SOCIAL SECURITY….Just for the hell of it, I want to briefly address one of my favorite topics: the imminent demise of Social Security.
I used to buy into this: demographic pressures were inexorable, there would be fewer people supporting more retirees, the whole system was unsustainable, etc. etc. So I looked into it.
After more research than I care to admit to, it suddenly struck me that only one thing really mattered: how big is Social Security? I had been vaguely under the impression that it was a huge program, but in fact it turns out that Social Security amounts to about 4% of GDP today.
And the pessimistic consensus is that over the next 50 years or so this will gradually increase to about 7%. That means that federal taxes, which today amount to about 20% of GDP, will need to increase to about 23% of GDP.
So what’s all the fuss about? Somehow, among all the talk about lockboxes and trust funds and treasury bonds and deficits, we’ve managed to create a tremendous amount of unnecessary confusion that hides the simple fact that Social Security is just not that big a program in the greater scheme of things. Raising taxes by three percentage points over the next few decades is hardly political dynamite, and the popularity of Social Security makes it an absolute certainty that this will be done in due course. Social Security will be fully funded for the rest of the century, and all those Gen Xers who are convinced that it won’t be there for them are almost certainly wrong.
Anyway, I just wanted to get that off my chest. The next time somebody starts nattering on endlessly about the government buying its own IOUs or something similar, just tune it all out and remember this simple fact: even by the end of the century Social Security will amount to only about 7% of GDP. It’s just not that big a deal.
Medicare, on the other hand, is a different problem entirely….