Questioning all the Givens

There is intense debate about Social Security at the present time; almost Everyone finding holes in the Presidential Plan for Private Accounts--even those who are ardent supporters of Privatization. Many anomalies exist in the discussions, and should be discussed.

Why does the President think the Shortfall is going to bankrupt the Social Security Trust Fund?It is a continual Pay-In system, with Shortfalls at most cutting the amount of Benefits, not forever denuding the Fund of cash(1). The second questionable fact is that funding Private Accounts will create a Federal Debt rivaling the Shortfall itself, except for creating this Debt now instead of forty years hence. The third anomaly states that Private Accounts will not fix or aid the Solvency issue of the Trust Fund, admitted by the Administration itself. The fourth issue states the Medicare and Medicaid shortfalls remain far greater and more pressing than the Social Security Shortfall, and this Administration shows no inclination to address this Issue. The last anomaly states All agree that Private Accounts will provide less Benefits than Retirees would receive under the current Schedule.

The above factors may impress the Reader with a suspicion that Social Security reform is not the primary drive behind the push for Private Accounts. A knowledgable observor might suggest most Investors in the Stock Market realize Stock prices have peaked, given the current state of Capitalization, and a new infusion of Cash is necessary to expand the Stock Market balloon--already swollen with artificial value.

There are other Factors to be considered. One is the great level of uncertainty in compilation when dealing with a distant and unforeseeable future. Here is one the Author enjoyed immensely:

Exploding Productivity Growth:
Context, Causes, and Implications
ROBERT J. GORDON
Northwestern University

A long-term real GDP growth path of 4 percent a year and a 4 percent permanent
unemployment rate are endorsed in Glassman (2002) and displayed in his figure 4. The
long-run real GDP growth path in the Social Security projections tapers down from 3.0 percent to 2.0 percent between 2003 and 2015, rests at 1.9 percent from 2020 to 2040, and then falls to 1.8 percent between 2040 and 2080 (Board of Trustees, 2003, table V.B.2, p. 99).

These, as far as the Author can determine, are the GDP growth rates which almost Everyone is using to base their estimates of Trust Fund gains and losses. Sounds Good, does it not? They are regretably not the numbers which this Author chooses to use. Here is his prediction for the Future:
1) GDP will actually decline 7.2% from it's current level by 2060; this due to declining Employment rolls with necessary change to longer Product life, this complementary to rising Energy prices due to more-expensive material sourcing.
2) Life expectancy has reached it's maximum length, and will start to decline about 2020.
3) The Baby Boomers will essentially be dinosaurs by 2050, with the American population beginning to decline by 2057.
4) The Retiree/Worker ratio will reverse by 2034, with Workers increasing in proportion to Retirees.
5) The DOW industrial Average will slip to 8500 by 2010, making adjustment of the FICA tax rates a smarter move than Private Accounts.
=======================
(1) The latest White House White Paper uses a Small Business analogy as comparison of its Bankruptcy with the Social Security Trust Fund Shortfall. One cannot compare a Government program with a Business; it is why ex-Businesspeople in Government can be as much hindrance as help. A Government program has a variable Product, a variable Supply, a variable Product price, and is independent of the normal Cost/Supply Curves. Excess Costs can be moderated by alterations of Product supply, alterations of Product price, or elimination of specific Product or Service; it is not a question of Produce or Not Produce according to Market forces.

lgl