There are two different stories in the latest Annual Report of the Social Security Trustees: what was said; and what was heard.
What was said is the trustees’ damage control report, which provides the cold facts and an assessment of what repairs are necessary.
What was heard was “blah, blah, blah, numbers; blah, blah, blah, dates.”
Within the excellent report by the trustees, the essential fact is this: The ship is sinking. Social Security is now paying out more than it takes in and will, unless repaired, continue to do so until it sleeps with the fishes.
The trust funds that make up the Social Security system are running out of assets even faster than had been expected. As the trustees report, “The DI (Disability Insurance) Trust Fund will be exhausted in 2016, two years earlier than last year’s estimate.”
The largest of the trust funds, is the Old-Age and Survivors Insurance program, but even this huge fund is leaking cash. The trustees note that, “The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2033, three years sooner than projected last year.”
After that, of course, Social Security will be running on empty, using the payroll taxes collected in a year to pay out what it can of its obligations, with the federal government making up the difference.
The reason that the trustees’ message wasn’t heard by the politicians who could repair the system is very simple. This is an election year; a year of candidacy, campaigns, promises, and distractions … fully financed and completely Kardashianized.
Instead of reality, what we will get is more of what we have already seen: storyboarded celebrity appearances substituting for genuine personality, scripted one-liners substituting for core values and avoidance elevated to a virtue.
In an environment like that, what are the odds that a political candidate will actually wrestle with the merciless math of Social Security to come up with a repair plan that is bound to bring pain to some? Where’s the love in that?
The foundering Social Security system is actually only one of the economic issues that policy makers would prefer not to see or hear about. There are enough people active in our financial markets who are listening to the economy though, and their anxiety is beginning to show up in stock prices.
Economists often worry about the same things that trouble investors, but their perspective is different enough to see the problem in a different light.
From an economics standpoint, if there is a single most worrisome thing in the U.S. economy right now it is that we are increasingly comfortable with assuming that we can solve structural problems with cyclical tools. The argument between those favoring government stimulus and government austerity, for example, presumes that one of those strategies is correct. That is not necessarily the case.
The underlying belief is that if we could just get this recession turned around then everything will be fine. The expression, “A rising tide raises all boats,” was common in the 1960s when the federal government really began to get serious about using economic policy to regulate the economy. It expresses the idea that increasing economic growth and output will raise everyone’s income and make us all better off.
We are still holding on to that belief, even though we’ve just come through decades where economic growth disproportionally benefited some groups and left large segments of the U.S. population on the sidelines. The persistence of that kind of shift in income distribution clearly indicated a structural change. We could stimulate the economy all we liked — and have done so — but the same people would still be left out.
One of the structural problems in our economy that is proving so vexing to government finance, economic growth and income distribution is our educational system. Because it is not a cyclical problem, throwing money at it will not solve the problem.
It makes little economic sense, for example, to “double- down” on student loan subsidies, increasing federal contributions to a higher education system of runaway costs and questionable effectiveness. This is especially true, of course, when the federal government doesn’t actually have the money to do so, but that is another story.
What would make economic sense is to provide credit counseling to students before they launch into loan programs that transform them into indentured servants with advanced degrees — and leave taxpayers with an uncollectable debt.
The skyrocketing student loan debt was saying something about the cost structure of higher education, just as the Social Security Trustees’ report said something about the structure of that system. Now we must make sure that what they said is what we heard.