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    ROBERTEISNER

    Save SocialSecurityfromits saviorsSocialSecurityacesno crisis now or in the future. t will not "gobankrupt."t will "be here," otonlyfor hoseofus nowenjoyingtorlooking orwardo it inthe near uture, utfor thebabyboomers ndthe"Generation ers" ollowing hem.Allthis s trueaslongas thosewho wouldnibbleawayat SocialSecurity rdestroyt in thenameof"privatization"onothave heirpoliticalway.But heyvery ikelywillnot,since heelderly-andtheir hildren-vote,andwillvotesensiblyasthe fullimplicationsf the ssuebecomeapparent.ThedangersTheproposed ibbling wayof SocialSecurity,ncludinghatbysomeof itspresumedriends,s disingenuousndmisleading. vensomeofits defenders eem all tooready o accept"minor"uts in benefits oachieveprospectiveundbalance.Raising "theretirementage "One of the more insidiousand drastic"solutions" s to increasefurtherhe"NormalRetirement ge"or "NRA" f 65,already latedto risegraduallyn futureyearsto 67. Actually, hishasnothing odo withencouraging eopleto work onger.Theyalreadyhavethatencouragementincebenefits ncreasef thoseover 65 work onger,upto theageof 70, andare ess if theyretireearlier,down o theageof 62. Currently,etirement t 65 providesbenefitsequalto 100percentof the "PrimarynsuranceAmount," r PIA;6 percentagepointsare added or eachyearretirements delayed,upto age70, atwhichpoint, herefore, nnual enefitswouldbe 130percent f thoseThe author s WilliamR. KenanProfessorEmeritusof Economics atNorthwesternUniversity,Evanston,Illinois.Partsof thispaperhavebeenadapted romtheauthor'sSocial Security:More,NotLess,a CenturyFoundation/Twentieth enturyFundReport,New York, 1998,andfrom his articlesof December10, 1997 andFeb-ruary17, 1998 in TheWallStreetJournal. It is beingpublishedas well in the Sum-mer 1998 issue of the MilkenInstitute'sJobs and Capital.

    Journalof Post KeynesianEconomics / Fall 1998,Vol. 21, No. 1 77 1998M.E.Sharpe,nc.0160-3477 / 1998$9.50 + 0.00.

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    78 JOURNALOF POSTKEYNESIAN CONOMICSthatwouldhavebeenreceivedf retirement ereatage65.1Early etirement,tage 62, by contrast,esults n annual enefits nly80 percentof those at theNRAof 65. A higherNRA wouldmerelylower heentire caleofbenefits.f,forexample,heagewereraisedo70, thoseretiringhen wouldget the same annualbenefits heynowreceiveatage65,thats, some23 percentessthan heyreceive urrentlyatage70. Assuminghe reductionsreproportionate,hoseretiring t65would henreceiveonly77percentf their urrentenefits. nd hoseretiringtage62 wouldgetstill ess,61.5percentnsteadf 80percentfthebenefitsheynowreceive tage65,as illustratednTable1.2Cutting hecost-of-livingadjustmentAnotherproposalhatwouldcut SocialSecuritymuchmorethan susuallyacknowledgedelates o argumentshatthe Consumer riceIndex soverstatingnflation.Thepost-retirementocialSecurityost-of-livingadjustmentshouldbereduced,we are old,tocorrespondoanew,corrected PI.Senators obKerrey ndPatrickMoynihan aveincorporateducharecommendation,longwith aisinghenormaletire-mentage, ntheirproposalorpartial rivatization.hewidelyproposed1 percent er yearcorrection3ouldaddup:1percenthefirstyear,2percenthenext,5percentnthefifthyear,10.3percentnthe enth ear,and21.7percentnthe wentiethear, sshownnTable . Itwould esultinreducing enefits, s againsthosecalculatedy the oldmeasure, ymore han10percentver heaveragewenty-yearetirementeriod.

    Iwouldgotheotherwayandend hesquabble bout hecost-of-livingadjustment y indexingbenefits o wagesrather hanprices.Retireeswould share n growingproductivity nd risingreal wages of thoseworkingbut wouldshare n anysacrificef higherpricesof imports,suchasthose n thepastdueto drasticncreasesn oilprices, eaveusall with essoutputordomestic se.1 See "1998 AnnualReportof the Boardof Trusteesof the FederalOld-AgeandSurvivorsInsuranceandDisabilityTrustFunds,"hereafter eferred o as 1998OASDITrusteesReport,TableLI.E4.2 If one really wantedto encouragepeopleto worklonger,one should rather e-move the penaltyof loss of Social Securitybenefitsforwages earned rom the agesof 65 to 69 and also remove the special tax on Social Securitybenefits forthosewhose earningsdrivetheirincomesabovefairlymodestuppercut-off points.3The"bestestimateof the size of the upwardbias"in the CPIinflationratewas 1 1percent,according o the SenateFinanceCommittee'sAdvisoryCommissiontoStudy the ConsumerPriceIndex ("TheBoskinCommission"),TowardA More Accu-rate Measureof the Cost of Living,December4, 1996, p. ii.

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    SAVESOCIALSECURITY ROM ITS SAVIORS 79Table 1Raising normal retirementage from65 to 70: effect on benefits orprimary nsurance amount (PIA)Yearof retirement 62 65 66 67 70Current enefitsas percentageof PIA 80 100 106 112 130New benefitsas percentageof PIA 61.5 76.9 81.6 86.2 100Percentageoss inbenefits 23.1 23.1 23.1 23.1 23.1

    This would mean that retirees would sharein the gains-and occa-sional losses-of theirworkingsons and daughters.With real wagesultimatelyrising by 0.9 percentperyear by the old measure,as forecastin the widely cited "IntermediateCost"projectionsof the 1998 OASDI(Old Age and Survivors Insurance and Disability Insurance)TrustFundsReport,4 hiftingthe adjustmentafter retirement romprices towages would increasebenefitsby thatamount,orsome 10percentoverthe life of the averageretiree.Means testingSome, like Pete Peterson and his Concord Coalition, urge "meanstesting,"suggestingthatthe rich-and indeedtheonlymoderatelywelloff-be deniedsome or all of the benefitscurrentlyprovided.Petersonandothersof thesuper-rich aythat heywouldgladlygive upwhattheyget to help save the system.But this kind of generosityis more likely to kill it. As far as SocialSecuritygoes, upper-incomegroupsalreadyreceive an amount rela-tively much less in comparisonto their earnings-and their payrolltaxes thandothepoor.The formula s stackedso thatmonthlybenefitsequal the total of 90 percentof the first $477 of "AverageIndexedMonthly Earnings" AIME),32 percentof the amount between $477and $2,875, and only 15 percentof the amountin excess of $2,875.5Furtherreductionof benefitsfor the middle class andthose at the topwouldconveythe notionthatSocialSecurity sjustforthepoor,anotherform of "welfare."This would go a long way to destroythe politicalsupport or this almost universalandprobablymost popularand mostsuccessfuleconomicprogram n ourhistory.

    4 See 1998 OASDITrusteesReport,TableII.D1.S See 1998 OASDI TrusteesReport,section II.E,AutomaticAdjustments.

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    80 JOURNALOF POSTKEYNESIANCONOMICSTable 2Cuttingthe cost-of-living adjustment by 1 percentage point, from 2.5percent to 1.5 percentYear 1 2 5 10 20Percentageoss inbenefits 1.0 2.0 5.0 10.3 21.7

    PrivatizationSome wouldsolve thepresumedproblemsof SocialSecurityby replac-ing it, in whole or in part,with private nvestment n a booming stockmarket. This is like advising us to forego our life insuranceor healthinsurancepremiumsandturnthem overto ourbrokers.If we couldbesure thatwe will not needexpensivemedicalcareorthatwe will notdieearlyandleave destitutedependents, hatschememightworkout. Buthow manywould considerthis wise?It is a fine idea,for thosewho can,to investinaddition o contributingto SocialSecurity,andmillions ofAmericansdo.What hosewhowoulddiminish Social Securityin orderto "privatize"do not tell us is thatprivateinvestment,whetherdirectlyor in 401(k)s, 403(b)s, IRAs, orKeogh plans, whatever its advantages,does not providewhat SocialSecurityhas offered for six decades:(1) social insurance o protectall,includingthose who are born into adversityor suffer it alongthe way;(2) actuarially airannuitiesatretirement;3) automaticcost-of-livingadjustmentsto protect against inflation; and (4) the most efficientinsurancesystem to be found,with administrative osts for over 140millionparticipants unningatabout0.8 percentof benefits.ThemythsThetrustfundsgoing bankruptThe notionthat Social Securityfaces bankruptcybegins with a funda-mentalmisconception, hatpaymentof benefitssomehowdependsuponthe OASDI (Old Age and Survivorsand Disability Insurance)trustfumds.Thetrust undsaremerelyaccountingentities.6Ourpayrolltaxes6BarryAnderson,he opcivilservantntheWhiteHouse'sOfficeofManagementBudget,whohas ustretiredfterwenty-sevenearsof service,writesme,"Youareabsolutelyorrect nthispoint," ndadds,"veryewifanyof theacademics rana-lystswhocomment nSocialSecurity ave heguts orperhapsnowledge)orecog-nizethisfundamentalact."

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    SAVESOCIALSECURITY ROMITS SAVIORS 81or"contributions"odirectlyotheUnitedStatesTreasury. urbenefitcheckscomefrom he Treasury-and hosereceiving hemcanverifyon thosechecks hat hepayers the Treasuryf theUnitedStates,andnot anytrust und.Social Securitypayments re an obligationunder aw of the U.S.government. urgovernmentnd tsTreasury illnot, ndeed annot,go bankrupt. s FederalReserveChairman lanGreenspan asre-centlyput t, "[A]governmentannot ecome nsolventwithrespectoobligationsnits owncurrency."7Expendituresllegedo berelatedotrust unds reoften essthanheirincome-witnessthehighway ndairportunds swell SocialSecurity.Theres no particulareason heycannot e more.Theaccountantsanjustaswelldeclare he bottomineof thefunds'accounts egativeaspositive-andtheTreasuryango onmakingwhateverutlays repre-scribed ylaw.TheTreasuryanpayoutallthatSocialSecurity rovideswhile heaccountantseclarehe undsmoreandmore n thered.Forthoseconcerned, evertheless,bout he"solvency"f thetrustfunds, herearesimple,painless emedies orthisaccounting roblem.The"Intermediateost"projectionsnthe 1998TrusteesReportndi-catedhat hecombinedOldAgeandSurvivorsnsurancendDisabilityInsuranceOASDI) rust undbalanceswouldbe down o zeroin theyear2032, as indicatedn figure1 and Table 3. At thatpoint,theprojectedntake fthefundswouldbeonlyabouthree-quartersf thecommittedayouts.This indicates three-yearelay n "insolvency"rom heprojected2029date nthe 1997Trustees eport. urther elaywould ollow romincorporationf the adjustmentso theConsumer riceIndexalreadyinstituted ytheBureau f LaborStatistics.Butsomeoftheeconomic ssumptionsnderlyinghosewidelycitedIntermediate ostprojections lready ppearwideof themark.RealGDPgrowth, orexample, s putaround .0 percentannually rom1998to 2007 (andprojectedo 1.2percentoverthe ensuingyears).Actual 1997growthwas 3.7 percent,hough,andwas reported t anannualrateof 4.3 percent n the first quarterf 1998.The usuallyconservativeorecastftheCongressionaludgetOffice CBO)8 asput

    7 In MaintainingFinancial Stability n a Global Economy,FederalReserve Bank ofKansas City, 1997, p. 2.8 "TheEconomic and Budget Outlookfor Fiscal Years 1999-2008: A Preliminary

    Report,"January7, 1998.

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    82 JOURNALOF POSTKEYNESIANCONOMICSFigure1 Estimatedrust undratios or OASIandDItrust imdscombined,by alternative,alendar ears1985-2075,assetsas a percentage f annualexpenditures

    8009%,,,---.

    I Lw os, , .nemeit Cos ,I = ihCsSource9Anul Reotolh or of Trste of th FdrlOl-g

    500% ...^.., .^ ..,__4____, *Historical Estirnated5

    400% - . ( . , 4. ....

    p.128' ,

    300Y.% .,./ \....,.. ...' .

    200 # -............'

    100# ..> . _ .

    0%19859p 5 2005 2015 2025 2035 204 2055 2065 2075Carendar year

    I =Low Cost, 11 Intermediate Cost, III= HighCostSource:1998AnnualReport ftheBoard fhrstees ofthe FederalOld-AgeandSurvivorsnsurancendDisabilitynsuranceast Funds,igure .F6,p. 128it at2.7 percent n fiscal 1998.Unemploy9ent,whichaveraged .9 percentn 1997 andhasbeenunder6 percentfor over three years, is neverthelessforecast to rise to 6.0percentby 2008 andstayat that evel thereafter.TheTrustees' nterme-diate forecastsputthe growthin the laborforce at l.0 percentand 0.9percentover the next fouryears;the twelve-monthgrowthfromDe-cember 1996to December 1997was actually1.9percent.They puttheCPI inflationrate at 3.5 percentover most of their long-runforecastperiod, while current inflation rates are runningbelow 2 percent.Alteringthe economic assumptionso fit developingrealitywouldgen-erally ncrease orecast undbalances.The Low-Cost projections,which indicate the funds will be solventindefinitely, take a less gloomy view of the U.S. economy. They putGDP growth at 3.1 percent in 1998, about 2.4 percent to 2007, andthendeclining only to 2.2 percent thereafter.Inflationcomes in at2.2percent instead of 3.5 percent in later years and unemployment at5 percent instead of 6 percent.The growth in the labor force slows

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    SAVESOCIALSECURITY ROMITS SAVIORS 83Table 3Intermediate and low-cost projections of OASDI current surplusesand balances, billions of dollars*

    Intermediate ost projections Low-costprojectionsFund balance at Current urplus Fundbalance at Current urplusbeginningof (net increase in beginningof (net increase inYear year fundbalance) year fundbalance)

    1998 $655.5 $101.4 $655.5 $104.01999 756.9 107.5 759.5 116.62000 864.4 113.7 876.1 126.72001 978.1 120.2 1,002.8 140.22002 1,098.3 126.3 1,143.0 152.22003 1,224.6 132.8 1,295.2 165.82004 1,357.4 139.8 1,461.0 179.82005 1,497.2 147.8 1,640.8 195.72010 2,310.8 180.1 2,791.0 279.52015 3,199.8 155.1 4,315.9 331.72020 3,755.4 21.4 5,981.5 326.52025 3,425.3 -225.8 7,563.7 293.82030 1,582.7 -601.9 8,944.4 259.52040 Exhausted** Negative 11,787.5 374.42050 - Negative 16,841.4 679.82060 Negative 25,111.5 1,042.32070 - Negative 38,574.0 1,797.02075 Negative 48,538.0 2,296.1* Derived from 1998 AnnualReportof the Boardof Trusteesof the FederalOld-Ageand SurvivorsInsuranceandDisabilityInsuranceTrustFunds, TableIII.B3,p. 179.** Estimated o be exhausted n 2032.toonly0.6percentnstead f 0.1percent.9Thewholeproblem,hough,s trivial.Thatprojectedhortagenthetrust undsnthirty-fourears-aside from heuncertaintyfanysuchlong-runrojections-ispurely matter faccounting, ithanynumberofeasyaccountingolutions.Creditso the rust unds ome roma 12.4percentaxonpayrolls,he nterestheTreasurywardsnthe rust undbalances, urrently ell over$600billion,andsome axeson benefits.But t wasnotGodbutCongresshatdecreedhatonlythe12.4percentpayroll axes be credited o the funds. f we also dedicatedome 1.5

    9 Trustees' assumptions ndicated n 1998 OASDI TrusteesReport,sectionII.D1,Economic Assumptions.

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    84 JOURNALOF POSTKEYNESIAN CONOMICSpercent of taxable income from our incometaxes, we would handle allof the (pessimistically)projectedshortfall.

    It may be added that, with apparently increasing proportions ofnon-wage income, it makes more sense than ever to finance SocialSecurity, if it is to have a dedicated tax, with a portion of incometaxes. We could drop all of the 12.4 percent tax on payrolls andsubstitutean increase of about 8.3 percentage points in the averagetaxation of individual and corporate income, specifically dedicated,as are payroll taxes now, to the Social Security trust funds. It isappropriatefor those who earn income without working, as well asfor those who earn from working, both to contributeand to receivebenefits from Social Security.10Anditwas not God butCongressand the Treasury hatdeterminedheinterestrateto be creditedon the non-negotiableTreasurynotes of thefundbalances.I might tum one of the argumentsof those who wouldprivatize Social Security,telling us thatreturnswould be far greater fworkerscouldtake some or all of their Social Security"contributions"and invest them in the stock market.Again, as Alan Greenspan,alongwith others,has pointedout, this would merely changethe identityofthose who holdgovernmentbonds as againststocks,with littleorno realeffect on the economy. Ourpayroll tax "contributions" urrentlygoright intotheTreasury, ust like all ourothertaxpayments.If, instead,they are used to buy stock,the Treasurywill have to borrowto replacethose lost revenues. It would be essentially selling governmentsecu-rities to those who sold their stock to those who hadpreviously beenmaking paymentsto the Treasury.This would increase the debt heldby the public andreduceour developing budget surplusor add to anydeficit.Why not save workersthe often dauntingproblem of finding privateinvestments?Recent surveys show thata large majorityof Americans,who do not read the WallStreet Journal or follow "MarketWrap"onCNBC, have not the foggiest idea of how to invest. Most cannot even10Inresponse to concernsaboutSocial Security,real and imagined,therehas been asubstantialagitationfor "reform." would reform Social Securityto adjustsome ofthe benefits and taxes in thedirectionof greaterequity and efficiency. The payrolltax is focused particularly n labor,has no progressivitywhatsoever,and has anuppercut-offpoint, $68,400 in 1998. Withuse of a dedicatedportionof the incometax, we mightthenoffer benefits to all who contribute, ncluding those whose in-come taxeshave been basedon capital incomerather han abor income.There is noreasonwhy all should not receive retirement nsuranceregardlessof the sources oftheirincome and contributions.

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    SAVESOCIALSECURITY ROM ITS SAVIORS 85tell thedifferencebetweenstocksandbondsor knowthatmoneymarketfunds containneither. Does it make sense to take some (or all) of theirSocial Securityto offer themthe chance to gamblein a game forwhichthey do not know the rules?If we want Social Security to share in whatever earningsinvestorsare receiving, why not awardbalances in the Trust funds, instead ofthe current 5.9 percent interestrate on long-term governmentbonds,the higher returnsthat might be earned in equity investment?BarryAnderson, as indicated above of the Office of Management andBudget, has calculatedthatcreditingthe balanceswith a 10.4 percentinterestrate, which is close to the long-run returnon stocks, wouldkeep the funds in balance indefinitely, on the basis even of thosepessimistic "intermediate"projections. This would again be merelya matter of accounting, with no real effect on the measuredbudgetdeficit, the federal debt held by the public, or the economy. But itwould solve thatpresumed problemof a futureshortagein the Trustfunds. Then, if we really cared about the welfare of Social Securitycontributors,we would increase their benefits to match these higherearnings.The fearsand cynicism regardingSocial Security, misguidedas theyare, though, should be met as fully as possible. Here is a way to do itand truly, in PresidentClinton's words, "Save Social Securityfirst."It is immediate, effective, and painless! And it will entail no cutsin benefits, no new taxes, and no use of the developing budgetsurplus.

    1. Convertall of the balances of nonmarketableTreasury ecuritiescurrentlyin the funds' accounts, now over $600 billion, intomarketableTreasury ecurities, guaranteedike all others by thefull faith and credit of the United States government.Set theinterest rate on these securities at 10.4 percent, sufficient toguarantee ong-run solvency accordingto the Intermediate-Costprojections,andnot inappropriatenview of pastlong-runmarketreturnson equity.2. Have the trust funds make all payments to beneficiaries andreceive all revenues currentlycredited to them. These wouldincludethe intereston their existing balances. The funds'assetsof marketable ecuritieswould continueto growas long as funds'incomes exceed their outlays.3. Have the trustfunds sell securities to meet any cash shortfall f,

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    86 JOURNALOF POST KEYNESIANCONOMICSorwhenever,ncomebecomes essthan utgo.AccordingothoseIntermediate-Costrojections,hiswouldbegin o becomeneces-sary n2019,when he funds'balanceswouldbe$2.9 trillion.

    The "money'sworth" issueA secondbitof nonsense boutSocialSecuritysthatbeneficiaries illnot be gettingtheir"money'sworth" or theircontributions. hisconclusiontems romcalculatinghepayrollaxesput nbycontribu-tors andrelating hese to theirultimatebenefits.But this is not ameaningfulomparisonobeginwith,and requentlytis notevendoneright.Themeasuref benefits hould roperlynclude otmerely etire-mentbutdisability nd survivor ayments. hedisabilitynsurancenSocialSecurity asbeenestimatedo beequivalento $207,000worthofdisabilitynsurancehatmightbepurchasedntheprivateector.Anda comparableependent-and-survivorolicyfor a twenty-seven-year-old average wage worker with two small children would cost$307,000.12Butallpayrollaxes, egardlessfwhere heaccountantsredithem, ointo hegeneralTreasuryot,alongwithallother overnmentevenues,andallbenefits, longwithallotherpayments,omeoutofthat amepot. 3I I If, perversely, he rateon the securitiesgivento the fundsis set atonly the currentlong-termrate of about6 percent,have theTreasurybeginto issue additionalmarket-able securitiesto the fundsnow, to meet theprospectiveshortfall n 2032, when therewould no longerbe securities eft to sell. These additional ecuritieswouldguaranteethe funds all of the incometheyneed.By the estimatesof the Trustees, n their1998 report, he entireshortfall or the nextseventy-fiveyearscati be met with an increaseof annualrevenuesequalto 2.19 per-cent of taxablepayrolls.Beginningin 1998, thatamount n 1998 would come toabout$75 billion. Butthis $75 billion more in the trustfundsneed not-and shouldnot-come from additional axes.Rather, heTreasurywouldsimplyissue additionalmarketable ecuritiesto the funds. Eachyearin thefuture,as theTrustees'forecastsmay change,appropriatemountsof additional ecuritiescan be given.Indeed,we could go furtherand precommitall thatmightbe needed on thebasis ofcurrent orecasts.At the current5.9 percent nterestrateon long-termTreasurybondsandthe funds'projectedgrowth n taxablepayrolls,therequiredncomewouldbeprovidedby roughly $3.8 trillionof additionalmarketable ecurities.Thiswould pro-vide solvency at leastto theyear2075, as faraheadas the fundsproject.Infact, itwould involve no real change butwouldmerely convertwhat is now an implicit Trea-suryobligation,listedin thebooksunder"contingentiabilities," nto anexplicit debt.12Reportof the 1994-1996 AdvisoryCouncilon Social Security,vol. I (Washing-ton, DC: U.S. GovernmentPrintingOffice, 1997), p. 89.13See RobertEisner,"WhateverYou Call It, a Tax Goes to theTreasury,"WallStreetJournal, July 29, 1997, editorialpage.

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    SAVESOCIALSECURITYFROMITSSAVIORS87Relating enefitsopayrollaxesalone s thusameaninglessalculation.Onemightproperlyndertakehecomplexaskofrelating llofwhateachAmerican eceives romgovernmento all thathe or shegives.Thiswould nclude oliceanddefense nd ducationndhealthervicesalongwith nterest aymentsn thedebt,andSocialSecurity ndother"transferayments."foneapportionedational efenseoutlays nthebasisof the wealthandproperty eing"defended,"nemight ndeedgetsomesurprisingesults, howing hat,while hewealthy opaymoreintaxes, heyalsogetmuchmore nthewayof governmentervices.Thewealthyandmany n theuppermiddle lassmaywellcomplainthat heyarenotgettinghatmuchoutof SocialSecurity.ftheycouldhaveback heirpayroll ax contributionsnd nvest hem n the stockmarket, ven asidefrom he boomof thepastseveralyears,some ofthemargue, heywouldbe better ff.But Social Securitywas not meant o be a get-richscheme or acompetitorogo-gofunds. t is social nsurance.t is meant oprovideat leastminimumupportorall, regardless f initialstationor life'svicissitudes.Thosewho have good fortunewill be able to say inhindsighthattheydid not needit, just likethe individualwhobuysinsurancen his houseandneverhas t burndown,ortheonewhobuyslife insuranceo benefitayoungspouseandchildren nd hen ives toninety.Theburdenof theaging babyboomersThere s a third,nthis casereal, ssueregardingheimpact n SocialSecurityof ouraging generation f babyboomers.Theratioof thepopulationfretirementge-65 andover-to thoseofworking ge-20 to 64-will begrowing.nthisregardwe are old hat herearenowalmostfive peopleof workingage-20 to 64-for every potentialdependent ged65 andover,andbytheyear2030thatratiowill fall tolessthan hree.Therelevant umbers,hough, elate o all potential ependents,heyoung-under20 yearsof age-as well as theold.In 1995,for every1,000peopleof working ge, therewere 708 youngandold potentialdependents. heintermediaterojection utsthe number n the year2030at788.14 hismeans hat hose1,000peopleof working gewouldhaveto support ,788people-themselvesandtheirdependents-in-steadof 1,708,a 4.68percentncreasen theirburden.14 1998 OASDIAnnualReport,TableII.H1, p. 145.

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    SAVESOCIALSECURITY ROMITS SAVIORS 89whoareworking emains onstant,herealper-capitancomesof boththeworking opulationnd heelderlywillbereduced y2percentromwhat heywouldhavebeen ftheelderly ependencyatiohadnotrisen.Thismaybeaccomplishedy increasingotal axesby2 percent f ourincomes.n2032, heyearofthealleged pocalypse hen he rust undswill no longerbe ableto financeall currentlyegislatedbenefits,netincomespercapitawill have o be some10percentess.But these cutsinnet incomeper capitaareallrelative.Again, f theaveragencomeper worker,n conformityo growthn productivity,increases t even averymodest1percent year, he reductionsnnetincomepercapitawill stillpermit verybody-theyoung, heworkingpopulation,nd heaged-to enjoyhigher bsolutencomesandbe farbetter ff than oday. n2032,incomeperworkerwouldbe 40 percentmoreandper-capitancomewouldbesome27 percentmore.There sno reasonwhyretirees hould otbepermittedoshare, t eastpropor-tionately,nthesegains.Table4 presentsheserelationshipsntermsof the TrusteeReport'sprojectionsf beneficiariesercoveredworker.They ndicate greaterincreasen the burden orcoveredworkers. irst, heprojectionsavelabor orceparticipationecliningandunemploymentncreasing,e-ducing heratioof coveredworkers o the totalpopulation ged24 to65. Second,beneficiaryates ordisabilitynsurancereprojectedoincrease.Despitethe greaterncreasesn thebeneficiary urdenpercoveredworker,ncomepercapitawill stillrisesubstantially.y 2030,againprojecting 1percentncrease erannumnincomeperworker,as shown nTable4, incomepercapitawill be20percentmore han n1998. By 2035 it will be 25 percenthigher.Therewould husbe noreason or heelderlyo receive essat hatime.Rather, ll-the elderly,themiddle-aged,oungadults, nd hildren-could njoy otal ncomesafter axesone-quarter ore hannow!Notjust savingSocialSecurity-making it better!The egitimateoncerns f millionsof Americanshat heirretirementincomemaynotproveadequateanbe metby addingo SocialSecurity,notcuttingt orsubstitutingtheagaries nd-for most-the confusionsandcosts of privatenvestment.haveproposed dding o the SocialSecurity ystemaprogramfvoluntary dditionalontributions.Privatizers o haveapoint hough.AverageSocialSecurity enefitsare oo ow,comingnow oonlyabout 10,000 ora familywitha retired

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    90 JOURNALOF POSTKEYNESIANCONOMICSTable 4Increasing aged dependency ratio:beneficiaries per covered workerand net incomes per capita

    PercentagechangeinnetBurden er incomeper Percentagecovered capita increase nBeneficiariesworker100 becauseof netincome Percentageper100 plus increase n perworker netchangeincovered beneficiaries)beneficiariesfrom1%per incomeperYear workers as % of1998 perworker annum rowth capita1998 29.78 129.78 0.00 0.00 0.002000 30.10 130.10 -0.25 2.01 1.762005 31.40 131.40 -1.23 7.21 5.902010 33.61 133.61 -2.87 12.68 9.452015 37.14 137.14 -5.37 18.43 12.082020 41.54 141.54 4.31 24.47 14.132025 45.82 145.82 -11.00 30.82 16.432030 48.88 148.88 -12.83 37.49 19.862035 50.23 150.23 -13.61 44.51 24.842040 50.37 150.37 -13.69 51.88 31.082050 51.25 151.25 -14.19 67.77 43.962060 53.53 153.53 -15.47 85.32 56.652070 55.08 155.08 -16.31 104.71 71.322075 55.84 155.84 -16.72 115.15 79.18* From 1998 Annual Reportof the Boardof Trusteesof the FederalOld-AgeandSurvivorsInsuranceandDisabilityInsuranceTrustFunds, Table II.F19, p. 122.

    worker.Millionsof middle-classAmericans reconcernedhattheirretirementncomewill beinadequate.Theres a waytomeet heirneedsandaspirations,waythatwouldtakenotonepennyromSocialSecurityutwouldofferallthepromisedbenefits of privatization. would proposewhat mightbe called"publicization."I wouldofferallparticipantsntheSocialSecurity ystem-which Iwouldhopewouldencompassirtuallyheentirepopulation,ncludingthosewhoearnheirncome rom apitalwithoutworking-thechancetomakeadditional,ntirely oluntaryontributionso SocialSecurity.Thesewouldbe credited o their ndividual ocial Security ccounts.And heywouldbeinvested, ychoiceoftheparticipant,n(a)apassive,indexed tockfund, b)a passive, ndexedbondfind, or (c) Treasurysecurities.Contributionsouldbemadenotonlybytheself-employedandemployeeshemselves,utbyemployersnbehalfoftheir mploy-

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    SAVE SOCIAL SECURITY FROM ITS SAVIORS 91Table 5Average annual extra retirementbenefits in 1998 dollars from25 percent supplementary contributions

    RatesofreturnYearsofcontributions 5% 5.5% 6% 6.5% 8% 10%1 $45 $47 $49 $52 $58 $685 243 257 271 286 334 40610 535 573 612 654 793 1,01420 1,298 1,424 1,562 1,713 2,251 3,22330 2,362 2,661 2,998 3,379 4,848 7,875

    ees;employersmight indoffering uch ringebenefitsa cost-effectivewayof recruitingndretainingworkers.The contributions ouldbe tax-deductible,ike current RAsand401(k)s, but ultimatebenefitswouldbe taxable.The contributors'accountswouldbe creditedwiththeincomeandcapitalgainson theirinvestments, hateverheywere,bothupto retirementndafterward.Theywould,onretirement,eceiveactuariallyairannuitieswithcost-of-livingadjustmentsr,better, djustmentselatedochanges fwagesof thoseworking.Supposehesesupplementaryontributionsmountedo25percent fthosenowtakennpayrollaxes.Totalannualeturnsrom heS&P500overthepastthirtyyearshaveaveraged ver 12percent.Supposeweassume,more onservativelyorfuture ontributions,rateofreturn f8 percent,as shown n Table5. Thosecontributingor thirtyyearswouldthen,on retirement,eceivean average$4,848morein 1998dollars.This wouldcometo one-thirdmore n benefits han heyareprojectedo receive rom heirmandatoryontributionslone.What s more,budgetdeficitsas conventionallymeasuredwouldbesharply educed-or surplusesncreased-and hetrust undbalanceswouldsoar.Thiswouldhappen ecause ontributionsouldalwaysbepouring nto the funds,alongwith incomefromthe supplementaryinvestments eforebenefitswerepaidout.We wouldthenhave the best of all worlds.Most important,heretirementenefits f tensof millions fAmericans ouldbe increased.We wouldpreserveullythe social insurance f ourexistingSocialSecurity ystem.We wouldencourage rivate avingand nvestment.Wewould educe urmeasuredudget eficit rcontributeo asignificant

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    92 JOURNALOF POSTKEYNESIANCONOMICSsurplus.Wewouldeliminate ll or most of theprojectedhortagenSocialSecurityrustunds.Finally,f we wanted ogo further ndprovide dditionalenefits orall, we could have the Treasury rediteveryone'sSocial Securityaccountwith additionalssetsof govemment ondsand swell futureretirementenefits.Ofcourse, gain,anyprovision f additionalene-fits tothosenotworking,whetheriedto SocialSecuritynvestmentrprivatization,ouldhave o beprovided ythoseworking.Thatburden anbeeased,nowand nthefuture, yaddingo thetotalwealthof ournation. tmeansprovidingormoreworkers ndmakingthemmoreproductive.t meansprovision f high-qualityhildcare,permittingeasonablemmigration, aintainingullemployment,ndinvestingnresearch nd he human apital f education ndhealthofourpeople.Thesemeasures, ndnotdecimatingrdestroying ocialSecurity, re hewaysto advance ur uture.