Friday, July 30, 2010

Social Security: old allies become new enemies

In the study of Social Insurance and Economic Security its been a known-known, stretching back to the 1970’s, that general increases in life expectancy and future life expectancy of the group representing a population blip (baby boomers) spelled danger regarding the future insolvency of Social Security. Today this known-known has finally become a mainstream topic regarding Social Security insolvency.

Focusing on the topics of life expectancy and the population blip of baby boomers, regarding Social Security, one must remember that this topic, political-economy enemies of Social Security regarding insolvency, were once political-economy allies of Social Security‘s supposed solvency. How so?

At the advent of Social Security in the 1930’s the benefits were payable at the recipients age 65 whereas the average life expectancy was age 61. Hence a marginal amount of recipients existed while a large amount of contributors existed to maintain the cash flow that generated benefits to recipients. Life expectancy has increased over the years in a gently sloping fashion, yet year after year life expectancy marches on at a an ever increasing rate. For example, life expectancy in 1935 was 61.7, 1940 was 62.9, 1950 was 68.2, 1960 was 69.7, 1970 was 70.8, arriving some 35 years later at 77.8 in 2005. (1)

The gently sloping increase in life expectancy from 1935 to 1970, an increase of 9.1 years over 35 years, left social security appearing long term solvent as the group generating tax revenue for benefits was still larger than the recipient group.

By 1985 life expectancy had reached 74.7 and the recipient group was now living 13 years longer than the 1935 group and the size of the group was growing ever larger. Now life expectancy was becoming the enemy of Social Security long term solvency. Enter the baby boomers.

Those sixty four million children born between 1945 and 1964 became an ally to the supposed long term solvency of Social Security. (2) By 1985 most if not all of the baby boomer had entered the work force. This mammoth group replenished and expanded the group generating tax revenue for the ever expanding and ever longer living recipient group. Hence the baby boomer group through sheer numbers and increasing incomes, lead to increased Social Security revenue which temporally continued the facade of long term solvency regarding Social Security.

Therefore, what is now the mainstream topic of Social Security future insolvency, life expectancy of the recipient group and the sheer increase in the numbers of recipients caused by aging baby boomers, publicized as the enemies of Social Security solvency, were once upon a time the allies of the facade of long term Social Security solvency.



1 comment:

  1. What a slow boil we've been building up to. Most of us now begin early in life in state ran education and we end life supported with state ran programs. It's hard for many of us to imagine what life would be like without it.