Argument: The social security system is unsustainable in the status quo

Social Security is in Crisis. Social Security in the United States, as in most western liberal democracies, is a pay-as-you-go system and has always been so. As such, it is an intergenerational wealth transfer. The solvency of the system therefore relies on favourable demographics; particularly birth rate and longevity. In the United States the birth rate when Social Security was created was 2.3 children per woman but had risen to 3.0 by 1950. Today it is 2.06. The average life expectancy in 1935 was 63 and today it is 75. While this may be representative of an improvement in quality-of-life for many Americans, these demographic changes also indicate the increasing burden that social security systems are being put under. [1]

As a result of changing demographic factors, the number of workers paying Social Security payroll taxes has gone from 16 for every retiree in 1950 to just 3.3 in 1997. This ration will continue to decline to just 2 to 1 by 2025. This has meant the tax has been increased thirty times in sixty-two years to compensate. Originally it was just 2 percent on a maximum taxable income of $300, now it is 12.4 percent of a maximum income of $65,400. This will have to be raised to 18 percent to pay for all promised current benefits, and if Medicare is included the tax will have to go to nearly 28 percent. [2]

Social Security is an unsuitable approach to protecting the welfare of a retiring workforce. The social security system as it stands is unsustainable, and will place an excessive tax burden on the current working population of the USA, who will be expected to pay for the impending retirement of almost 70 million members of the “baby boomer” generation. This crisis is likely to begin in 2016 when- according to experts- more money will be paid out by the federal government in social security benefits than it will receive in payroll taxes. [3]

In many ways Social Security has now just become a giant ponzi scheme. As the Cato Institute has argued: “Just like Ponzi's plan, Social Security does not make any real investments -- it just takes money from later 'investors' or taxpayers, to pay benefits to the scheme’s earlier, now retired, entrants. Like Ponzi, Social Security will not be able to recruit new "investors" fast enough to continue paying promised benefits to previous investors. Because each year there are fewer young workers relative to the number of retirees, Social Security will eventually collapse, just like Ponzi's scheme.” [4]

Faced with this impending crisis, privatizing is at worst the best of the 'bad' options. It provides an opportunity to make the system sustainable and to make it fair to all generations by having everyone pay for their own retirement rather than someone else’s. [5]

[1] Crane, Edward. "The Case for Privatizing America's Social Security System." CATO Institute. 10 December 1997. http://www.cato.org/testimony/art-22.html

[2] Crane, Edward. "The Case for Privatizing America's Social Security System." CATO Institute. 10 December 1997. http://www.cato.org/testimony/art-22.html

[3] San Diego Union Tribune. "Privatizing Social Security Still a Good Idea." San Diego Union Tribune. http://www.creators.com/opinion/daily-editorials/privatizing-social-security-still-a-good-idea.html

[4] Cato Institute. “Why is Social Security often called a Ponzi scheme?”. Cato Institute. 11 May 1999. http://www.socialsecurity.org/daily/05-11-99.html ;

[5] Kotlikoff, Lawrence. "Privatizing social security the right way". Testimony to the Committee on Ways and Means. 3 June 3 1998. http://people.bu.edu/kotlikof/Ways&amp;Means.pdf

Candidate 1: "Privatizing Social Security would harm economic growth, not help it. Privatization during the current economic crisis would have been disaster, and so doing it now is a risk for any upcoming or future crisis. Privatization in the midst of the greatest economic downturn since the Great Depression would have caused households to have lost even more of their assets, had their investments been invested in the U.S. stock market or in funds exposed to complicated and high risk financial instruments.

Privatizing social security might therefore increase economic growth in the boom times but this would be at the expense of sharper downturns. Proposition’s argument implicitly assumes that the money at the moment does not improve economic growth. On the contrary the government is regularly investing the money in much the same way as private business would – and often on much more long term projects such as infrastructure that fit better with a long term saving than the way that banks invest."
Candidate 2: "Social Security is not in crisis and there is no need for privatization. Social Security is completely solvent today, and will be into the future because it has a dedicated income stream that covers its costs and consistently generates a surplus, which today is $2.5 trillion.

Proposition’s dire prediction of the collapse of social security’s financial situation is misleading. The Social Security surplus will grow to approximately $4.3 trillion in 2023, and that reserves will be sufficient to pay full benefits through to 2037. Even after this it would still be able to pay 78%. Moreover, there are plenty of ways to reform Social Security to make it more fiscally sound without privatizing it, including simply raising taxes to fund it better. [1]

Furthermore the problem that affects social security of falling numbers of contributors to each retiree will also affect private pensions, at least in the short to medium term, just in a different way. If all younger pensioners went over to just paying for their own future retirement who is to pay for current retirees or those who are shortly to retire. These people will still need to have their pensions paid for. They will not have time to save up a personal pension and so will be relying on current workers – but such workers will not want to pay more when they are explicitly just paying for someone else as they are already paying for themselves separately.

[1] Roosevelt, James."Social Security at 75: Crisis Is More Myth Than Fact." Huffington Post. 11 August 11 2010. http://www.huffingtonpost.com/james-roosevelt/social-security-at-75-cri_..."
Candidate 3: "Nobel Laureate economist Paul Krugman. Argued in 2004 that: “Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it." [1] The problem with Social Security is not that it does not work, nor that it fails the poor. Rather, as Krugman notes, social security uses limited taxation to implement a clear and successful vision of social justice. As a consequence, the social security system has been repeatedly attacked by right wing and libertarian politicians. Such attacks are not motivated by the merits or failure of the social security system itself, but by political ambition and a desire to forcefully implement alternative normative schema within society.

Privatizing Social Security would require costly new government bureaucracies. From the standpoint of the system as a whole, privatization would add enormous administrative burdens – and costs. The government would need to establish and track many small accounts, perhaps as many accounts as there are taxpaying workers—157 million in 2010. [2] Often these accounts would be too small so that profit making firms would be unwilling to take them on. There would need to be thousands of workers to manage these accounts. In contrast, today’s Social Security has minimal administrative costs amounting to less than 1 per cent of annual revenues. [3]

It is also unlikely that individuals will be able to invest successfully on their own, although they may believe they can, leading to a great number of retirees actually being worse off after privatization.

[1] Paul Krugman. "Inventing a crisis." New York Times. 7 December 2004. http://www.nytimes.com/2004/12/07/opinion/07krugman.html?_r=2&amp;scp=539&amp;sq...

[2] Wihbey, John, ‘2011 Annual Report by the Social Security Board of Trustees’, Journalist’s Resource, 9 June 2011, http://journalistsresource.org/studies/government/politics/social-security-report-2011/

[3] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf"
Candidate 4: "Privatising social security will harm retirees

As Greg Anrig and Bernard Wasow of the non-partisan think tank the Century Foundation argue: "Privatization advocates like to stress the appeal of 'individual choice' and 'personal control,' while assuming in their forecasts that everyone’s accounts will match the overall performance of the stock market. But… research by Princeton University economist Burton G. Malkiel found that even professional money managers over time significantly underperformed indexes of the entire market.” [1] Most people don’t have the knowledge to manage their own investments. A Securities and Exchange Commission report showed the extent of financial illiteracy for example half of adults don’t know what a stock market is, half don’t understand the purpose of diversifying investments and 45% believe it provides “a guarantee that [their] portfolio won’t suffer if the stock market falls” [2] Including all the management costs it is safe to say that growth from individual accounts will be lower than the market average.

The private sector is therefore in no better a position to make investment decisions than the state. Privatised accounts would bring their own problems. They are vulnerable to market downturns. Despite crashes the long term return from shares has always been positive. But this does not help those that hit retirement age during a period when the stock market is down. With private pensions people would be relying on luck that they retire at the right time or happened to pick winning stocks. [3]

The economist Paul Krugman has pointed out, privatizers make incredible assumptions about the likely performance of the market in order to be able to justify their claim that private accounts would outdo the current system. The price-earnings ratio would need to be around 70 to 1 by 2050. This is unrealistic and would be an immense bubble as a P/E ratio of 20 to 1 is considered more normal today. [4]

If returns are low then there the added worry that privatized social security may not beat inflation. This would mean that retiree’s pensions become worth less and less. At the moment Social Security payouts are indexed to wages, which historically have exceeded inflation so providing protection. Privatizing social security would have a big impact on those who want to remain in the system through falling tax revenues. Implementing private accounts will take 4 per-cent of the 12.4 per-cent taken from each worker’s annual pay out of the collective fund. Thus, almost a 3rd of the revenue generated by social security taxes will be removed. Drastic benefit cuts or increased taxes will have to occur even sooner, which is a recipe for disaster. [5]

It is for reasons such as these that privatization of similar social security systems has disappointed elsewhere, as Anrig and Wasow argue: "Advocates of privatization often cite other countries, such as Chile and the United Kingdom, where the governments pushed workers into personal investment accounts to reduce the long-term obligations of their Social Security systems, as models for the United States to emulate. But the sobering experiences in those countries actually provide strong arguments against privatization. A report last year from the World Bank, once an enthusiastic privatization proponent, expressed disappointment that in Chile, and in most other Latin American countries that followed in its footsteps, “more than half of all workers [are excluded] from even a semblance of a safety net during their old age.”” [6] Therefore privatizing Social Security would actually harm retirees and undermine the entire system, and so Social Security should not be privatized.

[1] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf

[2] Office of Investor Education and Assistance Securities and Exchange Commission, ‘The Facts on Saving and Investing’, April 1999, http://www.sec.gov/pdf/report99.pdf pp.16-19

[3] Spitzer, Elliot. "Can we finally kill this terrible idea?" Slate. 4 February 2009. http://www.slate.com/articles/news_and_politics/the_best_policy/2009/02/privatize_social_security.html

[4] Spitzer, Elliot. "Can we finally kill this terrible idea?" Slate. 4 February 2009. http://www.slate.com/articles/news_and_politics/the_best_policy/2009/02/privatize_social_security.html

[5] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf

[6] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf"
Candidate 5: "The problems with the social security are systemic, not inherent

Social security is currently solvent and will be into the future due to its dedicated income stream that consistently generates a surplus, which today is $2.5 trillion. This surplus will even grow to approximately $4.3 trillion in 2023, It is only after 2037 when there will begin to be a deficit.(11)

Side opposition will concede that there is a long-run financing problem, but it is a problem of modest size. There would only need to be revenues equal to 0.54% of GDP to extend the life of the social security trust fund into the 22nd century, with no change in benefits. This is only about one-quarter of the revenue lost each year because of President Bush's tax cuts. [1]

Budget shortfalls- of the sort that side proposition’s case is based on- Nobel Laureate economist Paul Krugman argues: " has much more to do with tax cuts - cuts that Mr. Bush nonetheless insists on making permanent - than it does with Social Security. But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one." [2]

Krugman goes on to argue against the twisted logic of privatization: “My favorite example of their three-card-monte logic goes like this: first, they insist that the Social Security system's current surplus and the trust fund it has been accumulating with that surplus are meaningless. Social Security, they say, isn't really an independent entity - it's just part of the federal government… the same people who claim that Social Security isn't an independent entity when it runs surpluses also insist that late next decade, when the benefit payments start to exceed the payroll tax receipts, this will represent a crisis - you see, Social Security has its own dedicated financing, and therefore must stand on its own. There's no honest way anyone can hold both these positions, but very little about the privatizers' position is honest. They come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success.” [3]

There are many other ways to improve and reform Social Security without privatizing it. Robert L. Clark, an economist at North Carolina State University who specializes in aging issues, formerly served as a chairman of a national panel on Social Security's financial status; he has said that future options for Social Security are clear: "You either raise taxes or you cut benefits. There are lots of ways to do both." These alternatives are also backed by the American people. The American people, despite voting for Republicans, have said over and over in polls that they would pay more in taxes to save entitlements such as Social Security. [4] Therefore Social Security is not fundamentally unsound, and alternative reforms should be made without privatizations.

[1] Paul Krugman. "Inventing a crisis." New York Times. 7 December 2004. http://www.nytimes.com/2004/12/07/opinion/07krugman.html?_r=2&amp;scp=539&amp;sq...

[2] Paul Krugman. "Inventing a crisis." New York Times. 7 December 2004. http://www.nytimes.com/2004/12/07/opinion/07krugman.html?_r=2&amp;scp=539&amp;sq...

[3] Paul Krugman. "Inventing a crisis." New York Times. 7 December 2004. http://www.nytimes.com/2004/12/07/opinion/07krugman.html?_r=2&amp;scp=539&amp;sq...

[4] Dick, Stephen. "Op-Ed: Yes, leave Social Security alone." CNHI News Service. 19 November 2010. http://record-eagle.com/opinion/x877132458/Op-Ed-Yes-leave-Social-Securi..."
Candidate 6: "Privatising the social security system would harm economic growth

Creating private accounts could have an impact on economic growth, which in turn would hit social security's future finances. Economic growth could be hit as privatizing Social Security will increase federal deficits and as a result debt significantly, while increasing the likelihood that national savings will decline which will happen as baby boomers retire anyway and draw down their savings.

An analysis by the Centre on Budget and Policy Priorities shows that the proposed privatization by Obama would add $1 trillion in new federal debt in its first decade of implementation, and a further $3.5 trillion in the following decade. [1] Because households change their saving and spending levels in response to economic conditions privatization is actually more likely to reduce than increase national savings. This is because households that consider the new accounts to constitute meaningful increases in their retirement wealth might well reduce their other saving. Diamond and Orszag argue, 'If anything, our impression is that diverting a portion of the current Social Security surplus into individual accounts could reduce national saving.' That, in turn, would further weaken economic growth and our capacity to pay for the retirement of the baby boomers." [2]

The deficit, and as a result national debt, would increase because trillions of dollars which had previously been paying for current retirees would be taken out of the system to be invested privately. Those who are already retired will however still need to draw a pension so the government would need to borrow the money to be able to pay for these pensions. [3]

Contrary to side proposition’s assertions, privatization also would not increase capital available for investment. Proponents of privatization claim that the flow of dollars into private accounts and then into the equity markets will stimulate the economy. However, as the social security system underwent the transition into private ownership, each dollar invested in a financial instrument via the proprietary freedoms afforded to account holders, would result in the government borrowing a dollar to cover pay outs to those currently drawing from the social security system.

Thus, the supposed benefit of a privatised social security system is entirely eliminated by increased government borrowing, as the net impact on the capital available for investment is zero. [4]

While four fifths of tax dollars for social security is spent immediately the final fifth purchases Treasury securities through trust funds. Privatization would hasten depletion of these funds. President Bush proposed diverting up to 4 percentage points of payroll tax to create the private accounts but with payroll currently 12.4% this would still be significantly more than the one fifth that is currently left over so depleting reserves. Funds now being set aside to build up the Trust Funds to provide for retiring baby boomers would be being used instead to pay for the privatization accounts. The Trust Funds would be exhausted much sooner than the thirty-eight to forty-eight years projected if nothing is done. In such a short time frame, the investments in the personal accounts will not be nearly large enough to provide an adequate cushion. [5]

[1] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf

[2] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf

[3] Spitzer, Elliot. "Can we finally kill this terrible idea?" Slate. 4 February 2009. http://www.slate.com/articles/news_and_politics/the_best_policy/2009/02/privatize_social_security.html

[4] Spitzer, Elliot. "Can we finally kill this terrible idea?" Slate. 4 February 2009. http://www.slate.com/articles/news_and_politics/the_best_policy/2009/02/privatize_social_security.html

[5] Anrig, Greg and Wasow, Bernard. "Twelve reasons why privatizing social security is a bad idea". The Century Foundation. 14 February 2005. http://tcf.org/media-center/pdfs/pr46/12badideas.pdf"

Social Security is not in crisis and there is no need for privatization. Social Security is completely solvent today, and will be into the future because it has a dedicated income stream that covers its costs and consistently generates a surplus, which today is $2.5 trillion.

Proposition’s dire prediction of the collapse of social security’s financial situation is misleading. The Social Security surplus will grow to approximately $4.3 trillion in 2023, and that reserves will be sufficient to pay full benefits through to 2037. Even after this it would still be able to pay 78%. Moreover, there are plenty of ways to reform Social Security to make it more fiscally sound without privatizing it, including simply raising taxes to fund it better. [1]

Furthermore the problem that affects social security of falling numbers of contributors to each retiree will also affect private pensions, at least in the short to medium term, just in a different way. If all younger pensioners went over to just paying for their own future retirement who is to pay for current retirees or those who are shortly to retire. These people will still need to have their pensions paid for. They will not have time to save up a personal pension and so will be relying on current workers – but such workers will not want to pay more when they are explicitly just paying for someone else as they are already paying for themselves separately.

[1] Roosevelt, James."Social Security at 75: Crisis Is More Myth Than Fact." Huffington Post. 11 August 11 2010. http://www.huffingtonpost.com/james-roosevelt/social-security-at-75-cri_...
