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Why pessimism on Social Security could come back to bite millennials (reuters.com)
27 points by SolaceQuantum 26 days ago | hide | past | web | favorite | 70 comments

When it comes to funding retirement on a societal level, the only two numbers that matter are dependency ratios (the number of working people per non-working person) and productivity (the amount of useful work able to be done by one laborer). If either of those falls, living standards necessarily have to fall - you have fewer people doing the work of supporting everyone, potentially less efficiently. If you can get productivity to go up faster than the dependency ratio is falling, you have a chance of offsetting the fall.

Every government policy or financial product is just redistributing the pain of falling living standards. You can dictate that retirees receive transfer payments from working people, as per social security - but it means that they have less money to spend on themselves and their kids. You can transfer earnings within a corporation from current workers and shareholders to retirees, as per pensions - but it means the company will be a less attractive place for new hires, and risks the financial solvency of the whole company. 401(k)s have their own problems - the price of stocks, at any given instance, is set by the ratio of dollars entering the market to dollars leaving the market, so if all retirees try to pull their money out to fund retirement at once, they'll find the stock prices they were counting on crash.

Well, when the global food chain collapses with the environment, I think 'working people' will be overshadowed by 'starving' people.

Depends if political stability can be maintained. The Earth produces enough food now to feed about 10B people, a roughly 50% increase over total world population. We still have famine because of distribution problems: the food doesn't get to people who need it, and instead gets hoarded by those with power.

Global warming isn't likely to cut total arable land or food production (if anything, it'll likely increase it), but it definitely changes the distribution of arable land. Current breadbaskets like Southern Europe, South Asia, and Brazil might see frequent droughts; currently desolate areas like the Sahara or Canadian Shield may become fertile again. If countries can work out trade deals so that food gets to where it needs to, things can work out. If they start closing borders and saying "fuck you I got mine", there will be widespread starvation and war in many regions.

Food isn't hoarded, it's wasted, because no one pays for deliver it where it's needed.

I'd lean towards a view that those are long-term outcomes that might take thousands of years to materialize. But things like ocean acidification and permafrost methane release are currently looking unstoppable.

Canada and Russia becoming new bread baskets is a possible near-term future, but you'll have a lower total amount of incident input energy at those latitudes, meaning that even greater arable land areas will produce significantly less food.

If you’re going full Malthusian, why be so pessimistic?

Those are “positive checks” on population.

Because of 'overshoot'

Does that refer to the World3 model? I wish I could remember the details, but I remember getting really into that for a few months. I found some other simulations of the model, including one in javascript. But I also found that some of the initial parameters/assumptions were kind of arbitrary, including one that had a really sensitive impact on the overall modeling outcome. It made me think that it wasn't really indicating what it was purporting to indicate.

Wealth and income inequality matter too. It doesn't matter if dependency ratios are going down and productivity is going up if all of the productivity gains are being siphoned off (which they are).

That's partly what's so toxic about the meme that social security is, or will be, unaffordable. It embeds within in an implicit endorsement of current and future increasing levels of wealth and income inequality.

Over retirement-level timescales that shouldn't matter either. Either rich people spend their money on luxury goods & services, in which case it gets returned to the economy through the laborers who provide those goods. Or they bid up the prices of assets to the point where nobody outside of a small clique of people can afford them, start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers.

I would strongly bet on the latter, as that is how every other major period of rising inequality has ended (along with a war). Prices are just an information-carrying vehicle that reflects what people are willing to pay. No buyers = no price.

> start trading amongst themselves, and eventually get a financial crisis that destroys all that "wealth" when there are no more buyers

> how every other major period of rising inequality has ended

This is an interesting idea. Can you offer an authoritive source, or any canonical examples that are broadly regarded as such by economists (and say which ones think so)?

The idea that every technological revolution (and associated period of rising income inequality) is associated with a financial crisis comes from Carlota Perez, Technological Revolutions and Financial Capital. Her thesis is that a technological revolution results in an order-of-magnitude increase in productivity over existing industries; the resultant productivity gains let entrepreneurs (and associated parties: financiers, skilled laborers, landlords, etc.) dramatically undercut entrenched competition while still reaping large profits for themselves, eviscerating the incumbent industry. You get a phenomena of "two monies", where people & prices connected to the new industry deal with dollar values that may be an order of magnitude higher than those connected to the old industry. Eventually the new industry sucks all the money out of the economy and leaves people still attached to the old industry (which may be a majority of the population but a minority of dollars) unable to afford any of the new products. At that point all the expectations of future financial returns collapse, and you get a financial crisis that destroys much of the paper gains of the newly-wealthy. Very frequently you get a war, too, if the new technologies give a significant military advantage over the old economy. Eventually the horrors of depression and war convince the newly rich & powerful that regulation and redistribution is in their best interests, and the technology spreads across the general population (all of whom eventually end up working in the "new economy"), and the promised prosperity happens.

The canonical example is the Great Depression (precipitated by the series of rolling bubbles in the 1920s, which themselves were fed by the prosperity generated by the new meatpacking/radio/electricity/automobile/airline industries, and which ended with WW2.) Other examples include the Panic of 1893 (overbuilding of the steel & shipbuilding industries and decline of agriculture), which led to the Progressive Era in the U.S, and the Panic of 1857 (overbuilding of railroads, ended in the Civil War).

I like how the author says: >Politicians routinely claim that Social Security is going bankrupt and that its shortfalls drive the national deficit - neither is true.

Followed by: >Yes, there is a funding problem: absent other changes, the combined retirement and disability trust funds will be empty in 2035.

Which,to me, seems pretty contradictory. The author continues to say there is no problem at all, as long as a specific Act passes unmodified. So - everything is okay, but only as long as X Y and Z happen...

Seems like this is just a really roundabout way of being able to cram "millenials" into another story. They're killing the SS industry with their pessimism!

The article does continue to say “At that point, current revenue would be sufficient to pay about 80 percent of schedule benefits.”

SS isn’t going away. At worst the benefits will be slashed to some fraction of what the law requires.

Considering the rising cost of living we should all save for retirement using a pension plan or 401k anyway though. Agreed that the framing of blaming millennials makes no sense here.

The author also says that planning to receive 50% of your stated social security benefits is crazy, and then mentions that absent any legal changes there'll be a 20% cut in 15 years. Am I supposed to believe that that cut won't go up with time?

The Social Security Trustees report state that they can use revenue under current law to pay for 75% of scheduled benefits through 2093.

Unless there is a dramatic economic collapse due to climate change or global thermonuclear war or whatever, you should be able to plan on receiving more than 50% of your benefits. Of course in case of collapse like that my 401k probably doesn’t keep its value either...


It would be wonderful if that 75% number pans out! But at the same time, I'm still going to do my retirement planning assuming that Social Security dies before I'm able to withdraw a single dollar.

Pessimistic assumptions are a good idea in situations like this.

Last time I checked, the projected shortfall (if no one does anything to help) would be 77%. I don't know where they got the 50% number.

There's a difference between deliberate underfunding and an inability to pay. We could theoretically "fund" the military in the same way that social security is set up and then claim it's going bankrupt. It still wouldn't make it unaffordable.

The point is that millennials are being conditioned to expect a vastly watered down social security in order to manufacture consent for watering it down (or handing control over to wall st)

My opinion is that the baby boomers are going to go down in history as the generation that broke America. They took far more benefits than they paid for and ran up the national debt, bankrupting the country.

There's a long way to fall yet!

Though the Boomers have been a bit haughty, they're not the worst out there by any means. In the history of the US, the Trancendental[0] and Gilded[1] generations of the antebellum South were literal slavers. We're no where near US Civil War II.

If you look at ancient Roman history, the romans of the Marian Reform era[2] really botched the republic. When they came into their adulthoods, all hell broke loose with Sulla and the like and their kid's generation (that of Cesar) gave up the ghost and turned to Empire. There has been a LOT said about the lumbering fall of the Roman Republic, and any form of generationalism is likely not applicable to the patricians of that age or culture. But, as THoR states[3], that era of 'the storm before the storm' is dripping with relations to our current era.

[0] http://www.timepage.org/cyc/civi.html#transcendental

[1] http://www.timepage.org/cyc/civi.html#goodfeeling

[2] https://en.wikipedia.org/wiki/Marian_reforms

[3] https://www.amazon.com/Storm-Before-Beginning-Roman-Republic...

FWIW, I'm worried that we (millenials) will do the same with Republicans who are only nominally concerned about the budget and Democrats who aren't even nominally concerned (#CancelMyDebt #GreenNewDeal etc).

Democrats generally want to raise taxes to match spending. Democrats are “tax and spend,” Republicans are just “spend.”

Democrats don’t want to raise taxes to match spending. They don’t because they can’t. Between free college and free healthcare, you’re talking about closing the gap between what our welfare state provides and what say Germany provides. What does it cost Germany to provide its welfare state compared to our’s? About 10% more of GDP in taxes. That’s $2 trillion a year for the US.

You can’t raise an additional $2 trillion a year with a 70% tax rate on millionaires or eliminating the inheritance tax or treating capital gains like income or cutting the military budget. None of that even gets you close. $2 trillion is the entire income of the top 1%, or all the profits earned by US corporations. (Because of dividends and whatnot, a lot of corporate profits are income to the top 1% so there is a huge overlap between those. And you’re already taxing those two groups almost $800 billion a year. You’d have to raise it to $2.8 trillion a year.) The total income of people making above $1 million (much less the $10 million mark AOC has cited) is $700 billion.

You couldn't even raise that money with an "all of the above" approach. Say you doubled the income tax on the top 1% (+500 billion), eliminated the preferential tax treatment for capital gains (+$130 billion), doubled corporate taxes (+$200 billion), and slashed the defense budget to the NATO target of 2% of GDP (+200 billion). You're still only at $1 trillion (barely enough to close the deficit). You've also pushed the U.S. income and corporate tax burden far above the level in our competitor countries like the U.K., Germany, France, Italy, and Spain: https://data.oecd.org/tax/tax-on-personal-income.htm#indicat... https://data.oecd.org/tax/tax-on-corporate-profits.htm#indic....

There are a few ways to get $2 trillion. You could raise income taxes from 10% of GDP, about the OECD average, to 20% of GDP. That would blow past Sweden levels of income taxes (13% of GDP) into Denmark territory. Like Denmark, you’d have to make the income tax extremely broad based. The top tax rate of 56% (combined municipal, national, and labor contribution) kicks in at under $80,000. The tax rate below that is essentially flat, at 40%, with some deductions. (Fun fact: Denmark’s corporate tax rate is just 25%, lower than the US average after accounting for state corporate taxes.)

Or, you could create a 20% VAT to get our consumption taxes up from 4.3% to the OECD average of about 10%: https://data.oecd.org/tax/tax-on-goods-and-services.htm#indi.... And you could increase FICA taxes to 25% or so (from 15%) to get our 6.3% social insurance tax rate up to the OECD average of 9%. That, plus a millionaire's tax, if you're so inclined, will get you to $2 trillion.

All of these would impose a large tax increase in the middle class. That’s politically untenable even for Democrats. That’s why you see things like the Sanders health plan, that has like a half-page bullet point list of possible revenue sources (none of which comes close to raising 10% of GDP in tax revenue). There is only a single way to increase U.S. taxes to European levels without rendering ourselves economically noncompetitive by taxing high earners and corporations more than Europe. And that is massive tax increases on the middle class. Democrats are willfully blind to that reality.

Another way to get $2T is to just spend it and not be overly concerned with debt.

Can we put aside the financing part of this and just address how crazy this suggestion is just as a matter of common sense? Our country pays significantly more than its peers do on health care. The crisis in health care isn't that it's not universally free, but that it costs too damn much. The "just put $2T on the debit card" answer to that problem says, ok, fuck it, the systems that are overcharging us for care, leave them alone, give them their money, and let's figure this out later. But that money is going somewhere. Of all the places the federal government can route a dollar, how does it make sense to send it to companies that are, deliberately or unintentionally (through inefficiency), overcharging us? How is that not just abject surrender?

I think we can sustain some deficit spending. But $2 trillion annually would triple the deficit.

Works like a charm until the money has to be repaid.

Does the charm last when it's never repaid? See for ex https://www.theatlantic.com/business/archive/2013/02/why-the...

Contra: Before the dot com crash and 9/11 some non-lunatics were worrying that Treasuries would go away and there'd be no safe place to store money because all the debt looked like it was going to be paid off before too long.

Saying that the countries do not die, as the referenced article suggests is not right: states do disappear every once in a while. Yes, their lifespan is usually longer than for humans a but it's not infinite.

But even looking at mortal humans: in 2008 many of them have realized that no, it's not possible to keep borrowing indefinitely. Some day the creditors may ask for their money back.

Some people suggest we'll just print the money we need. The problem is that now I can take this money and buy half of your country before you realize what's going on.

I’ve said this a million times. I have no idea how the Republicans have managed to brand themselves as the fiscally-responsible party.

If anyone thinks ANY political party can have all the answers, they aren't using their brain. In addition, our structure today is about keeping the fights as an us vs them, while the corporations steal our lunch while we are distracted. It reminds me of a quote from the movie "The Usual Suspects", 'The greatest trick the Devil ever pulled was convincing the world he didn't exist.'

I'm not sure how anything I said can even remotely be construed as implying that any political party can have all the answers, seeing as it was little more than a criticism of one policy area of one political party.

There are a lot of the grassroots Republicans who care and are frustrated by the behavior of their leaders. As you get to state and local levels Republicans tend to be more responsible to the ideals as well. With a couple notable exceptions Republicans at the federal level are as described: lower taxes and spend spend spend.

The majority of voters don't care: they want low taxes and high spending on their pork project and they don't really care about the consequences.

Voters have been trained to listen to soundbites and not look into the real facts.

Most news media has perpetuated this. Instead of reporting facts they talking heads yell at each other for hours.

> talking heads yell at each other for hours.

Which is no different than talking heads yelling at the audience through a display and speaker, it's only through mental gymnastics that a degree of separation is established.


This article goes into a great breakdown of budget deficits by those in power, and it shows that Republicans are better at controlling spending.


It looks at average deficits, which is silly. If X blows up the deficit and then Y gradually shrinks it, Y has a higher average even though Y reduced the problem and X caused it all.

And of course this is not a hypothetical at all. Bush and Obama followed this pattern perfectly. Bush’s average deficit was $443 billion. Obama’s was $816 billion. But Bush inherited a surplus, and left office with a deficit of $1.4 trillion. Obama inherited that and left office with a deficit of $665 billion. Am I really supposed to conclude that Bush was better at controlling spending?

At this point, I'm far more concerned about the long-term state of the environment than the long-term (or even short-term) state of our economy.

You should be worried about both. A crisis in either of them will cause a lot of suffering.

Don't forget that Clinton balanced the budget during a good economy while the current administration even raised the deficit in a good economy without any plan for ever reducing it besides a miracle.

This is a common talking point, but it was balanced while Republicans had control of the House and Senate.

The Republicans also had control of the House and Senate for the last two years. That's not the thing that's different this time.

That is also a misleading talking point. Neither Bill Clinton nor the Republicans (who only held both for two years before the balance) can take full credit. As you can see by this graph:


There was a sharp rise in income around 1994, and at the same time spending flattened (due to lower unemployment/lower safety net costs). The two met in 97, then fell off sharply in 2000.

This exactly mirrors the "Dot-com bubble" period start, middle, and end:


So neither Bill Clinton or the Republicans can really claim credit. This just happened to be a strong period of economic activity that happened to also drive down costs.

I think one thing is clear: In the 90s Congress + President didn't fuck it up whereas current Congress + President decided to increase deficits in good times which will make it very hard to respond to any downturn.

What do you mean? Democrats constantly talk about raising taxes. They've explained how education costs / green new deal will be covered by large tax increases.

Japan has been running a national debt at somewhere between 200% to 300% of GDP for at least a decade now. They seem fine. The deficit is actually not a big deal in comparison to the threat to the economy posed by climate change or by endemic poverty. The obsession with opposing deficits in the face of crises that are WAY worse than any vague threats posed by a large deficit is bizarre and really just a covert way of trying to make sure rich people never have to pay their fair share in taxes.

I don't understand why Congress doesn't incrementally, predictably, and slowly raise the retirement age for Social Security. It was never intended as a retirement program - instead it an insurance for those those that lived beyond the average life expectancy.

I don't think it's unreasable to expect people to save enough to cover then between their age of retirement to say 70 or 75. Then let the insurance kick in after that.

The "increased environment age" is justified by longer lifespans, but these longer lifespans are greatly affected by the income inequality gap. The people that need SS the most aren't experiencing great increases in lifespan length, so are therefore hurt by the raised retirement age.

>I don't understand why Congress doesn't incrementally, predictably, and slowly raise the retirement age for Social Security. It was never intended as a retirement program - instead it an insurance for those those that lived beyond the average life expectancy.

This is absolutely untrue. Here is FDR's address as he signed Social Security into law: https://www.ssa.gov/history/fdrstmts.html#signing

This doesn't sound at all like it's not meant to be a retirement program. He even explicitly uses the word 'pension.'

"Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last.

This social security measure gives at least some protection to thirty millions of our citizens who will reap direct benefits through unemployment compensation, through old-age pensions and through increased services for the protection of children and the prevention of ill health.

We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."

Well, it was always literally an insurance program -- the "I" in OASDI.

The retirement age increases are already in the law. You want to speed them up? It's already unreasonable to cover the gap between retirement and SS, more so with Medicare linked to the increasing age. Check out the cost of health insurance for a 64 year old.

"I don't think it's unreasable to expect people to save enough to cover then between their age of retirement to say 70 or 75. Then let the insurance kick in after that."

I would like that too. It's much easier to save until a defined age instead of having to save for potentially a very long life.

“Was never intended to be”, is not a great way of reasoning about the problem today. It may not have been intended to be a retirement system when it was established, but that is what it is now, and intentionally so.

It got that way over time, but it does solve (or at least address) the retirement problem the country faces right now. Going back to the old insurance service is both politically impossible and would just leave the retirement plan problem completely unsolved.

We would need to figure out another solution. Which leaves us right back where we started.

I have been paying a huge chunk of my paycheck towards social security ever since I started working full time at the age of 16. If I continue putting money into social security and never see it because I die at 70, how is that fair?

I would rather the government just give me all my social security money back and let me invest it. I have probably given them a couple hundred thousand dollars by now.

> and never see it because I die at 70, how is that fair?

"I paid premiums for fire-insurance, and my house was never destroyed in a raging inferno, how is that fair?"

Basically if you die, then you're definitively not at risk for "being old and poor." It's also an excellent time to stop paying the premiums, which fortunately occurs automatically...

> It was never intended as a retirement program - instead it an insurance for those those that lived beyond the average life expectancy.

Just for context, do you happen to know the change in life expectancy at age 30 over the relevant time period?

The weakest part of social security is that it's thought of as a pension and not as a service that government provides to the elderly and disabled. If government wished, it could be funded fully, regardless of whether it's "solvent."

It's not question of financial viability as much as it is a question of how much value we, or The US, puts on the lives of the elderly. Or otherwise framed as: How little we can spend on the elderly without the reemergence of poorhouses.

There are obvious concerns about having a healthy and productive tax base, but that will always be the case. Implicating the tax base for the existence of a government service is just politics.

I am in no way a social security expert, but I'm concerned that this article missed several key points that feed the pessimism. I rarely see them addressed elsewhere, either.

Here are my concerns, and why I don't have faith in Social Security..... 1) Retirement age is going up. I probably won't be eligible until I'm 80. 2) Life expectancy is going up. Grampa will probably exhaust his SS before he passes away. 3) More and more doctors are putting too many underage work-eligible people on disability/SS just because they can't find work/aren't productive employees. This breaks the work/eat feedback loop that everyone else relies on. 4) My current contribution level won't mean shit in 50 years after infaltion.

When older generations complain I usually use the joke "Yeah well at least you're gonna be able to collect social security. I'm never going to retire." It's a lighthearted joke but I am 100% convinced that it's going to become reality.

Mainstream financial planner advice has been pessimistic about Social Security for > 10 years. Of course, the incentive is easy, any financial planner benefits more if you invest more.

Major changes that drastically affect Social Security

- Changing the Retirement Age, even adding a 3rd progression delay (for people who will keep working or have some savings) and pegging this to U.S. life expectancy.

- Changing the survivors benefits payouts and required minimum distributions (arguably, if the middle and lower class has more 2 family incomes, these make less sense.)

- (Biggest) Changes to healthcare. A large portion of Social Security right now goes right back into the hands of long term nursing homes. In addition, you have medical expenses related to "retirement living communities"; I'm not very sure that as boomers age even more into nursing homes, that those well prepared will be able to find supply.

I also look forward to the eventual reform of Social Security to allow more diverse investment methods. Whichever President is in office when age based asset diversification is added to SS will see a huge market boom!

I'm planning that Social Security will either not exist or be so paltry as to be useless, and doing my retirement planning accordingly. It certainly wouldn't hurt my feelings any to be proved wrong, but I'm not depending on ever seeing a single red cent out of it.

That all good and well for you. However, if you extend that attitude to say "and I'm not going to allow congress to properly fund social security as a result", then you are the problem.

And if they extend that attitude even further and overthrow the government, what then?

The parent poster's stance is the correct one to have: make no plans for SS to exist, so if it does, you're just in a little better shape than you expected.

Most people who post on HN will experience a negative ROI on the money they paid into SS, unless they live well into their 90s.

I don't really give a shit what they decide to do, and I realize that is a "Fuck you, got mine" kind of attitude. But the simple truth is that I can't afford to rely on the government or society to provide for my well-being; that's my own business, and it'd be irresponsible not to take care of it as best I can myself. I view it as an unacceptable risk to bet that Social Security will be managed well enough that there will be anything left when and if it ever comes my turn to get back some of what I've had to put in it.

If they want to tax me to pay for Social Security, then they will, and I don't really have much recourse. It does as much good to shake my fist at the weather as fuss about other things I can't control.

I vote to not pay into social security, let me manage my own money.

You can always vote with your feet if you feel like opportunities in the US don't justify the level of taxation.

There are jobs that you can take where you don't pay into nor receive ssn benefits.

that's fine but you shouldn't allow Congress to mess it up completely as some ideologues want to do.

Congress didn't mess it up, economic reality and math did. It never should have been designed to rely on population and productivity growth.

They could make adjustments to the retirement age or benefits that are in line with funding. Or change the funding to be in line with the promised benefits. Instead they choose to underfund and let the next generation deal with it.

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