Mainstream Economist: Retirement is History

You probably knew already that retirement was over, but it is worth noting that a liberal economist is admitting it.

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Of course, she doesn’t hold herself or the institution where she once worked (the Federal Reserve system) in any way responsible for the mess.

From the Boston Globe: “A warning on realities of work, retirement.”

Alicia Munnell has never been one to sugarcoat her opinions. As a top economist at the Federal Reserve Bank of Boston in 1991, she shook up the New England banking industry by documenting discriminatory lending practices.

As an official in the Clinton administration, she opposed the balanced-budget amendment because it would cut Social Security and defense spending. And as a researcher, she warned that government insurance designed to protect workers and their pension plans wasn’t adequate to cover funding shortfalls faced by struggling companies.

Yes, Munnell is obviously evil. Her accusations against the New England banking industry may have helped the housing bubble. (Does it sound at all credible that bankers would fail to loan to anyone they thought would pay them back?) Opposing a “balanced-budget” amendment because of possible defense cuts, after the Berlin wall had been torn down, sounds aggressively greedy. Given our levels of debt now, and their drag on the economy, her own argument probably contributed to the disaster she sees now.

Now approaching 72, Munnell remains unapologetically blunt and this time her target is the US retirement system. “The idea that people can retire at 62 and walk around holding hands on the beach, it’s not realistic,” she said.

Munnell, director of Boston College’s Center for Retirement Research, has completed a new book that concludes the golden age of retirement is over and Americans must adjust their practices and expectations. In the book, “Falling Short: The Coming Retirement Crisis and What to Do About It,” Munnell and her co-authors argue that retirement security in the 21st century means working longer, saving more, and passing fewer assets on to heirs.

The book, to be released Dec. 12, serves as a clarion call for new thinking and policies on retirement, including making it easier for workers to save and shoring up Social Security, which, in less than 20 years, will be unable to meet all its obligations.

If nothing is done, the book warns, “millions of retirees will find that they are too old to return to work and have little in savings — and no one to turn to for help.”

This, of course, understates the problem. Not only will Social Security be unable to meet its obligations on paper in less than twenty years, but it is already unable to do so.

The money you pay “into” social security is “invested” in treasuries. In other words, the Social Security Administration takes the money and buys government bonds.

Bonds are really another word for loans. The Social Security Administration took the money paid into Social Security and loaned it to the government.

What did the Federal government then do with the money it borrowed from Social Security? It spent it. How did it plan to pay back that money to the Social Security Administration? It had to either borrow more money or else finally raise taxes.

[See also, “Another Extremist Discrediting Social Security? No, The CBO Director Is Sounding the Alarm.”]

The money was already spent almost as soon as the taxpayer paid it. Social Security is not a savings program. It is nothing but a taxpayer liability.

In the private economy, when you loan money to a business, it invests the money into profitable developments that allow it to pay off the loan with interest. But the government is not a business. Most of the money “invested” in government bonds end up going into immediate consumption. No value is added that can be used to pay back the loan. Ultimately, tax payers are being used as collateral.

Even though Munnell is understating the problem, it is still amazing that she will admit as much as she does.

We are all “investors” in a ponzi scheme that is bigger and more shameless than anything Bernie Madoff could have dreamed up.