It's time for every journalist's favorite annual kabuki ritual, the one where Social Security and Medicare trustees release their reports, and conservatives interpret it as a sign of the coming geezer apocalypse where all life on earth will be extinguished by the sheer weight of outstanding medical bills, while liberals argue that Social Security is just fine and Medicare is the problem but we'll solve that problem by making some unspecified cuts at some unspecified point in the future.

This year the "it's fine" arguers have a tough uphill climb.  The year that Social Security goes bankrupt and cuts benefits by 25% moved up four years, to 2037.  The surplus fell 25%.  The date that Social Security starts becoming a drain on the general fund, rather than subsidizing it, moved forward a year, to 2016.  And suddenly these dates don't sound so comfortably far off, do they?

I'll agree with the liberals on this:  the numbers are large, but they are not, economically speaking, catastrophically large.  It is theoretically possible to pay for the program.

But I'll disagree with them on this:  Social Security is an immense problem.  But the problem is not the cash outflow of benefits draining the economy; it is political risk, and structural inefficiency.

The political risk is that whatever the economic theory, we will not politically be able to continue benefits at planned levels.  People who counted on those benefits will thereby be made much worse off, because they will have saved too little on the assumption that the benefits would be there.  (We will leave aside, for the nonce, the moral possibility of an unjust distribution of consumption between workers and retirees).

The structural inefficiency arises because Social Security encourages people to retire as early as possible.  We may raise the retirement age slightly, but this takes forever (the current increases, which started only recently, were enacted in the early 1980s).  And even after we've raised it, we're still encouraging them to retire as early as possible; we've just moved that date up slightly.  Meanwhile, people are able to work longer than ever, and they're living longer.  Retirements cannot lengthen indefinitely without massive gains to productivity, or increases in the supply of younger workers; the math doesn't work.  Eventually, living standards start to fall.

The combination of the deadweight loss from taxation and the shift of workers from production to dependence makes it harder to pay for the retirement benefits--effectively, Social Security undercuts its own political sustainability.  This is the real problem we face, and it's barely hinted at in the Trustees report.