Social Security is a matter that has received frequent attention on these pages. (See the archives for earlier missives). The current system is a giant scheme that essentially works like this: (1) Current workers (and their employers) pay taxes on earned income into the federal government; (2) The Federal government pays out benefits to current retirees; (3) Currently, we have an excess of payroll taxes coming in over and above the outflow to the current retirees, and the Federal government spends that, too; (4) When the government spend those dollars, they replace them with promises to pay them back (with interest) in the future. Sometime in the near future, the demands of current retirees will outstrip the supply of current payroll tax collections. The government will have to pay back some of those IOUs, with no more easy sources for spending.
Under this system, the retirement security of future generations depends on the payments of younger workers. If population trends would continue to increase, then this would work just fine. There would always be more workers to pay for the retiring generation, and we would have nothing to worry about. (Though I would still contend that we should worry about how much the government is spending. It is very good at that. Ronald Reagan was right when he compared the government to a baby with a voracious appetite on one end and no responsibility on the other.)
However, in most developed countries, population growth is not occurring through births. But it may be occurring through migration. Thus, one solution to the social security funding is to allow more immigration by younger workers. This has been happening, though not legally in most cases. It would also not involve hard choices like cutting benefits or raising taxes. Query: will Social Security play any role in future debates about immigration policy?
More to come on this soon.