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Social Security is going to go bankrupt because all those baby boomers taking money out and who's putting the money in? Well, the reality is, that's all a complete misnomer. Pardon the glasses, but I'm gonna have to read some. Every month, I go over another short chapter— this one's three pages long—from my 2011 book, <i>Debunkery</i>.
And this one is Bunk number 31, and it's about baby boomers. Now, skipping around a little—about the time that I wrote this book, the big story was the emergence of the millennials. And at that time, there was all kinds of notions that millennials were no good because they'd been raised in a world where everybody gets a trophy, and they had helicopter parents, and on and on and on.
And you probably remember some of that, you might even be one. Now, people don't talk about millennials quite so much anymore. It's a population bulge that's just about the same size, a little bit bigger, as baby boomers. And whenever there's been this young, big bulge in population coming in cycles in history, there's always been the beginning, which is the kids are no good, and then eventually, as that cohort of age group goes through our population and becomes old, it's, these people are going to be a drag on our society because they're old and they're non-productive—they don't work, and they're just going to suck off of the culture.
And that led to the view, by the time that I wrote this book, that the baby boomers, as they retire, would be a drag on the economy because they'd consume but wouldn't produce, and that the prior period had been strong because the boomers were in their most productive years, like their 40s, early 50s.
But that isn't going away and it's going to be terrible. Now, there's a lot of literature on that at the time, which was always wrongheaded. The fact is that young people— with the exception of those that are born with the luck of inheriting from rich parents—young people don't have money. That's normal.
Then they go to work, and they work and they work and they work, and as they're doing all of that, they don't save very much because it all goes into consumption, overwhelmingly. You know, it takes a lot of money to have children. And, you know, you've got to buy all that stuff for children. And eventually, that gets even more expensive as you got to fund them going to college and this, that and the other thing.
And that was true for the baby boomers, and that's true for the Generation Xers, and it's been true for the millennials. But there are a couple of points that people miss that I cover in the book. One of them is that we all— and, there's other parts of the book that cover this— we all live longer than people used to live, and the boomer today— I'm an old baby boomer.
I'm on the high end of the baby boomer status, and if you were to believe that I would have ever done what most people would think I should have done, and some people would be happy to see me do, as I should have retired ten years ago. But the reality is I’m happy doing what I'm doing. We live longer than people did a couple of generations back, other things equal.
And the average baby boomer has a much longer time horizon for investing than people had in my father's generation or my grandfather's generation. And the next point is, these demographics have a—we've had demographics around for a long, long time, and there's a very, very clear history that demographics don't move stocks because the demographic shifts, whatever they are, have already been pre-priced in the stocks for a long time because there's no surprise in demographics.
Sentiment is what drives pricing— demand for equity in the short- to intermediate- term— and there's no surprise there. There's a lot of discussion, that things like, well, Social Security is going to go bankrupt because all those baby boomers taking money out and who's putting the money in? Well, the reality is that's all a complete misnomer.
Because first off, there was never anything to go bankrupt in the first place. All Social Security is is a pay- as-you-go retirement system where the government takes in money and they spend it on whatever the dickens they want to spend it on. There's no part of it that inherently spends it on any given thing, even though people don't seem to understand that.
There is no such thing as a perpetual investment fund, and they can make it go this way, that way or the other— and will, and have many times in the past, many times in the past, although people don't seem to know that—by simply changing the law in Congress and having the president sign it. Increase benefits, decrease benefits, increase what you pay, decrease what you pay— and in reality, they will again.
Exactly when and exactly how, I don't know, but there is no such thing as the bankruptcy of Social Security. A point that most people don't get is that old people save more than young people, because old people, other than the Christmas presents for their grandchildren and spoiling their grandchildren— all of which is fine, and all of which is normal—really old people, people in retirement age, have a long history that's been long documented of still spending less than their net worth and savings rate implies they can.
Old people tend to be so afraid of running out of money that they underspend relative to what they could, so their savings rate is actually higher than you would think. And all that is in investments and then saved and reinvested is back in the economy, some way or another. Let me just take you through that, because most people don't seem to understand that.
I think you all get the notion that if you were to invest your money in the equity of some startup that would be terribly successful in changing the world for the better, and made a lot of money, that that would be a good thing for the society. And that's gone on for a long time. But of course, most ventures fail, and venture capital is predicated kind of on the concept that nine out of ten deals that venture capitalists do doesn't work, but one out of ten pays for the whole shebang.
And there's nothing wrong with that. But the fact of the matter is, what people forget is that, if you've saved, and you just put the money in the bank, it is what's called disintermediated by being used as a basis for making loans to people that need it for something that goes back into the economy.
You really—the only way you can keep the money from being in an economy, in the economy and working is if you get paper or coins and put them in a vault or put them under your mattress. Otherwise, what you save turns into somebody else's investment in something, if it's not your direct investment. And old people save more than people think they do.
That's why they actually are productive. So, the boomers retiring is not particularly a negative, people have been retiring forever. We're about halfway through the process now. You know, in the book, I talked about how, you know, people have a long time horizon—20 years, if not more, much more if they're healthy and have a younger spouse, never mind boomers who are still 10 to 20 years from retiring, most of them statistically.
But again, that was in 2011, and we're halfway through that now. So now they don't have as long until on average, they're retiring, and a lot of them have retired, and a lot of my peers have retired. And you know what they're doing? They're living fairly normal retirement lives, like people always had, saving more than people would have thought they would save, that money going back and being reinvested.
They're the ones with the money because the young people don't have much. The young people are busy working and all that's good and none of it's a problem. It's all really normal, even though there's a natural tendency for people to always think the circumstance that we have now, whenever now is, is abnormal, worse, and going to be a problem.
It's not—thinking it is is just bunk. Thank you much for listening to me. Tune in next month when I'll do another chapter out of my book, <i>Debunkery,</i> and debunk another myth. .
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