Why Writers Say That Social Security Can't Go Bankrupt

In writing about Social Security, I get a lot of impassioned missives to tell me how wrong I am, with links that purport to show how wrong I am.  I welcome feedback, but understand that just because you read it on the internet does not make it true.

Some of these emails are better than others. The worst of these include links to the blog pages of traditional media.  The readers tend to confuse the credibility of the media brand with the accuracy of the article.  Just because a blogger writes for Forbes blog page, does not mean that a Forbes' editor has read the piece much less fact checked it.

The most spammed piece in my mind is from Forbes blog writer, John T. Harvey, who has published “Social Security CannotGo Bankrupt.”  Understand that before you send it, the article does not say what you think it says.

Readers who have sent the piece to me believe that the article says that Social Security is financially stable, and that the concerns that I express are meritless. The writer hasn't said that Social Security is financially stable.  He is playing semantics in which that Social Security cannot run out of money.  It can run out of political support..

His analysis presents politics and money as completely separate and unrelated.  The difference is theoretical.  The writer sees Social Security as a political system, whereas the laws of the system make it a financial system of dedicated inputs and outputs.  Political systems can run short of political support.  Financial systems can run out of money.  In practice, the system fails regardless of wording. 

The problem with the theory in the article is that the author completely misrepresents how Social Security works.  If laws mean anything, Social Security is self-financed.  That means the system collects revenue from workers in exchange for the promise of future benefits.  This is why Social Security Administration says that the system is self-financed.

The writer chooses to ignore the impact of future benefits.  He writes, “It’s an immediate transfer from workers today to retirees today.”  If future benefits did not exist, then he would be correct.  The problem is that if you eliminate future benefits you pretty much eliminate the political support for the system. 

Beyond mischaracterizing the system’s operations, he leverages the standard straw-man of the debate.  No one says that the Social Security Trust Fund will dry up making it impossible for anyone to receive their Social Security payment.  Everyone says that if the Trust Fund dries up, that people will get checks of a lesser amount.

It is important for the reader to understand. If Social Security operated as the writer suggests, he would be correct.  The Trust Fund would be unnecessary if the revenue was tax money which did not generate future obligations.  We would match tax revenues and pay outs.  The problem is that the revenue collected today defines what we owe in the future.

“The lesson from this is that if we want Social Security to “be there” when we retire, our efforts must be focused on increasing productivity and making sure in particular that these increases get passed on to workers in the form of higher wages”

The writer seems unaware that Social Security indexes past contributions to average wages.  There is nothing about higher wages that makes Social Security more stable.  As wages rise, the primary insurance amount of new retirees is pushed higher.  The definition of their own future benefits is pushed higher.

The writer would be right if Social Security worked as he presents.  Unfortunately it doesn’t.