Subscribe to BrookesNews’ Bulletin
Social security insolvency: The impossible challenge and the easy solution
John P. Meehan
Solvency is the wrong issue. As long as U.S. social security is driven by demographics, it is unsolvable. The ultimate trend in the worker-retiree ratio gets worse year by year. There is no reason to believe that it will ever get better in the developed countries of the world. The patterns are clear from Europe and Eastern Asia.
Every so many years, Congress will continually have to revisit the issue and pass new legislation cutting benefits, raising taxes, extending the retirement age, or some combination of these factors. The only way to stop this sequential system of destruction and unrest is to stop feeding it the food that it devours to keep going. That food is new workers every year.
Starved of new workers, the old system will wither and die. This will take 70 years (there is no quick fix). But note that, as it dies, its solvency becomes self-curing — annually reduced with the passing of each cohort of mortal retirees. The replacement system is built of private accounts. The government guarantees the new system with incontrovertible benefits which the old system never had (it had none).
Private accounts will give workers munificent retirement wealth never before dreamed attainable by the poorest worker or by the median worker by age 60. The probability of this happening is provable (see below). Whatever financing is required as the old system dies, and the new one takes its place, is funded with ad-hoc borrowed debt on an as-needed basis.
None of this is difficult. It is not difficult to do. It is not difficult to understand. You simply install a new plan, the success of which emerges clearly and precisely. Its probability of success is between 95 and 100 percent. That is indisputable — a matter of public record. (See below.) In developed countries, the policy of having workers support retired non-workers is a disastrously losing game. In fact, it will be terminally disastrous here, as elsewhere, unless abolished.
Thus, the burden of proof should rest on the opposition to prove with counter probabilities why private accounts cannot work well or even work at all. To simply assert the idea — why, so can I, or any man — is not to prove it.
The demonstration that private accounts can work appears in the summary at this
site.
John P. Meehan is Chairman Emeritus, ICC Capital Management.
BrookesNews.Com
Monday 29 August 2005