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Asking "How to pay for Social Security" is Asking the Wrong Question

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From http://www.flickr.com/photos/47422005@N04/6997920407/: Grand Bargain Watch - Save Social Security
Grand Bargain Watch - Save Social Security
(image by DonkeyHotey)

Although the economic literature, pundit bloviating, and ideological rants, love to ask "How to pay for Social Security," they are all asking the wrong question.

The right question is "What is the Social Security Multiplier?"  The multiplier measures how much the national income goes up, or gets cut, by a given government expense or policy.  By convention, if the multiplier is <1, that means the government policy reduces the GDP by the fraction below 1.  So, Defense Spending is about .7, meaning that every dollar spent on defense reduces GDP by .3 (30 cents).  That's better than zero because some jobs are created, products made, etc, but it's a net loss because those things made tend to blow up and have to be remade, over and over. 

What is Social Security's multiplier effect then?

Well, AARP has a study that makes it clear:

A new report from AARP, in fact, shows that every $1 paid out by Social Security generates, in turn, about $2 of total output for the U.S. economy -- or nearly $1.4 trillion in 2012.

Read the rest here:

http://blog.aarp.org/2013/10/01/social-securitys-one-two-punch/

So, this means that there is a net GAIN for every dollar spent on Social Security and, though this is somewhat controversial, it may be as high as double the input.

Seen that way, we ought to fund SS unless the funding would cost us more than double the amount spent - say, with a 100% interest rate AND a government that did not have the right and ability to "coin Money" (Article 1, Section 8, clause 5 of the U.S. Constitution).  Since the U.S. has essentially an unlimited ability to borrow money, and at rates close to zero - not 100%! - there really is no question that we ought to do that. 

This is quite apart from the moral and societal impact of having millions of impoverished seniors that family members -- often in their prime earning years - and over-stressed private institutions, from churches to soup kitchens, would struggle to care for.  We've been there and done that, before we had Social Security.  It was mass poverty of seniors, well beyond the ability of the institutions of a hundred years ago, that caused FDR to create Social Security in the first place.  The need for Social Security really ought to be beyond debate now.  However, for those who still require proof, and who are not so blinded by theo-economic beliefs that nothing will convince them, the National Bureau of Economic Research says:

Elderly poverty in the U.S. decreased dramatically during the twentieth century. Between 1960 and 1995, the official poverty rate of those aged 65 and above fell from 35 percent to 10 percent, and research has documented similarly steep declines dating back to at least 1939. While poverty was once far more prevalent among the elderly than among other age groups, today's elderly have a poverty rate similar to that of working-age adults and much lower than that of children.

Social Security is often mentioned as a likely contributor to the decline in elderly poverty. Enacted in 1935, the Social Security system experienced rapid benefit growth in the post-WWII era. In fact, there is a striking association between the rise in Social Security expenditures per capita and the decline in elderly poverty, as Figure 1 illustrates (with both series scaled to fit on the same figure).

 


Social Security vs. Poverty Rate over time
(image by National Bureau of Economic Research)

See the full report here: http://www.nber.org/bah/summer04/w10466.html

Social Security works.  It does what it was designed to do, and although this was not the concern when it was set up, it actually boosts the national output above what it distributes.  It is a win-win-win.

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http://newthinking.blogspot.com/

Scott Baker is a Senior Editor/Economics Editor and Writer at Opednews, and a blogger for Huffington Post.
Scott Baker is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist group. He has written dozens of (more...)
 

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Brilliant analysis from AARP with brilliant analys... by Charles Roll on Sunday, Mar 30, 2014 at 11:53:25 AM
Scott Baker; as usual, you make waaaay too much se... by b. sadie bailey on Sunday, Mar 30, 2014 at 1:54:12 PM
Absolutely! Paying social security with new issu... by Clifford Johnson on Monday, Mar 31, 2014 at 10:40:40 AM