Summary: Here are some ugly numbers for August from the Chief Actuary of the Social Security system. This is a follow-up to Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime. (14 August 2009).
Contents
- Monthly cash flow in 2009 for the US Social Security Administration
- FM recommendations
- Other recent articles about this slowly developing crisis
- How does the US health care system compare to that of other nations? (update)
- Afterword and For More Information on the FM site
(1) Monthly cash flow of the US Social Security Administration
| Month | Cash in | Outgo | Surplus/Deficit | YoY $ | YoY % |
| Jan-09 | $71,854 | $55,290 | $16,564 | -$2,906 | -15% |
| Feb-09 | $54,413 | $55,760 | -$1,347 | -$3,863 | -154% |
| Mar-09 | $58,669 | $56,135 | $2,534 | -$4,935 | -66% |
| Apr-09 | $77,081 | $56,596 | $20,485 | -$3,827 | -16% |
| May-09 | $54,408 | $56,330 | -$1,922 | -$5,068 | -161% |
| Jun-09 | $61,156 | $61,383 | -$227 | -$6,553 | -104% |
| Jul-09 | $56,345 | $56,890 | -$545 | -$4,207 | -115% |
| Aug-09 | $50,657 | $56,490 | -$5,833 | -$5,642 | -2954% |
Notes:
- In millions of dollars. Big money — aprox 5% of US GDP.
- YoY means Year-over-Year (e.g, August vs. August).
- This does not include the Medicare Trust Fund, for which I see only annual data. Its contributions probably show the same trend.
- Quarterly contributions arrive in March, June, etc. April, of course, is a big month for contributions.
- Does not include “interest” paid by the government to itself, which is just another journal on the the government’s books.
- For more information see the source.
See the trend! The year-over-year change in the surplus was -$15.3B in the first four months of 2009, and -$21.5B in the second four months. Cash in was down 15%; cash out was up 3%. The latest forecasts were for the system to go cash-flow negative in 2016 (Medicare went into the red in 2004). August looks esp ugly, as Bruce Krasting warned us at his blog on 8 September 2009.
This does not mean that social security will go broke. Social security contributions are just taxes. Social security benefits are promises by the US government, and can be changed at will. Instead this marks an inflection point for the government’s solvency. For decades the taxes for Medicare and social security exceeded expenditures on those programs. The government spent this money.
This is the end of an era. As the boomers retire, expenditures for our social retirement programs begin their inexorable rise. Instead of funding the rest of the government, these programs become burdens. For the next few decades the government will find the deficit growing each year (all other things being equal). For more on this see “The biggest bailout yet“, Fortune, 17 August 2009). The coming wave of deficits are too large for any feasible tax increases to cover it. For more on the effects of various proposals, see these reports by the Chief Actuary.
(2) FM recommendations
- Taxes increase
- Social security and Medicare benefits get taxes and means-tested
- Other government programs get cut (e.g., our imperial but costly military)
Some combination of these three measures will do the job. The two maintain social peace by sharing the burden, and distributing scarce funds where most needed. The third represents inevitable belt-tightening, pruning now unaffordable luxuries.
It will be a new world, not the end of the world. Unless we cannot take these simple measures, and allow events to overwhelm us.
(3) Other recent articles about this slowly developing crisis
- “Social Security Myths“, Chuck Blahous, National Review, 4 May 2009
- “CBO predicts Social Security cash deficits in 2010-11“, Ed Morrissey, Hot Air, 22 September 2009
- “Job Losses, Early Retirements Hurt Social Security“, AP, 28 September 2009 — “Applications for retirement benefits are 23% higher than last year, while disability claims have risen by about 20%.”
(4) How does the US health care system compare to that of other nations?
This subject has been intensively studied for decades. These are a few sources, to help anyone interested get started.
(a) “Mirror, Mirror on the Wall: An International Update on the Comparative Performance of American Health Care“, Commonwealth Fund, 15 May 2007 — Abstract:
Despite having the most costly health system in the world, the United States consistently underperforms on most dimensions of performance, relative to other countries. This report—an update to two earlier editions—includes data from surveys of patients, as well as information from primary care physicians about their medical practices and views of their countries’ health systems. Compared with five other nations—Australia, Canada, Germany, New Zealand, the United Kingdom—the U.S. health care system ranks last or next-to-last on five dimensions of a high performance health system: quality, access, efficiency, equity, and healthy lives. The U.S. is the only country in the study without universal health insurance coverage, partly accounting for its poor performance on access, equity, and health outcomes. The inclusion of physician survey data also shows the U.S. lagging in adoption of information technology and use of nurses to improve care coordination for the chronically ill.
(b) The OECD has a large body of research comparing national health care systems by a wide range of metrics. See their Health Care page here. Esp note the following:
- “Private Health Insurance in OECD Countries“, September 2004
- “OECD Health Data 2006 – How Does the United States Compare“, 26 June 2006
- “Economic Survey of the United States 2008: Health Care Reform“, 9 December 2008
- “OECD Health Data 2009 – How Does the United States Compare“, 1 July 2009
(5a) Afterword
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
(5b) For more information from the FM site
To read other articles about these things, see the following:
- Good news about America, a collection of articles!
- About America – how can we reform it?
- About the Financial crisis – what’s happening? how will this end?.
- About The End of the Post-WWII Geopolitical Regime.
Reference pages about other topics appear on the right side menu bar, including About the FM website page.
Posts about the government’s finances:
- Forecasts – Why wait? Read tomorrow’s news … today! (part 3), 17 July 2006
- The post-WWII geopolitical regime is dying, 21 November 2007
- We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007
- The most important story in this week’s newspapers, 22 May 2008 — How solvent is the US government? They report the facts to us every year.
- The most important news of the month. Perhaps the year., 25 September 2008 — Warnings from our foreign creditors.
- Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
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Re comment #30: France is on the right side of the Laffer curve now with respect to elderly decisions on whether to retire now. “A Qualification of the Laffer Curve on the Continued Work Tax: The French Case“, Jean-Olivier Hairault, 2004.
For the young, the analysis is more complex. The two anchor points for the Laffer curve; (zero revenue, zero tax) and (zero revenue, 100% tax) are axiomatic. Argument is confined to the shape of the curve in the interior region. The curve likely shifts mainly in response to sustained onerous tax policy. Short lived inequities induced by emergencies might be taken in stride, but sustained inequities, (SS is potentially one such) will be eventually thrown off given human nature. Unless we are willing (and able) to use the gun, and the whip, the young will find a way to excape this tax.
Update on 42: I offer this article on the Laffer curve. As usual, the comments are better than the article. “Where We Are on the Laffer Curve“, Discover, 16 September 2009.
I like cuts in particular. I’d love to see HUD and Section 8 die, for example. I’d like every military base in Europe closed, but that’s a funny one, for I’ve had Europeans (esp. Germans) lecture me about US militarism but then when I say I want all US bases in Europe (and pretty much everywhere else) closed, the backpedalling begins: “But, but, think of the jobs that will be lost if the US bases go, the bases I just derided for their imperialism!” Sorry, that’s your problem, my European friends.
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Fabius Maximus replies: Add up the total of those things. Probably little more than a rounding error in the total budget.
I think the right ha a problem when it comes to articulating what they see is wrong with the GS programs.
It’s not the amount of dollars spent on program x. It is the effect that dollar has on the ‘beneficiaries’ of program x: Those poor that get free food and housing, the only cost to them is filling out a form; the middle class and rich who take out far more in medicare than they put in, i.e. the attitude that you can get something for nothing.
IMO, that the citizenry sits on their collective behinds while the various problems discussed here manifest at the city gates is a direct result of these policies.
The sharp decline in short-term social security revenues proves deceptive, since it derives from the sharp decline in employment. Thus this YoY chart is not representative. Overall, social security is in good shape, provided we add some fixes like slightly increasing the retirement age and eliminating the cap on income taxed to pay for social security. Means testing, raising the retirement age slightly (4 or 5 years) and eliminating the income cap for FICA taxes are not big changes, but they’ll suffice to make social security solvent for the foreseeable future.
FM is dead right that the big problem is medicare. That’s linked to the unlimited ever-escalating increase in U.S. health care costs, which are unsustainable.
Incidentally, one of the commenters above claimed “World military expenditure in 2008 is estimated to have reached $1.464 trillion in current dollars: “* The USA with its massive spending budget, is the principal determinant of the current world trend, and its military expenditure now accounts for just under half of the world total, at 41.5% of the world total;”
Sorry, that’s provably false. The USA alone spends 1.47 trillion dollars per year on its miliary, broadly defined to include NSA, NRO (satellite reconnaissance), CIA, black ops, military retirement, VA medical benefits, etc. The following chart tallies fairly closely with my own independent estimate of 1.33 trillion for total U.S. military expenditures: here.
For perspective, the U.S. currently wastes about 1 trillion dollars per year (of the 2.2 trillion spent on health care per annum, slated to rise to 4 trillion by 2012) in its grotesquely inefficient health care system compared to a single-payer system. If the U.S. also cut its defense spending by 80%, that would give us around 2 trillion dollars per year, or, if you preer not to run a deficit, 1 trillion in free spending money. You can repair a lot of infrastruture and pay down a lot of national debt if you dump 1 trillion dollars per year into the project.
The problem America faces is clearly not lack of money. We’ve got money squirting out our asses. Our problem is just that we’re wasting it.
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Fabius Maximus replies: {I’ve deleted my original reply, suffering brain failure when writing it. Let’s try again.
I agree with him (and with Prof Finel, above) that this problem is solvable with a modest amount of will and wit. Neither are evident today, nor are they guaranteed.
“social security is in good shape, provided we add some fixes”
Let’s rephrase that more accurately. Social Security is in terrible shape, but can be fixed by a few major changes. A massive tax increase, and substantial changes in benefits — dollars paid, taxation of, and qualifications of. The tax increase produces the most results, by far. For details see Summary of Provisions That Would Change the Social Security Program, by the Social Security.
All of which is reasonabe. Lifting the limit on FICA taxes woudl restore the lost progressitivity to our tax system, and means-testing benefits provides necessary social equity during the tough times to come.
I don’t buy that the solution is to privatize Social Security. Put Social Security in the stock market? I was awake over the last 12 months, so no.
Would our financial system even be able to handle that kind of infusion of cash? How much would just be stolen or funneled off? What kind of government bureaucracy would be needed to run a national 401(k)? How much would we have to borrow to maintain benefits for current retirees?
Social Security should continue as it has been: A safety net. It’s not designed to give you a comfortable living. It’s designed to provide a backup if you spent 20 years working for a buggy whip maker.
Fabius is right. Cut defense spending, trim Social Security, and reform health care.
I believe I said that social security’s problems are minor compared to those of Medicare, and that social security’s problems can be solved with relatively minor tweaks. Every reputable authority and economist agrees with my facts and figures on this. Moreover, you are basically agreeing with my facts and figure, so the reason for your snark is not obvious.
The OECD report you cite has out of date graphs which fail to show the trend lines of health care costs in each country over time, in particular they don’t show the geometric growth in U.S. health care costs over the last 30 years.
Here’s a much better chart that does show the trend lines in comparative medical costs among European countries compared to America. This NYTimes chart is also more up to date.
Predictions of fiscal catastrophe made over a 45 year time horizon prove inherently wobbly. We just don’t know what will happen 45 years down the road. (As just one example of economic imponderables, what happens if repraps take off and nanotechnology gets going and capitalism as we know it disappears because anyone can fab anything they want on their living room table reprap, from a laptop to a dinette set? I agree that this seems absurdly farfetched today — but the internet would have seemed absurdly far-fetched to people trying to predict economic growth in 1964. If you’d told anyone in 1964 that major newspapers would collapse because average folks could download news into their cellphones, they’d think you were insane or dreaming. What will daily life be like 45 years from now? How will our economy work 45 years from now? At the rate technology is advancing, I don’t think anyone knows, or can credibly claim to know today.)
What we do know for a solid fact is that if we were to throw, say, 1.5 trillion per year at our net future entitlement obligations over the next 45 years, America’s net future entitlement obligations would decline to something manageable, down from an estimated net of 78 trillion dollars today over the next 45 years to around 10 trillion over the next 45 years. As I pointed out, America has the cash to do that. We merely refuse to stop pissing all that money away on losing wars in third world hellholes and a private health care system that compares poorly to that of a nearby similar-language and similar-culture country, Canada.
It’s not a matter of lack of money. America has tons of money. We’re just pissing it away on worthless wasteful lunacy (3 trillion for a lost war in Iraq, 1 trillion for a lost war in Afghanistan), like a drunken sailor paying ten grand a pop to get his butt tattooed.
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Fabius Maximus replies: While I agree with most of this (and you are right, I mis-interpreted your previous comment), this is strikingy half-right — and half wrong.
“We just don’t know what will happen 45 years down the road.”
Yes, just as folks said in 1900. At that point the future looked quite bright. But of the next 45 years, 11 were consumed by world wars and 10 with the world infected by Depression. The future holds many things. Your apparent assumption that the future holds only unexpected wonderful things show great optimism, but history shows other possible paths.
I disagree with your recommendations. Why not cut social security? That’d solve the problem.
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OK, young folks, you wanted hope and change. Now you got it. The IRS and other government agencies will take 50-70% of your income for the rest of your life. That’s assuming you can find a job, which literally half of you can’t. You overwhelmingly voted for Obama, now bend over and take it. Then get your butt to work.
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Fabius Maximus replies: Get a grip on yourself. These are nightmares, like scary monsters under a child’s bed. When you can provide actual analysis to support these things, report back.
28% federal tax bracket for a successful person/couple, FICA, Medicare, state tax, property tax, etc. Already around 50%. Add forced health insurance at above-market rates (community rating). Or pay a fine.
Highly publicized news this week that unemployment among the young (I think it was ages 18-24; it’s close to that) is 52%-plus. Unemployment gets worse every month; 21 in a row I read today.
I am right; you are wrong.
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Fabius Maximus replies: Arrant nonsense.
(1) Very few people — and a tiny number of young people — pay the maximum tax brackets. The 28% marginal income Federal tax rate you mention appplies in 2009 only to households with income over $137,000 (joint filing) — far less than 10% of all households. Far less than 1% of households pay a Federal tax rate of 28% on their full income. (Note: much of the rich’s income consists of long-term capital gains taxed at 20%.
(2) From a larger perspective, your statement is even less accurate. Including all taxes, the US has a de facto a flat rate. That is, total taxes as a percent of income do not increase substantially with income. Many US taxs have a flat rate (property, sales, FICA) or are lower for the wealthy (taxes on capital are lower than those on earned income).
(3) As for your comments about unemployment, since WWII the US has been in a recession aprox 1 of every 5 months. Recessions are part of the business cycle, which is life. Can you cite any expert forecast to support your assumption that the recession will last through the lifetimes of today’s young people?
For links to articles discussing the above, see Inequality in the USA (7 January 2009). See Wikipedia for more about US tax rates:
* Distribution of Income in the US
* Capital gains tax in the United States
* Tax brackets in the US
@C. White
I am wondering, is living in Sweden so bad, especially when you have a small income?
FB –
Your warnings about government solvency would be much more convincing if you could come up with a good definition of what “solvency” means in the context of a currency issuer in a floating rate regime. Also, I’d recommend reading this recent debate between the Australian (no, not the loony goldbug liquidationists – the country Down Under) economists Steve Keen and Bill Mitchell, and the reader comments therein. It might give you a better grasp of the operational realities of such a regime.
Steve’s beginning. Bill’s (first) reply.
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Fabius Maximus replies: Your comment would be more interesting if phrased as a question, since I (and hundreds of others) have discussed this issue at such great length. For a starter, look at this collection of analysis: We have been warned. Death of the post-WWII geopolitical regime, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions. Pick one that looks interesting at start there.
FM-Also for your reading pleasure, here is a link to “The Kansas City School” of economics. I myself am still digesting this. It looks pretty good so far. “The Sector Financial Balances Model of Aggregate Demand—Revised“, By Scott Fullwiler (Associate Prof of Economics at Wartburg College), posted at the blog for Policy Analysis from the Faculty at the University of Missouri-KC, 26 July 2009.
What is this, Jeopardy? Ok, here goes: what, in your opinion, are the conditions under which the U.S. Federal governement would be “insolvant”?
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Fabius Maximus replies: There are several posible conditions. The two most likely:
(1) Under conditions in which its ability to fund necessary (a political term) expenditures becomes problematic. That is, when the fiscal deficit becomes so large that it becomes destabilizing to raise the necessary funds by conventional means — taxation, confiscation, borrowing, or monitization.
(2) When rolling over the outstanding debt stock becomes problematic, as above.
Both are commonplace events. The first often leads to hyperinflation, as the least-worst alternative. The second often results in default (preceeded by a period in which the government loses its ability to easily fund the fiscal deficit by conventional means, and resorts to borrowing in foreign currency).
Note these conditions can result from a wide range of factors — political, military, environmental, etc.
Mae West was not speaking of government finance when she said “To much of a good thing is wonderful.”
The IMF was created to provide an alternative to hyperinflation and default, and has work quite well. Although with controversial effects on the domestic economy of its “clients”. Some critics believe the primary beneficiaries of IMF aid are foreign creditors.
Update: looks like another FICA deficit in September
“September – Another Stinker for SSTF“, Bruce Krasting, 5 October 2009
He’s been right so far. This is bad news for the US government, as social security swings from a souce of cash into a cash drain.
Well if you (say) simply copied the Australian system you would save (at current numbers) 5% of GDP on health costs … and get better outcomes (yes we outlive you)
Which shows just how inefficent your system is. In fact the US system is the poster child of ‘how not to do a health system’.
Thats a lot of money. Hey if you really did it (nah no chance) then everyone of you has 5% more income in your pocket. Now that is a tax cut.
If somehow the people in the US would actually recognise that there are actually other countries in the World. And amazingly some of them do some things better than you do (I know we are stretching credibility here, but that what science fiction is for … to speculate).
So in the spirit of science fiction imagine an Australian (or Canadian or German, or … the list is endless) health system in the US. Imagine all the money you would have in your pockets and the better health to boot!
Yep I know, as likely as warp drive (which the Europeans or Chinese will invent anyway).
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Fabius Maximus replies: You touch upon one very damaging aspect of “American exceptionalism” (which IMO has become a pathology) – a bad case of “not invented here”. We could use the health care system of a dozen nations (not the UK) as a model or template, and certainly get a well-tested system far superior to our own. But we’re emeshed in a webs of special interests, like Gulliver tied down by the Lilliputians.