Reforming Social Security

Transcript

JEFFREY BROWN: As I look around the room, I realize there is sort of an incredible amount of Social Security expertise in this room. But nonetheless, I want to take just a minute at the beginning to review what the problem is and why we are here talking about this issue today. I then want to talk in very general terms about the types of solutions that are available and, rather than distinguishing among personal accounts or not personal accounts or what have you, I essentially want to distinguish among plans that actually address the problem and those that do not. I will then at the end very briefly discuss personal accounts and then I hope we have some more discussion about that during the Q&A.

We all know that Social Security is basically a pay-as-you-go system. And what that means is that today's workers are paying taxes to support today's retirees and other beneficiaries. This type of a program works very well when you have lots of people paying in and not very many people withdrawing benefits from it. What we've seen over the years is a steady decline in the ratio of workers to retirees. It's fallen from 5 during the Kennedy administration down to 3.3 today; and looking forward a generation from now, that ratio is going to be down to 2. This means quite simply that in order to address the financing shortfall that this generates, we either need to have the workers pay in more or have the beneficiaries receive less. It's either that or, as Alan Greenspan said, repeal the laws of mathematics.

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