IANAE (I am not an econimist). However, I've been reading pretty much everything about the Social Security reform debate. And there is one huge thing that pretty much everybody is missing. Left, right, center. The only place I've heard it mentioned is a couple of the commentator's over at DeLong's site, and that's just once.
The reason that we're even talking about the "crisis" is a simple one. There's a population bump that's just about to retire, like a big ol' zit being popped. That bump is so big, that it makes it "hard" for the younger generations to support them.
However, the SSR debate, left right and center, is assuming that this mass retirement is going to happen in a vacumn. That it's not going to have any other effects on the economy...
It wil..
Any discussion on this topic, without at LEAST understanding the other principles at play, is foolish at best, and downright dishonest at worst. Period. So for your information, here are the 3 big effects of the baby boom retirement.
#1. Health Care. Duh. An already overworked and overcosted system is going to be pushed to the breaking point. This is going to make it much harder for younger people to get well quicker, dropping productivity. Unless the system is fixed of course. This is what SHOULD be job #1. And it can't be done politically or ideologically. It has to be done RIGHT, or to be blunt, the American economy is doomed. It'll be too expensive to offer health care as a benefit.
#2. The job market. What you're going to have, is that a lot of people are going to be LEAVING their jobs, creating a much more competitive labour market, raising wages and job standards if companies want to compete for new workers. This will have the effect of raising wages, which will have the effect of increasing the tax base, which will help with the Social Security problem in the first place.
The % of GNP that goes towards taxation is not fixed. Some income, as we know, is taxed more than others. Labour income tends to be taxed at an absurdly high rate...which is wrong..but as long as it is, higher wages will increase tax returns.
BTW, this is a good positive sign for the economy.
#3. The 401k implosion. Got stocks? My unprofessional advice would be to sell them now. Why? For 30-40 years the growth of the stock market has been basically run along by various retirement plans, as the baby boomers have made their money.
what's going to happen when they start to retire? They're going to sell their stocks. And that's going to create downward pressure on the market, pressuring people at or near retirement to take the slight loss and get out of the game completly...
Which is going to crash prices.
If SSR is put into place, I figure there MIGHT, MIGHT be a chance that the added money going into investment COULD cover the retirement, smoothing over that problem, at least for the time being, maintaining current prices.
I MIGHT be willing to listen to that argument...if anybody was actually making it. I suspect that some people are thinking this with SSR, but don't want to mention it because of the political backlash.
I'm not a fan of the stock market. I think that for the most part, it's pretty much a ponzi scheme in its current form. With your investment, you're waiting for either dividends that may never happen, or some sort of buyout, which is bad for the economy at large in the long run. It's a negative bet. HOWEVER, considering the importants that society puts into a stable stock market for investing and savings, I might be able to overlook that just to maintain people's life savings and dignity.
In any case, it's clear that with the current arguments, there's no crisis, at least with Social Security. There is a budget crisis, a health care crisis, and a current moral and cultural crisis (with labour not being valued enough and wealth being valued FAR too much), but if you want SSR? You're actually going to have to start talking about the real world, not statistical models. And if you DON'T want SSR? Please start doing the same.