Primary Effect
The primary effect of Social Security insolvency (when the program is taking in less money than it pays out) is that benefits will be reduced. The first reduction is likely to be on the order of 25%. That will be a huge issue for the oldest retirees whose benefits have been subjected to artificially low Cost of Living Adjustments for the longest time.
Medicare benefits are also likely to be reduced.
Secondary Effects
Contrary to the blathering of politicians, the "excess" funding collected by the Federal Government through the FICA taxes (which funds both Social Security and Medicare) was never put into a "lock box" under Fort Knox. Both programs have been a pay-as-you-go and the Feds skimmed the excess and folded it into the General Fund. That money is gone.
As the demographic pig-in-the-python moves closer to the tail, the wage-based tax revenue will shrink as the percentage of people working shrinks. With less money to skim from FICA overages, the increasing shortfalls in the budget are covered by borrowing larger amounts of money. Since every Developed Nation is in the same pickle, the increased demand for credit (which is purchased via auction-like sales of bonds) causes the credit interest rates to climb.
Soon, private enterprises cannot compete with governments (who can print money) and those enterprises collapse. Customers cannot afford their products without credit and minor glitches in cash-flow force the enterprises into bankruptcy.
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Federal attempts to remedy the problem by printing more money has always resulted in accelerating inflation.
Tertiary effects
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| "Can't afford to fix the old girl. Am selling her for parts." |
If the "promised" benefits cannot be paid for, then they will break their promises. It is not like they have a choice.
That will also impact people who are still working as consumption collapses. If old-farts' lose purchasing power then our consumption will fall and businesses will suffer.
In the public-sector side of the economy, everything will be turned into a blame-game as the tide starts to flow out. The work-place will become cut-throat and more times and energy will be spent on gossiping and paranoia than on providing services.
Degrading standard-of-living will be a constant
Rational people have become increasingly aware of this issue and will take action BEFORE 2034. The psychology of inflation amplifies inflation. Once awake, people rush to buy assets before their money's purchasing power diminishes even more.
We are not going to wake up one morning in 2034 and notice "Hey, the economy turned to crap over-night". Nope. It is not going to be like that. I think we are going to be worn away by the relentless drip-drip-drip of bad news and economic dislocations, and it will happen regardless of who holds political office.
the dollar will fall ... slowly at first, then all at once.
ReplyDeleteThere's never enough money to fund Social Security, but there's ALWAYS enough money to fund WELFARE... Think about that and adjust your belief in what politicians sa accordingly...
ReplyDeletethis whole SS will be insolvent is B.S. SS comes out of and what we pay goes into the General Fund/Treasury. There may an imbalance but it is not a separate account.
ReplyDeletei did not notice any mention of a decrease in the size or scope of . government at any level, local, state, or federal. Did I miss something?
ReplyDeleteYou did not miss a thing.
DeleteUnder the FDR New Deal model, government grows on an absolute scale even as the private sector shrinks. As a percentage of the economy, it grows by a huge amount.
Critics of FDR claim that he prolonged the Great Depression because his actions corrupted the feedback loops that created self-regulation and stability.
Proponents of FDR dismiss those criticisms. They claim that his success was unprecedented. Asked for evidence, they invariably claim "Well, nobody else was re-elected as POTUS three times." FDR shines as beacon for all elected officials, objective data be damned.
The book The Forgotten Man by Amity Schlaes paints a very different view of FDR and the New Deal than the "official history" gives. Her point is exactly yours, ERJ: FDR prolonged the Great Depression by his policies instead of ending it.
DeleteInvest in what is valuable. Trusted friends, skills and anti-fragile systems like gardening (a local skillset) solar panels and energy efficiency like better insulation for the home.
ReplyDeleteStuff that makes a lower standard of living partly replaced by your own efforts.
As long as Social Security folks are an important voting block and the media hasn't turned them into useless eaters like non-vaccine folks during COVID hysteria (remember send them to the camps stuff? I DO) the politicians will run a deeper deficit and keep paying that Social Security.
I agree with every point you made.
Delete"it will happen regardless of who holds political office."
ReplyDeleteThat's because nobody can imagine that the electorate would vote for someone who supported the policies necessary to avoid the calamity. As a former Prime Minister of Luxembourg said "We know what to do but we don't know how to win an election afterwards".
Social Security faces insolvency for two reasons. First Congress stole the money from the fund, spent it on pork and left behind a worthless IOU and the demonrats gave BILLIONS of dollars in Social Security benefits to illegal invaders. If it weren't for those two facts there would be PLENTY of money in the pot for Social Security.
ReplyDeleteHey Joe, ( I believe there is a song in there somewhere!)
ReplyDeleteYou are a really smart guy, but I think you miss a few things. Please take a look at this argument and let me know your thoughts.
A Generationally Different View of Social Security
As a Gen Xer, I was raised to believe Social Security would never be there for me. My mother actually told me at a very young age that the money was gone. In fact, it was never really there. From what I’ve learned about government in my life, I would say she is right.
Boomers were raised to believe in the system, and for most of them, it worked exactly as promised. My view is different. I assume malevolence 100% of the time. I believe the people in power do not care if I live or die — in fact, they would prefer I die. That’s the lens I bring to any discussion about Social Security, Medicare, or any other government program.
Argument #1 – The Original Math Was Intentional
When Social Security was launched in the 1930s, the retirement age was set at 65 while the average life expectancy was 61.7. Even accounting for the fact that life expectancy at 65 was higher, most beneficiaries would collect only briefly, if at all. This was no accident. The people who designed the program had the actuarial tables and knew exactly what they were doing. It wasn’t built to provide decades of income — it was a politically expedient way to remove older workers from the labor pool during the Depression so younger, unemployed workers could take their jobs.
Argument #2 – The Government Was Always Going to Spend the Money
The so-called “trust fund” was never a vault of untouched cash. Surpluses were always converted into special-issue Treasury securities — IOUs the government wrote to itself. That money was immediately spent on other priorities, by both parties, for decades. Expecting Congress to leave trillions sitting idle was pure fantasy. The surprise isn’t that the money is gone; it’s that anyone ever believed it wouldn’t be.
Argument #3 – Guns, Butter, and No Hard Choices
For decades, Washington has expanded social programs while also funding expensive wars of choice — Korea, Vietnam, Iraq, Afghanistan — without raising taxes to cover the cost. Instead, they leaned on debt and Social Security surpluses to bridge the gap. This bipartisan refusal to make trade-offs burned through the fiscal flexibility that could have been used to shore up the system before demographics turned against it.
Closing – Why I Don’t Care to “Save” It
This is why I have no emotional investment in “saving” Social Security. I was raised to expect nothing from it, I believe the government is fundamentally malevolent, and I see no reason to prop up a system that will never pay me a cent. I am explicitly forced — under threat of violence — to surrender the fruits of my labor so they can be handed to others. That’s also why I intentionally limit my taxable income — why work extra just so more can be taken from me? If I will never receive Social Security, why should I be compelled to pay for yours?
Well reasoned and but a small step away from calling Boomers useless eaters.
DeleteOthering folks is part of the 10 steps of genocide.
Not that this young person is actively thinking of it that way BUT others with less generous views of "Old Boomers" ARE.