Yalies cannot afford to overlook social security

We’re all out to save the world. Whether we’re political activists pulling for our candidate or advocates on behalf of [insert disenfranchised group here], or are actually trying to save the world from global warming, Yale students are by no means short on engagement. Despite coming of age in an era rife with pessimistic proclamations of melting ice caps and nuclear winter, we exude an optimism which motivates us to do our part to better our future. Yet there is one issue that we dreadfully neglect: Social Security.

The Social Security Trust Fund works like this: Taxes go directly from your income to a trust fund; the interest from that fund pays a monthly dividend to all Americans over the age of 65; the dividend is determined by some arcane formula based on an individual’s average peak earnings over the course of a lifetime. The problem is that the next generation of retirees, the baby boomers, is the largest generation in recent history. As a result, the trust fund is facing a potential extinction. In about 2018, the fund will start paying out more than it is taking in. By 2040, the trust fund likely will be bankrupt. Empty.

Why should we care? I thought Social Security was for old people. This misconception is the root of the problem. Guess what: Someday, we, too, will be old. Despite our foresight on issues such as global warming, we can’t seem to get our heads around an issue that could have an equally devastating impact on our future well-being. Maybe it’s a problem of distance. We can walk into Nature and lament its disappearance; we can walk down Dixwell and decry poverty; but it’s nearly impossible to imagine ourselves as old, feeble individuals struggling to pay for rising drug prices while trying to feed ourselves.

The truth is, most, if not all of us, will probably not end up in that boat. If we’re so passionate in our attempts to address economic injustice — each day, for instance, Yalies give up oh-so-valuable time to tutor inner-city kids — then why such deafening silence on this equally important issue? Working to prevent the future poverty of those less fortunate than us in our generation isn’t necessarily the kind of tangible goal that will make us feel good about ourselves; but make no mistake, it’s a cause worth fighting for whether our consciences say so or not.

Don’t get me wrong: The environment, public education, poverty, etc. are incredibly important issues and our involvement with these problems is an essential part of the solution. But these are all issues in which we are part of a coalition. Social Security has no such coalition; it has no celebrity spokesman, billion-dollar foundations or crusading politicians. The only group politically engaged in the Social Security issue is the American Association of Retired People. However, the current AARP crowd will be long gone by the time their benefits run out; all they ask is that nothing is done to affect their benefits now.

The political result of this is politicians spewing empty rhetoric, decrying the crisis but only offering words of reassurance to the AARPies that they’ll be fine. A good example of this is Hillary Clinton’s Social Security “plan.” She calls for a blue ribbon commission to “study” the issue, or, in laymen’s terms, to sit around for a few weeks and then tell us what we already know: We have hard choices to make. Do we increase the payroll taxes which right now are capped at $90,000 a year, amounting to a middle-class tax increase? Do we raise the retirement age? Do we change the way we allocate benefits? All of these potential solutions have fierce opponents who are doing what almost all politically engaged groups do: looking out for themselves.

The problem is that we need to become fierce opponents of the status quo. We need to educate ourselves about the problem and the potential solutions (tax increases, private accounts or, my favorite, the Automatic IRA). Then we need to let our voices be heard: Imagine what would happen if the next time Obama spoke at a college campus he was waylaid by hundreds of college kids dressed as senior citizens asking tough policy questions about entitlements? When politicians come around courting our vote, we should demand a plan for our financial future and the future of our generation.

Comments

  • Mike

    "We need to educate ourselves…"

    Contrary to popular belief, Social Security taxes are not deposited into the Social Security trust funds.
    [April 29, 1998 - CONGRESSIONAL RESEARCH SERVICE]

    The Federal Government's trust funds, including those for Social Security, are not trust funds in the same sense as
    private trust funds but rather are accounting mechanisms.
    [Dan L. Crippen, Director, Congressional Budget Office]

    Candidly, the Social Security Trust Funds are nothing more and nothing less than a sub-account in the government's financial records and badger accounts. They are NOT REAL trust funds.
    [David Walker, Comptroller General, Government Accountability Office, Washington, DC]

    …but this is not a real trust fund. Let us don't kid ourselves.
    [DAVID M. WALKER, COMPTROLLER GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE]

    In reality, 2008 is a sooner date that you need to be concerned with because in 2008, the surplus in Social Security will start to decline, and since Congress has for a number of years spent every dime of the surplus on other operating expenses, that means it will increasingly put additional pressure on the balance of the Federal budget starting in 2008.
    [DAVID M. WALKER, COMPTROLLER GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE]

    As long as there are any taxpayers left alive how can the trust fund (which is not real) become empty?

  • hewhoasks

    Well, Will, you may need to look at this a bit more closely. Do an input-output analysis. That is, with taxes supporting SS retirement who is the source of the money, with investments supporting retirement who is the source of the money? Looks like either way it's the workers. You've surely been exposed to a huge load of propaganda that tries to sell you on the notion that investments provide sure - and free - returns to support general retirement. Look more closely at the propaganda - it only promises a "chance" that investments will provide a better return. Then, using whatever business and financial analysis training you have, look at whether investment can do what is claimed that there is a "chance" it will do. Also check with Yale faculty expert in financial analysis. You might just learn something, if you're ready to learn and capable of learning.

  • Mike is a moron

    after your great job in disproving that the trust is like a "real" trust and that it is more like a subaccount of the government's budget, what have you actually proved? In fact that argument goes for most budgeting concerns that the Federal government encounters. How can public schools not have funding when tax payers are alive? How can different federally funded projects go bankrupt when there are tax payers alive?

    The nature of the trust is irrelavant, becuase regardless it does in fact need funding to operate. The federal govenrment appropriates money to many things, but the fact that the trust will eventually have to pay more out than it is funded with.

    your second point also contradicts your other one, if your point is that Social security is not a trust and in fact cannot go bankrupt when there are still taxpayers alive, then why would you be worried in 2008 or even bother tlaking about the surplus? No worries man, tax payers are still alive right now . . .

  • Financial Illiteracy is Rampant

    In asking this article's author to more closely-analyze the issue of the social cost and effectiveness of investing social security funds, I return the favor to "hewhoasks". While there is a "chance" for better return with equity investments, there is virtually a guarantee of such with most kinds of fixed income vehicles. These latter investments -- which, for the respondent's information, are already employed to the tune of hundreds of billions of dollars to safeguard reserves held by insurance companies -- allow for more funds to be available to pursue new business ventures and, hence, to grow national output at an even faster rate than is currently observed. (Thus this notion that workers are negatively impacted by investing social security funds isn't even a normative interpretation -- it's just a factual inaccuracy.)

    Though I have no idea who this individual checked with on the Yale faculty (probably someone who wasn't a very good student in economics in their day), I should point out that the Yale Economics department has all but adopted a standardized proposed solution to the social security problem which is taught by many of their professors; this plan suggests a Pareto efficient method for transitioning to a system where social security has a more sustainable foundation through paid-in reserves that are *invested* in highly-secure, high-quality investments.

  • Moron Mike

    What I tried to prove is the deceptive nature of the whole Social Security debate and the distortion of the words used to describe it. How do we fix it if we don'tunderstand it? And I would maintain that the deception is on purpose.

    The "trust" needs no funding - it is a pay as you go system. Remember the 1983 fix was to build a surplus to cover the baby boomers - hope you get a good high paying job to pay for me.

    The reason we should all be concerned after 2008 Government will have less to spend on all these other needful things. Do you think they are going to cut spending elsewhere - anywhere?

    As to the deception -

    Chairman THOMAS. So, it really isn't a premium, again, as if you moved to the private world, we understand a premium; it isn't a trust fund, as we understand a trust fund; it isn't insurance, as we understand insurance. If we understand that and set that aside, then, we can simply say that we have problems that we need to address, and that really is what I want to get to. To hang on to fictions and then argue a failure to make substantive change based upon an attractive name, which is a fiction, to me, is to deny our ability or certainly hamper our ability to get to a real solution.
    [Chairman THOMAS - March 9, 2005 - Committee on Ways and Means]