Alternative Insight

Social Security's Dilemma

Problem or Consequence?


It's the economy, stupid! The famous line that described the primary motivation of voter choice did not prove true in the 2004 election. Nevertheless, the thought has wisdom-- it also applies to the social security dilemma. That dilemma shadows a more significant drama; the potential stagnation of the American economic system.

The reason for the potential social security dilemma is well known: social security revenue will be insufficient to accommodate the needs of an increased senior population.

The most accepted scenario for causing the predicament: An increasing retirement population, increasing life expectancy, declining birthrate and less workers per retiree, will make total OASI(Old Age and Survivor's Insurance) costs exceed payroll tax revenues close to the year 2020. By mid century, the social security system fund will be depleted.

A chilling scenario. Social security will be broke. More chilling--the United States economy might also go broke. The factors that make social security stumble are the same factors that make an economy stumble. The principal problem isn't seniors run amok. It's an economy run aground. The economic stumble is more important - a faltering economy will precipitate further social security funding problems. Regard the more chilling scenario:

(1) A declining birthrate greatly lowers the number of available workers.
(2) Worker demand exceeds worker availability and drives up wages.
(3) An increasing retirement population and their longevity maintains demand.
(4) High consumer demand coupled with lowered production and increased wages signal heavy inflation.
(5) Inflation brings increased interest rates.
(6) Recession and stagflation follow.
(7) Payroll taxes decrease and social security revenue further decreases.

That's not all: As the population ages and the birthrate declines, family life will change. Modified lifestyles and cultural patterns will evolve.The infrastructure to satisfy the new patterns will be reconfigured. Some industries will be forced to discard surplus production facilities, their economies of scale will diminish and this result will give an additional stimulus to higher prices. Changing demographics will modify consumer preferences in clothing, housing, entertainment, food, etc. and partially reorder the consumer economy. The changes might be slow and adaptation might able to absorb the shocks. Nevertheless, companies will fail and the bankruptcies will disturb the economy.

That's not all: Most industrialized countries have similar problems. Governments in European countries are even more active in providing retirees with adequate pensions. Forecasts have the Japanese population increasing to125 million by 2010 and then declining to 100 million by 2070. By 2020, the percentage of retirees in the Japanese population, which is now 15%, is expected to reach 28%. (Source: United Nations, World Population Prospects). The Japanese economy might grind to a halt. Worldwide population declines could mean lower foreign demand, lower exports and higher prices for imports.

An industrialized capitalist economy demands a growing population of consumers and workers and export markets. Opposite trends are dangerous to the health of a capitalist economy. While the U.S. focuses on social security funding, it ignores the greater problem; a future with a less productive economy. The reasons for this inattention:

  • It's too distant to worry about.
  • Pessimism is unacceptable.
  • The economy is self-regulating.
  • To prevent an economic catastrophe will require government planning, an anathema to the capitalist world.

If the economy hits a wall, then proposed financing schemes, especially that of private investment, will not be valid solutions to social security funding. Rather than treating social security as an adjunct to America's economy, it would be preferable to integrate the needs of the retirement community into the needs of the entire society. In a responsible society, resources are shared and so are sacrifices.

alternativeinsight
december, 2000
updated, December, 2004

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