Chapter 11 for Social Security?
In the sense of having liabilities vastly greater than assets, it is deeply insolvent today. Social Security really needs the equivalent of a Chapter 11 bankruptcy reorganization.
Life expectancy for 20-year-old white men in the 1930s was 66—meaning that, on average, he’d get one year of Social Security. Today, a 20-year-old man has a life expectancy of 82.
Social Security has become a complex mix of financial functions. It is partly a welfare program; Kimball and Morgan would make it more so. It is partly a forced savings program with a very low average rate of return. It is partly insurance against outliving your savings. And it is entirely broke in present-value terms, reflecting cash already paid to those who took out much more than they put in.
It is time to draw a line and have a reorganization. Those people who can easily afford it could take substantial haircuts on their future benefits, receiving say 60 cents to 70 cents on the dollar, in exchange for voluntarily opting out of the program. This would make Social Security much less insolvent.
For the other creditors, Congress should step up, write off the Treasury’s loss, put in whatever it takes to pay off the accrued benefits at par, and put Social Security into runoff. To this extent, the government would then have honest, as opposed to dishonest, books. A program designed for the now-irrelevant demographics of the 1930s would slowly liquidate.
Then a sound retirement finance program could be put in place to go forward, based on 21st century demographics. Doubtless, the politics would be interesting. But perhaps starting over offers a better chance than trying to remake the 1930s DC-3 of Social Security into a jumbo jet while it’s flying.
Image by Mega Pixel