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Social Security Reform Thursday: Week Forty-Two -- Overpromising, The World Over.

Thursdays are good days for reform, because they fall between Wednesdays and Fridays. And reform is a long-haul process, not a fleeting event. So we're going to keep plugging along with the case for reform, even as the issue goes off the political radar screen.

That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform.

This week's topic:

Unkeepable Promises, Around The World.

The American Social Security crisis (or "looming crisis," or "ordeal," or "problem," or "coming trainwreck," whichever you prefer) is nothing unique to the United States. Around the world, governments face demographic realities and fiscal shortfallls that clamp down on the excessive promises made by politicians throughout the 20th century.

Great Britain is one such country. The Economist magazine notes that finding solutions for the nation's retirement pension crunch is easier said than done:

Britain’s Turner Commission has recommended raising the retirement age to 68 and introducing a new type of savings scheme.

....

Under the Turner plan, everyone would feel the pinch of putting Britain’s faltering retirement system right. The commission recommended slowly raising the state pension age, preferably to 68, by 2050. This would not be popular with pensioners. It would also be hard for the government to defend, given that it recently cut a deal to let those already working in the public sector retire at 60.

The report also endorses a new voluntary savings scheme, into which workers would put at least 4% of their wages, with employers contributing 3% more and a further 1% coming from the government in the form of tax relief. While the system would be voluntary, the commission suggests making it “opt out” rather than “opt in”, meaning that workers would be automatically enrolled, but could choose not to contribute if they wished.

While the problems are practically undeniable, politics have a way of clouding things up. Moreover, while the evidence for a problem is overwhelming, the solutions are often controversial, if only because people find it easier to demagoguge and distort the issue than change the status quo.

And it's not just the United States and the United Kingdom, either:

Continental Europe’s lavish government benefits guard the old against poverty, but are threatening to bankrupt the states that offer them; the French finance minister told parliament this week that the government was looking at an unfunded pensions liability of €900 billion ($1.1 trillion) on top of already record levels of public debt.

Indeed, as this United Nations map indicates, it is primarily Europe that faces an aged population today (.pdf):

Extended life expectancies are becoming a truly worldwide miracle, but they will also present worldwide problems (.pdf):

There are so many countries facing the same dilemma, the same falling birthrates, the same extensions of longevity, and the same overpromises first made so many decades ago. In the middle of this century, the percentage of old folks (I will be one of them) will strain the pensions systems of nearly every country on earth (.pdf):

In some ways, the U.S. is lucky. We can almost see into our future. The dysfunctional pension systems and sluggish growth in Europe should and can be warning signs. We should act now to avoid derailing our own economy (which is kicking much rear end right now, if you hadn't noticed).

The A Stitch in Haste blog asserts:

The retirement component of Social Security is known as "Old Age Insurance." Fine -- then let's start by limiting it to bona fide "old age."

The fashioners of the Social Security systems in the United States, Great Britain, and most everywhere else all have one thing in common: none of them will be around when the pension systems they designed go bust.

Interestingly, my wife's spunky 93-year-old grandmother, now an American citizen but born and raised in Germany, spoke glowingly of Germany's old age pension system at Thanksgiving, raving about how wonderful it was-- when they set it up, at least. Maybe they messed it up somewhere along the way, she asserted, but in the 1930s it was a thing of brilliance. Unfortunately, she's both way off and totally on at the same time.

Part of her admiration for the disastrous German Social Security system could be that she still collects *plump* checks from the German government, although she hasn't lived there in well over 50 years. But part of the admiration is that, all over the world, when the plans were first announced, everyone bought into the pension schemes whole-heartedly. Apparently nobody thought twice about the tenuous pyramid scheme methods of funding. After all, there will always be more and more workers.

But surely someone thought ahead about expanding life expectancies?

When most pensions were first implemented, benefits went to the average recipient for a year or two at the most. People just rarely lived past about 65. The planners did not expect so many 93-year-olds running around collecting checks for decade upon decade.

And they certainly didn't expect that 100 year life expectancies could become the norm, not the exception by the middle of the 21st century. That's right. It may sound wild, but it's where we're headed. Even today, we constantly underestimate the awesome power of medicine, technology, and science to extend our lives, and because of that underestimation, we plan inadequately for the future.

The United States still has time to prevent a full-blown crisis in Social Security, but we're rapidly running out of time. Each day we fail to reform the system, we're letting the ticking time bomb take on more explosive punch. But more importantly, we're robbing younger people of the power of long-term compound interest. If Democrats were truly the progressive world-changers they claim to be, they would: a) stop pretending there is no crisis; b) offer creative solutions; and c) share those solutions with every country on earth.

The United States of America is rarely behind the curve on anything. We're pretty much the world's trendsetters. But on the Social Security issue, we're sure deferring to others to take the first step. This is unfortunate, because as we compete increasingly with emerging powers in Asia and elsewhere, we need to be clicking on all cylinders, using our resources as efficiently and productively as possible. We need to bring our 'A' Game, because staying on top forever is not a given.

It's time for reform.

The clock is ticking.

Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).
-Week Twenty (Global Success With Personal Accounts).
-Week Twenty-One (GROW Accounts: Stopping The Raid).
-Week Twenty-Two (Millions of Lockboxes).
-Week Twenty-Three (Support for Ryan-DeMint).
-Week Twenty-Four (KidSave Accounts).
-Week Twenty-Five (Latinos and Social Security).
-Week Twenty-Six (AmeriSave).
-Week Twenty-Seven (Cost Of Doing Nothing).
-Week Twenty-Eight (Chile).
-Week Twenty-Nine (Entitlement Spending Out Of Control).
-Week Thirty (Reform Better Deal Than Status Quo).
-Week Thirty-One (Social Security As A Labor Cost).
-Week Thirty-Two (Social Security And Dependence On Government).
-Week Thirty-Three (Social Security, Currently A Bad Deal For African-Americans).
-Week Thirty-Four (Longer Life Expectancies Straining Social Security).
-Week Thirty-Five (Howard Dean & Salami).
-Week Thirty-Six (Growing Numbers of Beneficiaries Draining Social Security).
-Week Thirty-Seven (The Crisis Is Now).
-Week Thirty-Eight (Disability Benefits).
-Week Thirty-Nine (Broken Benefit Calculation Formula).
-Week Forty (German Social Security Disaster).
-Week Forty-One (Crumbling Pyramid Scheme).

Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform.

Posted by Will Franklin · 1 December 2005 10:08 PM

Comments

Posted by: Zsa Zsa at December 3, 2005 01:36 PM