All Ponzi schemes eventually crumble, as they each hit a point when they can no longer keep up the charade. Social Security is no different. As anyone who has enrolled in an Econ 101 class or who has peeked at the government’s finances knows, it is an inevitability that the state-sponsored Ponzi endeavor will collapse. Despite this, the politicians and bureaucrats will not receive a life sentence a la Bernie Madoff – they just get re-elected.
The U.S. government recently performed a reality check on Medicare and Social Security’s books. The result? According to program trustees, Medicare will become insolvent in 2026 – three years earlier than initial forecasts – and Social Security will go broke in 2034.
It was also conceded for the first time in nearly 40 years that the federal government will need to dip into the Social Security trust fund this year to cover the costs of the program.
Washington, as has been the case since the inception of the entitlement benefits, seems indifferent.
Treasury Secretary Steven Mnuchin said in a statement:
“The programs remain secure. Medicare is on track to meet its obligations to beneficiaries well into the next decade. However, certain long-term issues persist. Lack-luster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare.”
These words might not exactly elicit confidence in the more than 62 million Social Security recipients and 60 million Medicare users.
Sounding the Alarm for Years
The latest report isn’t really surprising.
During the 1992 and 1996 presidential elections, Ross Perot sounded the alarm about both America’s red ink and Social Security. Not only did he view Social Security as a form of welfare, he presented reforms that would at least keep it solvent for years to come. His opponents accused Perot of launching “a full-scale assault on the Social Security system, undermining the universality of the program.” The public bought it and looked to their generational successors to handle the matter.
Years later, David Walker, the former Comptroller of the United States from 1998 to 2008, started touring the nation, warning the public about the pending fiscal doom facing every American – $120 trillion in unfunded liabilities and expenditures is nothing to sneeze at.
Walker is concerned about Social Security, but he believes “Medicare is in much worse shape” because the government has “overpromised” for decades.
He told CNBC in March 2015:
“Washington has a tendency to put band aids on open wounds, rather than trying to actually do what needs to be done.
They need to understand the longer we wait, the more dramatic the changes, both on the spending side and the revenue side. Making tough choices sooner rather than later is the way to go.”
Three-time presidential candidate Ron Paul also routinely alluded to the incoming collapse of the entitlement system:
“It’s a mess. And it proves that the government is not very good at central economic planning, even for retirement. The money was taken from the people with good intention. We should do our best to return it to those that have taken it. But we need to allow the young people to just flat out get out of the system. Because, if you have the government managing these accounts, it’s not going to work.”
He was laughed at by his Republican and Democratic rivals, as well as by the media.
In 2013, the Congressional Budget Office (CBO) didn’t provide a rosy picture for the future. The nonpartisan federal agency projected that the price-tag for Social Security and Medicare would spike to about $2.5 trillion by 2023 – increasing by $1.43 trillion and $1.1 trillion, respectively.
Politicians and Population to Blame
It is true that the American people are partially to blame for this mess. For far too long, too many voting blocs have demanded something for nothing and have kicked out – or threatened to kick out – the officials who have introduced common-sense reforms. It’s believed that by simply raising the eligibility age by a couple of years, conducting means-tests, and perhaps allowing young people to opt out of the system you could save Social Security. But these aren’t politically feasible solutions.
Remember when the Democrats portrayed Speaker of the House Paul Ryan (R-WI) throwing old women off the cliff in 2012? It was over the top, but it was a successful campaign that too many people fell for, helping then-President Barack Obama win his re-election bid.
That said, it is still the politicians who are primarily to blame. Whether it is kicking the can down the road or raiding Social Security funds (ahem, former President Bill Clinton, ahem), the nation’s esteemed representatives are more concerned about keeping their seats than telling the cold hard truth: Future generations will not receive the same luxuries as Ida May Fuller, who was the very first recipient and was given 462 times what she and her employer paid into the system.
This is evident by recent announcements by the Democrats that promise to expand, not contract, the social safety net by spending even more on these programs. President Donald Trump, meanwhile, promised in 2016 to not cut or reform Social Security or Medicare because he vowed economic growth would pay for the shortfalls.
For now, because it’s in the headlines, politicians will pretend to spring into action. The current administration will be mandated by law to submit a plan to Congress next year that addresses the fiscal issues as soon as the budget is passed. Once the news fades away and some new outrage hits front pages everywhere, the politicians will put on their Santa Claus outfit, grab their reindeer, and tell constituents that they can have whatever they want without having to make sacrifices.
Maya McGuinness, president of the Committee for a Responsible Federal Budget, agrees.
“The truth is as long as you have politicians telling people they can have everything they want, nothing will happen and it’ll only get worse,” said McGuinness.
What do you think should be done about Social Security and Medicare? Let us know in the comments section!