the government could fund Social Security by paying down enough of its publicly-held debt now, while the OASDI surpluses are rolling in, to be in a good position to borrow later, when OASDI is running deficits. That's not technically "funding," but it's the functional equivalent, just as a family can save by paying down its mortgage.I don't think future retirement funding can be analyzed in purely financial terms, and I don't think the family analogy applies.
The problem with analyzing the future economy in purely financial terms is that money is only a call on future goods and services. The root cause of the Social Security "crisis" is that we will have more retirees per capita in the future than we have today. There will be fewer people producing goods and services, and more people consuming them. Saving money won't help that, it only means that there will be more money chasing that production, a good recipe for inflation.
Contrast this with the family mortgage. When a family pays down a mortgage, enabling future borrowing against their house, they're preparing to call on resources outside the family. If they later take out a loan, the money they obtain can be used to draw on production outside the family. By saving (whether by reducing debt or increasing assets), they increase their access to production. When we all (as embodied by the government) create or retire debt to ourselves, it doesn't change our ability to call on the resources of others.
Not all of the government's debt is owed to ourselves, of course. A lot of it is held by foreign investors and foreign governments. If we were to pay that down, we might indeed be able to cash in our advantageous financial position to ease the demographic burden. The problem there, however, is not the government budget, but the trade deficit. When we run trade deficits (as we've done for decades), those who sell to us goods reinvest the money we send them in our economy. If we refused to sell them government bonds (by running budget surpluses, for example), they'd be forced to buy stocks, real estate, etc. Either way, the more we sell today, the less we'll have to sell tomorrow. The national equivalent of paying down the mortgage would be running trade surpluses: accepting fewer goods from abroad today so that we'll have the resources to get the goods we need tomorrow. I don't see any sign of that happening.
What other alternatives are there?
We could invest today in the things we'll need tomorrow. That's a nice thought, but private investment today would chase today's returns, meeting the needs of today's society rather than the need's of tomorrow's aging society. Retirement housing seems like a fairly safe long-term bet, for example, but consider the difficulty of building retirement housing today, intending it to sit idle until it's needed. Medical systems would be even more difficult to pre-build because of the strong likelihood that they'll be obsolete by the time they're needed. It's difficult even to pre-train medical staff with an aging focus without patients to pay their salaries or provide them with experience. In a market economy, demand creates supply and supply nearly always trails demand. Why would the infrastructure to meet the needs of an aging society be any different?
We could try to reduce the trend towards inequality in income distribution. I wrote about this in detail months ago. The loss in productivity (and the implied loss in consumable goods and services) are roughly equal to the income shifted to the wealthiest of society over the last 20-30 years, and occurs over the same time period. Perhaps we can address tomorrow's problems by reversing the trend.
We could try to eliminate the demographic bubble by importing workers, skilled ones if we can't educate enough of our own to fill the skilled positions. This probably isn't practical due to the sheer scale of the problem. Even if it were, some of the trends in this area are worrisome. The easiest way to import skilled workers, after all, is to bring them here for graduate school and get them to stay. Over the last few years, foreign enrollment in grad schools has fallen.
Modest increases in the retirement age would eliminate the problem at a fiscal level, but would create inequities in fields where sixty-five is already old. Social Security isn't free of such problems today, but that's not a reason to make the problem worse.
Any others come to mind?
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