Is Social Security Bankrupt?

Dear Pete:

       In your closing argument, you do our readers a great service.
       Nobody who has read this exchange should fear any longer that Social Security is going “bankrupt.” At no point have you countered my explanation of the purposes and financing of the system.
       Rather, your position is that Social Security is a bad deal: People could get higher pensions if they invested for themselves. And Social Security is bad because it’s a government program: It restricts individual freedom, by taxing people.
       I still don’t see how what you see as a defense of freedom can possibly condone forced savings accounts, which is essentially what you recommend as the alternative. But it’s important that readers understand that the problem with Social Security is not that it won’t be there for them.
       The question is whether they should want it. I have tried to explain that “it” is not a personal investment. It is a program in which each generation guarantees a minimum retirement income to the people who raised them. This includes a valuable guarantee against a wide range of risks, of which the most important (and expensive) is the risk of living longer than the average life expectancy.
       From your purely individualist perspective, I guess support for one’s parents–and friends’ parents, and old Mrs. Clark down the street–does not seem important. After all, if they don’t have the cash, that must be their fault, right? If you did think that was important, you couldn’t continually pretend that Social Security revenues can be transferred to individual savings accounts, without somehow financing current pensions.
       Maybe I’m a little more appreciative of the fact that my mom gets Social Security benefits. Not all of her four children can afford to help her directly, and our own incomes are uncertain. It’s very nice to know that her minimum is guaranteed. I don’t find that “grossly unfair and morally repugnant.”
       Yes, there are more workers to pay for the retirements of the baby-boomers’ parents. But that means our parents spent a lot of money raising their large number of children: an investment, in us, that I think deserves a decent return, from us.
       Now we are having fewer children. I think basically that’s a bad thing. But I also look around and see that the smaller number of middle-class children are receiving a lot more per person from their parents than we did–in attention and activities and goodies, educational and otherwise. So there’s a tradeoff: Larger generations pay less per parent later, but get less per parent earlier.
       I look at the economy and see that the large baby-boom generation, as individuals, do not have it so easy. Our wages have grown more slowly than normal; housing is much more expensive for us than for our parents; and a whole series of other effects seem to follow from the basic laws of supply and demand–more of us selling labor and eventually our assets when we retire, so we’ll get lower prices; and more of us buying assets now, so we pay more.
       Succeeding generations–“X” and Lord knows what other letters–will have different problems, but I don’t see how they’ll be worse. Those born in 1970 have come of age in a much better labor market. Their burdens from Social Security won’t be more than mine for another 20 years–halfway through their working lives. Until then, they will have had the best of all worlds: growing up in a small generation, working in a tight labor market, and then having the large boomer generation paying most of the costs for the retired–including some of the Xers’ parents. After all, if your dad was 30 in 1970, he retires in 2005.
       So I don’t see what’s so unfair about the intergenerational character of the program. It’s no less fair than parents hoping for help from their children as individuals, and I wonder how many people would talk about “intergenerational equity” if it were put in those terms.
       The difference between Social Security and a simple parent-child relationship is, Social Security protects both sides against bad luck in the economic lives of either. If the parents earn little, they still get a minimum benefit. If the children earn too little, they are not burdened further by having to guarantee their parents’ sustenance.
       Alexis de Tocqueville wrote about the basis of a good society and good government, as it is sometimes practiced in America. What is needed is not simply the pursuit of self-interest, but the pursuit of “self-interest rightly understood.” I think that means Social Security.