Saturday, January 22, 2005

The real challenge Social Security faces

After writing about Social Security reform this afternoon, I was visiting before bedtime, and happened across this shot across the bows of Social Security.

Scientists identify a single 'master' gene that seems to turn on cancer-causing action of other errant genes


January 20, 2005

An international team of scientists believes it has found cancer's master switch with the discovery of a gene they dubbed "Pokemon." Like the electronic game figures - tiny monsters with bad tempers - the cancer-triggering gene apparently instigates the misbehavior of other cancer-causing genes, leading to tumor formation.

Imagine if some significant percentage of cancers were routinely curable. You get cancer, they give you a shot or a pill, and it goes away. No chemotherapy, no radiation.

This good news may be a false alarm, it has certainly happened before. But it is now a matter of time before the mystery becomes history, and the vast majority of cancers are easily curable. Knowing the DNA is like having the source code to the firmware of the organism, and every cancer is like a computer virus, in that it hijacks the normal operation of the cell.

What does this mean for Social Security Reform? It means we don't have 40 years before we have a problem. The normal time from a discovery like this to effective drugs is generally under a decade. In this case, it might be much faster. You can throw all the actuarial tables (how many people die at each age) right out the window.

It means higher tax rates won't solve the problem. If grandma lives to be great great great grandma, Social Security will run out of money. It isn't just how many people are around to pay for each retiree, it's also how long they have to pay. If you work for 45 years, and then you are retired for 50, 60 or 70 years, the pay as you go system we have today is just untenable.

It means that increasing the age of retirement won't work either, unless you want to increase the retirement age to say, 87 or 95. Curing cancer and lowering the death rate is just part of the equation. This same gene that is killing us, if tamed, could lead to an end to aging. Or if not this gene, some other one or combination of genes. We have the map, and are only beginning to explore the territory.

To heck with Viagra, I want to be young again.

The only solution to Social Security's challenges is an asset-based solution. It's the only thing that can continue to pay as seniors continue to live longer and longer lives.

A little thought experiment is in order. What would the Social Security system be like today, if we had implemented the President's suggested reforms in say, 1953? (That's the year I was born, and I'm 51 as I write this.)

I'll leave that to the economists. I'll guess that seniors would own a lot of stock, US companies would have a lot of low cost capital, growth rates would be another percentage point or two higher each year, payroll tax rates would be 50% or less of their current levels, and seniors would be receiving higher benefits than they are today.

Most of the current accepted 'problem' of Social Security is fictional and can be fixed with a stroke of the pen. Future benefits are tied to average lifetime earnings, and the original designers of the system failed to predict the continual increases in productivity that raise real wages year by year. Adjusting the system for that oversight doesn't cost anyone anything, and will have to happen in any case, no matter how dearly the politicians want to buy your vote today with your grandchildrens' wages tomorrow. All we have to do is stop promising ourselves and unnecessary and unaffordable windfall. We might as well, because our grandchildren are not going to stand for it.

Social Security is supposed to be a safety net, not a vacation hammock. Change the payout to be indexed for inflation, the actual cost of living, and seniors of the future will live as well as the seniors of today, without bankrupting the system.

It's only because Social Security has pretended to be a pension that the problem exists at all. It isn't a pension, and it doesn't own any assets. An IOU to yourself is not an asset, no matter what the politicians say.

But the real problem of Social Security will bankrupt the system unless it converts to an asset-based system. That problem is the revolution in medicine that has barely begun, but is as certain as tomorrow's sunrise. The result is certain to be longer, healthier lifetimes - and beneficiaries collecting benefits for many more years than anyone is now expecting.

The Social Security system we have today is sort of like a slow-motion version of the Internet stock bubble of a few years back. Unreasonable promises and unsustainable spending lasted as long as new dollars were flooding the market. The original setup was sort of a brass ring for people who lived beyond the age of 65. Now we need to convert it to something more like a real pension system, and we have the means and a plan to do so.

If those who are fighting the reform of the system have their way, it will be concrete dormitories and beans and rice for tomorrow's seniors, your children and grandchildren - and maybe even you! If you buy them in 50-pound lots, you can live on beans and rice for about $15 a month. That's what Fidel Castro feeds his peons on his tropical Animal Farm - all 11 million of them. It's cheap, healthy food, but a little monotonous.

Now is the time to convert to a real, sustainable system for the future. I have a couple of suggestions to improve the President's plan. More about this soon....

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