Gross on Social Security

Last week PIMCO bond guru Bill Gross released his commentary on Social Security reform. In this commentary Gross claims that privatization of Social Security will not solve the fundamental financial problems the program faces. Critics of President Bush have taken this as a strong rebuttal of Bush, however while Gross does not support plans for private accounts, he does recognize that the system (as well as Medicare) is in serious trouble and prescribes some tough fiscal medicine to fix the problem, quite different from the Democrat head in the sand/scare the seniors '05 plans.

Gross points out that the source of the problem is demographic, and he is partially right about that. The real problem is actually three fold: the baby boom generation is huge, they will live much longer than their parents (a reality that current SSA numbers do not yet reflect), and the system has ignored that reality for the past 50 years or so.

When Social Security was created the average person lived about 59-65 years (sources differ), so the retirement age was set at 65, an age when more than half of the people of that generation would have already died. Today the average age is around 77 and thanks to medicine, people are living longer every year. The Social Security system still recognizes a retirement age from the 1930s. Think about the outcry from seniors if we simply used the same metric used by FDR to set SS eligibility today, it would require moving the retirement age to somewhere between 77 and 83, a change that would dramatically reduce the funding gap, if not eliminate it altogether. Most people are relatively healthy at age 65 and could work longer, they are probably healthier and more able than most 53 year olds were in 1930. I'm not necessarily advocating this solution and it certainly will not be enacted by lawmakers fearful of seniors.

Gross makes the point that only fiscal responsibility can really solve the problem, and he is undoubtedly correct. I don't know the numbers, but if the US quit spending the SS surplus, AND then balanced the federal budget ex-SS, and used those funds for debt reduction, we would probably experience a total annual debt reduction of somewhere around $700 billion ANNUALLY. That means that we would reduce the interest owed on the national debt every year, meaning more funds would go to debt (debt people, not just deficit) reduction, every year, the change would be exponential and would put the US on a much firmer footing for dealing with Social Security and Medicare since our annual commitments to other Federal debt would be much less, making it a feasible option to take on more debt to pay for Social Security.

Here is the catch, and why Democrats don't really want to deal with the problem, that requires cutting federal spending by about $700 billion every year, and judging by the fit Democrats are throwing about Bush decreasing the rate of increase in spending, not an actual reduction, just a change in the rate of growth, the Democrats are not qualified to face the reality of the problem and instead look like they are just going to gear up the "scare the seniors/screw the under 70 '05/'06" tour.

Timothy Burger