Monday, August 23, 2010

By The Numbers

(text based on my Toastmasters speech)

Anybody know what this number is: 43,021?

How about this number: 13,337,169,671,750?

What if I add $ before each:


If you haven't figured it out, $13 trillion is the current US National Debt (as of 8/17/2010 according to $43,021 number is the debt per citizen of the United States.

Those are pretty big numbers and they are not slowing down in their growth.

So what is the problem with this debt? Primarily our loss of liberty and freedom. We become beholden to the debt holders and to those that continue to buy our debt. The top three holders of our debt are China (21%), Japan (20%), and England (9%). I don't know about you but I don't want to be beholden to China.

So what can we do about this? Quite simply, we have to pay down our national debt and the only way to do that is to change our budgeting ratio... and that is to have more revenue then US federal spending.

So how do we do that?
  • Increase taxes
  • Increase Revenues by stimulating growth
  • Cut Spending
  • Or some combination.

So lets take a quick look at spending and I'm going to want to focus on one item in the budget. The pie chart below (found on Wikipedia ) shows a general breakdown of the 2010 Federal budget. At 19.63% is Social Security; Defense budget comes in at 18.7% of the budget, unemployment, welfare, and pensions are 16.3%; etc... Most of these items get negotiated between the Congress and the Executive branches of government every year but there is one item that doesn't really get touched because it is considered one of the "rails" of politics and that is Social Security.

I want to posit that we have to do something about SS if we want to get a handle on this debt.

SS was established in 1935 by President Roosevelt. The act was an attempt to limit what were seen as dangers in the modern American life, including old age, poverty, unemployment, and the burdens of widows and fatherless children. It was initially setup as an insurance program in which payouts would come out of a built up reserve but the plan quickly built up reserves of $2B which was deemed as too much. So in 1939 an amendment was passed that basically shifted SS into a "pay as you go" system. At the time that made a lot of sense because there where 40 workers per retiree but compare that to 2010 where we are at 3.1 workers per retiree you can understand one of the pressure points.

Another "pressure point" or "problem" has been the changing lifespan of the American worker. Consider that in 1940, of the male population that reached the age of 21, only 53.9% survived to the age 65 and when that population reached 65 their expected remaining lifespan was 12.7 years. For females it was 60.6% and 14.7 years. Flash forward to 1990 and with the advances in medicine and improvements in lifestyle, the percentage of males reaching 65 is now 72.3% and they are living 15.3 years longer. Females it is 83.6% and they are living 19.6 years. There are more workers reaching 65 and those that do are living longer.

From an actuarial perspective, you have a "pay as you go" plan with a decreasing base supporting an increasing number of retired folks... who are living longer. It isn't sustainable.

So what can we do about this?

What I would like to suggest to you all is that we open up to discussions about possible options to address the cost curve for SS. Let's not immediately dismiss suggested solutions but instead put them all on the table for consideration. Some possible solutions that have been proposed by various individuals include:

  • Raising FICA rates.
  • Raising retirement age
  • Phasing out the plan in favor of funded investment plans (401K style).

What ever is considered we all need to understand that the current trajectory is not sustainable. The increasing federal debt levels are putting more and more pressure on our liberties and freedoms.

Some suggested links:

Paul Ryan's Roadmap for Social Security
The Democrat's Plan