Wednesday, October 08, 2008

Social security math

Until sometime last month, one of the biggest financial nightmares a few people out there worried about was the unfunded liability of the social security system. Actuary math is... well.... actuary math.. which means it gets too esoteric to talk about pretty quickly. But the best number I see is that for over the next 75 years the social security system was under funded by something just under $4 trillion dollars. A big number for sure, but in the course of a few weeks there has come from nowhere a near unanimous agreement that we should spend how much? $700 billion on the overall financial system bailout, which would be on top of the hundreds of billions that has been spent on AIG, Lehman, Bear Sterns, and an less-discussed, but larger, amount in the hundreds of $ billions that the Fed has been mass injecting into the world financial system. Whatever that adds up to, it has to be a decent chunk of the entire unfunded liability of the Social Security system now and through all of our lifetimes.. even that of many of our children's lifetimes. Given that the $4 trillion number is something that has to be dealt with over the the bulk of the next century, the rate at which funding the system would require must come out to a expenditure rate many many orders of magnitude slower than the rate at which the US Treasury has been emptying out of late.

So if we survive all of this, managing Social Security must be a piece of cake... or at the very least a hell of a lot less scary than we thought it was before.


Anonymous MH said...

I sort of hate to discourage anybody who is staying optimistic in this economy, but by this logic, I should drive my car into a tree to keep me from worrying about my 401k.

Wednesday, October 08, 2008 11:43:00 AM  
Anonymous Johnny G. said...

Paul Krugman has been suggesting for a long time now that natural growth in the size of the economy combined with slightly higher eligibility ages, means testing, and--maybe--slightly higher payroll taxes will result in the Social Security "crisis" not really being a crisis.

The bigger concern is with Medicare. But that, as I understand it, is a societal problem with getting health care costs under control, not a problem caused by the plan itself.

Wednesday, October 08, 2008 5:20:00 PM  
Blogger Burgher Jon said...

The Treasury is not using the $700 Billion to "bail out" the economy, it is using it to "purchase" troubled securities. These securities had to be purchased by someone for the economy to get going again, so the feds stepped up. I'm sure you're aware of all this and are wondering where I'm going with it...

Eventually the treasury will have to sell these securities (unless we're suggesting they should be socialized, and I don't think anyone is). At least one economist/writer (Andy Kessler) suggests that the treasury may actually make a tidy profit when they are sold (potential revenue of 2.2 trillion on the .7 trillion investment). What if we passed a bill stating that any revenue (including that which is not profitable) from the sale of the securities purchased with bailout money be used to sure up social security. This way we would only have had to take the HUGE barrel to the well once and will have both bailed out the economy and stuck a giant thumb in the leaky dam that is social security. I'm, frankly, suprised that no one thought of it when the bill was facing trouble in the House, it would have been a lot easier to sell to constituents if it was seen as helping social security.

Thursday, October 09, 2008 12:05:00 PM  
Blogger C. Briem said...

well... maybe... and it's the unknown that is the problem of course. Even if the $700 billion is some form of recoupable investment much of the other expenditures going out are not in the same boat. The 'extra' $30 billion AIG needed just yesterday is probably not going to be recoverable for example. The pure fiat money supply injections the Fed is now resorting to are another issue altogether. That is a bigger number at this point I have to believe.

It's a curious argument about whether this will all make a 'profit' in the end. I;m not disputing it.. but that argument relies on a premise that what is happening being a pure market failure and that a lot of assets out there are being misvalued by the market... or a complete lack of market for supposedly valuable assets. I actually wonder whether the market is actually telling us something, something it was just slow to realize itself.

alas.. this is all treating the sympton. From what I hear, there is still no known way as yet to actually unwind all the hyper-leveraged exotic markets out there. The news has focused on credit default swaps, but that may not be the biggest problem out there.

Thursday, October 09, 2008 12:31:00 PM  

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