The Elderly and the Economy

The “third rail,” used to power trains on a railroad track, is so charged with electricity that it usually kills anyone unlucky enough to touch it. This is why politicians and pundits alike refer to Social Security as the third rail of American politics. If a candidate touches it, he or she is zapped into political oblivion quicker than you can say, “Don’t mess with old people.” Does anyone believe the American President will demonstrate the fiscal fortitude necessary to push for Social Security reform and potentially save future generations from an insurmountable debt? Of greater significance, don’t expect much from Congress in this regard, either.

Social Security has gone from a program protecting the neediest retirees from poverty to a national retirement service financed by the lower and middle classes. The payroll tax, which has had to be raised dozens of times to keep the program solvent, is steeply regressive and not at all set up how people imagine it to be. Though officially called the “Old Age, Survivors, and Disability Insurance Program,” it has been managed less like an insurance fund and more like a Ponzi scheme. Money out of workers’ paychecks is sent directly to retirees, under the assumption that when the present crop of workers retires, there will be a new batch right behind them ready to pay their dues.

It was a workable system when only a fraction of the population was old enough to receive benefits and weren’t expected to receive them for very long, but here’s the problem—when President Franklin D. Roosevelt signed the Social Security act into law, the average American’s life expectancy was 61 years of age. Now, it is 78.8 years old. Then as now, one started receiving benefits at 65, so in Roosevelt’s era, most potential recipients were already dead.

Nowadays, Social Security is one of the largest outlays in the federal budget, next to Medicare / Medicaid / CHIPS and the Defense Department. The ratio of workers paying into the system to retirees drawing from it is dropping fast and expected to plummet. The Boomer generation is populous, healthy, and will be drawing a long string of checks well into the foreseeable future.

But there’s more. Many have heard of the mythical “surplus,” the buffer of cash that Social Security built up when the economy was roaring and the elderly were few and frail. Well, the surplus is gone. Actually, it’s part of the national debt—a good chunk of it, as a matter of fact. The government certainly owes more money to Social Security than it does to China. You see, when the legislators in charge of the budget saw the stupendous pile of cash generated by Social Security, they elected to modify the law so they could borrow the money. In essence, they sold the Social Security Administration U.S. Treasury Bonds, took the money, and spent it.

Due to inevitable demographic shifts, Social Security will probably stop running a surplus soon. The money “saved up” should carry the program until 2037—well before I retire, but an eternity as far as the four-year election cycle is concerned. After 2015, however, the difference will have to come out of general revenue, and we won’t have a trust fund to borrow from this time around.

The forecast is gloomy. Over 50% of registered voters are over the age of 45. They also sport the highest voter-turnout rates. The eighteen to twenty-something crowd averages around 14% voter turnout in off years. Why off years? Put simply, the President has no authority over the economy and very little authority over domestic and budgetary policy, contrary to what the media would like you to believe. Congress is the body that determines fiscal issues. As long as they and their constituents are old, guess whose interests are going to be best represented?