Socialsecurity is a program adopted by many governments to give financialsecurity of its citizens who are faced with certain challenges suchas old age, disability, families of the retirees or deceased workers(Jasmine 12). About 150 million people in America contribute towardsthe social security kitty, which is received by approximately 58million people by the end of 2013.1The program today benefits at least a quarter of the households inAmerica. The social security program is taxed from the workers bothgovernment and private employees and then the money are channeled ona monthly basis to the beneficiaries.2This paper seeks to explore the economic impact of social security onthe financial market in the United States of America.
Thesocial security fund is rising following the high growth rate of thepopulation as well as the rising life expectancy. This trend projectsthat by the end of the year 2030 the social security funds mighthave run out completely.3To avert the looming danger, financial experts are advising on theneed to invest the social security funds in the stock market. Theimpacts of the social security fund on the financial market havealways generated heated debates among the economist. The problem asseen by many is that the program limits the individual savingsincentives as it increases the interest rates as well as crowding theinvestment (Rich 39). The advisory council on investment capital onthe stock market has on several occasions raised questions about theworkability and sustainability of the social security programfollowing its uncertainty. These queries point out at the risksinvolved in the allocation of the macroeconomic across thegenerations as well as the intergenerational risk sharing.4This is critical considering the consequential relationship betweenthe intergenerational sharing of resources as well as the insuranceis posting their economic value. A keen analysis of the issue pointsout at the interdependent aspect of the redistribution policy inrelation to the assessment of the risk sharing the consequences (Rich37).
Followingthe confusion on what reforms on the social security are possible,some comments about the nature of the social security funds are notrealistic. The basic principle of social security is to tax citizenwith the promise of offering financial aid at the retirement age withtheir families (Rich 39). If the funds were invested by thegovernment and paid back to the people with some interest, peoplewould perceive the latter as being forced by the federal governmentto make some personal savings. If the social security funds werededucted from the people’s earnings and then distributed to thebeneficiaries immediately, the private savings would not match thenational savings thus, the national savings would dwindle. Initially,the social security scheme was designed to be a fully funded programbut later converted into a pay as you go system (Rich 44). This ledto the excess contribution to the initial beneficiaries.
Theimpact of the pay as you go system is in a major way affected by themarket interest rates, population growth and wage growth. Thus, thecost of social security benefits relative to the cost rate is givenby the proportion of paybacks to wages divided by the percentage ofemployees to pensioners (Virgio 86). Returns on social security aremostly below the market interest rates making it worse than if theparticipants had saved as per the market rates.5This can only be different under extreme and practically irrelevantconditions. Due to the recurring nature of the social security inrelation to the government debt, there is a general perception thatthe future generations receipts are taken as current debt offset.This is projected to add financial obligations to the futuregenerations at the expense of the current generation. The fact thatthe future generation will be paying to offset debt burdens paid bythe past beneficiaries, bring many upsets and challenges inimplementing the social security reforms.6 This raises the moral question of whether some people should beliving from others sweat irrespective of their social relations,without considering other social and economic obligations.
Socialsecurity funds were intended to bring stability and financialsecurity to the socially disadvantaged and especially in their oldage. The financial implication brought about by the programchallenges the sustainability of the program following the publicuproar on the financial burden across the successive generations. According to the government advisory committee, since it calls for anon-uniform fragmentation of the wages transmitted from the young tothe old, the program is not projected to have any major implicationon the savings rates, interest rates or bond prices. There is also ageneral perception that the continuous transfer of debt across thegenerations will materialize to increased interest rate and put theper-capita income on the lower curve. Though a tough call, theoutcome could ease the debt burden on the current generation in abetter way than the alternative plan.
Jasmine,Tucker: ‘Giving Thanks: Key Programs Keep 26 Million out ofPoverty” (2012). Print.
Rich,Motoko. "Forced to Early , Unemployed Pay a SteepPrice." TheNew York
Virgio,Reno: “Building on ’s Success” (2007). Print.
11. Tucker Jasmine: ‘Giving Thanks: Key Programs Keep 26 Million out of Poverty” (2012). 13
22. Tucker Jasmine. Giving Thanks. 17
33. Ibid 22
4 4. Motoko Rich. "Forced to Early , Unemployed Pay a Steep Price. 42
55. Reno Virgio. “Building on ’s Success” (2007). 91
66. Ibid. 92