Entitlement

13 02 2009

For those of you not paying attention, a massive entitlement crisis is creeping up on us with cat-like tread.

There are approximately 150 million workers in the US. In other words, roughly half the US population is contributing to the nation’s gross domestic product. Those 150 million workers are the ones who are responsible for the current technological and social structure in this country. By the way, workers refers to everyone drawing a paycheck, from the migrant workers harvesting lettuce to the highest-paid CEO on Wall Street. All of these people are part of the process of creating wealth- for themselves and for others. All of these people make the US economy a global powerhouse.The problem is, maintaining the economic juggernaut requires keeping roughly the same number of people creating wealth through their own efforts.

Under ideal conditions, a country’s population would remain relatively static. Each family would produce just enough children (on average) to replace the current crop of workers. The babies born each year would match the number of deaths and the number of people entering the work force would equal the number of those retiring. Reality seldom bears even a faint resemblance to ideal conditions, however. In the real world, population gradually increases over time. When I was in High School, the Earth’s population was on the close order of four billion humans. Today, that number is well over six billion.

Even this incremental increase would not necessarily be a serious problem. Advances in technology and improvements in local infrastructure could easily keep this staggering number of humans healthy- assuming that the growth was uniform in location and time. As long as each generation was slightly more numerous than the previous one at a relatively uniform rate of increase (on average), there is no reason (from an engineer’s perspective) why population growth should be a problem.

Alas, the real world does not proceed according to the calculations of engineers. Pig-headed ignorance, local superstition, and politics (different names for essentially the same phenomenon) cause human populations to grow in fits and starts, with some populations growing far beyond the ability of local infrastructure to support them, and other populations actually shrinking. Historically, this has been a self-correcting problem: the growing population conquers or otherwise absorbs the shrinking population, and changes the population growth cycle for all three groups (the original two populations and the new, combined population group).

Therein lies the entitlement crisis I mentioned in the first paragraph. US population growth had been relatively stable throughout much of our history. Even when the birth rate was not keeping pace with the death rate, the tide of immigrants coming to our shores more than made up the difference. We were blessed with a constant infusion of fresh workers at a relatively constant rate, which made planning for social programs a relatively simple proposition.

In the middle of the last century, however, the US got swept up in the global population-recalibration spasm we call World War Two. The US was spared the horrendous loss of life which afflicted population groups in Europe and Asia by the broad oceans which separated us from the worst of the turmoil. That protection also meant that the only major industrialized area on the planet with a working infrastructure was in North America. When our troops returned home after four years of war (another benefit for the US was the fact that we didn’t join in the festivities for the full six years- we just popped in for the last four), they came home to what was almost literally a heaven on Earth.

Human nature often louses up the well-thought-out plans of engineers and social programmers. The US population experienced a massive surge in births in the aftermath of the war and a booming economy. Normally, booming economies lower the birthrate. Prosperous nations always see their birthrates drop below replacement levels. Think of it as a self-correcting wealth-distribution machine. A country gets wealthy, then shrinks in population. Less wealthy countries either conquer the wealthy state or provide surplus population to offset the population loss. An equilibrium is reached with both countries. Lather, rinse, repeat. The so-called “Baby Boom” was possible only under the unique circumstances in North America at the end of WW II.

Before WW II. the social planners in the US had developed a program to take advantage of the supposedly constant growth rate. They called it Social Security. This elaborate pyramid scheme was predicated upon a constant growth rate- there would always be more workers coming into the workforce than leaving it. Everyone would pay into the Social Security system, guaranteeing that the system would be self-perpetuating. The Baby Boom threw all that straight into the toilet. Once the boom years were over, US population growth returned to the classic pattern. Newly restrictive immigration policies also slowed the flood of immigrants into the US to a trickle. We never quite went into negative population growth, but our birthrate and immigration rates combined were not enough to offset the huge “bulge” in US demographics.

That bulge is soon to become an indigestible lump in our collective throats. All of the Baby Boomers will soon be retiring- and collecting Social Security benefits. This would not be nearly as much of a problem if the system had been maintained in its original form, as a trust fund for individual contributors. Pig-headed ignorance, superstition, and politics reared its collective ugly head again. Congress was looking around for extra money, and noticed that the Baby Boomers were pouring money into the Social Security coffers in amounts far exceeding the outlays for retiring workers. Congress- being composed of liars, thieves, mountebanks, idiots, and poltroons- immediately jettisoned long-term goals in favor of short-term profit and enacted legislation to allow them to loot Social Security to pay for their own programs. Protestations from people with the ability to see beyond the next election were waved aside as immaterial- the population growth would continue to bring new suckers into the lower levels of the pyramid scheme forever. Social Security could replace the misappropriated funding easily … so long as the Baby Boom birthrate was continued indefinitely.

All pyramid schemes fall apart when there aren’t enough new suckers filling the base of the pyramid. That is where we are now. More people will be leaving the workforce and drawing Social Security benefits over the next decade than the entire remaining workforce. Where is all the money going to come from? Don’t look to the Gummint for answers. They’re the ones who created this problem. There simply isn’t enough money available from the remaining workforce to pay for the Social Security of the retiring Boomers.

Option 1- Print money in boxcar lots. This has the advantage of being easy to do, and the downside (hyperinflation, collapsed economy, etc) can probably be held at bay until our Leaders are safely dead.

Option 2- Open the borders. Bring in workers from everywhere to fill the gaps in the workforce, and make ’em all pay into Social Security. This is easy to do- except for politicians- but only delays the inevitable. The only way this would work would be if the new workers were forced to contribute to Social Security without getting any benefits from the program. Ever.

Option 3- … you got me, pilgrim. I haven’t a clue.

You and I are probably never going to see a nickle from Social Security.  A great many people in this country are counting on that mythical Social Security check to keep them afloat after retirement. Those people are in for a nasty shock. That pyramid scheme is busted, and it’s probably going to bring the country down with it. Even if the United States survives the economic turmoil ahead (the current economic debacle? Bah! This is a mere hiccup compared to the clusterfuck that’s coming), the country will probably be changed forever.

Just to add icing to an already-bloated cake, I haven’t mentioned Medicare. Medicare is in exactly the same boat as Social Security, and for the same reasons.

I can describe the forces which make our Universe work, and how understanding of those forces allows us to operate our current level of technology. I don’t understand economics, and nobody else does, either. Anyone claiming to have a handle on economic theory is selling something- usually snake-oil. That said, there are a few things which might help during the coming economicalypse: Specialized personal skills, especially in functional disciplines associated with producing goods; tolerance and sympathy for others; willingness to work hard to get what you want; unwillingness to put up with bullshit, and the ability to recognize bullshit when presented with it.

Current status: disgusted

Current music: Down Under by Men At Work

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2 responses

14 02 2009
The Barefoot Bum

You do not understand the social security system. It is not a pyramid scheme, and it does not require unlimited growth (except to the same extent that capitalism itself requires unlimited growth). It is a *tax* system with a provision that some people who have put less in in the past will receive less. But it is still basically a tax system.

During the Baby Boomer’s most productive years, the Social Security system intentionally took more in in taxes than they paid in benefits. This is the Social Security surplus, and is invested in most treasury bills. The plan is that when the Boomers retire, the Social Security system will use this surplus to pay benefits. This is the exact same methodology used by any private individual who saves and invests his money during his productive years and then spends that money when he retires.

We do not have an “entitlement” crisis, we have a much deeper crisis of capitalism — especially finance capitalism — that happens to affect Social Security… in precisely the same way it is affecting everyone who saved and invested during their productive years to pay for their retirement.

15 02 2009
archvillain

Barefoot Bum: The Social Security Trust Fund has been repeatedly looted by Congress for decades, in the form of borrowing money against the value of the bonds purchased by the trust fund. In other words, the value of those bonds- upon which the Social Security Trust Fund is based- are already spoken for twice over.

From economist Thomas Sowell’s article on the subject in 2002:
The Social Security taxes that people pay are used not only to pay current pensions but also to go into a so-called “trust fund” to pay future pensions. When the trust fund money is used to buy government bonds, that reduces the national debt — on paper. But only on paper.

When $100 million in Social Security money is used to retire government bonds as they mature, this means that the public is owed $100 million less than before, which means that the national debt is reduced by that much. But of course the Social Security system is now owed $100 million dollars more than before.

This is where the accounting tricks come in. Money owed by one government agency to another is not counted as part of the national debt. So $100 million in debt vanishes into thin air, simply by being transferred from where it is counted to where it is not counted.

The government still owes the money. But it now owes it to the people to whom it has promised future Social Security pensions, even though technically it owes it only to another government agency.

What has happened is that the Social Security taxes that were supposed to go into a trust fund have in fact been spent by the politicians. The government bonds turned over to the Social Security system in exchange for this money change absolutely nothing. These bonds are just claims on future general tax revenues. (http://www.capmag.com/article.asp?ID=1505)

Bear in mind that I had not read Mr. Sowell’s article when I wrote this post. I came up with the idea more or less independently. That said, I am not the first- and probably not the last- to make the claim that Social Security is the world’s biggest pyramid scheme.

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