Ownership of Our Future

Solving the Social Security Crisis with a Crawl-Walk-Run Approach

PREAMBLE

This article is intended to outline a direction rather than perfectly engineer a destination. It is a practical application of Libertarian and Classical Liberal principles to a very real and challenging question facing the American People: How do we fix our broken Social Security system? It is not an actuarily-precise policy brief, nor is it intended to be. It is intentionally a strategic overview without specific tactics, with a goal of spurring discussion, thought, and future refinement. I tried not to let my rhetoric run too far out in front of my facts, however, I wanted people to actually read and enjoy the article. If I occasionally favored color over precision, then I ask for your forgiveness in advance. 

THE PROBLEM

Outside of the national debt and Medicare, Social Security may be the single largest problem our Congress is facing. It is the quintessential example of failed institutional design coming back to haunt us - repeatedly. 

Our predecessors designed a system that relied on population growth to sustain itself. At the time of its creation, there was a presumption of continued demographic expansion. Our forebears assumed that there would always be more workers to replace current workers. They were wrong, and history has an annoying tendency to disprove our assumptions about future human behavior. 

What actually transpired is that population growth around the world slowed and in some cases, actually began to shrink. The United States has been below the replacement rate for many years now, and net immigration has become our primary driver of long term population growth. 

Add to that the demographic challenge of the so-called “baby boom generation” and other older populations entering retirement while also living longer, and this has resulted in our current situation where there are not enough workers to pay for the benefits of current and future retirees. In addition, younger Americans are increasingly saddled with a greater share of the tax burden relative to the number of workers while almost certainly facing a reduction in benefits, creating unnecessary social tension between the generations. 

The challenge is even further exacerbated by the fact that the majority of Americans, historically, have not been incentivised to do anything about it. After all, no one wants to lose benefits. In addition, many (if not most) Americans falsely believe that they have “paid into Social Security” and should get back from the system what they put into it. 

Social Security has absolutely no personal savings account or functional savings mechanism tied to it. The trust fund is Treasury securities that represent claims on future taxpayers and should not be misconstrued as a personal savings mechanism. Further, it is reasonable to reduce the trust fund to its simplest definition - debt for future generations. Social Security is a transfer system, but many people understandably believe that, after years of paying taxes, they should get what is rightly coming to them. 

Americans also largely dislike other factors that could help alleviate the mathematics problem, such as increasing legal immigration or allowing AI to fully develop without restrictions. Increased legal immigration helps the mathematics problem - more people in the population improves the worker-to-retiree ratio. AI is more complicated, but there is a strong case to be made that the productivity increases and innovation of new industries that emerge from AI could help offset some of the funding deficit. 

Similar to the lightbulb, the internet, and automobiles, AI is a groundbreaking innovation that follows Schumpeter’s creative destruction framework. The long-term productivity gains from AI could be absolutely essential to help offset the financial implications of a declining population. 

Finally - and perhaps most depressingly - we could have solved the problem in the past, and several viable solutions have been presented over the years, but none of our previous Congresses had the political will to push them through because a majority of the American people, for all of the challenges identified above, simply did not support them. Now it is too late to “solve” Social Security without everyone taking an intolerable haircut in the process. 

We get the government we deserve. We allowed our government to build a system with no real individual ownership, and we have allowed ourselves to become passengers handcuffed to the seat of a train that is careening towards disaster. 

The result is an impending train wreck. We know the wreck is coming; it's not too far down the tracks - possibly right around the next bend. A fiery explosion and disaster awaits. We also know that it is too late to prevent the train from crashing. However, we can slow the train down to minimize the damage. 

SOLVING THE PROBLEM

That is the current situation the United States Congress finds itself in. Yes, our predecessors lacked the political will, perhaps the courage, to solve the problem when the opportunity presented itself, but we currently do not find ourselves in a position to kick the can down the road any further. We must act with courage and conviction, engage the American people in an open and honest conversation, and bring together younger and older Americans for a shared plan to address Social Security. 

If any institution is to remain viable, however, it must be designed to be resilient to unforeseen changes. Politicians have demonstrated time and time again that they are the world's worst prognosticators. Therefore, we cannot enact static, fixed legislation, and we must revisit the legislation regularly to evaluate its performance against expectations and correct the course. In addition, if we are to build an institution, then that institution’s main focus should be empowering individuals to maintain an ownership stake in the future success of the system. 

The short term project for Social Security is stabilizing the current system to preserve the safety net and protect the benefits of older Americans while limiting the burden on younger Americans. Everyone will have to share the burden in the short term. 

The long term project for Social Security is to create a gradual transition “off ramp” to an ownership system for younger Americans - a real savings system. It can be done. Different versions of these same ideas have been implemented in Sweden and Australia, demonstrating that retirement systems can evolve over time while preserving a safety net.  

THE CRAWL-WALK-RUN APPROACH

Understanding that Social Security is an extremely difficult nut to crack, we must gradually ease the American people into a better future. Below is my crawl-walk-run plan for implementing this incremental change to our Social Security system:

CRAWL

Stabilize the system (Solve the math problem)

• Change how we speak about Social Security. Educate Americans about what it is and what it isn't. It is a transfer program. It is not a savings program. 

• Define Social Security as a mathematics problem, and not a political problem. Remove the vitriol between the generations by correctly defining the nature of the problem. 

• Define what the vision for a future Social Security program is. If it is to primarily be an old age poverty prevention program (safety net), then design the system to that primary goal. If it is to be a general retirement savings and investment plan for young Americans, then design it to that primary goal. Perhaps it is both (my suggestion). Agreement on what it should be is critical to properly developing it. 

• Create a non-partisan commission to review Social Security and recommend a set of stabilization changes. This would give Congress political cover while allowing the hard decisions to be made and the changes to the law implemented. We need to preserve Social Security while ensuring it remains in place for future generations.

Suggested stabilization changes:

1. Means-test current benefits so that high-income retirees do not draw benefits that they do not need

2. Index future benefits calculations to inflation (CPI) instead of wage growth, since wages tend to grow faster than inflation over time

3. Gradually raise the retirement age based on life expectancy

4. Protect low-income retirees from benefit losses

5. Implement automatic adjustment triggers that “self-correct” the system dynamically without political influence. These triggers would operate from feedback mechanisms that adjust up or down based on changes in actual future conditions such as:

   1. Demographic changes (perhaps there is another baby boom or a net immigration increase)

   2. Economic changes such as CPI, productivity growth, payroll tax receipts

   3. Financial changes such as deficit increases or decreases that affect the plans future solvency, or market innovations like AI that create productivity gains

The focus in the crawl phase is not just stabilizing the system, but addressing the known failures of institutional design in the current system. The crawl phase also addresses the failure of static design in legislation. We instead seek to create a system that lays out goals and provides a non-partisan mechanism to automatically address changes (self-correct) in the future. The implementation of automatic feedback mechanisms is critical to preventing the types of failures that we see with our current Social Security system. 

WALK

Construct a replacement retirement system for younger people to bridge the gap (the Off-Ramp).

• Create automatic-enrollment Federal retirement savings accounts (with opt-out)

  • Government provides a match for lower income workers

  • Savings accounts operate as tax-free growth accounts

  • Savings accounts have a simple index fund default (similar to TSP)

  • Savings accounts are portable across jobs and are owned by the worker

The Walk stage is critical for addressing the continued stability of the safety net while providing individual Americans actual ownership in their financial destinies. When individuals have a real stake in their future, they are more likely to participate directly in the future growth of the economy. 

Maintaining a social safety net while encouraging ownership is a powerful combination that is absolutely politically viable. The challenge to date has been to provide an “off-ramp” for those that would like to transition from the current Social Security system to a retirement account while preserving the safety net for those who still need it. I believe the activities in this phase and the previous phase answer both of those concerns with distinct, but complementary approaches. 

RUN

Fully transition the population to savings accounts and Social Security becomes purely a safety net.

• Enact “transition credits” 

  • Workers receive recognition for benefits already accrued in the existing system up to the time they elect to transition

  • The value of the credit decreases over time to encourage early participation in the new savings system

  • Delaying transition imposes additional costs on the new system, therefore early adopters are rewarded for making the transition easier and less expensive for everyone else

• As more younger Americans enroll in the savings account in time, the original Social Security plan becomes a safety net only

• Most retirement income comes from the savings accounts

• System becomes mathematically stable

• Younger generations build real assets instead of relying on demographics

CONCLUSION

Reforming Social Security may seem impossibly hard, overwhelming, or unmanageable, but if we focus on it as a shared math problem, then we can come to a resolution. We don’t need to end the Social Security project, but we absolutely need to fix the broken system it has become. This plan focuses on preserving it as a safety net while making critical changes to its structure and providing a long-term pathway for younger Americans to build real retirement savings that they actually own.