The US Social Security System: Peter, Meet Paul

Anecdotal Economics, authored by Keith Hazelton, proudly announces that it is 'Making Astrology Look Respectable, Since 2005'.

At least he has a sense of humor, which is often hard to do when discussing the mathematical challenges that confront us after the great seventy-something-year-long experiment in Ponzi finance known as the US Social Security system. When Roosevelt signed it into law, there were a comfortable surplus of working taxpayers who could be fleeced just a little bit to pay that modest check to Grandma in the 1930's. What could possibly go wrong, they figured?  Besides, it's a fabulous way for Congress to buy votes, with, you know, other people's money.

Fast forward a few decades. The birth rate falls. Life expectancy increases.  And subsequent Congresses tumble to the fact that they can raise benefits, add some perks, not really raise the tax that pays for it,  and keep buying votes. Easy-peasy!

In the late 70's, the actuaries notice that the light at the end of the tunnel is actually a freight train headed in our direction. Social Security taxes rise dramatically, actually creating a surplus--you know, to build up reserves to fund the obligations to all those born after about 1950.  Of course, this really creates a huge drag on the economy, especially on business and job formation. A good deal of work and compensation begins to quietly move underground, and overseas.  Birth rates keep falling, and longevity increases.

In the meantime, Congress sees this big pile of cash, licks its lips, and says, 'Hey, let's spend that! We'll hand the Social Security System T-bills, and they can cash them in from about 2010 on. It's only 1980, we'll be gone by then, and besides, what could possibly go wrong?'

It became a classic Ponzi scheme, in which Peter is robbed to pay Paul. It can be maintained for a long time, but inevitably, the scheme collapses.

Peter, meet Paul.

Hazelton has the gift of clearly explaining the math while maintaining a sense of humor, as he recounts that all those T-bills are stored in ring binders in the bottom drawer of a file cabinet in West Virginia.
What could go wrong?

And you children and grandchildren of the Boomers, wondering exactly why it is your parents and grandparents have no money saved for retirement...? Before your righteous indignation sets in, please take a moment to remember, fondly, all the Beanie Babies, Pogs, Tomagachis, Furbys, Barbies, Cabbage Patch Kids, music lessons and instruments, athletic lessons and equipment, summer adventure camps, trips to Disney World, skiing at Vail, Back Street Boys concerts, mountain bikes, X-Boxes, Nintendos, Segas and video games, CDs, DVDs, computers, stereos, televisions, cell phones, boom boxes, iPods, iPhones, 4,000 sf suburban homes, automobiles, boats, jet-skis, motorcycles, expensive-but-useless college educations, cosmetic surgery and glitzy/destination weddings which your elders showered upon you throughout your enchanted upbringings.

And don't be surprised when they (we) have to move in with you someday. Back to three generations in the same household, but look on the bright side: it might save on childcare expenses, depending on Grandma and Grandpa Boomer's schedules at Wal-Mart.


Chin-straps on, boys and girls.  And keep your sense of humor.

You'll need it.