Sunday, October 29, 2017

How we can save our Social Security system for every future generation

File Photo. (1935). Franklin Roosevelt Signing the Social Security Act [Photo] Kerrey (Soc. Sec. Ad.) 06:22. CQ Roll Call. Washington DC. Retrieved from
Roosevelt Signing the Social Security Act (1935)
I've been talking about the age-inversion crisis facing our nation for about 30 years as the number of retirees receiving Social Security benefits exceeds the number of workers supporting them. SS was designed using actuarial information from the 1930s that collected enough money from each worker to provide a SUPPLEMENTARY income for them when they retire. 

However, from the beginning, the US Government treated Social Security contributions as it treated Government-issued bonds, spending the money that came in as it came, and promising to pay out the same money with compounded interest. 

Then in the 1960's President Johnson, in his "great society" speech, declared that it was shameful that our Social Security system had such a huge surplus while there were disadvantaged families living in poverty. He said our nation could afford to end poverty, and it was our moral duty to do that. I was about 12 years old at the time. It made perfect sense to me. I was all for it. It made me feel good that I lived in a country that cared so much about people.

Except I did not understand the implications of spending the social security "surplus." There was NEVER a surplus. All of the money collected by Social Security was collected as a part of a financial contract that would require the return of every penny invested upon the disability or retirement of those who paid into it. In addition, inflation had been progressing on average, at twice the rate of the guaranteed interest rate. In the late 70s and early 80s during the Jimmy Carter administration inflation was over 10% each year, and surpassed 14% until after the first year of Reagan's administration when inflation dropped to under 3% again. During those horrendous years of the Carter administration when average mortgage rates were 14% or higher, and grocery store prices had nearly doubled due to inflation in the previous three years, large numbers of retirees whose incomes never went up were being impoverished. 

Our Government responded by creating "cost of living" adjustments to social security payments based on an index of commodity prices, however that index has been regularly tampered with to enable whichever political party is in power to claim the economy was better than it actually was. Tampering with the cost of living index by leaving out medical insurance costs is how Obama was able to claim he improved the economy while the average household income shrank, and those on social security, who were already hard-hit by the extreme price increases from grocery prices, energy prices, and medical costs, were also hit with lower monthly checks from their Government-run retirement plan, based on the political fiction that Obama's economy had improved. 

Back in the 1980s, before Clinton took office, it was obvious to me that the Social Security "surplus" that the politicians were anxious to spend was a temporary bubble caused by the baby boom generation that so vastly outnumbered those who were retired. One day, I did the math on the declining birth rate and the increasing age of the baby boom generation, and it was not hard to graph how we were headed toward an inversion of the ratio of payers to payees in which the spent surplus would become a burden of debt on the next generation. It scared me. I knew human nature then as I do now. No one wants to be saddled with the debt of others, and young people starting families have to focus on providing for their children over all other needs. I realized then that unless we made major reforms to Social Security that it would go bankrupt and would begin to be treated as a welfare program rather than a retirement program. It seemed obvious to me that I could not count on social security to exist at all by the time I retired, yet the very poor economy made saving for retirement difficult. 

I responded by educating myself on investments and creating an investment company that focused on encouraging people my age (in my 20s) to put aside small amounts of money each month into growth-focused mutual funds. I got a series six securities license and I contracted with a company to begin that dream. Unfortunately, my vision of focusing on people my own age who were making very small contributions did not produce a livable income. Worse, while I correctly surmised that real-estate was a solid investment in terms of its intrinsic value, I was devastated to see how people who had followed my advice were hurt by the housing bubble. Granted, the real cause of the problem was fraudulent manipulation of the housing market by big investors in New York, but that disenchanted me entirely. I changed careers. I had been writing my own software to help me understand and predict the economic future of specific companies and to create sales presentations, and I found that was the part of my work that I enjoyed the most, so I sold my client base to another company, I did some free-lance programming and data-recovery work, I built and sold computers out of my home, and I slowly established a reputation as a computer consultant. I spent my last 20 years as a programmer and IT consultant. 

Even during those years, I worked hard writing editorials and corresponding regularly with my senators about how to correct the impending social security crisis by privatizing part of its funding. Unfortunately, Al Gore, with his "lock box" shell game convinced the Nation that continuing to "invest" social security taxes in current Government Spending was somehow equivalent to saving money for the future, and the collapse of our social security system became inevitable. 

In the 90s and after 2000, my hope was that our nation could outgrow its debt via the artificial boom in production from the microcomputer revolution, which played a big role in my decision to be involved in that industry. I could also see a lot of potential not only for the US economy, but for the Global economy with internet-based trade, but it was obvious we would have to overcome our national xenophobia with regard to international trade. I wrote many letters to my representatives in the early 90s encouraging the elimination of international tariffs, and I was a big supporter of the free trade agreement and developing trade relations with Russia and China. I continue to believe that protectionist ideas supported by labor unions and now by Trump supporters is short-sighted and ultimately will cost us more than it helps us.

As I became involved at the request of my Church pastor in teaching ESL classes to immigrants, I saw another big opportunity for our economy, which is to encourage immigration to fill our great need to improve the ratio of workers to retirees in this nation. However, xenophobia promises our nation will self-destruct in this area also. 

I have mixed feelings about promoting immigration and ending the racist quota system that causes so many good tax-paying, law-abiding immigrants to become classified as "illegal," because I don't want our country to just take advantage of immigrants. If we don't reform our social security system, then saving it for today would only push the problem to the next generation. 

Here is how we can save our Social Security system for every future generation:

1) I think immigration reform that ends racist quotas and encourages more immigrant workers to grow our economy, become US Citizens and improve our worker to retiree ratio is our last great hope economically, but it will only be a short-term fix unless we also reform our social security system. 

2) We need to gradually reduce the percentage of the Social Security trust that is invested in public debt. I think we should apply some of the principles that were incorporated in the ACA, making partners of the Insurance and Annuity industry to fund our Nation's social contract. I think this should involve mandatory co-insurance arrangements between Government and private investment companies to manage risk and keep our social contract accountable.

3) I think we need to repent of our xenophobic approach to global trade and stop making protectionist decisions that attempt to help us locally while hurting other countries. That kind of approach can only work short-term, and will most certainly be a cause of conflict and even war in the future. Our nation needs to be a responsible world citizen, not only for our own financial welfare but the for the global economy also.

Related article (and the source of the photo):

Ohlemacher, S. (2015, August 14). Things to know about Social Security at 80: Overhaul time? Associated Press. Retrieved from

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