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Social Insecurity

I'm confused by the whole Social Security "crisis" which is looming. And what's confusing me about the crisis seems rooted in the politician's and pundit's confusion over what Social Security is today.

On the one hand, Social Security is run as a "pay as we go" system. That is, the money I contribute today is not invested for me. It goes to pay for current recipients. If there's money left over once the government has paid all the current recipients, it goes toward building some laser guided doohickey or subsidizing goat farmers. The amount I'm ultimately eligible to collect may be based on the amount I contribute over the years, but that's just an accounting trick. The money isn't actually managed that way.

But if this is really the way the system is set up, then I fail to see where the crisis is. If the government has been skimming the surplus for all the years one existed, shouldn't it now be liable for the underfunded account during the baby-boom bubble? After all, isn't that Finance 101? You don't get reward without risk. If, instead of squandering that money on scientifically implausible Star Wars weapons systems, they had invested that money as any good bank or insurance company would have, would there be any account shortfalls at all?

And the proposed "private accounts" solution really seems to muddle my mind. The basis of private accounts is that I personally will get to invest the money I pay in. It is the performance of those specific dollars in the market which will determine what I have available in benefits when I retire. But doesn't the very premise of this solution fly in the face of the "pay as we go" model in the first place?

One aspect of "private accounts" is the investment of that money in the open market. But let's set that aside for a moment. Let's focus on the "private" part. If the money I pay in is my own private virtual account, then Social Security is really managed as an insurance policy. If the policy provider mismanages the funds or their actuaries blow their estimates on how long I'll live, the company is still liable for the value of the policy.

On the other hand, in the "pay as we go" model, the taxes in should match the flow out in any given year. This means that either the older boomers will get fewer benefits, the young boomers and Gen-Xers will pay through the nose, or both.

So I think that before we can determine whether or not there is a crisis, and if so, what a viable fix might be, we, as a nation, must figure out what Social Security actually is and begin treating the money commensurate with that conclusion. We can't keep changing the definition every time a different guy gets up to the podium.