The release of the trustees reports for Social Security and Medicare has produced the usual crop of alarmist articles, though with more pushback than in the days when the political class was united around the idea of a “grand bargain”. So, I thought I’d repost this piece from 2014.
Salon has a couple of interesting articles about millennials. Tim Donovan focuses on the plight of young people without college education who are suffering the combined effects of long-term growth in inequality and the scarring that comes from entering the worst labor market in at least a generation[^1]. Elias Isquith has a piece debunking Rand Paul’s prospects of pulling the millennial vote (I’ve seen a few of these lately, which may or may not mean anything), which includes the following observation
Despite the fact that a whopping 51 percent of millennials believe they’ll receive no Social Security benefits by the time they’re eligible, and despite the fact that 53 percent of millennials think government should focus spending on helping the young rather than the old, a remarkable 61 percent of young voters oppose cutting Social Security benefits in any way, full stop.
The idea that “Social security won’t be around long enough for me to collect it” is a hardy perennial, and thinking about it led me to the following observation:
It’s now possible for someone to have spent their entire working life believing that Social Security would not last long enough for them to receive it, and now to have retired and started collecting benefits. This belief has been prevalent at least since the early years of the Reagan Administration when it was pushed hard by David Stockman, and I’m going to date it to the first big “reform” of the system in 1977. Someone born in 1952, who entered the workforce in 1977 at the age of 25, would now be turning 62 and eligible to collect Social Security.
I’m betting that, in 20 years time, when the 1952 cohort reaches their average life expectancy, having enjoyed their full entitlement to benefits (assuming no ‘grand bargain’ intervenes) that the belief will be just as prevalent
[^1]: As I’ve argued many times, the shared experience of entering the labor market in a recession is one of the few instances where membership of a particular generation is more than a marketing label.
{ 22 comments }
chris heinz 06.11.18 at 5:32 am
Look. Capitalism has worked. The world is awash in capital. We used to have tons of nature & not much capital, now we have tons of capital but a rapidly diminishing amount of nature.
Since the 1950s we have been in a post scarcity economy – else the marketing industry would not be spending $$$B to convince people to buy things they don’t need.
There’s plenty do go around, for the whole world. We just need to thank capitalism for the great job it did accumulating capital and then adopt an accounting system that changes our score keeping algorithms to where everyone wins, not just the .01%.
The filthy rich will still be filthy rich. We may not even need to go to the punitive 95% tax levels of the 1950s – the greatest decade ever, right, old white people?
Money is software. We can literally say “OK, everyone is rich now!” and make it work. Everybody won’t get a McMansion. but, we can have universal health care, universal basic income, universal capital access, no hungry children with stunted brain growth.
I’ve said this so many times, I think I keep on doing it periodically because I hope that at some point I will state it perfectly and it will go viral and everyone will say “Yes! That’s easy! Let’s change our post-scarcity economy into a post-scarcity utopia!”
You know though, the biggest problem may be the need that some people seem to have, that there be people that they can look down on. Come on, folks, can’t we get past that?!?!?
bad Jim 06.11.18 at 6:26 am
I’m collecting social security! It’s freed me from paying Medicare premiums.
Where did the idea come from that Social Security could go broke? Originally it was a pay as you go plan, workers supporting retirees. Only the sudden disappearance of workers could break it, and the ramifications of that event would dwarf the disappearance of a particular income stream.
In the late 1980’s the trust fund was added to ameliorate the effects of a demographic anomaly, and the addition of a savings mechanism transformed a sharing of income between generations into an entitlement: this is something I paid for! Hence the anguish over the liquidation of the trust fund, which was planned from its beginning. Once half of us Boomers are gone, it can go back to its original flow-through design at worst.
ccc 06.11.18 at 8:01 am
#2 bad jim: “Originally it was a pay as you go plan, workers supporting retirees.”
Which it, of course, still at root is. Whatever rhetorical and administrative ribbons are put on top of that.
MisterMr 06.11.18 at 8:46 am
I live in Italy and here:
1) retirement hage has been postponed multiple times;
2) retirement is calculated in a different way since more or less a decade ago; my parents’ generation expected a retirement income of roughly 70% of their last working income, I expect a retirement income of 40-50% of my (not very high) working income.
Furthermore in many ways the labour market sucks in many ways and young people can expect jobs with substantially worse conditions (like short term emplyment) than their parents, even if, if you look at the employed to population ratio, we have a really high employed to population ratio for italian standards (there is a lot of regional variance though).
So it’s quite natural, at least in Italy, that many people today believe/fear/expect that they will never reach retirement, or they will reach retirement age at 80, or that when they reach retirement age their retirement will not be sufficient for their living expenses etc.
This is a different argument from the argument that you are referring to that “social security is broke”.
Now some people might believe that the italian social securty system is “broke”, some will blame neoliberalism, some will blame “corrupt politicians”, the EU, demography etc..
But the fact is that here retirement is getting both farther and suckier, so it’s natural that many young people (in Italy) believe/suspect that they will not get it, regardless of the reason.
Lee A. Arnold 06.11.18 at 9:51 am
Congress should raise the tax cap to its original Rooseveltian target: the income level at which Social Security tax is levied on 90% of the total national income. Problem solved.
Scott P. 06.11.18 at 12:55 pm
Where did the idea come from that Social Security could go broke?
I think the reasoning goes like this: The gov’t took money from me for Social Security. But thanks to big spending Washington they spent it all on stupid things, thus the deficit. And they won’t be able to pay it back until they get rid of all the gov’t debt, which won’t happen in my lifetime.
Mike Huben 06.11.18 at 1:00 pm
Born in 1954, started collecting 2 years ago. After a life of listening to libertarians and conservatives sneering at the possibility that SS could last. Of course they conveniently forget that European pension systems were recreated after WWII: that’s how resilient such systems are.
Generational transfer is part of the foundation of modern civilization. Free schooling for children and retirement for the elderly. And much more, hopefully.
Omega Centauri 06.11.18 at 1:39 pm
There is also collateral socio-political damage. I know many otherwise smart people who extend the “it will be taken away meme” towards their 401Ks. They would rather not put any money into them -even if they have a generous employer match, because they think its all a shell game and will be taken away. So by default, they end up counting on the very social-security they don’t believe in.
Blanche Davidian 06.11.18 at 2:29 pm
Huzzah for Chris Heinz @ #1. And while we’re at it, let’s cut the full-time employment work week to 32 hours. The 40-hour week was not given to Moses on Mt. Sinai and it’s time to have a three-day weekend every week. I’ve been arguing for this for the last 30 years (since Reagan kneecapped the middle class and made it so a family couldn’t get by until every family member over twelve years old was employed).
And in another ten or fifteen years we can go to the three-day workweek. The machines which will be doing most of the work by that time certainly won’t mind. And if they’ve become self-aware by then, we won’t be around anyway.
Honestly, if we truly want the post-scarcity society we can have it, and probably with a minimum of blood-letting amongst the hyper wealthy.
Ed 06.11.18 at 3:42 pm
The way it will be done will be by raising the retirement age past the average life expectancy. See the comment by Mr. Mister above for details. The system was actually orginially designed so that the retirement age would be later than average life expectancy, to minimize payouts. Falling average life expectancy will also help.
This won’t be to resolve an accounting issue or because any fund is running out of money, it will just be done to cut benefits.
Ed 06.11.18 at 3:44 pm
Also its intellectually possible to both oppose cuts in social security, either in the form of benefits cuts or raising the retirement age, and to expect that there will in fact be either or both benefit cuts or raising the retirement age, and plan your personal life accordingly.
Jason Weidner 06.12.18 at 1:30 am
I had dinner with an American working at the consulate in Monterrey, Mexico. Young guy, probably mid-30s. Turned out he was a right-winger. He was convinced that he would not receive any social security, and kept referring to it as a “Ponzi scheme.” I’m not sure where he got that from, but it was a powerful framing device for him. I tried to explain how social security is not, in fact, a Ponzi scheme, but rather a form of intergenerational tranfer of resources, that had no reason, in principle, to ever end, but it was no use. “Ponzi scheme” fit his general political orientation and it would take a miracle to dislodge it.
Kurt Schuler 06.12.18 at 3:39 am
Chris Bertram’s March 31 post, “Striking, social media, and building a better university,” mentioned that pensions were one of the issues in the strike at universities in the UK. For their own solvency, I hope that Crooked Timber readers are smart enough to understand the incentives that exist for institutions, whether governments, universities, or corporations, to underfund pension plans. If you can afford it at all, you need to have your own retirement assets, under your control now, rather than depending exclusively on a promise from the government or an employer that they will take care of you. When a pension plan is substantially underfunded, cuts in benefits are usually part of the fix.
nastywoman 06.12.18 at 5:12 am
– it’s not so much about millenials won’t be able to collect social security anymore – it’s all about – how much millenials will be able to collect – as it will be not even enough anymore to pay the rent or to keep a owned apartment or house –
Already – even in Germany – the price for renting or owning is so damn high that social security for most retirees is not sufficient anymore and they – already – have to apply for additional help.
Which could remind US all – isn’t the main problem right now the amount of money somebody can make with a job -(and not so much ”unemployment”) – as ”full” employment is pretty much useless if it comes with undesirable jobs which pay no ”living” (rent paying) wages?
Person_XYZ 06.12.18 at 12:17 pm
Public pensions, of course, work by transferring incomes from the working population to the elderly. The problem is that with falling birthrates and longer lifespans, this has resulted in ever greater expense falling on every worker. This problem would exist regardless of the socio-economic system we have. The cost of public pensions will, without some change, become increasingly onerous on the working population. I look at the WASPI Campaign in the UK with disgust, in that they aren’t worried about pensioner poverty per se, but just want MOAR MONEY.
Whirrlaway 06.12.18 at 10:03 pm
It was a trope in the 60’s counterculture, where it was held unreasonable to expect the U.S. to hold together long enough for someone born in 1945 to collect SS, but here I am. And I’m still amazed the large-scale world order lasted as well as it has. The neoliberal cycle worked as life support, evidently, but now what?
chpoot 06.12.18 at 11:46 pm
Of course, one great source of doubt are financial planners, who get subscriptions to 401(k)s, annuities, et al. by raising concerned, skeptical eyebrows when clients say they plan to rely on social security in retirement. How else would they earn their fees?
J-D 06.13.18 at 12:54 am
Jason Weidner
If somebody said something like that to me, I think I would feel an impulse to respond, not by contradicting him, but by saying, ‘I don’t understand what you mean. What’s a Ponzi scheme?’
I don’t imagine a more constructive conversation than yours would have followed, but I would have been curious about what response I’d get to that.
On the other hand, I think I would also feel an impulse to respond only by flat contradiction with no further explanation: ‘No, that’s not true. It’s not a Ponzi scheme. I don’t know who told you that, but whoever did, it’s a mistake.’
But probably my conversational impulses are of little interest.
Alan White 06.13.18 at 4:06 am
Re public pensions at the state level: foresight and responsible management make a great difference within a larger economy. Wisconsin has a practically 100% funded pension because it has long kept track of projected expenditures based on investment risk assessed and constantly adjusted over the short and long haul. I won’t bother with details, but pensions here, depending on whether the pay-ins were invested high- or low-risk (we had a choice upon hiring), might result (e.g.) in 30% biennial decreases as pensions paid for the former in the crash of 2008, but only a fraction of that for the latter at that same time. Recently the high-investment pensions have fared much better than the conservative ones (like mine), and have more than recovered from 2008. Wisconsin pensions are stable for the foreseeable future, but as you see more stable for some than others, depending on the overall economy. I know this isn’t about the macroeconomics of SS, but I have to say my own peace of mind is much more settled given that I luckily fell into this as a lifelong UW faculty member. So not all public pensions are the same, FWIW, though my hind-sight advice is when you apply for US state employment, check out the solvency of the pension system. (BTW Walker made efforts to privatize the WI pension fund, but it has been so successful even he didn’t manage to score more millions for NY money managers other than the few “public servants” already generously paid by the state.)
bad Jim 06.13.18 at 7:52 am
The idea that Social Security is a Ponzi scheme stems from the realization that one doesn’t own one’s benefits. The realization that one is dependent on the kindness of strangers can be distressing to the point of cognitive dissonance for those of a certain bent: does. not. compute. The simplicity of the design does not commend itself to those who insist They Did It All By Themselves.
Someone (Lekachman?) once pointed out that, no matter what funding scheme is in effect, short of freeze-drying billions of burgers decades in advance, retirees are dependent on a thriving economy, which is to say it’s prudent to plan accordingly.
J-D 06.13.18 at 9:28 am
Person_XYZ
Any analysis which refers to how the increasing proportion of the population which is past working age increases the burden that has to be supported by people of working age without also referring to how the decreasing proportion of the population which is below working age decreases the burden that has to be supported by people of working age has a huge gaping hole in it.
Dr. Hilarius 06.13.18 at 5:09 pm
Opponents of SS started the Ponzi scheme narrative during FDR’s lifetime. They’ve never given up, undeterred by SS’s continued existence. Google SS and Ponzi and you will come up with contemporary claims of SS being a Ponzi scheme in Forbes, CNBC, the NYTimes, etc. A few are a little more nuanced, attacking SS for being a pay-as-you-go system rather than investing payroll taxes (which seems to ignore SS funds being invested in treasury notes).
When the word “bankrupt” is used in reference to SS the average person thinks that all of the money will be gone rather than only being able to pay out 76% of current obligations. It’s no wonder that many doubt the continuing viability of SS.
I also suspect a lot of people are simply averse to deferred gratification, which undermines support for any savings plan.
Comments on this entry are closed.