Greenspan Says Privatize Social Security

In Congressional testimony today, Federal Reserve Chairman Alan Greenspan pointed out that the first Baby Boomers will start getting social security benefits in 2008. He then declared:

"This dramatic demographic change is certain to place enormous demands on our nation's resources--demands we almost surely will be unable to meet unless action is taken. For a variety of reasons, that action is better taken as soon as possible."

In other words, Social Security and Medicare are going to go bust. OK, so Greenspan didn't actually say privatize social security, but it's the only realistic way to avoid this impending disaster.

Comments

[Warren]

SS is a Ponzi scheme. It cannot possibly survive the baby-boomer retirements coming over the next twenty years. It's also a reverse Robin Hood program. SS robs from the poor and gives to the middle class. How well you do under SS depends on how much you contribute, and how long you collect. The majority of the working poor don't live long enough to collect SS. And since the money has already been taken from them, they can't leave it to their heirs.

Of course it should be privatized. For all your SS Qs and As go to:
http://www.socialsecurity.org/

[Pavel]

The idea that you could pass any reform on SS without inspiring the wrath of the largest voting block in the country is laughable.

The problem is that no one votes like retirees do. They have nothing else to do with their lives. Everyone else has to work for a living.

We'll just keep voting ourselves rich by borrowing against the future until we reach a crisis point. This will happen when we discover something that extends lifespan by a significant margin.

Given the values of modern medicine, this discovery will create a population of ancient people all living in a functional sort of dementia laden haze. As a voting block, the 100+ demographic will be the largest in the history of the world, will vote itself rich, create a de facto worker slave caste of young healthy adults and hopefully destroy itself before discovering ways to infect other planets with its existence.

We have seen the future, and it is not very marvelousy funny in our eyes.

[Anybody but Kerry]

Greenspan for president?

[GoonFood]

Since when did "realistic" and "politics" have anything to do with each other?

[nobody]

Didn't we have this discussion last week?
Topics here seem to be recycled on a regular basis.

[James Merritt]

Russ says, >>>If, on that day, you are between 18 and 64, and have already paid into Social Security, you get to stop making payments and you receive a marketable, zero-coupon, inflation-adjusted, government bond that matures on your 65th birthday, with interest paid at maturity and compounded annually at LIBOR. If you want the money now, you sell the bond. Alternately, you can hold the bond, or even buy more retirement bonds from other people.

[cdunlea]

SS will never be eliminated or privatized, folks. It may crash and go bust, but they won't kill it. Not because of the politics, but because the gummint has been borrowing from the SS fund for years to pay for itself. My "contribution" from this month's paycheck goes to pay for current federal expenditure; I only receive credit towards a future payout. Again, the money is no longer there.

Privatizing SS in reality would do far more harm to national finances than a flat tax, further tax cts, etc.

[Saxdrop]

Just for the record, Greenspan didn't advocate privatization, but he did explicitly suggest cutting benefits as the solution.

For what it's worth.

[thomas]

Opponents of Social Security would be wise to avoid empirical arguments -- whether about demographics, solvency, etc. -- and stick to arguments of principle. To wit: Social Security is wrong because it violates individual liberty.

THAT is the only argument that should be showing up in threads at a place like Reason (besides the the posts of trolls from elsewhere).

[Eric]

St. Thomas has spoken. Is resistance futile?

[Pavel]

Ideology and principle is the exclusive tool of those who don't have to do anything about what they're arguing for.

Don't get me wrong. Principles are really sexy. They go great with a deskjob.

[Joe]

Looks like most of you are better off and smarter than I am. I'm 55 and to tell the truth I've counted on starting to draw SS at age 62. If things work out, (and they still might??) SS will be almost half of what I have to live on. I don't think I'll feel guilty for collecting SS, something neither of my parents lived long enough to do.

Greenspan and some of you want me to work longer before collecting. At what? At the rate our jobs are disappearing right now, I'm going to be damn lucky to hold on to anything resembling gainful employment for the next 7 years.

And please spare me the 'reinvent yourself' and 'get more education' BS. I've been reinvented 3 times already and am in a fairly technical information systems field now.

[thomas]

Saint? No, I'm not a saint, Eric, sorry to say.

However, I do recognize the danger that's inherent in arguments that play to the other side: That is, arguing against Social Security on empirical grounds concedes the moral ground to its proponents. Essentially such arguments say, "Well, I'm not gonna argue that Social Security is wrong -- I think we should privatize/eliminate it simply because the math doesn't work." And that, of course, places the debate into the realm of "How can we get the math to work," rather than the realm of freedom and first principles.

Social Security's proponents will then find a way to make the math work, and we'll remain saddled with this liberty-infringing federal beast. And I don't think that's what any libertarian wants.

Thus the best route is to take the debate back to 1935, and keep the argument focused on right-and-wrong.

[Rob]

Russ,

I'm not quite following you. What determines the par value of the bond you receive? Does everybody get the same one, or it is dependent on your income or some other measure?

Since Social Security is such an arbitrary system, I guess it would be most "fair" to give everybody the same one, right?

[Rob]

s/it is/is it/

[Eric]

Thomas,
I understand, but I guess I've got a different take. It seems to me that empirical arguments can be made in support of the principled ones, or to counter those who reject the principled arguments.

[joe]

Why is it any more of a Ponzi scheme than the military or the highways. 1950 taxpayers pay in, 1950 recipients take out. 1982 taxpayers pay in, 1982 taxpayers take out. It's an ongoing program.

There is going to be a pig in the python for a few years, because of the demographic fluke of the baby boom. We legalize immigrants and collect their payroll taxes, maybe the deficit bumps up for a couple years, and we go on with our lives.

There's a problem to solve. It will be solved. You're all working the crisis/panic angle for ideological reasons, not financial ones.

[Poor but Principled]

I have a very old-fashioned view that people should be responsible for their own retirements.

Is that so wrong?

[Richard]

The only way to truly privatize social security is to give us our 6.2% SS tax back to us. By forcing us to keep paying in, but giving us some control or giving others some control over that money still amounts to government choice.

The advocates of privatization assume that the same government who pissed away trillions through loans to that government can still be counted on to wisely invest that money....HORSESHIT.

The only cure is surgery...gotta remove that cancer. However, for the blind, disabled, and current elderly who qualify and collect SS right now, Congress should keep its promise to provide SS. For the rest of us, we should be content with the knowledge that at some point in our future our SS taxes will be reduced to almost nil.

In order to keep our promises, we need to contend ourselves with the knowledge that Congress undertook a Constitutionally permissible obligation that fucked us all...Simple fix is to amend the Constitution to bar Congress from doint this again, or to get another three judges on the Supreme Court who believe that interstate commerce isn't as pervasive as Congress' thinks.

But we still need to remember that SS does help out the disabled...not the temporarily disabled, but the truly fucked in our society. By abolishing SS, we do a great disservice to those who cannot work...call it a moral obligation, but at some point, Congress should provide for or require states to provide for the truly disabled individuals of our society who physically cannot work.

[Andrew]

Privatising is a good idea, and gives guys like joe a sort of guarantee that at the end of a day the government is going to provide him with some portion of the benefits he expected...essential, politically, I am sure.

Also essential is to get people used to the idea that not everyone is going to get everything they may have hoped for, and to start reducing pay-outs by introducing a higher retirement age, and means (wealth)- testing benefits.

The math on privatization schemes that exclude any other kinds of reform is just too far-fetched, and raise the danger of getting the American middle-class to see a constantly rising stock-market as some kind of entitlement.

[joe]

Poor but principled, I belive people should take care of those in need.

I also believe that having the financial needs of retirees taken care of provides a great deal of stability and confidence, which increases economic activity.

I think you're wrong, but at least you're honest enough to argue what you feel, and not make up phony financial scare stories.

[Poor but Principled]

Joe,

I agree that no one should stop you or I from helping those in need, if we choose to do so.

[Gilbert Martin]

"Why is it any more of a Ponzi scheme than the military or the highways. 1950 taxpayers pay in, 1950 recipients take out. 1982 taxpayers pay in, 1982 taxpayers take out. It's an ongoing program."

Why?

Because the money spent on highways produced actual productive physical assets and the money spent on the military provides important national security services for all citizens to protect their lives and property whereas Social Security does nothing more than redistribute cash from one group of individual citizens to antother. The ones doing the paying are getting nothing of value in exchange for their money.

[thoreau]

Here's my political realignment fantasy:

The GOP seems to have a good grip on electoral success right now. (Sure, it could change, but they seem to be doing pretty well.) They're good at spending, and building a nice pork machine.

Just as with the Medicare prescription drug bill, they'll want to be able to maintain "good" credentials on social security to capture a big chunk of the Boomer retiree vote. So fiscal discipline will go out the window, and Bush will turn out to be the harbinger of a new trend in the GOP rather than a particularly craven fluke.

For a while, of course, the Democrats will be no better. But as the current Democratic leaders start to retire, and as young workers find themselves saddled with increasing taxes to provide for the elderly, an inter-generational divide will emerge. Young workers will of course blame the party in power (the GOP, which is geographically favored to maintain a lock on the Senate and Electoral College, and has the redistricting machine to maintain a lock on the House). Maverick Democrats will start to rail against the mounting burden of taxes facing workers. They are, after all, supposedly the party of unions and (allegedly) the party of culturally liberal students and young voters.

Sure, the current crop of Democratic politicians will resist. But politics is often more about constituencies than issues issues. The old, getting lots of goodies, will favor the status quo and the currently powerful GOP. The young, being squeezed, will blame the GOP and take advantage of some alleged natural allies in the Democrats (the Dems' alleged proclivities toward unions and young voters).

Eventually, the Democrats will become the party of fiscal discipline.

Will it happen overnight? Of course not. Who would have thought a generation ago that a Republican born in Connecticut would ever sweep the South in a Presidential race? (i.e. Bush in 2000) These realignments take time. And the Democrats will never become good enough to satisfy those yearning for an ideologically pure fiscal conservative. But they may become a lesser evil if an intergenerational transfer of wealth becomes the defining issue of US politics, and new leadership in the Dems sides with young workers.

[joe]

So "Ponzi Scheme" = "Something I don't like." OK, Gil.

Poor, "I agree that no one should stop you or I from helping those in need, if we choose to do so."

And I believe that human beings matter, whether people feel like helping them or not.

[thoreau]

Here's my political realignment fantasy:

The GOP seems to have a good grip on electoral success right now. (Sure, it could change, but they seem to be doing pretty well.) They're good at spending, and building a nice pork machine.

Just as with the Medicare prescription drug bill, they'll want to be able to maintain "good" credentials on social security to capture a big chunk of the Boomer retiree vote. So fiscal discipline will go out the window, and Bush will turn out to be the harbinger of a new trend in the GOP rather than a particularly craven fluke.

For a while, of course, the Democrats will be no better. But as the current Democratic leaders start to retire, and as young workers find themselves saddled with increasing taxes to provide for the elderly, an inter-generational divide will emerge. Young workers will of course blame the party in power (the GOP, which is geographically favored to maintain a lock on the Senate and Electoral College, and has the redistricting machine to maintain a lock on the House). Maverick Democrats will start to rail against the mounting burden of taxes facing workers. They are, after all, supposedly the party of unions and (allegedly) the party of culturally liberal students and young voters.

Sure, the current crop of Democratic politicians will resist. But politics is often more about constituencies than issues issues. The old, getting lots of goodies, will favor the status quo and the currently powerful GOP. The young, being squeezed, will blame the GOP and take advantage of some alleged natural allies in the Democrats (the Dems' alleged proclivities toward unions and young voters).

Eventually, the Democrats will become the party of fiscal discipline.

Will it happen overnight? Of course not. Who would have thought a generation ago that a Republican born in Connecticut would ever sweep the South in a Presidential race? (i.e. Bush in 2000) These realignments take time. And the Democrats will never become good enough to satisfy those yearning for an ideologically pure fiscal conservative. But they may become a lesser evil if an intergenerational transfer of wealth becomes the defining issue of US politics, and new leadership in the Dems sides with young workers.

[thoreau]

Sorry for the double post.

[Randy]

You know, I'm surprised that most people don't support just demanding that everyone reproduce at least thrice, and punish those who refuse. It's so much easier to just go more extreme with the pronatalism than to shift gears.

[Jean Bart]

Blame Bismark. 🙂

[joe]

The economics don't work out, Randy. Opportunity costs and all of that. It makes a lot more sense just to import new workers from countries that can produce them more cheaply.

[Pavel]

thoreau,

While your post made me touch myself several times, I don't see any reason to believe the Dems are going in that direction. Then again, they don't appear to be going in any direction, so who knows.

[Poor but Principled]

Joe,

Forced charity? That's what we call an oxymoron.

[Mark Fox]

Pavel: In absence of principle, the metric for decisions is efficiency. There's a mechanism incorporating all conscious and subconscious material and emotional valuations in order to arrive at the most efficent allocations. You guessed it: free market.

Joe: Sounds like you're in tough shape. Maybe you could petition joe for a little help.

Randy: I agree with joe. Discounting all the "for the children" subsidies paid before the new labor is plugged into the matrix, they represent a future liability to the SS system. If we keep denying immigrants legal status, we can savor the fruits of their labor without writing checks our children can't cash.

===
Maybe if we let OBL kill a third of the population, hopefully through an aged-preferring biological attack, the SS accounts could be put back in balance? Who would have guessed that Terrorist No.1 was actually trying to help us?

Protect Social Security--Push Granny Down the Stairs!

[dj of raleigh]

Raise teh SS tax and get control of costs.
All course, in the end, the wealth of the boomers
is going to be at risk.
Then again, Inflation can do wonders, too.

[Gilbert Martin]

"So "Ponzi Scheme" = "Something I don't like." OK, Gil."

LOL

Let me know if you ever happen to think of a SUSTANTIVE rebuttal.

[Gilbert Martin]

"... and as young workers find themselves saddled with increasing taxes to provide for the elderly, an inter-generational divide will emerge. Young workers will of course blame the party in power (the GOP, which is geographically favored to maintain a lock on the Senate and Electoral College, and has the redistricting machine to maintain a lock on the House)..."

Sounds like a stretch to me. The Democrats were the ones who created all those "entitlement" programs in the first place - AND the ones who been primarily responsible for greatly expanding them for about 60 years or so. I don't see why the "young" voters would give Democrats a pass on that.

[Gilbert Martin]

Make that SUBSTANTIVE , two posts up

[thoreau]

Gilbert-

The Democrats and Republicans of today are not the Democrats and Republicans of 70 years ago. The two parties are constantly changing coalitions formed to acquire and maintain power. Southerners now vote predominantly GOP even though Lincoln was a Republican. New England, once a GOP stronghold, now mostly leans Democratic. Teddy Roosevelt, a Republican, created the national parks and is praised (however rightly or wrongly) by modern environmentalists, yet most environmentalists (however right or wrong their stances) vote Democrat.

I could go on and on, but the point is that the parties evolve. If young workers grow tired of being squeezed for an inter-generational transfer of wealth, they'll be more likely to blame the status quo then to reach back in time to the 1930's. If the GOP continues its profligate ways and maintains its hold on power, they will be blamed and the Democrats may (ironically) evolve in a fiscally conservative direction.

On the other hand, if the GOP loses its grip on power and also backs away from an intergenerational transfer of wealth, angry young voters might tip Republican, and the GOP may return to principles, at least for a while.

Either way, if an intergenerational transfer of wealth becomes a major dividing issue in the US, one of the two parties will evolve in a more fiscally conservative direction to satisfy angry young workers, and one will probably try to get as many votes as possible from the elderly, abandoning fiscal caution to the wind. Whatever names those parties have is irrelevant, what matters is the coalitions that they put together and the platforms and tactics used to maintain those coalitions.

[Russ]

Sorry Rob,

I should have been a bit more specific in my proposal (way up near the top of this thread).

The whole point was that everybody who's paid into the system should get back what they're owed. If the solution is to be politically viable, no group can get shortchanged or have their benefits reduced.

As it stands, SS has a whole heap of future liabilities to future retirees, but as far as assets go, it has treasury bonds (which aren't assets at all, but claims on future tax revenue).
So SS will be funded out of a combination of future payroll taxes and general tax revenue. The "trust fund" is nothing but IOU's from the government.

The proposed solution requires an immediate end to payroll taxes while still paying out the obligations. This basically has to be done out of tax revenue, at least it's honest.

The present annuitants will keep collecting their annuities... nothing difficult about that.

The present contributors get a "retirement bond". The face value would have to be the present value of their total contributions to date, using a market based interest rate (like LIBOR). The bonds would have to be marketable, so that people are free to sell their bonds and transfer their claim to the buyer. The bonds would be identical in every regard except for maturity date and face value. I expect that the retirement bond market would beocome pretty significant. Bonds would be pooled and repackaged to suit the maturity preferences of investors.

How do we pay for it all... the same way we would have had to pay for SS in its present form. The proposal would just honestly account for the accrued liabilities and make the system transparent.

[Mike Liveright]

NO, NO, NO!!!

That is not what Greenspan says... He says that we need to use a slower growing index for the benefits as well as starting to pay it later. Both of which are minor changes and probably should be seriously considered.

Also we already are partially privatizing SS thru 401k's etc. and we all agree that they should be expanded, and ways to bring them down to the lower income people, perhaps having rebates rather than deductions as these would allow the lower incomes to get equal support.

What is not being discussed is what I read is a much more serious problem, Medicare... It seems that with minor adjustments SS is fixable, but we do not have any way to deal with the rapidly increasing cost of medical treatment and this, as I read it, will be much more serious.

If private insurance companies, at 20% adminstration costs can offer the same or better care without being subsidized and cherry picking, as can Medicare at 2% adminstration costs, then GREAT. but if not then we probably should recognize that this is our major problem, e.g. how we want to deal with medical costs of the aged and uninsured.

[Russ]

"how we want to deal with medical costs of the aged and uninsured."

The same way that we deal with their costs for every other good. They pay for what they get.

Why should medical costs be any different Mike?

[Brendan Perez]

Do it for the children!!!
Eliminate social security.

Stop the current generation of retirees, the same generation that demands full accountability out of today's young people and constantly wails about responsibility, from passing the bill to their kids and their kids' kids.

[Ron Hardin]

Nothing will work except what Greenspan suggests: raise the retirement age. You have to balance the number of retirees receiving goods and services with the workers supplying them and paying for them. That's the mathematical invariant.

Privatizing won't help. It just changes the financing, and no financing at whatever can work with an unfavorable ratio of retirees to workers.

What will happen if you privatize? The average return on investment will fall (everybody buys at once, and everybody sells at once) until the average retirement is postponed enough for everybody. It's exactly the same as with the Social Security program. It's the worker/retiree ratio, not paper money, that rules.

Incidentally the government _must_ spend all current Social Security contributions. There's no way for it to save money. It must return it to the economy or the Fed simply prints more, with the same effect.

[Andrew]

Thoreau

The closest thing that Americans will ever have to a libertarian party (among real contenders for office) is the Republican party they have now...because that is a as close to a Libertarian party as American voters want to have among their serious choices. And the "bundling" of a certain amount of free-market economics with a certain amount of cultural conservatism is, for most voters, a logical and palatable mix.

What CAN change is the center of gravity: the Democratic voter of today is both far more Hawkish AND far more sceptical of government-run economics than the Democratic voter of a generation ago; the Republican voter of today is far more culturally liberal than the Republican voter of a generation ago.

One other thing needs to change: the libertarian of today needs to be far more culturally conservative than the libertarian of a generation ago. Take Thoreau for example...why waste your energy promoting that goofy gay-marriage crap-- something NOBODY really wants, needs, or has any use for?

[alkali]

Joe is right. There is no reason in principle why the government cannot tax T% of payroll income and divide it up among retirees every year from now until the heat death of the sun. The amount each retiree gets will obviously depend on how big T is, how fast aggregate payroll income grows, and how many retirees there are: if the number of retirees gets large relative to aggregate payroll income, taxes will have to go up and/or benefits will have to go down (and/or you can redefine "retiree" by raising the retirement age). But there's no reason to think that the system will inevitably go up in flames.

Privatization is as good a solution for the ails of Social Security as wakalixes.

[alkali]

In order to keep our promises, we need to contend ourselves with the knowledge that Congress undertook a Constitutionally permissible obligation that fucked us all...Simple fix is to amend the Constitution to bar Congress from doint this again, or to get another three judges on the Supreme Court who believe that interstate commerce isn't as pervasive as Congress' thinks.

Social Security doesn't have anything to do with the interstate commerce clause. It's spending for the general welfare, which is explicitly permitted. (Which is not to say that it's a good or bad idea, just that it's clearly constitutional whatever you think of the interstate commerce clause.)

[Mark Fox]

alkali: Just to be argumentative... Social Security directly promotes the welfare of its recipients, not the general population. It is inherently discriminatory.

It took a Constitutional amendment to permit discriminatory taxation. People complain less loudly about selective handouts.

[Jason Ligon]

joe:

"And I believe that human beings matter, whether people feel like helping them or not."

I think what you mean to say is that OLD human beings matter, and to hell with the rest of us who suddenly have to pay for all of their medicine because they didn't save for it and pay for their retirements because they didn't save for it. Nevermind that this generation already works more than a third of their lives for government programs on average, and nevermind that there are fewer of us supporting elderly who insist that each new life extending medicine is a human right, forcing us to pay even longer.

There had better be a shit load of immigrants making a shit load of money to be taxed. Oh, wait a minute, the universal stimulus package from the Donkey party is to cut payroll taxes on 'working people'. I agree that it is one of our only hopes, but to pretend this isn't a problem is a joke. No responsible person in their 30s should be living their lives under they impression that social security will pay them a dime unless it taxes them to death to get it.

It is a joke, much like the joke alkali tells when he indicates that T% of income will be subject to how much we have and not how much old people will vote themselves.

Take a look at the arguments Joe raises. He doesn't give a crap who will be supporting him, what level of taxation they have to bear, or any such nonsense. The government promised him that he'd get a check and free drugs, and by god that's what matters.

[Walter Wallis]

Gays should back this. With SS benefits privatized, partners could bequeath their estate to the other.

[thoreau]

Walter-

You may have just turned the evangelicals away from SS privatization... 🙂

[Russ]

I don't think that "privatization" is the answer if it is to follow the pattern of turning the reins of faltering government program over to a private entity to manage. The Social Security scheme is doomed to failure regardless of who is running it (unless they can resurrect Charles Ponzi himself.)

The only realistic way to avoid the impending disaster is to "eliminate" Social Security.

[glenn]

Privatizing Social Security can only end in massive corruption followed by a nationalized wall street. I can't believe that nobody sees this coming.

It just needs reform - dramatic means testing and a raised retirement age for desk jobs.

[EcoDude]

Another potential way in which to "save" Social Security (and saving it is arguable...) is to 1) raise the retiremt age sufficiently to insure solvency and 2) means test the benefit.

[Russ]

Eliminating social security isn't an impossible objective.

Pick a date... say, for instance, January 1, 2005.

If, on that day, you are 65 or older and already entitled to benefits on that date, you continue to collect your benefits out of tax revenue.

If, on that day, you are between 18 and 64, and have already paid into Social Security, you get to stop making payments and you receive a marketable, zero-coupon, inflation-adjusted, government bond that matures on your 65th birthday, with interest paid at maturity and compounded annually at LIBOR. If you want the money now, you sell the bond. Alternately, you can hold the bond, or even buy more retirement bonds from other people.

By 2052, the last of the retirement bonds will have matured, and unless there remain any annuitants who live to more that 112, Social Security will be only be a distant memory.

[Eric]

Eliminating social security is certainly not impossible, as a practical matter. Politically, though, well that's another story.

Privatization, though, is certainly possible politically, and could well be a necessary first step in someday ensuring that abolishing SS completely is not such a political impossibility.

[joe]

I think you misunderstand the public on this, thoreau. Outside of conservatives, who'd hate the program on principle no matter what financial shape it was in, dissatisfaction with Social Security isn't based on opposition to public financing of retirement income. It's based on support for public financing of retirement income, and fear that said financing (and said income) won't be there when our generation's turn comes.

People are happy to finance other people's grannies' retirement, they just don't like the idea of not getting the same when their time comes.

[Mark Fox]

Joe [Big J]: You change the rules of the game by expecting 21st-century treatments. You were promised health care and living support in 1963. How about we give the boomers sixties-era medicine and procedures, along with the handouts required to afford sixties-era living standards? O.K., maybe we can justify 80s-era equivalents, to come closer to an average level of care over the boomers' careers.

If you expect to retire at your final year's salary (with equivalent benefits), you'll have to pay significantly more (as % of wage) in all the preceding years. Unless the state absolves you of your responsibility for retirement planning.

The same sentiments can be applied to veterans. If you got shot in Vietnam, you get benefits fixed at the time of incident.

If the cryopreserving/reanimation fantasy ever actually works, will the state be obligated to exhume and return to life all past citizens?

[Thorley Winston]

Ron Hardin wrote:

Nothing will work except what Greenspan suggests: raise the retirement age. You have to balance the number of retirees receiving goods and services with the workers supplying them and paying for them. That's the mathematical invariant.

That?s one part of it. Another would be to reduce the COLA (cost of living adjustments) which are based on the CPI (consumer price index) which overstates inflation and actually increases the standard of living of federal entitlement program recipients rather than keeping them even with inflation. Another would be to base the original benefit they receive on price-indexing rather than wage-indexing which alone would fix the problem.

Privatizing won't help. It just changes the financing, and no financing at whatever can work with an unfavorable ratio of retirees to workers.

Actually it would help. The problem is not just the ratio of workers to retirees but rather that each worker is promised more in benefits than s/he pays into the system. That?s why we have an ?unfunded liability? for the program. The unfunded liability represents the net present value of how much more the program has promised in benefits than it is projected to take in from revenue. If we let workers opt out, it means that they would not be paying payroll taxes (or at least as much in payroll taxes depending on the particulars) into the system (1) but it also means that they would not be receiving retirement benefits. Since they were promised more in benefits than they were expected to pay in FICA taxes, it would actually make the problem more solvent because the net effect is a lower unfunded liability.

What will happen if you privatize? The average return on investment will fall (everybody buys at once, and everybody sells at once) until the average retirement is postponed enough for everybody. It's exactly the same as with the Social Security program. It's the worker/retiree ratio, not paper money, that rules.

I disagree. When pension plans start to pay out to their recipients, they don?t liquidate their portfolios all at once. Often what they do is convert part of it to an annuity to get a stream of income to pay out benefits while still remaining invested in the market. There is no reason to believe that everyone is going to get in or out of the market at the same time.

Incidentally the government _must_ spend all current Social Security contributions. There's no way for it to save money. It must return it to the economy or the Fed simply prints more, with the same effect.

I agree that if we opt for privatization, there will be a temporary short-fall with the loss of the payroll taxes. However as this is smaller than the long-term shortfalls that will occur without privatization (as we would have to pay more in benefits than we collect in payroll taxes), I would rather have to deal with the smaller problem now than put off the larger problem later. That?s how we got into this situation in the first place.

[Mark Fox]

joe: People are happy to make other people finance their granny's retirement. Precious few look at the FICA line on their pay stub and exclaim, "Damn, I wish I could have paid more!"

Thorley: Thanks for making more sophisticated arguments supporting sentiments I expressed.

[outraged]

Two of the most ignorant statements I've ever come across:

1. In order to keep our promises, we need to contend ourselves with the knowledge that Congress undertook a Constitutionally permissible obligation that fucked us all...

and...

2. Social Security doesn't have anything to do with the interstate commerce clause. It's spending for the general welfare, which is explicitly permitted.

I can't believe I'm reading this crap.

Social Security was never constitutional at any time whatsoever...period....end of that story. The interstate commerce clause has nothing whatsoever to do with SS and never will, regardless of how twisted you're reading of it is. As for the nonsense concerning the "general welfare", that is in the preamble and is NOT PART OF THE CONSTITUTION!!!!. If anything and everything the Feds wish to do is considered to provide for the "general welfare" then you have just repealed the entire constitution in a defacto manner and declared an end to our Republic.

AARRRRRGGGGHHHHHHH!!!!!!!!!!

[Thorley Winston]

Mark, you're quite welcome. Each of us must do our part for this fight and I'm happy to make whatever small contribution I can offer.

[Thorley Winston]

One other thing about raising the retirement age which I do not know if anyone has addressed yet. Opponents of this reform have often pointed out (correctly) that there are many people who had jobs which were so physically demanding (for example my grandmother has a crooked back from a lifetime of working on a farm and in a canning factory) that some people may just be physically incapable of working longer. There are two reasons why I do not believe that this is problem.

First, any increase in the retirement age would ?out of political necessity ? be grandfathered in and not affect people on the system already. One of the more interesting employment demographic changes occurred in the early/mid 1990?s in which a majority of the workforce became white collar rather than blue collar. AFAIK this trend has only increased which means that this becomes less of a consideration with each passing generation.

Second, there is already a built-in safety mechanism for dealing with those people who remain and that is the disability portion of Social Security. If every person who was unable to work longer to receive their retirement benefits were to be on the disability portion until they reached the new retirement age it would still be a wash (we?d pay one instead of the other but we would not pay more) for those individuals. For the majority of the workforce who would still be physically capable of working, there would still be a real savings in postponing when they receive their benefits.

[Michael Messina]

Uh, outraged? Try Article I Section 8. I do agree that it has been misconstrued so as to allow the Federal government to do anything it pleases.

[Thorley Winston]

Gilbert Martin wrote:

I think it was stupid as well - but I don't see how that would make anybody turn to the Democrats. Their only complaint about it was that it wasn't generous enough. It they had been in charge, they would have created a plan even more expensive.

The President?s support of a prescription drug benefit for Medicare is one of the more worrisome spending increases he has enacted. The reason being that this is a new entitlement in perpetuity whereas most of the other spending was discretionary spending that is less politically difficult to cut in the future.

However, I agree with Gilbert Martin for three reasons.

First, the Democrats did want a more onerous plan as the Democratic alternatives in the House and Senate were estimated to cost $600 and $900 billion over the next decade (and that?s assuming that they did not hide any of the cost of their plans as was done with the one the President agreed to) which was more expensive than the one we got.

Second, the original plan the president wanted was actually smaller and more targeted but was increased in size in order to get it through the nearly-evenly-divided Senate over Democratic objections. Something that proponents of ?divided government? seem to forget.

Finally, the new bill does actually include some (but not enough IMO) provisions for competition in the Medicare program which are going to be essential for any long-term cost control of the program. I do not agree with some supporters of the bill (of which I am not one) who said that these would entirely offset the cost (1)of the new benefit but it may mitigate the damage quite a bit. The Democrats do seem to want to do away with any sort of competition in the program, which makes their proposals for further changes even more onerous.

So yes by all means be upset with the prescription drug benefit. It was a bad idea and while we seem to be stuck with it, we can still push for further market-oriented reforms in the Medicare program as well as some of the market-oriented policies (letting the self-insured deduct health care costs, health care savings accounts, expanding the ability of people to join their own risk pools, etc.) the President proposed in his SOTU address. It certainly is better than the Democratic alternative which supported a worse prescription drug benefit, is against any sort of Medical or Health Savings Accounts, and wants to create a new health care entitlement on top of the existing ones.

TW

(1) I have heard some people say that it may have been a wise idea to add a prescription drug benefit because if senior citizens have easier access to prescription drugs, they can be used for preventative care or are cheaper than alternatives such as surgery that are covered by Medicare. Does anyone have any information on this?

[joe]

Thorley, The rub with argument #2 is your phrase "physically capable of working." There are a lot of room between the SS definition of disabled, and the point where someone's body is broken down enough to be ready for retirement.

Now, obviously, if your response to a 68 year old with bad arthritis who has to keep working is "You should have been smarter with your money," the above argument isn't very compelling. But the escape hatch you designed doesn't protect your recommendation from charges that you're changing the rules mid-game.

[Thorley Winston]

Joe wrote:

Thorley, The rub with argument #2 is your phrase "physically capable of working." There are a lot of room between the SS definition of disabled, and the point where someone's body is broken down enough to be ready for retirement.

Really? Please enlighten us as to the difference.

[Gilbert Marttin]

"But the escape hatch you designed doesn't protect your recommendation from charges that you're changing the rules mid-game."

The rules have been changing all along ever since the "game" was started - and the current retirees have been the beneficiary of them. The benefits received by retirees AND the payroll taxes workers pay were increased AFTER a lot of the retirees had retired and started drawing their benfits. So those people got to get by with keeping more of their meony on an after-tax basis most all of their working lives because they were paying for less generous benefits to the retirees who came before them and then after they retired, they got their benefits boosted. There's no way that a system can work equitably for everyone where some people get out a lot more than they pay in. Some people (i.e the last ones in the pipeline) are going be left holding the bag.

Here's my suggestion for a reform: Set a limit on the ratio of lifetime cumulative benefits received to cumulative lifetime contributions paid in (including the employer paid portion) for every person receiving benefits. Set the limit at no more than 3 to 1. Calculate the ratio for every beneficiary right now and anyone over that limit is simply cut off. No more benefit payments.

Of course such a plan would have no chance of getting enacted - but it would be fair.

[outraged]

I must admit I never knew of another "general welfare" clause in the constitution. Guess thats why I'm out here. Not only that, but as I read it, the only thing standing between the Feds and ANYTHING they wish to do is the 10th amendment. I dont want this to turn into a whole 'nother thread but it seems to me that both sides in every argument over constitutionality have something concrete they can point to. Geniuses my ass.

Now that my day has been ruined I shall use our worthless constitution to light myself on fire!!!!

[Rick Barton]

It's important to remember about SS, that it is, not a savings plan, nor ls it, an investment plan. It is a wealth transfer plan.

The demographic change of the population dictate that, without reform, Social Security will be paying out more in benefits than it will be collecting in taxes by 2018, and that by 2042 the Social Security trust fund would be exhausted.

If we try to avert this by raising taxes, the payroll taxes will have to go up to an extent that the economy will be less productive so that even constant dollar equivalent benefits will not provide the retirees with equivalent purchasing power. Also, the tax burden on the workers will be crushing. Raising payroll taxes is a solution that will be not be good for any population group.

However, if workers are allowed the option of paying in less payroll taxes it would lesson the future retirement benefit liability of SS. And, what's more, it would reduce the unfunded liability, moving it toward solvency for those who choose to stay in.

The same population dynamics which buttress the case for doing this also buttress the case for doing it ASAP instead of later since the subtraction of PR taxes are much more easily adjusted for now then later.

Self-interest can make this solution politically marketable. And, if I may repeat; something often overlooked by those who seek change in SS is that most parents do not want to adversely affect their kids and Grand kids. But, it can be demonstrated that, that is exactly what will happen if the government tries to fix this mess via raising payroll taxes instead of privatizing.

[Joe]

Jason said:

Take a look at the arguments Joe raises. He doesn't give a crap who will be supporting him, what level of taxation they have to bear, or any such nonsense. The government promised him that he'd get a check and free drugs, and by god that's what matters.

Actually this is a completely false representation of my sentiments. I have three children who will be affected very much by this just as I have been affected by what SS is presently paying out. My point is that Greenspan and a lot of you other educated people suddenly want to change the rules of a game I've been playing since 1963 but at the same time you want to confiscate all my equipment (send my job to India) so I'll be at even more of a disadvantage.

Just for the record, if the medical and pharmaceutical conglomerates relied on people like myself, they'd all close up tomorrow. Barring major catastrophy, I average about 23 dollars per year in medical costs so I'm not looking for free medicine or any other handout. Give me back what I've paid in and the whole system can go to hell as far as I care.

I only want a few years to catch my breath before I croak. I've seen too many people work til they dropped dead just to pay for food, taxes, and insurance.

I do think that as people (myself included) get within 10 years of earliest elgibility for SS their contributions should go up considerably, maybe 10 to 20 percent. I also think that any other retirement or 'non earned' income should limit what a person can draw.

[Rob]

Just in case anybody is fuzzy on the definition of a Ponzi scheme:

"An illegal investment scheme in which investors are promised impossibly high returns on their investments. These are scams in which money from later investors is used to pay earlier investors. The creators of the scheme get most of the profits while those who come later are left with nothing because there are eventually an insufficient number of new investors to pay the existing ones. These scams inevitably collapse because they require exponential growth in the number of participants at each step, which is impossible...." -from http://www.investorwords.com

I'd say it fits SS just about perfectly. Redistribution of wealth doesn't have anything to do with whether or not SS is a Ponzi scheme. It's a Ponzi scheme because even though (on average) everybody pays a lot of tax into the system, (on average) we've all been promised a much greater benefit at retirement. Even if I loved the Social Security program, I would still have to call it a Ponzi scheme based on the definition provided.

[Thorley Winston]

Charles wrote

I've never held employment outside of being an independant contractor, so this hasn't yet effected me all that much.

Sure it has. Even if you?ve decided to break the law and not pay FICA (in which case the effects could come later pending an IRS audit), you still live and work in an economy in which employment is depressed because of the payroll tax, economic growth is less than what it could be because workers are unable to invest 11.67% of their income, and government largess (along with the taxation, regulation, and litigation which support it) is made more popular because of universal entitlement programs like Medicare and Social Security. If you think that hasn?t affected you yet or won?t in the future, you?re dreaming.

Aside from any questions about these old monkeys riding my back... I can't for the life of me understand why libertarians are pushing privitized social security. It seems like an all or nothing issue.

The prospect of 76 million baby boomers becoming the ?old monkeys? and deciding to vote for a tax increase on those of us who are still working to make up for the $56 Trillion unfunded liability for Medicare and Social Security is sufficient motivation for me at least to try and fix the problem or at least mitigate the damages while we still can.

[joe]

Social Security doesn't require exponential growth in the number of participants at each step. In fact, the ration of employed:retired has been dropping for years, and it's still in the black. The only reason there's even a temporary fiscal problem projected, is because of the extraordinary demographic bubble of the baby boom. If the rate of the ratio's decrease was just a little lower, there would be no problem.

Please note the complete lack of exponential growth in workers from 1945-present.

[Gilbert Martin]

"I could go on and on, but the point is that the parties evolve. If young workers grow tired of being squeezed for an inter-generational transfer of wealth, they'll be more likely to blame the status quo then to reach back in time to the 1930's. If the GOP continues its profligate ways and maintains its hold on power, they will be blamed and the Democrats may (ironically) evolve in a fiscally conservative direction."

Blaming the "status quo" doesn't translate into exclusively blaming the Republicans. The entitlement programs are non discretionary programs. The Republican administration cannot unilaterally cut spending on them and the Reublicans do not have a significant enough majority in Congress to pass legislation to cut them even if they could get everyone on that side of the aisle to cooperate in doing so.

[Gilbert Martin]

"Uh, outraged? Try Article I Section 8. I do agree that it has been misconstrued so as to allow the Federal government to do anything it pleases."

Indeed it has been. The "general welfare" language in Article I Section 8 was only intended to refer to spending related to the other specifically ennumerated categories in that Section. Who said that? James Madison did. And he should know what it meant since he was the one who wrote it in the first place.

In any event, by no stretch can "entitlement" programs be construed as "general welfare" since they are specific welfare for selected individuals - not general welfare.

[thoreau]

Gilbert-

If the only issue is the existence of Social Security then younger voters might not blame the GOP. But if the GOP continues to sign off on old-age entitlement expansion like it did with the prescription drug boondoggle, young voters will have good reason to blame the GOP. Yes, a lot of Republican members of Congress voted against it. But a lot voted for it, and the idiot President signed it.

[Rob]

Okay joe, you got me. It doesn't require exponential growth in the number of workers. But because (on average) people withdraw more than they paid in, it does require a steady increase in the number of taxpayers to support current beneficiaries if the program is to remain solvent. My main point of comparison was the part where those who run the scheme pocket the difference between the collections and the amount required to pay current beneficiaries. Don't you find it the least bit outrageous that Congress has taken the surpluses since Day 0 of the program and simply spent them?

I agree with you that if the ratio of retired persons' benefits withdrawn to working persons' taxes collected could be decreased, disaster could be averted. SS could be saved. I guess it remains to be seen whether the young will agree to work until age 75 for reduced benefits in order that their parents can quit at age 65 on full benefits.

[Gilbert Martin]

" I guess it remains to be seen whether the young will agree to work until age 75 for reduced benefits in order that their parents can quit at age 65 on full benefits."

Yeah.

Also remember that who've been drawing all those full benefits for a good period of time were paying in a lot lower payroll tax rate back when they were working than those who are paying to support them know are.

[Gilbert Martin]

"But if the GOP continues to sign off on old-age entitlement expansion like it did with the prescription drug boondoggle, young voters will have good reason to blame the GOP. Yes, a lot of Republican members of Congress voted against it. But a lot voted for it, and the idiot President signed it."

I think it was stupid as well - but I don't see how that would make anybody turn to the Democrats.
Their only complaint about it was that it wasn't generous enough. It they had been in charge, they would have created a plan even more expensive.

[joe]

Rob sez, "But because (on average) people withdraw more than they paid in, it does require a steady increase in the number of taxpayers to support current beneficiaries if the program is to remain solvent" It does not require an increase in the number of workers. In fact, it has done quite well with a relative decrease in the number of workers, due to increases in productivity per worker.

"Don't you find it the least bit outrageous that Congress has taken the surpluses since Day 0 of the program and simply spent them?" No, I'd prefer not to see the US government sit on a financial instrument for 40 years. That money is better off out in the economy.

The Social Security surplus, and the entire two-sets-of-books setup, is an accounting trick. The government has income from various taxes, and it spends money on various programs. Social Security is no different.

"I guess it remains to be seen whether the young will agree to work until age 75 for reduced benefits in order that their parents can quit at age 65 on full benefits." Or we could just make sure the national debt is low enough going into the temporary retirement bubble that we can afford to have deficits that are slightly higher for a few years. Like Al Gore recommended.

Trying to avoid this solution, and jacking up debt in order to create an otherwise-avoidable crises, explains why Shrub is so happy to see the deficit explode.

[thoreau]

Gilbert-

Voters won't turn to the Democrats, but a new generation of Democrats may turn to disaffected voters. In liberal enclaves with younger voting populations, some maverick Democrats might start to win by promising to cut the SS and Medicare taxes. We wouldn't see an overnight change in platform, just as we didn't see an overnight North-South swap between the parties, when the "Solid South" of LBJ became the "Red States" of George Bush.

So as a few maverick Democrats in traditionally liberal enclaves start pushing a very unusual economic platform, these Democrats might find some unusual allies. Things can change, slowly.

Bottom line: If an intergenerational transfer of wealth becomes the key issue of US politics, one of the parties will side with the young. And there are reasons to think that the Democrats might evolve into that party. Of course, in doing so they will change and no longer be the party that they are today, and the GOP will party that it is today. They've done it before, abandoning most of their features except the label. They could do it again.

[Rick Barton]

From Cato:
http://www.socialsecurity.org/pubs/articles/bb-01-27-04.html

"Social Security's actuaries report that without reform, Social Security would be paying out more in benefits than it would be collecting in taxes by 2018, and that by 2042 the Social Security trust fund would be exhausted.

If we try to avert this by raising taxes, the payroll taxes will have to go up to an extent that the economy will be way less productive so that even constant dollar equivalent benefits will not provide the retirees with equivalent purchasing power. Also, the tax burden on the workers will be crushing.

Phasing out of SS with privatization is the only answer. Everyone will be richer for it. The natural constituency for this is the 50 and younger group. The best thing to do is to be vocal in support of privatization. Self-interest will make the message resonate with a portion of the population that is politically potent.

The demographics are there for change if the message becomes part of political currency. If this truth is spoken to power others will want to lessen the power of SS. But, they must hear the message first. Very few political institutions, to the extent the SS status quo does, thrive on the fear of speaking out for change.

Another important thing often overlooked by SS status Quo opponents is that most old people don't want to screw their kids and Grand kids. But, it can be demonstrated that, that is exactly what will happen if the government tries to fix this mess by raising payroll taxes instead of privatizing.