Social Security is in trouble

Just as going to zero altitude is bad for airplanes, zero pension fund balances are also bad. If weather or other circumstances outside the plane push it toward the ground, the pilot must respond by adjusting the control surfaces to raise the plane's altitude back to the desired cruising level. Similarly, fund managers can and must adjust the contribution rate to bring the fund balance back up to an appropriate level. In this manner, the fundamental instability is controlled by intelligent intervention.

One major difference between Social Security and pension funds is that currently there is no mechanism for adjusting the contribution rates. In the case of Social Security, this is the payroll tax rate, which is set by the U.S. Congress. The managers of the Social Security Trust Fund cannot change this rate. In a disturbingly real sense then, the Social Security system is like an airplane without a pilot. Is it any wonder it is in trouble?

Kerk Phillips is an associate professor of economics at Brigham Young University.