2011 November 05 Saturday
Americans Leaders In Denial About Social Security
We live in an era where big glaring problems go unfixed and grow in size. Example: The US government's retirement program Social Security. In 2010, several years early than expected, Social Security shifted to net outflow of funds. The old folks lobby blocks any change in benefits and Obama even supported cutting Social Security taxes to stimulate the economy.
Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.
But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.
The message from Senate Majority Leader Harry Reid is total denial.
“Let’s worry about Social Security when it’s a problem. Today, it is not a problem,” Reid said to applause.
Harry Reid is in office because the majority of voters in Nevada voted for him. I present this as evidence for a need to vet the competence voters.
In an MSNBC interview, he added: “Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won’t do that.”
The better people in society need better ways to override the will of the majority. I do not know how best to filter for better voters. But the need is really. America's voters, like America's elites, do a bad job making decisions for the commonwealth. The resulting damage is building up and causing serious problems. I question the long term sustainability of democracy.
Also see my previous post Americans In Denial About Medicare And Social Security.
Update: In a review of Dietrich Dörner's The Logic Of Failure The Social Pathology (a blogger medical doctor writing under a pseudonym) opines the average man just is not up to voting intelligently on complex issues. Therefore he expects democratic government to fail over the long term.
Dorner's book also has implications for political theory: Take for example democracy. It would appear that the average man is suited to understanding simple and immediate problems and such would vote intelligently on such issues, but what about complex issues with long term consequences? Democratic government, given human cognitive limitations, is surely to fail over the long term since the bulk of men are not able to grasp the long term consequences of even moderately simple decision.
Does democracy slowly degrade? Do cognitive limitations of the overwhelming majority of voters doom democracy in the long term? This isn't just an IQ problem. Plenty of biases built into even high IQ brains cause systematic misunderstanding of big problems.
Update II: The Social Pathologist says we have a clear need to limit the voting franchise. I think improvement in the quality of voters is essential to prevent the decline of the democracies. And by that I do not mean transforming each voter into an excellent decision-maker. Clearly, that's not possible.
The stable democracies of the west were initially set up with a limited franchise, as the respective constitutional architects were well aware that limiting the power of a irresponsible or evil monarch was of no benefit if political power was passed onto to an irresponsible, stupid or evil mob. They wanted political power wielded by responsible hands to ensure system stability as they were well aware of both the malice of kings and the stenosophism of the proles. Something that seems to be forgotten in today's deification of the common man and unquestioning approval of the universal franchise. A lot of righties, who otherwise vigourously defend current democracy, fail to note that the leftward shift of modern culture is correlated with the expansion of the voting franchise.
Now, how you limit the franchise is open to honest debate. Personally, I'd like the qualification to be based on a proven ability of an individual to successfully manage their own affairs. A man who can't get his own stuff together has no right lecturing me on mine. Bankrupts, adulterers, criminals, people who still have a mortgage, certain welfare recipients, those who are not paying taxes, people possessing too much wealth, etc, would all be excluded the franchise in my scheme things. The point here is not where you draw the line, but in recognising that a line needs to be drawn. To many people on the right worry endlessly about the responsible and limited government power without paying any attention to responsible voting: not recognising that one is impossible without the other.
Democracy fails when the imprudent prevail.
The imprudent are winning.
Dörner's critique of democracy is rather lacking in historical perspective. The people who wrote the Constitution were quite well aware of the limitations of the common man and the implied problems for direct democracy. This is why they implemented representative government, with about one representative per 40,000 people; also note that the electoral college is an attempt to get around the presumed inability of the average man to choose a president. Now, it's true that their efforts ultimately failed (in the early 20th century they stopped increasing the size of the House, and nowadays electors are pretty well bound by the common vote, albeit in byzantine fashion), but for someone to come along and say 'hey, I *just realized* that democracy has this problem' is kind of stupid.
'The better people in society need better ways to override the will of the majority.'
Well, they've been doing a good job on illegal immigration, no? Who are 'the better people'? Maybe you want the smarter people? Heinlein proposed only letting people vote if they could solve a simple quadratic equation. But you (and he) are giving way too much credit to the character of the intelligent voter, and viewing the democratic process solely in its role as a way to make informed decisions for the good of the whole society. Democracy, however, also functions to give everyone a sense that they have some role (however small) in choosing the direction of the country, and further, allows for an arena where factions with irreconcilable differences of interest can contest in non-violent fashion. If you don't let stupid people vote, you increase the size of the alienated and disaffected portion of society. And when it comes to dividing up the pie, you make sure that the potholes in the poor parts of town get fixed even less than they do now.
Anyway, as I sort of implied above, I think that at the national level 'the better people' are pretty well in charge. For now that means a mandarinate of Harvard (and other Ivy League) grads. They seem to be doing pretty well in furthering their interests; the good of society, not so much. You need to rethink the prioritization of intelligence over character.
Since 1983 Americans have paid more in FICA taxes than social security needed. They were told the money was going into a trust fund. Now that that FICA taxes can not pay all of social security's yearly expenses some people want to get the public to believe that the trust fund never existed. The voters are not going to accept this line of reasoning and they shouldn't.
The government can pay all the ss benefits promised by cutting other spending and/or raising taxes. This is much easier to do then fixing Medicare or many other pension systems. This is not a cognitive problem on the part of voters. It is a problem for people who place a higher priority on not raising taxes and not cutting military spending than they do on paying ss benefits.
Medicare is in much worse shape and I agree it needs drastic change.
Let's remember that the founding fathers didn't believe that everyone should be able to vote, only people of substance and property. We now allow people who can't even take care of themselves to vote!
The problem is that Social Security and Medicare have been used to shift funds from younger to older generations. The current retirees got back far more than they put in (by a couple hundred thousand each - read the full article for details). Sure, the young could get as much out as the old got if the young paid much (much much) higher taxes throughout their lives than the old ever did. But that's very unlikely to happen. Our work force quality is in decline and people don't want to pay higher taxes.
As for "by cutting other spending": You do know that entitlements are now by far the largest portion of the US federal budget, right? Are you aware that by historical standards the spending on non-entitlements programs is now much smaller than it used to be? Military, highways, scientific, research, space, etc had their peaks in terms of percentage of GDP sometime in the past.
Here's a pie slice overview of the 2010 US federal budget. Keep in mind when looking at it that Medicare and Social Security are going to soar along with the number of retirees. Social Security and medical programs are already 41% of the budget.
Also, keep in mind that the US government is already running a huge deficit. Eliminate the US military and the US government would still be running a deficit.
Also, military retirees get another 7% of the budget.
Also, interest was about $200 billion or 6% of the budget. But higher interest rates and continual increase in debt will push up that number. Likely slashing military spending would at best provide money to pay debt interest, not to stop debt accumulation.
The Post article combines SS and Medicare. It is Medicare that has exploding costs and where people are getting far more in benefits than they paid in taxes. SS is rising at a much slower rate. Part of rising SS costs are people on disability like the man who gets paid to stay home in diapers all day. He is an extreme example but there are other people on disability would could work.
Social Security is also paying current retirees more than they put in and it is doing this at the expense of future retirees.
At 20.4% of the US federal budget Social Security is the biggest single program in the budget. In inflation-adjusted terms Social Security grew 3.2% per year from 2000 to 2010. Yes, Medicare grew faster at 6.1% per year adjusted for inflation over that same time period. But the rate of growth of Social Security spending is not sustainable without a large tax increase of several percent of GDP. Also, Medicare's absolute growth ($204 bil per year) was about the same as Social Security's absolute growth ($197 bil per year) since Soc Sec is much bigger in absolute size.
If the economy performs poorly (which I expect due to Peak Oil, declining workforce skills, higher general natural resource costs, and other reasons) then the official projections on the financial problems of Social Security and Medicare understate the size of the financial problem with old age entitlements.
The Heritage piece you link to not only shows Medicare rising at double the rate of SS in the last decade, it shows Defense rose even more than Medicare. It also has a chart from CBO estimating future growth in entitlement programs. The projected growth in SS looks tiny compared to Medicare.
Heritage is an outfit devoted to cutting SS and exempting military spending from budget cuts. Their own charts, when they separate SS and Medicare, undermine the view that SS is the cause of federal budget deficits now or in the future.
I gave you exact numbers. Social Security growing at 3.2% per year adjusted for inflation translates into 37% growth per decade. Just because Medicare is growing at a faster percentage rate does not mean that Social Security is sustainable on its current trend.
Defense has stopped growing and I expect it will shrink as a percentage of GDP and as a percentage of the federal budget. Social Security will continue growing as a percentage of the federal budget. Ditto spending for poor people and Medicare.
As for whether "SS is the cause": There is no the cause. There are several causes. Social Security is obvious one of them since it is big. The fact that the US government is running a 9+% of GDP budget deficit means that the size of the deficit is about equal to the two biggest government programs combined: Social Security and Defense.
Heritage's own agenda: Really besides the point. They took the time to assemble useful numbers and so their page was a good search query result.
There's no way younger people can get a deal like the current retirees are getting. The intergenerational transfer of money means the younger have to get less. My Social Security eligibility age has already been raised and I expect it will be raised again before I retire. I also expect to pay even higher Social Security and Medicare taxes before I retire. I'm thinking I'll be able to retire some time after my 70th birthday. Not sure when exactly. 71? 72? I figure that Medicare's level of coverage will have to be cut back via queues and other means that attempt to hide the reality of it. So one had better include medical costs when planning retirement savings.
If (or when) real rejuvenation therapies turn up retirement eligibility ages will need to raise much higher. Don't know if I'll still be around to get them.
Thanks for the link love Randall.