Anyone Who Wants to Cut Entitlements Clearly Has No Place on a Commission Devoted to Fiscal Responsibility

At the Columbia Journalism Review, Trudy Lieberman provides further evidence for my conclusion that what really offended Alan Simpson's critics about his comparison between Social Security and "a milk cow with 310 million tits" was his candor. Lieberman says "what's really at stake here" is not Simpson's colorful language but his "long-standing antipathy toward Social Security and Medicare," which "raises the question about why the president appointed him [to the National Commission on Fiscal Responsibility and Reform] in the first place." Here are the comments she cites as evidence of this antipathy:

Shortly after his appointment to the commission, Simpson told the NewsHour that "this country is going to the bow-wows unless we deal with entitlements, Social Security, and Medicare." In March, he predicted on CNBC that his commission "will be a bloodbath. You've got to scrub out [of] the equation the AARP, the Committee for the Preservation of Social Security and Medicare, the Gray Panthers, the Pink Panther, the whatever." In April, he appeared on Fox News, saying that most of the mail he gets comes from seniors who "live in gated communities and drive their Lexus to the Perkins restaurant to get the AARP discount," and are not affected "one whiff" by the changes he had in mind for Social Security. And in June, he told Alex Lawson of the advocacy group Social Security Works: "Where do you come up with all the crap you come up with? We're trying to take care of the lesser people in society."

These remarks, while a bit hyperbolic, reflect several important truths:

1. Serious entitlement reform will be necessary to avoid a fiscal crisis.

2. Such reform will require overcoming resistance by the AARP and other defenders of the status quo.

3. Social Security is neither a pension fund nor a means-tested assistance program for poor people; it is a system of transfer payments that takes money from relatively poor workers and gives it to relatively affluent retirees.

Simpson's critics view No. 3 as a feature, not a bug. As Lieberman puts it, they "believe it is the program's social solidarity that has made it so successful." In other words, means testing would make Social Security a welfare program for the truly needy, rather than an entitlement for everyone who hits retirement age, no matter how wealthy they are. That would undermine public support for the program because voters like middle-class entitlements but hate welfare. Transforming Social Security into a true pension program by letting people invest part of what they now see disappear in payroll taxes is likewise anathema to the "social solidarity" crowd, since it lets people go their own way instead of forcing them to participate in the government's Ponzi scheme.

Lieberman apparently thinks anyone who disagrees with this view has no place on a commission aimed at addressing the nation's long-term fiscal problems. In fact, she seems to think that means testing, cutting benefits, and raising the retirement age should all be off the table, since they reflect an unacceptable "antipathy" toward the entitlements that are bankrupting us.

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  • ||

    Has the average social security recipient from 1940 to the present received more than that which he contributed?

    If yes, then it is accurate to call social security a welfare program to the extent one's total take from the ponzi scheme is greater than one's FICA confiscation.

  • robc||

    The answer to that question depends on what you use as the time-value of money.

    My father, who is 77, has already collected more dollars in SS than he paid in. However, has he collected more than if the money had gained 2% annually? Maybe. 5%? 8%? 10%? No, on all three. I doubt he will ever hit the 8% number, but I havent done the calculation.

  • ¢||

    You can't say "tit" here. This is the tit room.

  • ||

    ...the Gray Panthers, the Pink Panther, the whatever..."

    So he's not only trying to offend feminists, but gays and/or anti-war protesters and/or wearers of Victoria's Secret loungewear too?

    This man is bold!

  • Chad||

    SS is fine for another 25+ years, and even then would only need modest changes to be sustainable indefinitely.

    Given the epic failure that 401ks and IRAs have turned out to be, there is no better alternative than SS.

    http://www.slaughter401k.com/w.....he-market/

    I am sorry, but the data just doesn't lie with your ideology on this one, folks. Grow up and get over it. Then maybe, just maybe, you will earn a seat at the grown-ups table. Until then, go play in the corner or something and get out of our way.

  • Some Guy||

    http://www.gallup.com/poll/216.....earch.aspx

    Never been over 40% opposed to the research, nor under 50% in favor.

  • Some Guy||

    Wrong tab...

  • Greer||

    Well, my objection to SS is not a practical one, that is, it doesn't rest on what is occuring right now or at any time. You're right, if you were completely self-invested now, you'd be screwed (though I could point to the late ninties, then you'd be better off). You are for or against things because they are right or wrong, not because at any given time, there would be advantage or disadvantage to it.

    I am opposed to SS because takes away individual iniative for your own welfare, putting it in the hands of the government. This usurpation of personal responsibility has been the source of so many of the other things that have happened since, expanded welfare, expanded entitlements. I believe that the enactment of Social Security will some day be seen as the begining of the downfall of this country.

  • KPres||

    The problem with SS is you can't opt out.

  • Greer||

    Well, OK, but the real problem with SS is that it exists

  • Trudy Lieberman||

    The problem with SS is you can't opt out.

    Goddamit, that's a feature, not a "problem."Read my fucking article.

    Good thing you're not on the commission, you anti-egalitarian-ist hater.

  • Greer||

    tit lover.

  • RichN||

    I believe some teachers unions and railroad workers do not pay into SS nor can they collect it when they retire even if they worked other jobs that paid into SS at some point.

  • Allen||

    That is true, my mother was a teacher in MO and she will not receive any SS payments because of her state pension.

  • Naga Sadow||

    It's called an idex fund. It tracks the market.

  • TrickledOn||

    "Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes that you can do these things. Among them are a few Texas oil millionaires, and an occasional politician or businessman from other areas. Their number is negligible and they are stupid."

    President Dwight D. Eisenhower

  • KPres||

    "Given the epic failure that 401ks and IRAs have turned out to be, there is no better alternative than SS."

    Yeah, wait until the bond bubble bursts and inflation goes through the roof. Let's see how great an "alternative" SS looks then.

  • Contrarian P||

    Chad, figure out the compound interest accumulation at even a modest rate of return of what just you (not your employer) have paid into Social Security over the years. Then compare it to what the system will pay out to you at 67 (assuming it still exists by then). The math speaks for itself. I don't know any competent independent financial planner who tells their clients to plan on Social Security income at retirement. And in the interest of full disclosure, I used to be a certified planner before I embarked on my present career.

    By the way, the webpage you cite proves absolutely nothing. I'm not at all sure why you included it, unless perhaps you are trying to drum up business for your friends at that company?

    Where exactly is the support that 401k and IRAs have been a failure? There's plenty to show that Social Security is one. Your assertion that just a few minor tweaks would put the program on a sustainable track forever just doesn't hold. There's no real money in the thing now. We're already running an enormous deficit. There's no money getting ready to flow down like blessings from heaven.

    I suppose your definition of "failure" is really "anything Chad doesn't like". A system that barely puts seniors who rely on it as their sole source of income at the poverty level while being fiscally unsustainable is a success? Seriously?

    By the way, when you assert that the data don't support something, please cite said data.

  • Chad||

    CP, I have a degree and math and am a total geek about such things. Got spreadsheets up the ying-yang, trust me. My personal rate of return on SS, if no law were changed, would be about 2% real (~5% after inflation). Note that I am a fairly high earner, and will spend half my career paying the cap (I'll probably catch it around age 45). One's return is much better if one earns less, and can exceed 8% real interest for low earners. It is close to zero (real) for a hypothetical person who pays at the cap their entire career.

    If, heaven forbid, SS were to have to actually implement a 25% cut just as I retire, my personal rate of return would be around zero (real). In other words, I would get my money back, adjusted for inflation. Which is, if you paid attention, about what the typical investor is getting from their 401k.

    In the end, SS payouts will increase with wage growth. The stock market will increase with corporate profit growth. Both of these are tethered closely to overall economic growth, and therefore won't be that different. Anything that would hose SS would hose the markets as well.

    You can argue with the trustee's report all you want, but the fact is that SS does not get worse after ~2040, and the gap that would exist at that time and thereafter is managable, either by modest tax increases or by modest benefit cuts (or a combination).

    http://www.ssa.gov/OACT/TR/

    There is the data you ask for. Have fun storming the castle!

  • Spiny Norman||

    All assuming that the government can come up with the money to pay off the bonds in the Social Security funds, of course.

  • Chad||

    Actually, I doubt the government would ever default on the bonds, and even if it DID default on its bonds in general, there is a good chance that it would cover the SS bonds anyway via some sort of special fund. So actually, SS's bonds are even safer than the safe. In any case, the fund will be depleted before I retire, anyway.

  • Spiny Norman||

    I don't expect them to default on it, either, but they still have to come up with the money. It's not the whether so much as the how.

  • Chad||

    Actually, I doubt the government would ever default on the bonds, and even if it DID default on its bonds in general, there is a good chance that it would cover the SS bonds anyway via some sort of special fund. So actually, SS's bonds are even safer than the safe. In any case, the fund will be depleted before I retire, anyway.

  • Chad||

    Actually, I doubt the government would ever default on the bonds, and even if it DID default on its bonds in general, there is a good chance that it would cover the SS bonds anyway via some sort of special fund. So actually, SS's bonds are even safer than the safe. In any case, the fund will be depleted before I retire, anyway.

  • Al Gore||

    I wanted to create a lockbox but ironically it wasn't meant to be because of the Chads.

  • Naga Sadow||

    Come out of a special fund? You mean increase taxes right? Cuz I don't think their is some sort of magic awesome fund out there to fill in the projected SS shortfall.

  • Coeus||

    Didn't you know? it comes out of Obama's "stash".

  • ||

    I like Chad's plan to bankrupt the US government with piles of debt and unfunded entitlements.

    Starve the beast Chad. Starve it dead.

  • Contrarian P||

    Ummm...no. If Social Security would implement a cut right when you got to 65, you have no idea what your return would be because you could die that very same year, meaning that your return would be resoundingly negative. Your estate would receive practically nothing. Your return is only as good as your lifespan. If someone has a 401k or IRA, that money is part of the estate on death.

    The big difference between the market and Social Security is that the market can't unilaterally take my equity and spend it, leaving me nothing other than promises, which is what Social Security has done. I can also, if I must, pull out my investment dollars and spend them as I wish, knowing that I'll pay a tax penalty, but again it's better than some politician deciding that I make too much money and therefore all of the cash I paid in is gone with the stroke of the pen to benefit those less fortunate.

    And yes, I can argue with the trustees' report, starting with the idea that unfunded government bonds represent any kind of asset column. Plenty of independent analysts have shown Social Security to be fiscally unsound thanks to decades of poor decision making, not the least of which was adding the "trust fund" to the general fund and spending it. I'm sorry, but Enron's reports looked pretty fantastic right up until the collapse too. Pardon me if I'm skeptical, particularly if there's plenty of evidence to contradict the official word.

  • Draco||

    I'm on your side here CP, but in reality, SS is fiscally sound (in the sense that it can never go bankrupt), as long as we stay on our current fiat currency system. (See my full explanation below).

    The idea of having "trustees" is of course laughable, but that helps keep the rubes thinking about the program in the right way, i.e. "I pay in now so I can get my share later." Complete nonsense. But don't worry. The trustees are here to provide oversight!

  • Contrarian P||

    Yeah, I equate it to a spoiled bratty kid who has a father who buys him whatever he wants and promises to bail him out when he's caught with the hookers and blow.

  • Draco||

    We are kind of on the same wavelength here (see my other response to you below).

    The difference here is that the kid has the goods on his father, and can apply pressure to get what he wants in case Dad thinks about changing his mind. (One day the oldsters will be outvoted, perhaps, and then the party may be over - until people realize they'll have to support their parents on their own. Oops! Maybe SS isn't a bad idea after all.)

  • Chad||

    CP, I base my "return" on the market rate for a private-sector annuity that matches SS (inflation adjusted, spousal benefit, etc). This actually means I am probably underestimating the value of my SS cash stream, as annuities are likely to get more expensive in the future due to life expectancy increases. Obviously, I can only use today's data.

    Can you cite the "plenty of independant analysts". And by independant, I mean "not from a right-wing think tank". Government reports and peer-reviewed work will do just fine.

    You are just wrong about the trust fund. That is a problem for the general fund, not SS. Unless you honestly believe that not only would the US default on bonds in general, but that it would ALSO choose not to cover the SS shortfalls that result. Both of these scenarios are implausible.

  • Jason||

    Can you cite the "plenty of independant analysts". And by independant, I mean "not from a right-wing think tank".

    The messenger is dead, sir!

  • Contrarian P||

    A government report is not independent work, Chad. Seriously, how can the entity running the system being studied be independent? Still, the CBO, who is the closest thing to independent to be found in Washington, should fit your criteria just fine.

    For the disability program: http://cboblog.cbo.gov/?p=1196

    For the program itself: http://cboblog.cbo.gov/?p=1142

    Note that both of them make it pretty clear that drastic changes have to take place for the program to be sustainable. I'll endeavor to find more later if I have time, but some of us have to work to sustain your wonderful programs.

    An annuity does not equal an IRA or 401k.

    What's the difference between the "trust fund" and the general fund? They are the same. There is no trust fund. It must be reimbursed by outlays from the general fund. And yes, I believe that one day the United States may be forced to default.

  • Jason||

    Seriously, how can the entity running the system being studied be independent?

    lol

    "I am recommending that your entire department be eliminated and all employees be let go, including yourself."

  • Amakudari||

    NO, GODDAMMIT, YOU DO NOT UNDERSTAND MATH. (Or, in the very least, finance appropriately practiced involves simple math and rigorous assumptions.)

    SS is not an asset. It is an entitlement for living a long time, and the formula changes dramatically depending on death. You absolutely, absolutely cannot calculate your "return," because it rests on mortality assumptions. Anyone in finance knows that you only use those to estimate the probability of outlasting retirement assets, not any concrete "value." Or, to be precise, I'd love to see your work, because if it doesn't involve a Monte Carlo sim and a binomial tree it gets an F. Benefits are extraordinarily path-dependent, and you would have to assign probabilities to a wide variety of life, market, tax, etc. events.

    You could just as easily earn a negative amount, and the last spouse in a childless couple, for example, could earn -100%. Likewise, someone who dies could pass benefits on to the wife and kids that are greater than what that person would receive had he stayed alive. But dying at 64.99 makes a huge difference versus 65.

    And think about cross-correlation. Do people who pay closer to the cap live longer? That is, do people with higher wages have a higher life expectancy? You bet. Greater likelihood of being married? Sure. Number of kids? Well, no, that goes the opposite way, but then there's a cap on death benefits. And hey, what about taxes? Or, hey, what about the fact that your benefits can change tomorrow, or your OASDI tax rate can go up without a change in benefits?

    The point is that you're claiming something ridiculous. These are not assets socked away providing a particular return, they are pure entitlement spending that is radically divorced from any returns you would have received on money invested. Ascribing a return to it is a budgeting heuristic, not a meaningful tool to compare with returns from privately owned assets.

  • KPres||

    "Which is, if you paid attention, about what the typical investor is getting from their 401k."

    Wonderful. I cashed in my 401K five years, ate the penalty, and invested in a start-up that pays me three times what I was making before.

    So fuck you Chad and every dipshit like you. If you want your zero risk, zero return social security to go with your zero risk, zero return life then fine. Keep it. But don't force the opportunistic people out there to wallow in your mediocrity.

  • ||

    SS is fine for another 25+ years,

    Only if you count the federal govt's IOUs to itself as assets.

    Tell me Tony, which federal programs are you willing to cut to pay off the T-bills the SSTF is cashing in to make up the difference between SS tax revenue and benefit payments?

  • ||

    Sorry, I meant to interrogate Chad above.

  • Chad||

    I'd cut military spending by 2.5% per year (in real terms) until it reached half its current level. The only exception to this would be during a time of declared war, and any spending beyond this level could only come from a specially designated and immediately effective War Tax. Second, I would phase out ag subsidies over ten years for small farmers, and over two years for any corporate farms. Third, I would ensure that all government employees were receiving pay and benefits consistent with what the private sector was offering. I would tie all Medicaid and road spending to the states following suit.

    Of course, that is nowhere near enough. Given that I would also implement universal health care, expand R&D, and double our infrastructure spending, I'll need to raise taxes too. Actually, I would start with two tax cuts: lowering the corporate tax to 25%, and exempting the first $10,000 everyone earns from payroll taxes (employee only). In turn, I would institute a VAT (between 5 and 10%), a carbon tax (starting at $30/t_CO2, and rising at inflation + 2% per year), would treat capital gains as regular income (but index it to inflation), and would extend charge a payroll tax of ~3% on people who earn above the cap.

    What would you do? Shoot any sick person who comes near a hospital, and make a quick buck selling dog food to the eldery?

  • Abridged Chad||

    Cut out icky things I don't like, that actually are the responsibility of the government and enumerated in the Constitution, but but get in the way of the things that I do like, that actually aren't in the Constitution.

    Raise taxes.

    Beat the everlasting fuck out of my strawman.

  • Greer||

    Lower taxes, get rid of all social engineering programs and entitlements, and tell the old people to fuck off, it's not my problem.

  • Jeffersonian||

    In short, Chad would burn our village in order to save it.

  • Mr. FIFY||

    So, Chad, tell us we need to have the ability to invest our own money taken away from us, because clearly it is the job of government to ensure all our needs.

    C'mon, you know you wanna.

  • Night Elf Mohawk||

    "In other words, switching among investments has an effect on the eventual return received, both on a long-term and short-term basis. Dalbar and others have found that investors who tend to hop from one hot mutual fund to another not only fail to enhance their performance over industry benchmarks, but have been shown to actually end up earning a far smaller return because of their periodic switching among funds." Emphasis added.

    Citing that article repeatedly shows a flaw in your reading comprehension. Your own citation speaks of behavioral issues, not issues with 401ks and IRAs themselves.

    It's hard to tell whether you realize that and are being disingenuous or don't realize that and are being ignorant.

  • Gilbert Martin||

    Chad is at his funniest when he's vainly attempting to affect an air of intellectual superiority.

    Seeing as how he has no intellectual firepower to actaully back it up.

  • Some Guy||

    In other words, means testing would make Social Security a welfare program for the truly needy, rather than an entitlement for everyone who hits retirement age, no matter how wealthy they are. That would undermine public support for the program because voters like middle-class entitlements but hate welfare when they are receiving a piece of the action.

  • Hobie Hanson||

    Can we put away the "Ponzi scheme" red herring once and for all? Pay as you go <> Ponzi scheme.

    Social Security is not a Ponzi scheme

  • Contrarian P||

    Credit cards are pay as you go too...until the obligations finally overtake the income, then the system crashes. The Ponzi scheme analogy, while not an exact comparison, highlights what happens when there are more people owed money than there are people to pay. It just happens that Ponzi is a cool sounding name.

  • Spiny Norman||

    Still, we don't really need it now that we have the cow-tit analogy.

  • ||

    1. Please don't cite to the SS website to tell me that SS is not a Ponzi scheme. I'm pretty sure that Madoff and Stanford were telling people that their investment programs weren't Ponzi schemes too, up until they ran out of money.

    2. SS is actually worse than a Ponzi scheme b/c it uses coercion instead of deceit.

    3. Bottom line with a Ponzi scheme is that those who get in first and out first, make out like bandits, e.i. the present SS generation. The last people in and the last people out lose their money. Indeed, in order to pay out the money in the trust fund, the last ones in the pool will not only have increased SS taxes and decreased benefits, but also increased income taxes.

  • Chad||

    Yes, please don't cite government reports. Only data from CATO or the Heritage Foundation is accepted here.

  • BakedPenguin||

    Yes, the government data isn't distorted at all by self-serving, power hungry bureaucrats.

  • BakedPenguin||

    From Chad's link:

    Chart D summarizes a much improved financial outlook for Medicare from the one described in last year’s report, largely due to the ACA’s mandated reduction in the rate of growth in health care costs.

    Oh, the reductions are mandated? Oh, goody, that'll work. So there will either be 1) less service 2) similar service, but a continuing increase in price as providers find workarounds, or 3) less service and an increase in price. I'm betting on #3.

    The transformation of the U.S. health care system that will be required to achieve those efficiency gains adds a new element of uncertainty to the Trustees’ projections.

    No shit.

    Even if the envisioned cost reductions are fully realized, additional steps will be required to address Medicare’s escalating cost.

    No shit.

    And Social Security is solid as a rock. I mean, it's got that trust fund, which has US Government Bonds! Those'll never lose value!

  • Jeffersonian||

    Didn't King Canute try something like this?

  • ||

    SS is actually worse than a Ponzi scheme b/c it uses coercion instead of deceit.

    According to libertarian philosophy, fraud is a type of coercion, as it short-circuits the opportunity of another to make a rational decision just as much as a gun to the head.

  • West Texas Boy||

    Please don't cite to the SS website to tell me that SS is not a Ponzi scheme.

    Now that takes either real balls or an utter lack of self awareness. I am not sure which.

  • Bernie Madoff||

    What? No! It's not a ponzi scheme! It's real! The returns are real! What would make you think it's a ponzi scheme? This isn't a ponzi scheme! Holy shit. Wait- you called the cops? You have evidence that the investments aren't really there? Aww fuck. OK, you caught me. It's a ponzi scheme.

    Now replace my name with "government bureaucrat" and tell me that a document written by that same bureaucrat called "Social Security is not a Ponzi scheme" is not the exact same kind of hide the truth denial.

    Fuck that, asshole. That document is a denial, not a refutation. And there's a huge difference.

  • FDR||

    Pay no attention to the fact I set the age to collect SS at median death. I really wanted everybody to collect their fair share, seriously!

    **************

    Shouldn't the argument really be SS as setup by FDR vs SS raided by LBJ? I really dislike those Presidents known by their initials.

    Also, I know a 25 year old kid perfectly capable of working but since he's an alcoholic collects SS checks albeit not that much but collects and doesn't work none the less.

  • ||

    Of course Social Security is a Ponzi scheme. Ponzi schemes are pay as you go, too. As long as you can get more people to pay in than beneficiaries, the Ponzi scheme works. When you can no longer recruit enough new people paying in to keep the earlier investors happy, it fails.

    One look at the demographic trends of workers and retirees is enough to tell us that things have to change significantly for this Ponzi scheme to continue for long.

  • ||

    By that standard, 401k's are Ponzi schemes. In order for retirees to cash out their investments, there has to be an equal number of buyers out there to buy those investments. So when you get a bumper crop of retirees, you need a bumper crop of new investors as well to keep the system going. Same as Social Security.

    A Ponzi scheme is something far more pernicious -- it requires that the pool of investors double every time through the loop.

    Now, the main problem with Social Security is the fact that the so-called Trust Fund has been raided over the decades.

  • ||

    401k's rely on actual, real growth in wealth of investments, not in transfers of money.

  • ||

    Whoa, where did that goalpost go?

    Oh...there it is. That thing's heavy, you must be an incredible physical specimen.

  • ||

    Take a look at the one-member fund for each case.

    The one-member 401k grows with the value of the investments. The investor's money has been given to people who made it into more money. He gets that money back, with interest and dividends, as he liquidates the account in retirement.

    The one-member Social Security fund, on the other hand, just has the money the investor put in it. It will be deadened by any inflation that happens. Of course, since he's not taking it out until retirement, the money in the account can be used to buy treasury bills -- the gains, of course, coming precisely from taxes the sole participant pays.

    Now view a two-member fund for each case, with a 20 year old and a 60 year old.

    In five years the 60 year old withdraws an annuity from the 401k formed by five years of investment. In 45 years the 20 year old withdraws exactly what he would have withdrawn were he the sole participant.

    After five years of the Social Security plan, the 60 year old withdraws far, far more than he put in -- the difference being supplied pay-as-you-go style by the 20 year old. In 45 years the 20 year old cannot withdraw the money that was handed out to the 60 year old. And there is no one left to pay-as-he-goes, so he is out not only any interest or dividends he could have had from a 401k, but the principle as well.

    All this is true whether there are 2 participants or 200 million. To think that a 401k and Social Security aren't vastly different is utterly insane.

  • robc||

    No goalpost moving at all.

    He said "As long as you can get more people to pay in than beneficiaries, the Ponzi scheme works."

    You then said "In order for retirees to cash out their investments, there has to be an equal number of buyers"

    See the difference?

    Then you made a really bad error:

    A Ponzi scheme is something far more pernicious -- it requires that the pool of investors double every time through the loop.

    That is false. A ponzi scheme requires exponential growth, but not necessarily doubling. It could be 1.1X each generation, or it could be 3x.

    And social security requires exponential growth in population, hence a ponzi scheme.

  • ||

    Now, the main problem with Social Security is the fact that the so-called Trust Fund has been raided over the decades.

    You're joking surely. The "trust fund" was always intended to be "raided".

    In what way do you imagine that the "trust fund" could be set up that it was not a raid on FICA taxes to be used to meet current general outlays.

    Are you really this motherfucking stupid?

  • ||

    I mean, really, when did the Social Security "Trust Fund" contain anything resembling a real asset?

    The scheme was always intended to raise revenue for the general fund. Paying pensions to geezers was secondary.

    The only way for the SS "trust fund" to have any real assets would be for them to use the "surplus" to buy assets in the equity and bond markets. Do you seriously want a bunch of political hacks trying to decide where either of them is going?

    Of course, "we" could do what the Canadians do and have the "surplus' put into marketable state (in their case provincial) and municipal improvement bonds. But the record in the Great White North has shown us that even those morally superior paragons have not been exempt from a certain level of chicanery.

  • Draco||

    You're getting rather close to the truth Isaac. Please see my full post below.

    Chad, of course, doesn't know what he is talking about.

  • Some Guy||

    Correct. Ponzi schemes are voluntary.

  • smartass||

    It's a pyramid scheme, except long-term enough that people at the top of the pyramid die and get replaced by people at the bottom, and new people are constantly being born to add to the bottom of the pyramid. Which kind of eliminates one of the main problems with pyramid schemes, but it is pretty susceptible to demographic changes.

  • Europe||

    ...but it is pretty susceptible to demographic changes...

    Shit! Why didn't anyone tell us?

  • MJ||

    Right, Social Security is completely different from a Ponzi scheme. People are free to refuse to participate in Ponzi schemes.

  • Gilbert Martin||

    "Can we put away the "Ponzi scheme" red herring once and for all? Pay as you go Ponzi scheme."

    You've got pronoun trouble.

    Yes SS is a Ponzi scheme.

    There is no one "you" who is "paying as you go".

    The people paying and the people collecting are not the same group.

  • ||

    When you calculate the expected health of the SS system and the return you expect from paying into the system, make sure you intentionally ignore what happens when you drop dead at age 64 yrs., 364 days and your kids learn the difference between SS and a privately acquired annuity.

  • Draco||

    This is a great point David. Something certainly not considered by the "math whiz" Chad (he's clearly not a financial whiz, but that's okay).

    Still, see below to see why comparing SS to a retirement savings plan is rather beside the point. That's not what it is.

  • Binky||

    You can't spell "entitlement" without "tit".

  • Draco||

    I love it Binky! But better:

    Social Security. We put the "tit" in entitlement. Well, more accurately, 310 million tits.

  • Draco||

    So, unfortunately, even though many people have given it the old school try, all on this thread have failed to describe accurately what SS is.

    Here's the truth. I hope I don't leave anything important out.

    SS is neither a Ponzi scheme (strictly) nor a retirement program on which a "rate of return" can be calculated.

    SS is an intergenerational financial asset transfer program. (I'm being a bit pedantic - an intergenerational wealth transfer program would more succinct but not quite as accurate).

    The program arose in deception, and is mainly propagated in deception, that deception being that you are "paying in" so that some day you can "get your share." Nothing of the kind is happening here.

    What's happening is that money is being transferred from young wage earners to older people. If "all goes well" this will allow those old people to claim an increased share of the real goods and services being produced in the economy.

    Congress sets both the level of payments to the old people, and the level of taxation associated with the program (notice I didn't say 'funding the program.') Either of these can be changed at any time, and they bear no necessary connection to each other.

    What's happening is that the govt is creating money (it prints paper checks or makes electronic credits in the recipient's bank account) and doling it out. This is legal tender, so merchants have to honor it. In order to prevent the massive inflation that would otherwise occur, the government also takes in (or more accurately destroys) money in the form of FICA taxes on wages.

    By the way, if income taxes are paid in cash to the Treasury, the cash is shredded or incinerated. The government doesn't need the money - which is after all just a token. The government can't run out of money. That would be like a bowling alley running out of points to award to bowlers.

    The only real problem with the system is 1) ensuring that enough real goods and services are created by those still young enough to be producing to be consumed by the old people and 2) the morality of involuntarily transferring wealth from one person or group to another.

    Comparing the system to a retirement plan is a bit beside the point.

    I really need a blog to properly explain this. One of these days...

  • Contrarian P||

    I absolutely get your point and wholeheartedly agree with it. It's just that SS is being pitched as this great retirement vehicle as the excuse to keep it around. If that's how it's presented (i.e. Chad above) it's relatively easy to destroy the argument by showing that as an investment it sucks. Then we're left with some touchy-feely intergenerational pact thing, which doesn't hold up to inspection very well either.

    I think the main thing with Social Security is that politicians know that people are too busy working their tails off earning a living, trying to raise kids, pay off the house, etc. to notice how much money is being siphoned away from them to give to those older folks. It is only once they become one of the older folks themselves that they have the free time to realize this and by then it's too late. They are now trapped in the cycle and want "their share" so the system never gets changed.

  • Draco||

    Right. What's more, people don't usually grasp the complete arbitrariness of the whole thing. Any given Congress can decide exactly what level of payments to dole out. The next Congress can change it, by a lot or by a little. In this way, it is really no different than a kid being supported by an alcoholic parent who on any random week could give him a boatload of money, or nothing.

    I completely agree with you that it would be better to save for your own future (or make a pact with your kids).

    SS recipients are completely at the mercy of Congress - and vice versa (the old people vote).

    It's really all borderline insane. Which is why we tell ourselves comforting tales about "trustees" and "lock boxes."

  • ||

    Agree. The whole concept of trusting anyone other than yourself to save money for you over fourty years is sort of ludicrous.

  • Greer||

    I don't want to be mean but after advertising your post all through the thread and then condescending to all who posted, you end up stating the obvious. Of course it's a [$5 word] that transfers money from wager earners older people. I think we know that.

  • Draco||

    Apologies to all for the advertising. It felt more like a live chat last night. People were writing spreadsheets to calculate rates of return. Having myself been wrong (or ill-informed) for many years, and having been educated by some brilliant and better informed friends, I feel a need to do my part to inform others. I do hate overenthusiasm, and I was guilty of it last night.

  • Gilbert Martin||

    Draco, your post ommitted the single most important description of what Social Security actually is:

    Unconstitutional.

  • Pope Jimbo||

    All I know is I'm being extra nice to my kids because I'm going to have to move in with one of them in 25 years when I'm 70.

    I hope it isn't my middle kid because he'll keep his current PlayStation 2 console around until then and make me play games on it as punishment for not buying him a PS3 like all his buddies.

  • fendi bags||

    You can't spell "entitlement" without "tit".

  • burberry scarf||

    Still, see below to see why comparing SS to a retirement savings plan is rather beside the point. That's not what it is.

  • bags||

    Right, Social Security is completely different from a Ponzi scheme. People are free to refuse to participate in Ponzi schemes.

  • ||

    Can we put away the "Ponzi scheme" red herring once and for all? Pay as you go <> Ponzi scheme.

    Social Security is not a Ponzi scheme

    Here's another link from ssa.gov...

    On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975.

    Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

    Sure is nice to be the first one in this non-Ponzi scheme.

  • West Texas Boy||

    21% per year! For 35 straight years!

    Fuck no, if that's not a ponzi scheme then that's some awesome investment management! No wonder all these people leave their hedge funds to run government money! Sweet!

    Anybody got a phone number I can call to get these geniuses to investment the rest of my money?

    WHOOOOHOOOO! I am going to be filthy fucking rich!

  • ||

    Social Security is...a system of transfer payments that takes money from relatively poor workers and gives it to relatively affluent retirees.

    Wow. Such a whopper, often repeated here, and so many libertarians believe it. SS takes money from everyone who works--rich, poor and middle class, and gives it to widely disparate income groups. Here's a handy chart, compiled with Census Bureau numbers, listing how much money Americans age 65 and over earned annually in 2007. See how many, as a percentage, are "relatively wealthy."

    Total Income for Households Age 65 and Older in the U.S.

    * Under $5,000 (2.4 percent)
    * $5,000 to $9,999 (7.7 percent)
    * $10,000 to $14,999 (13.3 percent)
    * $15,000 to $19,999 (11.4 percent)
    * $20,000 to $24,999 (9.3 percent)
    * $25,000 to $34,999 (15 percent)
    * $35,000 to $49,999 (13.7 percent)
    * $50,000 to $74,999 (11.9 percent)
    * $75,000 to $99,999 (6 percent)
    * $100,000 and over (9.3 percent)

  • Jason||

    Social Security is...a system of transfer payments that takes money from relatively poor workers and gives it to relatively affluent retirees.


    It sounds awfully familiar.

  • Contrarian P||

    Yearly income does not equal wealth.

  • ||

    Worked example showing what a complete investment fraud social security is.

    If I had been able to take these social security taxes and instead put them in a savings plan, and then took the accumulated balance out at age 67 and bought an annuity (at current rates), what would be my monthly payment?

    Well, assuming a very conservative after-tax rate of return of 5%, I would have $1,077,790 at age 67 to buy an annuity, which at current rates quoted on the Vanguard site, would give me $7,789 a month until I die.

    This return is just about four times the amount I get from having the Social Security Administration manage the money for me instead. Ugh.

    In fact, this all opens up the obvious question, what actual rate of return is Social Security paying out on your "premiums?" Well, in fact we can calculate this with the same spreadsheet. I plugged in 2% for the interest rate. No go — resulting annuity is to high. Then I plugged in 1%. Still too high. Could the government be paying you 0% on your money? I plugged that in. Still too high.

    In fact, the implied rate of return on my money in the Social Security system is -0.8% a year. In other words, not only is the government not paying me any interest, they are charging me to hold my money.
  • ||

    Link for the comment

    coyoteblog.com/coyote_blog/2007/01/social_security-2

    You will have to add the www at the front and the html at the back.

    The hamsters do not like

  • Gilbert Martin||

    Last night I was surfing the cable channels and on one of the C-SPAN channels they were showing some event celebrating the 75th anniversary of Social Security.

    The grandson of FDR was giving a speech peddling all sorts of bogus claims about the programs solvency and the viability of the so-called "trust fund". He was lambasting anyone who wanted to reform or do away with and making all sorts of claims about how wonderfull it had been for the country,etc.

    I had to turn it off. My blood pressure simply can't take listenting to such outright bullshit as that.

  • Draco||

    GM, you have to hand it to them: they created the perfect cockroach of the welfare entitlement world. This thing will never be killed, as pointed out by Contrarian P above. It's a perpetual motion machine - impossible in the physical world, but sadly quite possible in the political world.

  • ||

    SocSec is a Ponzi scheme by either of two definitions:

    First, because its viability relies on the class of people paying in growing faster than the class of people taking out.

    Second, because it relies on taking in more money from new participants than go out to historic participants; Ponzi schemes pay their returns, not out of earnings, but out of contributions.

    The difference is that SocSec is funded by taxes, but unless you believe potential tax growth is unlimited, that only postpones the day of collapse.

  • ||

    Social Security is...a system of transfer payments that takes money from relatively poor workers and gives it to relatively affluent retirees.

    Wow. Such a whopper, often repeated here, and so many libertarians believe it. SS takes money from everyone who works--rich, poor and middle class, and gives it to widely disparate income groups.

    True enough, but the class of people paying in is, globally, less wealthy than the class of people taking out.

  • Jim Baird||

    "First, because its viability relies on the class of people paying in growing faster than the class of people taking out."

    No, it doesn't. It realies on there being enough real resources (including productivity increases) that a percentage can continue to be diverted from current workers to current retirees.

    If you don't think that this can happen, then I have news for you: not only will SS not work, but no other retirement scheme, public or private will either. Either the resources will be there, or they won't be. If you really think they won't, then what you are really advocating is a "Logan's Run" solution, clothed in libertarian rhetoric.

    The fact is, the government will always be able to write checks to retirees, and there can't be a "fiscal crisis" for a sovereign currency issuer. It is like saying that the NY Subway is going to run out of points to put on your metrocard.

    Jim Baird
    moslerconomics.com

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