Replies to post #24866 on Zeev's Turnips Patch-No Politics (ZEEV)

[Lane Hall-Witt]

ergo sum--

I'm not sure what exactly is confusing about what I wrote earlier, but here's a quick scenario. Let's say it takes 2.5 workers to support one retiree on a pay-as-you-go basis: that is, the Social Security taxes from 2.5 employees could cover the Social Security benefits of 1 retiree. (This was roughly the situation in 2001.) If there are 10 million retirees, then you need 25 million workers to pay all of the promised Social Security benefits. If, the next year, the number of retirees grows to 11 million, then you need 27.5 million workers to pay all of the promised Social Security benefits. So your workforce needs to be 2.5 million workers larger than the prior year, and this despite the fact that you've lost 1 million workers to retirement. So you need to add 3.5 million workers in order to stay on the level in a pay-as-you-go system. Replacing retirees is not just a one-for-one proposition, because it takes more than one worker to support a retiree.

The Social Security Trust differs in important ways from this example, because it is currently collecting more in Social Security taxes than it's paying out -- today, it's a net saver -- and because it will eventually pay out more than it collects. But the pay-as-you-go example is useful in illustrating the relentlessness of the demographic reality.