e. An amount that is about 1% of GDP) to ensure that the current PAYGO system is solvent for the next 75 years. Thus, 10 trillion dollars problem is not as large and scary if we start acting today to fix the current system).
It is totally manageable."
But the official plan is somewhat different. Bush's administration is trying to introduce private account systems where a fraction of payroll tax will be transferred to private accounts and managed by the future retirees themselves, thus, giving them chance to invest this money into stocks, which have proven to give on average higher rates of return than the Treasury Bills which generate rather moderate income.
The opponents of this idea state that this is just a shell-game, where no capital is accumulated and investments are not increased. The overall national capital is not increased, but this plan will cause enormous transactions costs which are estimated to be 5 trillion dollars as well. Another contra for this idea is the volatility of the stock markets and unpredictability. Scientists argue that Social Security Foundation was never meant to be an investment fund, it was meant to be an insurance foundation which gave all the working and retiring Americans the feeling of stability and sound future.
The author of the article draws conclusion that the privatization will not be sufficient as the young generation will any way have to pay off the government debt which will occur to cover the extra 5 billions dollars (the costs of transactions if privatization is used). Ignoring these costs is like trying to ignore an elephant in your living room.
So, the overall opinion is that the system is in the crisis and is extremely vulnerable. It can be easily put into bankruptcy by the following factors: rise in unemployment, revenues from the payroll tax will fall from expected levels, if price inflation accelerates, indexed benefit payments will increase faster than expected, if retirees live longer than expected, benefit expenditures will again...
Another problem is that the Social Security Foundation is backed up by government bonds, so, there is no actual money behind the system, no money is accumulated. Thus, if government fails to pay off the debt, the pensioners will be without retirement benefits.
Mike Allen in his article Semantics shape social security debate claims to point out to the words of the White House budget director Joshua B. Bolten who said that the situation "is a crisis."
The last point that could attract the attention is the last part of the definition of the crisis notion: "negative outcome affecting the organization, company, or industry, as well as its publics, products, services, or good name." If the Social Security does collapse and fail provide support for the needy, will the publics, industry and so on be affected? The answer is, of course, positive. The government must take care of the needy. People, who will retire but will not be getting any benefits from the money they have been paying to the system during all their lives, will feel extremely unfair which will lead to social constraints.
To draw a conclusion, though many argue that there is no crisis and it is still too long ahead, we must already take a closer look and try to demand from our government reasonable reform of the system with the presentation of the researches done on this topic publicly, so that to make this system work for people and our well-being and not just lobby someone's interests.
Bibliography
1) Kinnan, Chris Trustees Report: Social Security Collapse Quickening, 2004 available on web: http://www.cse.org/processor/printer_press.php?press_id=780
2) Allen, Mike Semantics shape social security debate, Article the Washington Post. Washington, D.C. Jan 23, 2005.pg. a. 04
3) Roubini, Nouriel Social Security Privatization as the Mother of All Con-Man Smoke-and-Mirrors Shell-Games, available on web: http://www.roubiniglobal.com/archives/2004/11/social_security_1.html
