During the third quarter, it has become dreadfully obvious to anyone looking at the numbers that Social Security has reached the point of crisis.
It wasn’t supposed to happen this soon. Year after year during this decade, Social Security’s trustees told us that while the system’s long-term solvency problems are very real, a cash crunch was roughly a decade away.
But in their most recent report in May, based on the system’s situation as it existed at the end of 2008, the trustees ominously trimmed that estimate to seven years:
Annual cost will exceed tax income starting in 2016, at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets until these assets are exhausted in 2037.
This decay occurred because the POR (Pelosi-Obama-Reid) economy kicked into high (or, I should say, low) gear. In the middle of last year, the Democratic Party’s terrible triumvirate took the economy down; the only question that remains is whether they were horribly misguided or deliberate.
In the face of $4 gas prices, Nancy Pelosi, Barack Obama, and Harry Reid refused to seriously entertain the idea of additional exploration and drilling, in effect making clear their intention of starving the nation of energy, regardless of the consequences, to support what may be human history’s greatest hoax.
They also promised hundreds of billions of dollars in tax increases on the most productive in the name of redistributing the money to everyone else. For the first time in my adult life, a major political party promised actions that anyone with clear eyes knew would seriously damage the economy.
At the time, the economy was modestly growing and had improved from a rough first quarter; nonetheless, it remained fragile. Then Pelosi, Obama, and Reid did their dirty work. At the time I identified the POR economy’s inception, I asked these questions:
In this business climate, are you going to hire more people? Replace employees when they leave? Expand your business? Even if demand for your products or services is strong, which is still the case in many sectors, you’re going to try to get through with the resources and facilities you have.
That’s exactly what began to happen, and then some. Entrepreneurs, businesspeople, and investors battened down the hatches, expecting the worst.
The worst arrived, in the form of the decades-in-the-making, Community Reinvestment Act-driven collapses of the Democratic Party gravy trains known as Fannie Mae and Freddie Mac. These were followed in short order by the bipartisan TARP debacle. Washington’s elites, especially Pelosi, Obama, and Reid, showed anyone who still doubted that they could care less what we think. Sadly, George W. Bush and John McCain were among the crunch-time betrayers. The whole sorry saga convinced just about every business leader who hadn’t figured it out already that hard times, entirely the creation of our governing class, were on the way.
Comprehensively revised numbers for the economy’s gross domestic product (GDP) show just how dramatic the POR economy’s damage has been and continues to be. Second-quarter 2008 GDP, at a revised annualized 1.5% (from 2.8%), was still positive and slightly ahead of population growth. But the third quarter was revised from -0.5% to -2.7%. The economy swung 4.2% in the wrong direction (from +1.5% to -2.7%), despite the fact that June was probably the best month in the second quarter. In fact, the National Bureau of Economic Research, while still incoherently clinging to its belief that the economy has been in recession since December 2007, says that “estimated monthly real GDP reached one peak in January 2008 and another, higher peak in June 2008.”