The Problem of Social Security Solvency, Beneath the Monetary Facade
It seems likely that the problem of SS solvency is generally thought of as a problem of financing, possibly described by accounting. In this view, the inevitable retirement of the Baby Boom generation will result in a reduction of payroll tax receipts and an increase of SS payouts, resulting in a substantial SS deficit as less and less workers are available to pay the payroll taxes that support the payments to each retired SS recipient.
To the extent that this view prevails, the proposed potential remedies are some combination of increased payroll tax rates, additional tax sources, increased government borrowing, and reduced benefits, including both uniform reductions and means-tested payments, and monetary supply inflation combined with deliberate under-adjustment of payments for price inflation.
In addition to the remedies noted above, there are possibilities for major structural change or replacement of the entire SS System, including a variety of schemes generally referred to as privatization which attempt to fund the payments from investments in the public financial markets.
It will be taken as an established given that the so-called Social Security Trust Fund is nothing more than a book-keeping device, whose existence has no economic significance to the ability to make future SS payments.
The common flaw in all of the proposed remedies above is that they focus on dollars and money. This is too narrow and ignores the fact that the primary end goal of an economy is the actual consumption of goods and services. Production would be pointless unless the goods produced are expected to be consumed. Exchange-valued goods, including money, would have no value unless their holding is expected to fund potential future consumption.
If a detailed digital record of the economy over time is stored, it can be usefully abstracted by retaining only the records of the actual goods and services consumed and discarding all records of production, money and prices. The standard of living is the result of consumption alone, at least if, for simplicity, we ignore any apprehension about the future and the disutility of the labor involved in production.
With this approach, the proposed remedies above need to be compared in terms of their effect on the level and distribution of consumption. If we temporarily assume that none of the remedies affect the total supply of goods and services, then the effects of all of the remedies can be reduced to how they change the distribution of goods and services among future workers, future retirees depending on SS payments and future retirees depending on their own savings and investments. If no such thing as SS existed, the same conflict would still appear between workers and retirees as they compete for scarce consumption goods.
From this viewpoint, the fundamental problem is not a shortfall of tax revenue to meet payment promises in terms of dollars (which is not the same as promises in terms of goods), but the loss of the productive labor factor represented by the retirees and the subsequent reduction in the supply of goods and services.
If we continue to narrowly focus on the money-centric approach, the only questions are how goods and services are to be distributed between workers and retirees and just which only superficially different methods will be employed.
On the other hand, a broader approach is to concentrate on the total supply of goods and services themselves. While it is not feasible to import workers to significantly increase the payroll tax base, it is certainly feasible to import the goods that they can produce in their own countries. The future is one of U.S. labor shortages, not excesses. To maximize the supply of goods and services, importantly affordable goods and services, they must be able to be produced at a profit. This means that all artificial costs and impediments must be significantly reduced or eliminated, including taxes and regulations of all types including anti-trust and protective tariffs.