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News :: Economy |
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Still No Problem With Social Security, Despite Efforts To Create One |
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by Mark Weisbrot
(No verified email address) |
18 Mar 2003
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We are repeatedly told that Social Security will face "enormous strains" as the baby boom generation enters retirement.
Nothing could be further from the truth. As anyone with an internet hook-up can verify for themselves (www.ssa.gov), Social Security's finances are rock-solid. In fact, the system is financially stronger right now than it has been for most of its entire history, including the 1940s, 50s, 60s, and 70s. |
Some myths die hard. With the country now facing multi-trillion dollar shortfalls in our federal budget over the next decade -- and much worse if the Iraq war and occupation do not go smoothly -- the specter of Social Security's future insolvency is once again being raised. We are repeatedly told that Social Security will face "enormous strains" as the baby boom generation enters retirement.
Nothing could be further from the truth. As anyone with an internet hook-up can verify for themselves (www.ssa.gov), Social Security's finances are rock-solid. In fact, the system is financially stronger right now than it has been for most of its entire history, including the 1940s, 50s, 60s, and 70s. Even under fairly pessimistic assumptions about the future, the system can pay all promised benefits for the next 38 years -- without any tinkering at all.
In the bubble years of the 1990's, when dot-com Joe Millionaires were multiplying like hamsters, it was fashionable to dismiss Social Security as a waste of money that could be invested in the stock market. That's a tougher sell today, with the stock market down 46 percent from its peak, and not likely to rebound any time soon.
But those who want to privatize the system have not given up. They will always have money on their side -- Wall Street would love to get its hands on some of the $664 billion that the program will collect this year. But the privatizers still don't have much of an argument.
One of the more modest proposals put forward by the Bush Administration would divert about one-sixth of current revenues into private, individual accounts. But that poses another problem: the program needs this money to pay benefits, so what would replace it? Either tax increases or benefit cuts -- neither a pleasant solution to a problem that there is no need to create.
Still, Social Security's detractors have managed to "keep hope alive" by sowing confusion among the citizenry (as well as many journalists) about the actual state of the program's finances. They seize upon the Social Security Trustees' projection of a shortfall over the second half of their 75-year planning period -- after 2041 -- and claim that the system is not affordable over the long run.
This is a joke. Not only is 2041 a long way off -- as we are once again reminded, economic forecasters cannot seem to hit the broad side of a barn when projecting the federal budget deficit just a year or two down the road. But the doomsayers leave out some important facts about their own story: first, the whole shortfall over 75 years amounts to less than three-quarters of one percent of our national income.
And second, by 2041 the average employee in the United States will be earning a real wage -- adjusted for inflation -- that is over 40 percent higher than today. So few will care if they actually do have to pay one percent more of this much higher income to maintain the Social Security system that has kept the majority of our senior citizens out of poverty for decades.
The baby boom generation may face problems in retirement: millions have lost a large part of their retirement savings in the stock market's collapse, and employers' pension provisions have been shrinking steadily for decades. And a bubble in the housing market could soon deflate, eroding yet another pillar of their savings. But ironically, the much-maligned Social Security system is the one thing they can count on -- provided that we don't let any politicians try to "fix" it.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net), and co-author, with Dean Baker, of Social Security: the Phony Crisis (2000, University of Chicago Press).
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See also:
http://www.cepr.net
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