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Social Security Cost Of Doing Nothing

Joe Economist

Council Member
If Social Security is important to you at all, you should be paying attention to the cost of doing nothing.

During 2012, we did nothing, the cost of which was roughly $1 trillion. According to the trustees, the cost to maintain Social Security rose from 8.6 trillion in 2012 to 9.6 trillion in 2013. Basically, the system lost more money than it collected - in its entirety.

Another way to look at this dynamic is we lost more money not fixing Social Security than we spent on the entire military. If we diverted every penny that we spent on the military and eduction in 2012 to Social Security, the system would be slightly worse off financially at the end of 2012 than it was at the start.

Do I have your attention? No? Reagan was wrong. The nine most frightening words in the English language are : I'm your mother-in-law. I need a place to stay. How about now?

The problem for millennials isn't whether they will get Social Security benefits. The more immediate problem is whether their parents will get benefits. The Congressional Budget Office ("CBO") projects Social Security will pay depleted benefits in 2031. If so, every future retiree from now until eternity expects to outlive scheduled benefits.

CBO's projected imbalances are based on many economic uncertainties which may or may not come to pass. The one ingredient in this mess that we can measure with certainty is Time. This cost of time is detailed on page 66 of the 2013 Trustees Report which it says, "the unfunded obligation would have increased <from 8.6 trillion> to $9.1 trillion solely due to the change in the valuation period." This is the cost of doing nothing.

Doing nothings means that we didn't change the revenue intake, benefit formula, age requirements, COLAs, nor the number of quarters to qualify. We let the system run while politicians talked. In the 14 seconds that it took Obama to say, "Social Security is structurally sound", the system lost $221,968.54. (more if you count the time it took Romney to agree) Watch here : Barack Obama tells America that Social Security is "structurally sound" - YouTube

The Trustees explain why time is so expensive on page 66 of the 2013 Trustees Report. Both reasons are mathematical, which I am happy to detail. One reason has to do with the number of 'discount' years. The other reason is that we are replacing the cost of unbroken years with the cost of more broken ones. So without knowing what interest rates will be, or unemployment, or birth rates, I know with mathematical certainty that time has added more than $500 billion to the cost of Social Security in 2013 because of nothing.

Politicians will tell you that we have time to fix Social Security. Comically enough, time is the one thing that we know for certain will make Social Security worse.
 
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