The 2013 Social Security Trustees’ report, released last week, is proof positive that you really can make numbers say whatever you want. By highlighting one set of “asset reserves” that showed some growth, the report gives ammunition to those who would rather not deal with the fact that the program is on a path to disaster.
The Trustees’ report begins by noting that: “Asset reserves held in special issue U.S. Treasury securities grew from $2,678 billion at the beginning of the year to $2,732 billion at the end of the year.” Translation: the program is “not in a crisis.”
But one year of growth in Treasury securities does not a stable program make. Those securities represent assets to the Trust Fund, but not necessarily to the economy and to our ability to pay obligations. Our capacity for income, wealth, and employment generation is not enhanced just because the Trust Funds hold more paper assets. If that were true, simply depositing even more paper IOUs into the Social Security Trust Funds would make us more prosperous.
To really understand the crisis this program faces, the Trustees should be comparing the $55 billion in asset growth to the exploding growth in its unfunded obligations, which increased by $1 trillion during 2012. This also happened in 2011 when increased obligations of $2.1 trillion far outstripped the $69 billion increase in the program’s Treasury security holdings.
The program’s total unfunded obligations over the next 75 years has now grown to $9.6 trillion, more than one-half as large as the outstanding gross federal debt of $17 trillion.
The two major political parties clashed over raising the debt ceiling in 2011 and may do so again later this year. But mum appears to be the word on Social Security’s growing debt. The program’s Trustees appear to encourage such “flying under the radar” on Social Security’s debt by burying the program’s increases in unfunded obligations within a flurry of jargon — actuarial cost and benefit rates and actuarial balance ratios — mindless jibber-jabber to uninitiated lawmakers and the public.
Those who suggest that the program is “not in a crisis” consistently point out that even after the Old Age and Survivors Trust Fund runs out of reserves, it could continue to pay 75 percent of current-law benefits. But that fate is almost upon the Disability Insurance trust fund which is projected to be exhausted by 2016. Disability benefits advocates, however, are panicked at the prospect of an imminent 20 percent cut in DI benefits.
The groups that are strenuously resisting Social Security reforms constitute essential and integral elements of the socio-economic “vortex” into which the program is sinking. They apparently do not appreciate that whether the system is in a “crisis” ought to be judged on the basis of the program’s financial trajectory and not on the basis of imminent insolvency.
Their policy prescription to ignore the program’s prospective financial shortfall — highly likely under current laws — will produce a result that is precisely the opposite of their preference: A forced cut in Social Security benefits. More sensible would be to craft a substantive reform — and sufficiently early — to help place the program on sustainable financial footing. Program reforms should also improve citizens’ retirement security — a function that has clearly eroded over the years.
So here’s how the Report’s opening statement should be crafted: “Social Security, a foundational program of economic security for the American public — upon which millions of today’s and future generations depend for economic support during retirement — is inexorably headed toward financial insolvency. While insolvency is not projected for two more decades, continuing failure to reform the program is increasing the cost of economic adjustments that must be made in the future — cost increases that are at odds with the program’s fundamental objective of enhancing retirement security for today’s and future generations.”
This article appeared in RealClearMarkets.com on June 6, 2013.