Will America Grow Up Before It Grows Old?: How the Coming Social Security Crisis Threatens You, Your Family, and Your Country.

• Author: Henderson, David R.

Peter G. Peterson, chairman of the Blackstone Group, a private investment bank, and a former secretary of commerce under President Nixon, has been writing about the Social Security mess for some time. In Will America Grow Up Before It Grows Old?, Peterson shows just how grim the future will be due to out-of-control spending on Social Security and Medicare. His analysis, though off in some places, is often on target. Unfortunately, some of his proposed solutions would create new problems to replace the existing ones.

Peterson makes his case against Social Security's fiscal soundness with words, numbers, and graphs. To convey what the future will be like, he asks the reader to imagine "a nation of Floridas." Today, about one in five Floridians is age 65 or older; by the mid-2020s this will be true for the United States in general. His beautiful bar graph drives home the point. And while there are currently 3.3 workers per Social Security beneficiary, he notes that by 2040 the ratio will be less than 2 to 1. The implied Social Security taxes would rise from 11.5 percent of workers' payroll today to between 17 percent and 22 percent in 2040. And if Medicare spending rises as fast as it has historically, writes Peterson, taxes for these two programs alone would take more than a third of every worker's paycheck.

Peterson also presents scary data about the federal government's unfunded liability - the present value of all its future commitments minus the present value of the tax revenue earmarked to pay for these commitments. For Medicare and Social Security alone, this unfunded liability is a whopping $15.3 trillion. Compare this to the value of all the federal government's assets, which Peterson puts at $2.3 trillion. So much for the idea of selling off assets to avoid raising taxes for Medicare and Social Security.

The mess started in 1935, when Franklin Roosevelt introduced a social security program, though there was no popular demand for it, and then required most people in the private sector to join, even if they already had a pension plan. In contrast to private pension plans, which are normally set up on an actuarially sound basis, Roosevelt's Social Security was pay-as-you-go, with current retirees' benefits paid out of current workers' taxes. Oddly, Peterson mentions very little about the historical origins of Social Security and, when he talks about Roosevelt at all, he is way too generous. Rather than seeing the current dilemma of...