Is the Social Security System in Crisis?
In the United States, social security has no resemblance to any of its closest economic rivals. There is no universal public health insurance, nor do citizens benefit from the same public services that many Europeans, Canadians, and Japanese people take for granted. There is a huge problem; in fact, it’s a crisis. But the social security crisis explained in terms of services alone doesn’t capture the scale of the risks.
The next social security crisis can hardly be called “next”; it’s already here. Some analysts are putting up a major effort in preparing for the impact of the coming social security crisis. But it’s been here for quite a long time already. You should be preparing to manage the effects of the crisis rather than trying to prevent it at this point. You can’t stop a tsunami, but if you know one is on the way, you can take cover.
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In fact, most Americans, if they do have it, get insurance from their employers. When they lose the job, they also lose their healthcare benefits. Consider the U.S. national debt, which hovers around $20.0 trillion. Then, remind yourself that the annual federal budget deficit was about $600.0 billion in 2016. It’s not just social security that is in crisis. The United States is without a doubt in dire straits.
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How Long Will Social Security Be Around?
Social security is a relatively new concept in the United States. Indeed, it’s a new concept in the West. The roots of modern social security go back to the 1929 stock market crash and the economic depression it provoked. It’s fascinating that we increasingly wonder about the social security future outlook. Most people have no clue that the wide range of social security benefits that Europeans enjoy—and Americans criticize—stem from an American idea.
Before the 1930s, the United States was experiencing its pre–social security era; very few people could expect to receive anything resembling retirement security. There were private pension plans, but they were rare. Life was also shorter in general and the idea of retirement as a time to enjoy the rewards of a life’s work was alien.
President Roosevelt was the first to officially propose a workable old-age pension. Roosevelt announced his New Deal in 1931. It took a crisis such as the Great Depression to persuade politicians and most citizens—if not businesses—that only a widespread economic improvement for most people would lift the U.S. out of its predicament. (Source: “The Development of Social Security in America,” Social Security Bulletin, 2010.)
After all, there were some 15 million unemployed people, and in 1931, U.S. industry produced only half of what it did in 1928. These 15 million people had no unemployment insurance whatsoever, while those who still had a job were getting paid half of what they had expected merely a few years earlier. The measures to cope with these problems were addressed in a package of legislation known as the New Deal. Its centerpiece was the Social Security Act of 1935.
In 1965, President Lyndon Johnson added programs such as Medicaid for the poor and Medicare for the elderly and the disabled. But there’s still nothing for the Americans who are neither old, nor poor, nor insured by their employer. Obama’s reform in 2010 was supposed to have addressed this by forcing Americans to own health insurance, public or private. But the resulting reform, known as Obamacare, is flawed.
It Always Comes Down to Squeezing Taxpayers…
The result is that American taxpayers are paying billions for social security. Yet, the benefits are few and often ineffective. Health insurance is the most representative of the problems of social security; it’s the heart of the social security crisis. The problem is as big as the deficit. Americans spend more than anyone else on healthcare, some $3.4 trillion a year! That’s 16% of U.S. GDP. It means that the average American pays well over $10,000 a year on healthcare alone. (Source: “Here’s how much the average American spends on health care,” CNBC, June 23, 2017.)
Clearly, that leaves relatively little money for any other social security benefits. Yet, Americans get little for their healthcare spending. The system is hardly free. Instead, the French, who have one of the top healthcare systems in the world by any standard, never have to worry about the costs of being sick. In France, health expenditure is 11% of GDP.
To achieve any substantial improvement in social security, healthcare coverage is the first issue to address. To achieve the levels of coverage offered in Europe or Canada, the U.S. would have to almost double its current expenditure. To get a picture of what this could mean, the U.S. government could decide to cut all military spending (about $600.0 billion—a mere trickle, compared to healthcare alone) and still come up a few trillions short of what’s needed. Moreover, it would only add to the debt.
The Social Security Crisis Is Already Old News
Therefore, as the U.S. security deficit continues to multiply, the risk is not of a social security crisis. Clearly, that’s already well in progress. No, the risk now is that if the ratio between costs and benefits continues to stay the same (that is: high cost, few services), the U.S. public health system will crash, dragging down social security with it. It could happen in a few years or a decade. But, there are few doubts about the inevitable collapse of social security.
Meanwhile, President Trump has not managed to make any progress with his tax reform. It’s a gamble. The idea of generating equal or more government revenues by lowering income taxes in order to stimulate more business growth is great on paper. But does it work? We might never find out, given the constraints the actual business of government that the “Russiagate” story is causing. It’s a distraction that’s paralyzed Washington.
Meanwhile, the debt ceiling deadline is approaching. Should Congress fail to address this problem by September 29, said Treasury Secretary Steven Mnuchin, Washington will no longer be able to fulfill its financial obligations. (Source: “Mnuchin Cautions Congress About Cost of U.S. Debt-Limit Impasse,” Bloomberg, July 26, 2017.)
Treasury Secretary Mnuchin warned that the government’s finances will last until September 29. After that date, the Treasury would need to borrow more money—above the current ceiling—to finance the administration. In the absence of an increase in the ceiling, the United States could be declared in default for the first time in its history and cause financial disaster in the markets.
Debt has weakened the U.S. government. It matters little who is in charge at the White House. Whoever is president must constantly confront the deficit conundrum. It means that presidents throw any pretense of finding better ways to invest taxpayers’ money to improve social security right out of the Oval Office window. It also means that U.S. administrations end up borrowing to pay interest on debt, civil servants, their pensions, social assistance, and operating expenses.
