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March 18, 2005
Social Security is just fine
Tuesday night's 5th District Democrats meeting featured Dr. Justin Green giving a talk about Social Security. He pointed out some very interesting facts about the system.
The Social Security Administration puts out an annual report with detailed guesses on how the program is running and its long-term outlook. For years the trust fund has had a surplus of funds and those funds were borrowed by congress for immediate spending. In exchange, the government issued US treasury bonds to the trust fund. These are the same instruments given to foreign banks that loan our government money. This is where the double-speak comes into the discussion from opponents of the program.
In the worst-case scenario outlined in the annual report, the trust fund will start cashing in those treasury certificates in 2018 and will be running in the red by 2042. This scenario assumes that women will leave the workforce, population growth will fall to 0%, worker productivity will average +1% per year and our GDP will increase by 1.75% per year. Just how pessimistic are these numbers? Population growth is currently averaging 1% per year. That number includes the birth rate and immigration. Our productivity currently increases at 3% per year. Our GDP increased 4.4% in 2004 and the average GDP increase during the Great Depression was 2%.
Feeling better about the long-term prospects for the system yet?
By comparison the middle-case scenario sets the annual GDP increase to 2.25% and the fund never runs out of money. The best-case scenario had our GDP increasing at 2.75% and we could increase benefits today and never run out of money.
In other words, the system is just fine.
But what would happen if the system did have to start cashing in those bonds in 2018? Not much. Our government would have to tighten their belts and balance the budget. That's never a bad thing. It also has no choice but to honor those debts the same as it would any other debt. To do otherwise would send the wrong signal to our creditors.
Posted by Paul Witt at March 18, 2005 03:44 PM