Social Security: Still Fine

by Brien Jackson

Of course the hubbub of the day is going to be the annual Social Security trustee’s report, if only because it paints a bleak picture on its face, and scaring people is always good for television news (I’m avoiding the Washington Post editorial page today, for obvious reasons), but ultimately, the report doesn’t really strike me as that bad.

The main takeaway seems to be two thing:

1. Social Security begins paying out more than it takes in on a yearly basis in 2016.

2. The Social Security Trust Fund runs out (that is, Social Security becomes insolvent) in 2037, 4 years earlier than was projected last year.

Now, there’s a couple of big caveats that Fred Hiatt and Pete Peterson won’t bother to tell you. The assumptions for future revenues are based on a projected baseline for growth in the next few decades. Obviously, no one really knows what’s going to happen to the economy 20 years from now. Someone could invent, say, an amazingly awesome new fuel source that creates millions of jobs overnight, sends growth through the roof, and provides a huge influx of cash to the government (we used to call this “the 90’s.”) In this scenario, “unexpectedly” high levels of growth would change the equation, providing more revenue than projected. On the other hand, there could be a global ebola pandemic 4 months from now that kills tens or hundreds of millions of people, decimates the global economy, and creates a situation that makes the Great Depression look like a weekend in Versailles. In that scenario, revenues will be much lower than expected (basically zero), very few people will be working, and Social Security insolvency will come sooner than this report projects. Of course, we’ll also have a lot more important things to worry about than Social Security, but you get the idea.

But the important takeaway, as far as I can tell, is this; Social Security is a pretty fiscally durable program. I mean, consider that we’re probably at, or near, the nadir of what most economists expect to be the deepest recession since the Great Depression, and the decreased revenues expected for Social Security are such that, on paper, insolvency is only reached 4 years earlier. That’s really not that big of a hit when you consider the present economic situation. And that’s not to say the actuarial problems don’t exist, just that they’re really very minor, and can be fixed with very minor tweaks to the financing mechanism.