Its purpose was to anticipate the burden of the baby boomers by collecting funds while the cohort is still in the workforce. A small additional payroll tax was sufficient to provide the necessary funding by year 2020. But, strangely enough, the euros never turned up. To this day, the recurrent revenues of the trust are insignificant. The FRR will never meet its target, and the project is almost in jeopardy.
In fact, this is exactly the way the ‘Securite Sociale’ has always managed its pension plan : give out all the money you collect, and collect more when you start needing it. Have they even heard of actuarial calculation? In the end, some cohorts will get a much better deal than others. For sure the system can’t and won’t crash, but there is nothing to be proud of.
I agree that the problem does not come in 2018, if at all, when payroll taxes are less than SS benefit payments. That event is meaningless.
Still, it is not enough to argue that SS has been run responsibly, in the sense that it is adequately funded. That’s a bit like saying that we have responsibly transferred the correct amount from our left pocket to our right to meet the needs of the right pocket.
If doing so has cause the left pocket to be empty, and that the day is coming when we cannot borrow money from the right pocket because it needs its cash for other things, it seems entirely fair to say that we have a “right pocket” crisis
Right now, the SS fund’s positive cash flow, like much of the money we send to China and OPEC, is being invested in Treasury bonds; it is part of the supply side of our capital ;s cash flow decreases, and perhaps even turns negative, the demand for capital will not abate, but the supply will become tighter and tighter, causing an increase in interest rates that will affect not only the government’s general account but the underlying functioning of our entire capital system. (The bond bone’s connected to the stock bone, tra la.)
The issue is not that the fund will run out of cash to pay benefits, but that it will have less cash for investment, enough less to matter http://rksloans.com/title-loans-al to those who need to borrow it
Rather than claim that the result of this capital shortage will be cataclysmic, I would simply ask Mr. Krugman to turn his analytic eye on the effects that a declining SS surplus will have on the capital markets, and the dominoes that will fall on account of it, and then tell us why there is no Social Security crisis.
Sadly, if I am right, there is no way out of this mess short, perhaps, of destroying the dollar at at the expense of foreign holders (as is happening now?). Increasing taxes removes capital from the econonomy, and reducing benefits, even if it could be done politically, would mean less money spent by (increasingly older) consumers, also an economic depressant. But debasing the currency and protecting our workers and pensioners with COLA’s? That may be the ticket.
These dollar-demoninated versions of the problem simply mirror the existential fact of a declining ratio of workers to retirees. People who work and people who do not work will compete for the available goods and services. Long ago, the capitalists won that sort sort of battle, but I suspect today’s intergenerational version will be won by the people who work (including some very rich executives and active capital-allocators), and not by the passive “investors” living on Social Security and other pension money. As mentioned above, however, we can confiscate the share of our outputs owned by foreigners by weakening the dollar. But is that really doable and/or enough?