdom of privatizing some or much of the U.S. social security system, how does one parse it into manageable, discernable chunks? How, as a secondary question, can one move this issue from an irrational squabble? (The Right: social programs are Evil, this one must go. The Left: social programs are Good, this one is sacred.)

So, here are some questions. Let’s see if the politicians, economists and pundits even touch them, come close to giving us some honest analysis, based on facts. Or, will they simply impose the template answers from their own dogma?

• Question 1: What does it mean to say ‘Social Security’ is in trouble? (Form of answer: SS runs deficits of $B/year starting in 20xx?)
• Question 2: If we accept that definition … when does Social Security run into trouble? (Form of answer: SS starts to run into trouble in 20xx?)
• Question 3: What do solutions have to do? (Form of answer: Inject $x billion a year from 20xx …? Increase age of retirement eligibility from 65 in 2005 to 70 in 2015? Change benefits calculation? Put some of the SS contributions into non-government trusts? Combinations of these? For example: make amount of annual benefits dependent upon age of retirement – thus if someone retires at 70, they’d get more/year than if they’d retired at 65?)
• Question 4: What are the probably ‘unintended consequences’ of these?

From my own perch – theoretical year of retirement eligibility a short 15 years away – I don’t even see a credible coherent answer to my question #1, or its corollary, #2. I have heard no coherent discussion of what the range of alternatives is, #3. And the discussion of the unintended consequences both falls along party lines, for the most part, and is not particularly relevant until we’ve thought through the precedent questions.

One unintended consequence may be this: if much of SS funds is diverted to the stock markets, it could cause significant volatility. In the early years (baby boomers comme moi still earning, saving) the prices of stocks would rise – based as much as anything on supply and demand. Then, later, with many – many millions, actually – of the boomer generation selling their stocks to fund something or other in their retirement, the outflows would soar. Who would be around to buy? Answer, not as many people – that’s a demographic fact. The possibility of monstrous stock crash looms. This is made significant because baby boomers diverting cash flows have macroeconomic effects.

It’s an often-cited creed that governments act as a damper on investment spending. It’s politically savory to note that this dampens the upside. It’s out of favor to note that it can dampen the downside.