Thursday, November 7, 2013

Note to Center for American Progress: Social Security Is a Raw Deal for Millennials

I am a millennial, and like most millennials, I am so worried about the future of Social Security that I do not even think it will be there for me when I retire. Proponents of Social Security like to pass it off as this benign program that will not only last into the foreseeable future, but also helps the disadvantaged and provides economic security to its beneficiaries. A good example of that mentality is from the Center of American Progress' (CAP), a Left-leaning think-tank. Look at its latest piece on Social Security entitled "Top 5 Reasons Young People Should Fight to Strengthen--and Not Cut--Social Security." No surprise here: I disagree vehemently. But let's go through their Top 5 list to see why their notion of Social Security being a solution for millennials is a misconceived one:

1. Millennials will need Social Security to retire, maybe even more than their parents.

Response 1a: I had to look back at one of my books from graduate school entitled A Practical Guide for Policy Analysis (p. 7) for this one. The entire CAP article suffers from a major pitfall, but in this particular point, the pitfall mentioned in the book is that you do not define the solution into the problem. To say that there is not enough funding in Social Security is a flawed framing of the problem because one does not implicitly include Social Security into the solution. We need to identify the actual problem.

Response 1b: The problem that Social Security tries to solve is an issue of people not having enough saved for retirement, that is to say, the average propensity to save is too low. CAP opines that millennials need Social Security needs to be strengthened because the private retirement system is failing. That is simply false. As the Cato Institute points out, private investment is still a better deal than Social Security. I looked at the numbers a few months back, and compared to Treasury bonds, corporate bonds, or the stock market, these alternatives have a higher rate of return than Social Security.

Response 1c: There are other policies that can encourage millennials to acquire skills, as well as increasing income to provide millennials more money for savings. Decreasing tax rates comes to mind. Considering how burdensome student debt can be, one can offer some reform in higher education. There is also the option of decreasing onerous regulations that prevent businesses from hiring, just to name a few ideas.

2. Conservatives pose the most serious threat to Social Security.

Response 2a: This goes back to problem framing. CAP defines the solution of Social Security into the problem, which makes those who want to actually decrease the debt-to-GDP ratio become the bad guys. I can re-frame this in a different way to reverse roles. We have a looming debt crisis that we cannot afford to delay. Social Security is about 22 percent of the federal budget, which also means about 5 percent of the GDP. Social Security might not be the primary driver in federal spending growth (that would be healthcare spending), but being five percent of the GDP with an already rising debt-to-GDP ratio is not exactly helping the situation.

Response 2b: Let's ignore the perturbing SSA trust fund ratios, and for argument's sake, let's say that CAP's analysis about removing the cap for high-income workers is correct (it might not be), and that Social Security can be fixed that easily. It still does not negate the fact that Social Security is a threat to economic freedom, not to mention impeding retirees from having the most amount of savings possible (See Response 1b).

3. Social Security benefits workers of all ages, including 3.5 million millennials that receive benefits.

Response 3a: I'm confused as to why children are brought up in CAP's analysis, especially when millennials (Generation Y) are defined as those born between 1982 and 1994. There is a separate consideration for Generation Y and Generation Z. But even if we were to argue that the age range on the term 'millennial' can be debated, the "young people" that CAP refer to need to be old enough (arguably at least 18 years old so they can vote) to fight for Social Security.

Response 3b: Going with the definition set in Response 3a, let's see how many derive benefit from Social Security. 384,393 are disabled worker beneficiaries, 16,863 are young widow beneficiaries, 861 are spouses of retired worker beneficiaries, 622,622 are surviving child beneficiaries, and 271,529 are children of retired workers beneficiaries. The grand total of millennials is less than a million.

Response 3c: More millennials currently benefit from Social Security disability than the retirement system, which is in fiscal trouble. Going back to those SSA trust fund ratios, the disability fund is projected to be depleted in 2016. I guess that millennials won't be receiving disability benefits for much longer.

4. Social Security eases the financial burden of seniors' retirement on their children. 

Response 4a: According to the SSA, Social Security benefits account for 39% of one's income, which comes out to average monthly benefits of $1,296. For 36 percent of retirees, Social Security provides at least 90 percent of one's income. I know that poverty is not anything new, but how did we get to the point where so many people have become dependent on government?

Response 4b: CAP brings up that "millennials who only recently moved out of their parents' houses could find their parents moving in with them."Again, millennials range from age 19 to 32. Although one can receive benefits at age 62, full retirement age is at age 67. Looking at retiree age breakdown and historic median age for first birth, I have to question the probability, or in this case, improbability, of that taking place.

Response 4c: If we're worried about the affordability of millennials taking care of their parents, we should focus on policy to increase one's disposable income. See Response 1c.

5. We can invest in millennials and pay for Social Security. 

Response 5: CAP was correct to say that they are not mutually exclusive options. While this statement is technically true, it still begs the question why we should invest in Social Security. Social Security has a lower rate of return than alternative forms of investment, it increases government dependency, disincentivizes savings, quashes economic freedom, and it exacerbates the debt crisis, which millennials will pay for dearly via a higher rate of taxation over time. We should invest in millennials, but we should also work on privatizing retirement accounts so millennials can have a brighter future.

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