On Fixing Social Security

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The prime time
news shows this week featured the story of Kathleen Casey-Kirschling.
Born just after midnight, 1946, she will be the first baby boomer
who becomes eligible for early retirement at age 62 in 2008. She
is 61.

Why did this
story become prime-time news this week? Because the Social Security
Administration pulled off a media coup. The agency held a media
event that was covered by the networks. The SSA’s press release
describes what happened.
an event hosted by Michael J. Astrue, Commissioner of Social Security,
the nation’s first Baby Boomer, Kathleen Casey-Kirschling, today
filed for her Social Security retirement benefits online at www.socialsecurity.gov.
Ms. Casey-Kirschling, who was born one second after midnight on
January 1, 1946, will be eligible for benefits beginning January
First, a media
event always benefits from a representative human being. The cameras
focus on a person. Cameras have trouble focusing on ideas. For that
matter, so does Congress.

Second, she
was presented as representative of 78 million Americans who are
part of her demographic cohort: born from 1946 to 1964. Why someone
born in 1964 is a baby boomer is a mystery to me. The U.S. birth
rate peaked in 1957. But with 78 million people out there, the Nielsen
ratings were bound to be benefited. The PR people at Social Security
understood their marks: the media.
know how important Social Security benefits are to Americans of
all walks of life,” Commissioner Astrue said. “Today, Kathy has
reached a personal milestone — she has made the transition
from the workforce to retirement. I could not be more pleased that
she has chosen to make this transition by filing for her benefits
online.” To find out what Social Security services are available
online go

I don’t recall
Mr. Astrue being on any of the network news shows. I flipped channels
to see how the story would be handled. But Mrs. Casey-Kirschling
got her point across. She was filing for early retirement. Her
government ship is coming in, and she will be at the dock on time.

the nation’s first Baby Boomer, Ms. Casey-Kirschling is leading
what is often referred to as America’s silver tsunami. Over the
next two decades, nearly 80 million Americans will become eligible
for Social Security benefits, more than 10,000 per day. To prepare
for this wave of new filers, Social Security has developed a wide
range of online services.

for Social Security benefits online is easy and convenient,” said
Ms. Casey-Kirschling. “I urge my fellow Baby Boomers to give Social
Security’s online services a try. Save a trip and do business
with Social Security from the comfort of your home or office.”

The agency is
doing whatever it can to get lots of people to sign up early. The
agency fully understands a basic rule of government bureaucracy: the
more voters who are dependent on a government agency, the larger the
voting bloc that will resist any attempt to shrink it, let alone eliminate

“Come one!
Come all! Step right up. Get your free money here!”
Security provides economic protection to millions of Americans and
their families,” Commissioner Astrue said. “And we remain committed
to providing the public with the highest quality service possible.
Boomers have always been a generation of trendsetters. Kathy is
leading the way by doing business with Social Security online.”

Ah, the wonders
of the Web — no more government paperwork! As John Wayne put
it, “That’ll be the day.”


This was the
agency’s pitch. But not a word of this made it onto the networks.
What they reported was that the Social Security System is going
broke. This was true of the press generally. In an
article in Britain’s Guardian
, this threat was made clear.
The article came right to the point. This generation is indeed trend-setting.

1967 they were flower children, and it was all about peace and the
summer of love. Now, in 2007, it’s all about the cheque.
You had better
believe it!
Ms Casey-Kirschling admitted when she filled in her online pension
application: “I’m just lucky to be at the top of the boom.” For
those following her into retirement, demographers predict the crisis
in the social security net will emerge as a key concern on the domestic
political agenda, if not in time for the 2008 elections then certainly
in subsequent years.
When she says
“top of the boom,” she means “top of the chain letter.” She understands
that those who come after her are going to get stiffed, one way or
another. They will sing of her, just as Jerry Reed sang 25 years ago,
“She got the gold mine. I got the shaft.”
Ms Casey-Kirschling, such debates on the future of the baby boomer
generation have become almost second nature ever since she was discovered
by journalists on the eve of her 40th birthday.
That sentence
caught my attention. Her 40th birthday was over two decades ago, and
the press covered it. Yet this is the first time I recall hearing
about her. Nothing in the intervening years has been done to fix the
red ink tsunami that is surely coming.
remarried, she looks forward to dividing her retirement between
homes in Florida and Chesapeake Bay in Maryland.

Two homes.
She has done very well for herself. She is indeed at the top of
the boom. She got the gold mine.

What will
you get?


I have known
this was coming since the spring of 1959, when my high school civics
teacher introduced us to the red-ink nightmare of “pay as you go”
financing. The system was front-loaded from day one: lots of benefits
for very few workers. But demographics will take over, he warned:
lots of retirees supported by fewer workers. The retiree-worker
ratio would eventually bust the system. “The system will die before
you do,” he warned.

The actuarians
who monitor the program for the government assure us, decade after
decade, that the system will not go bust . . . in the lifetime of
anyone reading their reports. Nobody denies that the entire system
is statistically doomed. The debate centers around the issue of
when. We are assured that we — today’s readers — will
cash out. The poor saps who will retire behind us will get stiffed,
but we won’t.

What amazes
me is that this is the official party line of right wingers as well
as left wingers. They all say the same thing: “No big problem.”
Yes, there are problems, they admit. Yes, the system is completely
unfunded. But it can be fixed if we act now. If we wait, the problem
will catch us sooner, but we can fix it.

I read this
party line in the mid-1970’s, when I first wrote about the Social
Security problem. I have seen the party line published somewhere,
every year, ever since. The articles still appear like flies in
the spring, always assuring us that this problem can be solved if
Congress takes action now.

This week,
however, there was a shift in opinion. Without warning, the mainstream
media, for one brief and shining moment, ran the story the way my
high school civics teacher taught it. The system is going bust.
Despite the endless “if we act now” articles, the problem never
gets solved. This is because Social Security is a Ponzi scheme,
and it always has been. The money taken in is immediately spent
by the government. Paying off early participants relies on taxing
later participants.

The money
is not invested in revenue-generating capital that can amortize
the debt. The income from FICA taxes is even counted as revenue,
not as a liability. It is revenue in the on-budget budget, and
it is used to reduce the reported debt. It is a liability only in
the off-budget books, which nobody cites, and which the government
actively conceals.

How can the
system be fixed when it relies, not on productive capital investment
to amortize the debt, but on future workers’ willingness and ability
to pay FICA taxes? Why will all those future payments by workers
reduce not undermine their ability to invest, because the FICA taxes
will reduce their legally disposable income? Why won’t the FICA
system reduce capital and therefore productivity?

Here is the
government’s idea of a fix. It announced this week that the taxable
income base on which the FICA tax will be imposed will rise next
year from $97,500 to $102,000.

This is a

I turned 65
in February. The first check will arrive in December. Why the delay?
Another fix. Congress passed a law which defers the first check.
In the old days, the first check came in your birthday month.

This is a

I think I
understand the fixes: raise taxes and cut benefits. Terrific.

The politicians
want us to ignore this problem because we are expected to trust
them to provide fixes as these become statistically necessary. I
trust the politicians. I trust them to apply the same kinds of fixes
that they have already applied: raise taxes and cut benefits.


The party
line was enthusiastically presented by a correspondent on American
Public Media. The
man interviewed is Chris Farrell.
I can’t say that I have ever
heard of Mr. Farrell, but I have surely heard the party line for
many years. He is by far the most committed advocate of the party
line I have ever come across. Social Security is a non-issue, he
There’s a very good reason why Social Security does face some financing
issues, I’m not totally dismissing it: We’re living longer. We’re
healthier. This is a good thing, this is something to celebrate.
Stop the hairshirt economics and stop pretending that you’re fiscally
responsible by raising the Social Security issue. It’s a non-issue.

Jagow: But
Chris, there are a lot of baby boomers. There are 76 million baby
boomers. They’re gonna take a lot of benefits. You don’t think
that’s going to push the Social Security system on the verge of

Absolutely not. And the real issue is Medicare and Medicaid. And
it is the aging of the baby boom generation, and it is this crazy
quilt, out-of-control health financing system that we have, that
is a train wreck, guaranteed to happen, over the next several
decades. But that’s a different issue, that’s an issue of health
care. I have no idea whether we’ll still have a Medicare and Medicaid
system in 10 years. Maybe it’ll be reformed. But you want to worry
about something, you want to focus on something, it’s health care
all the time. Forget Social Security — it’s a non-issue.

This is ever so
comforting. Medicare is a train wreck. It threatens to bankrupt the
government. This assessment is correct, by the way. But an odd thing
happens in train wrecks. Train lines shut down. This train wreck threatens
the solvency of the Federal government. Now, as I think about this,
I come up with a conclusion: Social Security is a very large freight
car on the train that will surely wreck.
Are you suggesting that the presidential candidates shouldn’t even
address Social Security?

They should address health care. That’s what matters. Social Security,
when we get a new administration, you sit down with some of the
people who are willing to do some bipartisan compromise, you look
at some of the research that’s been done, you get some smart people
in a room, you cut a deal, it’s over with, it’s done.

So, we have
heard for 30 years that if the government does something —
we are never told what — the problem can be solved. But the
government must act now! Three decades later, nothing has been done
except raise taxes and delay the retirement date, yet we learn that
Social Security is a non-issue. Then I guess it wasn’t an issue
in 1977, either, even though it went legally bust in that year,
and Carter had to impose new FICA taxes. It was a non-issue in 1983,
too, when legally it went bust again, and Reagan had to hike FICA

You may think,
“Oh, well; this is just some liberal know-nothing. What else could
we expect?” So, let me cite Amity Shlaes, who has written a good
book on the Great Depression, The
Forgotten Man
, and who used to be on the editorial board
of the Wall Street Journal. As a writer for Bloomberg and
as a member of the Council on Foreign Relations, she certainly cannot
be successfully accused of being anti-Establishment. She writes:

the boomers head for the beach, the revenue flowing to the government
will begin to recede.

Many Americans
believe that shift is important — catastrophic even. They
also think that there’s nothing they can do but watch.

This is
wrong. Fixing Social Security is doable. The task isn’t as pointless
as trying to stop the movement of tides. It’s the equivalent of
putting a new drain in a swimming pool.

That’s what I
like: great rhetoric. Fixing Social Security is like fixing drain
in your swimming pool. I cannot personally verify this, since I have
no swimming pool. But this much is clear: all those warnings for 30
years were warnings about fixing a swimming pool.

This problem
is so easy to fix that Fred
Thompson knows the answer
you might have missed it, the best method for such a fix was offered
by Fred Thompson this month in the Republican presidential candidates’
debate. In Michigan, Thompson said that “one of the things that
could be done would be to index benefits to inflation. Index benefits
to inflation for future retirees.”

That’s all?
Not quite. The system is already indexed to deal with price inflation.
Social Security has a COLA — cost of living adjustment. So,
there is something peculiar going on here.

She writes:
“Thompson’s phrasing wasn’t clear, but his idea is.” Folks, if the
phrasing isn’t clear in a campaign speech made by a lawyer-professional
actor-politician, we can be 99.9% sure that the idea isn’t clear.
It isn’t clear for a political reason.

Shlaes then
tells us what Thompson “really” meant — a popular sport among
intellectuals for many centuries: inserting your idea into another
person’s words.

Social Security
has another budget-busting factor, she says: an increase in payments
to retirees based on today’s workers’ increased productivity. This
increase should be dropped, she says. So, what Fred Thompson really
meant to say was this: “Stiff the geezers. Change the rules again.
Take away the promised benefits.” He just wasn’t as clear as he
might have been.

I wonder why.

Anyway, I
kind of understand the fix. It’s the same old fix: reduce the benefits.
Change the rules. Renege.

It’s a non-issue.


I am willing
to concede that the Medicare train wreck is the big one. It’s going
to happen before the Social Security train wreck. That will reduce
the threat in much the same way that a nuclear war reduces the threat
of a worldwide banking failure.

It is the
same political game, revised. The system’s defender says the problem
can be fixed. He does not add “by a salami-style default: one benefit
at a time.” He does not add: “Of course, Congress will do nothing
to fix it except raise taxes and slice benefits, as it always has
in the past.” All we need is to get a bunch of smart guys at a table
to cut a deal.

Why didn’t
anyone think of this before?

Oh, I forgot.
They did. Repeatedly. Then they raised taxes.

I don’t have to worry. My check will be in the mail. Soon.

a shame that I’ll have to pay $15,300 in FICA taxes next year, plus
another $5,000 in Federal income taxes, since FICA payments are
not deductible from income on my 1040 form. I will also pay at least
$7,000 in income taxes on my income from Social Security. Oh, yes,
plus state income taxes on the income I will use to pay FICA.

But I don’t
have to worry. Social Security is a non-issue, except maybe for
Fred Thompson’s campaign.

20, 2007

North [send him mail]
is the author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible

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