Contracepting Social Security

Author: W. Patrick Cunningham

Contracepting Social Security

by W. Patrick Cunningham

Social Security legislation was passed early in the Roosevelt administration in response to the reality of thousands of elderly Americans entering retirement without financial assets. With the demo graphic shift from the subsistence farm to the wage dependent city life, and the loosening of family ties, an income in old age became essential. Social Security was designed as a "safety net" to provide basic human needs to seasoned citizens; it sought to provide a basic "floor" of income protection for elderly workers. It also sought to provide proportionately higher benefits to low- wage workers than to their higher-wage counterparts.[1] It became especially important in situations when the extended family abandoned their older members, or when old people survived their heirs and spouses without savings. Since 1935 it has assumed an identity of respectability as "social insurance," rather than of "welfare." However, in its financing it is nothing like insurance. In fact, it resembles most a type of financial arrangement called a "Ponzi scheme."

In 1963, 28 years into its operation, about 19 million persons were receiving monthly benefits, while 76 million persons were paying into it[2]. By 1990, virtually every American worker was covered by Social Security, contributing to it almost 8% of nearly all their compensation. Employers matched these employee taxes, while self-employed individuals paid for themselves both the employer and the employee amounts.

The Social Security system provides retirement benefits to citizens over the age of 62 (age 60 for widows). Through amendments over the years, additional benefits were added? and taxes were increased. Disability benefits were added, and severely underfunded, in 1957; Medicare for elderly persons was added in 1963. The Medicare tax, originally limited as to income taxed, was applied to unlimited amounts in 1993. About 90 percent of all elderly households receive Social Security benefits. Social Security provides about 35 percent of the total income going to all married elderly couples and 45 percent of the total income going to all unmarried elderly persons.[3] During 1994, old age and survivors benefits paid by the system totaled nearly $280 billion.[4]

The idea that Social Security is financed in a Ponzi fashion is, unfortunately, all too true. A large number of young workers are taxed to support a small pool of surviving elders. Common sense revolts against a "pay-as-you-go" retirement system in which the young are constantly subsidizing the old with their tax money. Such plans run chronic, planned actuarial deficits. They have no assets to back up their promises. This is the reason they were Outlawed in the private sector by Congressional action in 1974. It seems wiser-certainly more traditional-to build up savings, and draw those down during retirement. But government economists were not using traditional models during the heyday of the New Deal. They were following the theories of Maynard Keynes and his American disciples. Keynesian economic analysis looked askance at saving money. Saving, they argued, took spending money out of circulation, and reduced consumption. But consumption at high levels is needed if U.S. industry is to provide "full employment." If savings exceed investment needs, total spending might not be sufficient to buy all the goods and services produced at full employment, and a recession might result.[5]

Keynes' approach has a kind of naive appeal to amateur and professional alike. It essentially says that we don't have to be thrifty-at least in the public sector-because time will bail us out. As deficits and debts in the Western world have soared, many commentators have wondered if time is not running out, and why Keynes should have taken such a short-sighted view: "in the age of crushing government deficits, the economics that mortgages the future to pay for present consumption may bespeak a vision that is radically flawed."[6] Modern biographies, particularly that of Skidelsky,[7] have given us a clue why Keynes' world-view was so focused on the present moment, and not future consequences. His vision was "characteristically homosexual," at the time his economics solidified, and that fact alone is adequate to explain why he ignored the needs of his progeny, the fruit of procreation. Skidelsky mentions the views of Sir William Rees-Mogg, who "argued that Keynes' rejection of 'general rules', which his homosexuality reinforced, led him to reject the 'gold standard which provided an automatic control of monetary inflation."'[8] The vision of Keynesian economics generally ignores the ultimate effect of one's borrowing on children and grandchildren, because it does not care about such effects.[9]

Ironically, the key to the Ponzi functioning of the Social Security system, and financing of deficits, is an ever-expanding population base. Yet the breakdown of traditional family morality under the influence of sexually permissive thinkers, degenerate politicians, profitable tax-free institutions such as Planned Parenthood and its allies, and proponents of welfare dependency, has practically guaranteed that this will not happen. Figure 1 shows the demographic results of the increased use of contraception in two eras.

The first was the "Roaring Twenties," during which time the white Protestant sexual ethic deteriorated under the influence of neo- Malthusians and Sangerites. Barrier methods of contraception attained a measure of popularity once a twenty-year campaign among mainline Protestant churches was successful in removing the sense of sinfulness that attached to the "sin of Onan." Protestant and Jewish birth rates plummeted. In fact, it can be reasonably argued that a major unattributed cause of the Great Depression was the sagging rate of birth and household formation during the 1920s.

The second period of accelerated contraceptive sex began in 1964 as anovulent-abortifacient hormone pills, promoted by self- interested propagandists and maverick theologians, gained widespread acceptance among the public. The constant hammering by the popular press, despite (or in some sense because of) the issuance of , ultimately overcame the traditional Catholic reluctance to use any form of artificial birth regulation. This produced the infamous "baby bust," the longest period of declining births in the century. The relative drop in births, 26%, equalled that experienced in the period 1921-1933, but it involved a larger absolute decrease in birthrate, and lasted two years longer than that earlier "bust." Furthermore, the "echo boom" that followed it was neither absolutely nor relatively as impressive as the 1946-63 boom. This extension of the birthrate decline was also partially caused by the decriminalization of abortion between 1970 and 1973.

Both of these dramatic declines in birth rate were followed by extended periods of economic malaise, the latter being associated with Carter-era "stagflation," in which high unemployment was uniquely accompanied by high interest rates and inflation. It is also not coincidental that the first great crisis in Social Security funding occurred immediately after the latest population bust, and required a fundamental restructuring in Social Security financing (much higher taxation) in the early 1980s.

Both the "boomer" and "bust" generations are now adults and in their productive years. Some boomers have been paying Social Security taxes to support their elders for as long as thirty-six years. These are only about a decade from the earliest age at which they can collect old-age benefits. Now the Ponzi financial structure of Social Security is about to interact with the demographic boom-bust phenomenon in catastrophic ways.

Figure 2 shows the projected ratios of workers paying into the Social Security fund to retirees drawing from it.[10] The annual Trustees' report shows that since 1975 there have been between 3.2 and 3.5 workers paying in for every beneficiary taking out. Beginning in about 1996, there should be an increase each year in the number of new retirees, and in the number of total beneficiaries, due to the enhanced birthrates after 1933. For a short time, the total number of workers will not decline because new workers enter and older workers reenter the workforce at about the same rate as senior citizens leave it. But by the year 2005, the ratio of producers to consumers has sagged to about 3.0 (using an estimate about halfway between the "intermediate" and "pessimistic" projections of the actuaries).[11] This means that the taxes of only 3 workers will be available to support each retiree.

When the boomers begin to retire in earnest, about the year 2010- 15, under no combination of circumstances currently foreseen could the system support them without massive tax increases on younger workers. By the year 2026, at which time the oldest boomers would be eighty, the ratio of workers to beneficiaries has decayed to 2.0. This is, of course, intolerable. In a pure pay-as-you-go financing system, payroll taxes would, between employer and employee, be in the 40% range. It should be noticed that in the "pessimistic" case, the worker-retiree ratio is in free fall through much of the next century, and ends with about 1.3 workers for each retiree.


Early in the 1980s the pay-as-you-go system faced its first major financial crisis. The Trustees of Social Security reported that the Old Age and Survivors' Trust fund was facing insolvency. As a result, the largest increase in Social Security taxes in history was approved. The amount of wages subject to the tax was tremendously increased, and the rates boosted. The advertised reason for this change was to set aside a reserve to be saved for the Boomers' retirement era, but this was a smokescreen. Viewed from a vantage point fifteen years later, we can see that the real effects of the tax expansion were threefold: 1) it gave more money to fund current retirable to the Treasury in return for special Social Security bonds, and financed an expansion of public welfare programs (especially worldwide family limitation programs) and Department of Defense activities without a general revenue tax increase; 3) it drastically reduced the rate of private savings. I call this the "Reagan Patch" because it solved the immediate problem without resolving the fundamental demographic cause. The primary financial result of this drastic change was an expansion of the self-financed budget deficit, and a dramatic increase in the public debt, which in 1996 stands at about $5 trillion. About 15 percent of that debt is in the hands of the Social Security Trustees, who are thus building up a paper "reserve" for the future, represented in Figure 3 as a ratio of reserves to expected annual payments to beneficiaries.[12]

Discounting the almost impossible set of conditions that produce the "optimistic" or low-cost reserve line in Figure 3, we can see that the Trust Fund will never have in it, at current rates, more than about two years of benefits. Sometime between the years 2000 and 2012, as more and more beneficiaries draw on their Social Security pensions, the Trustees will stop lending to the Federal Treasury and begin demanding that the notes be paid back. Unless the Treasury is running a surplus in its budget by that time, this action will put great pressure on the money markets and capital markets alike, and may cause a major financial dislocation.

Widespread contraception and abortion, then, have been the major social and moral causes of an inevitable Social-Security induced financial crisis early in the next century. Artificial birth regulation has poisoned the financial stability of the U.S. system of social insurance.

We can already see many of the results of this kind of population- induced economic trauma in our European and Japanese counterparts. These cultures did not experience much of a population boom in the 1950s, and so are somewhat ahead of us in their demographic- economic crisis. In Europe, a shortage of workers to finance social programs has caused EEC governments to resort to relatively high taxation for social insurance, combined with planned and needed importation of workers from the Middle East. This importation of laborers from foreign cultures, together with the growth of reactionary "Generation X" gangs from the de- Christianized indigenous populations, has led to terrific confrontations and even many deaths. In Japan, a prolonged 1990s stock and bond market pullback has led to enormous domestic discontent.


The economic expansion that characterized the "glory years" of the Reagan revolution was largely created by massive spending by young Boomer families buying new cars, new homes and new furnishings. That is over, and even the "echo boom" will not restore the demands of those years. Time will not bail us out of the Social Security catastrophe. Neither will a Social Security tax increase. Ultimately, the huge Social Security reserve will be more of a problem than a solution. Furthermore, the expansion of Social Security taxes will cut back on domestic savings even further.

Many commentators are relying on the privatization of Social Security to solve the problem of financing Boomer retirement. This, too, is a chimera. Financial instruments do not produce wealth or income. Only people produce income. If we shift perhaps 20% of Social Security dollars into private accounts, the Social Security surplus will not grow, and the Federal government will not be able to borrow that excess money. The private accounts will buy up stocks and bonds. Ultimately, these will be cashed in to produce retirement income. But if that income must be produced by real people and real businesses still in the workforce, then the number of such producing units is still critical, whether the income originates from taxation (Social Security) or production (interest, dividends, and capital gains). The root cause of the 21st century catastrophe is not that the wrong pile of money is being created, but that there will be inadequate productive populations to support a large number of retirees.


Remarkably, the Social Security Trustees themselves suggest the only viable solution to the Boomer retirement crisis: making more baby Americans. In Figure 4, which remarkably is one of the few sets of OAS data graphically presented in the Trustees' reports[13], we see that the Social Security deficit (shown as a negative number), gets more positive as the fertility rate improves. By extending the Trustees' study results to the point where the Social Security deficit is eliminated (over the 75 year study span), we can see that is to increase the U.S. fertility rate to about 3.5 children per female.

This kind of prediction is nowhere to be found in the Social Security report. It essentially restores the original demographic conditions under which Social Security was created. Any other "fix" to Social Security depends upon an uncontrollable or unattainable set of conditions: highly robust economic growth (which is probably impossible with stagnant populations), reduction or elimination of Social Security payments to retirees with other income sources, or increasing mortality rates. Remarkably, in the 1995 Trustees' Report, the actuaries improve the solvency of the system by assuming just that latter change!

A system of social insurance that must pray for an increased mortality rate among the aged, even as that mortality rate inevitably drops, is crazy. That kind of thinking reminds one of the 1950s toy box that, when you turned the switch on, popped its lid and released a hand that turned the switch off.

Depressed fertility rates have caused the looming crisis. A significant and quick increase in American fertility is the only reliable way to restore solvency to the social insurance program.


1 Scheiber, Sylvester J., , EBRI, 1982, p. 275.

2 Davis Gregg, , 2nd edition, Richard D. Irwin, 1964, p. 693.

3 E. R. Kingsorn, B. A. Hirshorn, J.M. Cornman, , p. 86.

4 Trustees of the OASDI Trusts, 1995 annual report, p. 7.

s Aaron, Bosworth & Burtless, , p. 9.

6 E. Michael Jones, , Ignatius Press, San Francisco, 1993, p. 58.

7 Robert Skidelsky, , Viking Books, NYC, 1983.

8 , p. xv.

9 It is unarguable that one who expects no progeny will have less concern over the effects of his actions or theories on the next generation than one who feels some responsibility for it because of a personal or family stake in the outcome. To Keynes is attributed the comment denigrating long-term planning: "In the long run, we're all dead."

10 Trustees' Report, Table IIF- 19 (1995).

11 The actuaries' past predictions of "intermediate" estimates have proven too optimistic, so we have chosen a set of conditions slightly less favorable than the intermediate, and slightly more favorable than the "worst case" scenario they give.

12 Trustees' Report, Table IIF-20 (1995).

13 Cf. 1995 Trustees' Report, Table II-GI (1995).

This article was taken from the July/August 1996 issue of "Culture Wars". Subscription price in U.S. is $35 per year; $45 per year outside the U.S. Address subscription requests to "Culture Wars" Magazine, 206 Marquette Ave., South Bend, IN 46617.