Wednesday, February 10, 2010

Social Security Could Become A Problem Sooner Than Later

The shrinking ratio of workers to retirees in tandem with shrinking payrolls could accelerate the collapse of social security. Social security could become a major budget problem soon as the program's surplus was just $3 billion as the first wave of baby boomers are retiring. See the following post from Expected Returns.

It's no secret that we face a major crisis in Social Security due to the enormous shift of Baby Boomers from workers to retirees. Given that politicians have dipped their hands into the Social Security "Trust Fund" for years, the government must rely on the payroll contributions of current workers to keep Social Security solvent. In essence, the government is running a giant Ponzi scheme that will fail miserably. From USA Today, Rash of Retirements Pushes Social Security to Brink

Social Security's annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.

The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.

Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.
The day or reckoning is coming a lot quicker than government officials ever expected, no doubt due to their incredibly rosy projections of perpetual GDP growth in the face of obvious demographic headwinds. We've collectively been putting our heads in the sand on this issue, incorrectly assuming the Social Security catastrophe would fall on the laps of another generation. From the looks of things, we will come face to face with a huge crisis very soon.

Falling Payrolls and More Retirees- A Recipe for Disaster

Social Security took in only $3 billion more in taxes last year than it paid out in benefits — a $60 billion decline from 2008, according to federal data. The slide in revenue occurred sooner than Social Security actuaries had expected, for three reasons:

• Payroll tax revenue that was growing at a 4.5% average annual clip along with wages flattened out in 2009 because of rising unemployment and pay raises that largely disappeared.

• The number of retired workers who began taking benefits increased by 20%; those taking disability jumped by 10%.

• Monthly benefits were raised 5.8% because of a spike in energy prices the year before.

Social Security was saved from bankruptcy in 1983 by a bipartisan deal that increased payroll taxes, taxed some benefits and gradually raised the retirement age to 67. That was supposed to keep the system solvent at least until 2058, but the projection has slipped to 2037.

The impact of the recession shows that "for all these projections, unexpected things happen," says Maya MacGuineas of the Committee for a Responsible Federal Budget.. "Money has to be found to repay those trust funds."
It just takes a little common sense and some basic mathematical skills to figure out that we are in a lot of trouble. In 1950, we had 16 workers for every retiree; now we have 3. There are two trends that I feel will negatively effect the relationship between workers and retirees. First of all, there is a clear backlash against immigrant workers right now, and this can plainly be seen by collapsing H-1B (employment based immigration) filings. And second, recent graduates simply aren't receiving the type of education that will make them competitive globally.

It saddens me to say this. but recent American graduates with Art History degrees and over $100,000 dollars in debt are being rendered obsolete in the new global economy. Right now, the looming unemployment crisis for younger graduates is being veiled since so many went back to school to get graduate degrees. After all, that's what they've been conditioned and advised to do. I'm stating the obvious when I say there are way too many lawyers in the U.S. The demand just isn't there to soak up the supply of new lawyers, especially in an environment where credit is tight.

Everyone can see the present; not many think about the future. We will have a huge problem years down the line when these graduates with tons of debt find there are still no jobs. Then people will start to understand what a secular contraction in credit entails.

Now is the time to prepare for future crises. Remember, the government must devalue the dollar to keep this con game going. Gold will rise in response.

This post has been republished from Moses Kim's blog, Expected Returns.

3 comments: said...

In India, the H-1b visa is officially referred to as "The Outsourcing Visa".

It is used to remove millions of jobs from the United States and relocate those jobs overseas.

It is typical that a U.S. citizen is forced to train their H-1b replacement, and then the U.S. citizen is let go. The H-1b then trains a whole team overseas, and then the whole department is let go, and all the work shipped overseas.

This isn't a backlash agains H-1b, its a fight to save the incomes of millions of U.S. citizens as well as the health and safety of millions of U.S. senior citizens.

Anonymous said...

You're late to the game. Many are. Socialist Insecurity has been a problem for 73 years. And NSF knew that flooding the US with foreign students and guest-workers would drive US students out of the most affected fields. "A growing influx of foreign PhDs into U.S. labor markets will hold down the level of PhD salaries to the extent that foreign students are attracted to U.S. doctoral programs as a way of immigrating to the U.S.A. A related point is that for this group the PhD salary premium is much higher [than it is for Americans], because it is based on BS-level pay in students' home nations versus PhD-level pay in the U.S.A. [plus the reward potential of a green card or US citizenship]... [If] doctoral studies are failing to appeal to a large (or growing) percentage of the best citizen baccalaureates, then a key issue is pay... A number of [the Americans] will select alternative career paths... For these baccalaureates, the effective premium for acquiring a PhD may actually be negative [i.e. getting a PhD, or any degree in a STEM field will cost more in money, time and effort than it will pay back over a life-time]."

Anonymous said...

Employers can legally discriminate against qualified Americans by firing them without cause and recruiting only H-1B guest-workers to replace them. The U.S. Department of Labor (DOL) has said: “H-1B workers may be hired even when a qualified U.S. worker wants the job, and a U.S. worker can be displaced from the job in favor of a foreign worker.” Some companies that discriminate against American workers are so brazen that their job advertisements say “H-1B visa holders only.” And some companies in the United States have workforces that consist almost entirely of H-1B guest-workers.