Let me explain the real problem with social security, and I’ll give you a hint:  Paying for it is the easy part.

1) Social Security is currently a profit center (not that that is an issue, as I will explain later).  It takes in more than it pays out.  The rest the government spends on other things.  So to say it is “bankrupt” is just crap.

2) “We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”  I don’t know if this guy’s number is accurate, but I have heard a million variations on this theme, and I assume the idea is true directionally.

The premise of Social Security, and of most welfare states in general, is that the working population must be sufficiently larger than the beneficiary population (retirees, welfare recipients, etc.) to make enough stuff to supply to everyone.  If there are too many retirees and not enough workers, the system doesn’t work.

Note the $40K per retiree number above. That is a good bit.

3) What if our day of reckoning arrives?  What if all the baby boomers retire?  What if Social Security no longer takes in more than it pays out?

As I mentioned previously, paying for Social Security is easy.  The government simply writes the checks and sends the money.  The government doesn’t need to “get” the money from anywhere any more than a football stadium has to “get” the points it puts on the scoreboard.  Sending the checks will make the money.

4) The problem is not paying the retirees; the problem is producing enough as a nation to satisfy everyone.  Having enough real stuff (food, cars, houses, air conditioners, etc.) is the issue.

Let’s go back to the $40,000 per retiree number.  Each retiree will “earn” $40,000 a year and there will be nearly 80 million of them?

Here is the problem with that.  The median household income in the US is about $45,000 a year.  That means the average retiree will make as much (and thus can buy as much) as someone who is working.

In aggregate, as a nation we only have as much real stuff as the working people in the nation can produce.

In an extreme example let’s imagine everyone in the country is retired except one person.  We could still easily still pay Social Security to the retired people (after all it is just checks from the government), and the retired people would have a lot of money.

But what could they buy?  Only what the one person could produce.

That is the problem.  No one on Social Security is producing anything yet they are competing with the producers for goods/services, and making $40,000 a year they have as much money as the producers as well.  If there are a lot of people on Social Security, and a lot of unemployed people (who are also not producing anything), that puts a tremendous amount of pressure on those that are producing to make enough for everyone.

So can we pay for Social Security?  Yes.

Can we make enough to satisfy everyone?  Not sure, but I imagine in the short to medium term the answer is still yes as the Scandinavian countries have larger welfare states and more retirees than we have (% wise) with similar economic growth rates to boot.  The one thing those countries don’t have:  our enormously out sized military spending.  It is all about priorities I guess.