Social Security and Voter Manipulation

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One argument for Social Security reform that's always annoyed me a bit is the (rather dubious) claim that it'll create more Republicans by encouraging a more widespread "investor class" mindset. Even if, as seems possible, the program in its current form tends to cultivate the opposite mindset, advocating a public policy because you want to induce people to vote the way you prefer is a gross act of bad faith. But as Will Wilkinson notes, and if I can channel my colleague Cathy Young for a moment, the privatizers don't have a monopoly on this particular brand of bad faith.

Whatever one thinks of the merits of privatization, the current structure of Social Security makes no sense whatever—from a policy perspective, anyway. If the point is not to have elderly people living in poverty, then we can have a means tested welfare program for the elderly financed out of general revenue and be done with it. There's no earthly reason to be cutting checks to middle class and wealthy people who already have savings of their own (and would doubtless have more if they hadn't had to pay in 12 percent of their salaries for several decades).

Corner them over a drink and Social Security boosters will readily concede as much. The problem is this: The useless "universal coverage" aspect of Social Security conceals the program's redistributive aspect. If you ditched the useless part and just kept the welfare aspect that its defenders care about, it would soon become politically unpopular and mean Republicans would get rid of it or at least scale it back radically. But this seems at least as offensive as the other sort of argument: The premise is, in effect, you need to scam people into supporting your favored program at the level you're happy with by burying it in a much bigger and more ungainly program that its own supporters will grant (in private) is rationally indefensible except as a cover for the welfare aspect. And, obviously, it's a strategy that explicitly depends on the general public not understanding what's going on. That scarcely makes it unique in politics, of course, but it's sort of perversely amusing to contemplate that Social Security may ultimately be a massive Rube Goldberg device designed for the sole purpose of building a much smaller welfare machine hidden in its bowels.

NEXT: Medicareless

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  1. Julian, while those observations may be true, I think what it boils down to is that everybody wants a piece of the action, and a program that delivers that, no matter how irrational it may be, will be popular.

    Take away the “free money for everybody!” aspect and people may act as though their opposition is based on principled opposition to redistribution, but the bottom line will be “Hey, I want a check too!” for most voters.

  2. Julian, you don’t normally strike me as so pie in the sky-ish as to note with concern that some public policy is mostly about getting votes. ALL public policy has to do with getting votes, doesn’t it? Politicians are self interested just like the rest of us.

    With that in mind, I am fond of the increasing investor class argument. Another way of looking at it is that it to some extent closes the disconnect between those wanting a handout and those paying the bill. It can almost force the redistribution voting block to cannibalize itself by eliminating thier ability only to bill those on the other team.

  3. I too am anything but shocked at the idea that policy is driven by political expedience first and foremost, but I otherwise agree with Julian’s sentiments here, particularly the call to let a welfare program be a welfare program.

    Here, for those interested, is an article that acknowledges, but supports, most of what Julian criticizes:
    http://www.dollarsandsense.org/1104spriggs.html

  4. The problem with the idea that Bushie “personal accounts” will get people to adopt Grover Norquist’s economic ethics is that owning stocks as part of a personal accounts, or even through a mutual fund that a manager you’ve never met handles, is not the same thing as actually being the owner of a company. The CEO of ConAgra may have a visceral perception that wetland regulations harm his bottom line, but somebody who gets a statement about the four mutual funds he own’s performance in the last quarter – a statement that doesn’t mention ConAgra, which makes up 1.2% of his holdings – probably isn’t going to make that same connection.

    Now, if “ownership society” types wanted to actually distribute the resposibility for and control of “publicly owned” corporations among the populace, such that people actually had a boss’s eye-view of things, that might lead them to think more like bosses. But that’s the LAST thing the economic right wants.

  5. It is pretty much a given, at least it has been in my mind for many years, that social security will ultimately evolve into the means-tested welfare program for indigent old people that Julian describes.

    It simply must, the system already absorbs 15.3% of the first 90 grand of every working person’s income. Pure demographics dictate that it cannot sustain that level of extraction.

    In the meantime Gen X’ers will face hard reality when it comes time to fork up the retirement funds that Baby Boomers want and have the political power to make happen.

  6. When I first started paying into social security ( over 45 years ago) most referred to it as social security insurance. We understood that it was not welfare;not even income redistribution because by god we were paying for it! The idea was for the excess money to go into a trust fund, draw interest, and remain solvent even through tough economic times.

    The feds have hi-jacked the system. The social security trust fund is nothing more than a piece of fxxxing paper indicating that the federal government owes the trust fund about a trillion bucks. How can the government pay off the loan from the trust fund? massive tax hikes of course. Anyway we look at it it will cost big money to bail out social securit whether we have individual accounts or not. I’m 63 years old and drawing social security. I figure I will croak before the system is bankrupt but if I was among the younger set I would be worried. Government sponsored individual accounts or not you damn well better be putting a big hunk back if you ever plan on retirement–or else get a good government job that has a good retirement plan–run for congress or sosmethin.

  7. Guyk, you may have called it Social Security Insurance, but it is now and has been since inception a ponzi scheme (aka pyramid scheme.)

    I anyone besides the government had operated it, they would have been thrown in prison.

  8. Of course, expanding the investor class, especially with money taken from you forcibly, will have unintended consequences. People will push for greater regulatiion of this “public” good and we’ll see the SEC be more like the current FCC. The cries of “do something!” after a scandal will be a lot louder and the current environment will look positively lasseiz faire. Of course, that’s just cynical ol’ me talking.

  9. The feds have hi-jacked the system.

    The feds have always run “the system” this way. There wasn’t any “hijack”.

    The only thing that’s changed is the number of payroll tax payers, so they’ve had to increase the payroll tax.

    The thing that bothers SS advocates about a means tested pension plan paid out of general revenue is that they’d have to give up the payroll tax and the “surplus” that they get to spend on their pet projects while pretending not to raise other taxes. The trouble for them is that it’s getting harder to get younger workers to believe in the “trust fund” fairy.

    I’m not worried though; economic growth will make the problem disappear.

  10. Drat, NoStar beat me to it.

    Never mind repetition is the best form of emphasis.

  11. “a much smaller welfare machine hidden in its bowels.”

    I have the image of FDR swalling a condom full of Social Security powder and driving across the border.

  12. “I’m not worried though; economic growth will make the problem disappear.”

    Average economic growth from the end of the Civil War to the present day = 3.4%/annum. That’s not cherrypicking, that’s 140 years.

    If econonomic growth averages 3.3% for the next few decades – worse than the historic average – Social Security outlays will NEVER exceed revenue under the current funding scheme.

    What is a 3.3% average rate of economic growth? Well, in the last quarter of 2004, the economy grew at an annual rate of 3.75%

  13. I have the image of FDR swalling a condom full of Social Security powder and driving across the border.

    I know that everybody here wants to argue with joe about many, many things, but can we at least agree that this line was hilarious?

  14. “Where are those laxatives? My stomach hurts so much I can barely stand.”

    Yup, I’m going to hell.

  15. Nostar: yep and as always the last ones in on a ponzi scheme are the losers. I figure to live long enough to get most of my money back with interest. Many will not. In any event I did not depend on ‘socialable’ security for my retirement.A little savings here and there along with some self discipline and one can accumulate enough to live comfortably on. The monthly check just supplements. Too many folks today rely on social security as a sole retirement income. Lots of luck to these folks but eating dog foodmay not be healthy.

  16. “Now, if “ownership society” types wanted to actually distribute the resposibility for and control of “publicly owned” corporations among the populace, such that people actually had a boss’s eye-view of things, that might lead them to think more like bosses. But that’s the LAST thing the economic right wants.”

    joe: I don’t really follow the argument. No one is saying that ownership society means public control of companies. The ownership isn’t that you own shares, it is that you own your own account and attain a vested interest in how it performs. The alternative is not to give a flying crap about your own situation because you can by golly charge your kids the difference. Security!

    Each mutual fund owner will get AT LEAST an annual report of top 10 holdings, and each fund holder has the ability to sell at any time. If you don’t like that you don’t know every investment in the fund based on its prospectus information, don’t buy it. Any way you slice it, more shareholders means more people benefitting from a growing economy. The left’s class warfare arguments are much less impressive sounding to those who used to feel excluded from the investor class.

  17. “If econonomic growth averages 3.3% for the next few decades – worse than the historic average – Social Security outlays will NEVER exceed revenue under the current funding scheme.”

    And yet, both the GAO and the SSA indicate that it will in fact happen in or about 2018.

  18. Jason Ligon

    Then in 2018 we’ll just have to raise the payroll tax.

    And we can just keep doing that until the kids catch on that they’re being soaked so a bunch of able-bodied well-heeled geezer slackers can go running all over the country in Winnebagos.

  19. Actually I have my doubts that a “…means tested welfare program for the elderly financed out of general revenue…””….would soon become politically unpopular and mean Republicans would get rid of it or at least scale it back radically.” After all only a small minority of people are as mean as I am. 🙂

    What I can see is the current system suffering a backlash due to the perception I described in my last post. And the consequences of that may be even more harmful.

    Actually I would consider voting for anyone advocating a means tested welfare program for the elderly financed out of general revenue.

    Although I would probably want means testing to include actually being unable to work rather than “I’m old and I don’t feel like working.”

    Hell, I didn’t feel like working when I was 27 , what will be so different about 67 that I get to indulge my whims.

  20. The useful core of universal social security is that it’s an inflation adjusted annuity. You can’t outlive it, it adjusts for inflation (try doing that privately) and the company supplying it won’t have disappeared in 30 years after you retire (another thing you can’t do privately).

    Hence it is important not to reduce the benefits _once the retirement age is reached_ whatever the retirement age is set to. Obviously it has to go up to match the demographics, what with longevity and the bulge of coming retirees.

    To get that inflation-proof annuity if you live to 100, you count on most people dying sooner.

    If you want to retire before the raised retirement age, use your own savings to bridge the early retirement interval.

  21. “If economic growth averages 3.3% for the next few decades – worse than the historic average – Social Security outlays will NEVER exceed revenue under the current funding scheme.”

    I’m not sure how you’re arriving at that thought. Outlays will exceed revenue, even with decent economic growth, because it isn’t simply tied to economic growth. Increases in benefits that outstrip the rate of inflation, the change in the ratio between workers and retirees, and the fact that no real surplus can be maintained all have a say in matters, too.

    Workers don’t want to work longer to get to their guaranteed benefit, but they’ll be claiming that benefit longer since they’ll live longer. Most of them didn’t have more than one or two kids, with a handful doing more than their replacement duties, so our population stays at just above replacement levels, and, even with immigration, there are fewer workers contributing to support each retiree. The retiree’s money was spent long ago and is now only represented with an IOU that the government will have to pay back either with money from the general revenue or from a giant Social Security tax increase.

    You say that the outlays won’t ever exceed the revenues, but that just isn’t supported by the facts of Social Security (or by any reasonable study that I know of). Notably, even if it were true, there are good enough reasons to be opposed on principle to another welfare program that forces people to “invest” in something that they have no say in, have no real guaranty of recouping, and could probably invest better on their own if given a chance. Even if SS was solvent and happy for the next hundred years, it’s a scam.

  22. FDR swallowing a balloon is funny. Unfortunately, we who are under 50 are having the SS powder inserted into our bowels via suppository.

    Before the idea of “social insurance” was cooked up, people called a check from the govt. an “old age pension.” The change in terminology was invented strictly as PR to break down the opposition of the fiscally stodgy, who thought something for nothing was immoral. “A whole bunch for quite a little” was the SS norm into the 1960s, and the fig leaf only broke down in the face of inflation and the drop in family size when the Boom ended.

    Kevin

  23. Not that it should be necessary for a person to invest massively in risky investments just to have income stashed away for the future (however benificial such investment is socially). It seems it is necessary because of inflation. It is the only way to keep even with the money the government steals indirectly through inflation … And that’s part but not the whole of the dilema and it makes social security seem attractive.

  24. Look at our “alternatives”. Raising taxes and/or reducing benefits. Both of these will work on paper, but most seem to forget that this has already been done. SS has a history of raising taxes (40 times?) and cutting benefits (including raising the retirement age). Why would either one of these work again if they haven’t in the past?

  25. “joe: I don’t really follow the argument. No one is saying that ownership society means public control of companies.”

    The idea behind those who believe the ownership of stocks will encourage people to think more like Republicans is that they will have an interest in the performance of the stocks, and therefore support policies that promote the growth of those companies, and of corporate profits as a whole. The problem is, the layers of management between stockowners – particularly someone who owns stocks in a mutual fund that is managed by a stranger, who is managed in turn by the government – and the lack of direct information about the companies’ operations, and thethe small role any one stock will play in a broad, fund-based portfolio, makes the connection between a government policy and the stockowner’s bottom line quite obscure. The owner of a coal-burning power plant has a huge interest in preventing clean air legislation, one that outweighs his share of the public benefit of cleaner air. Somebody whose “personal account” manager got permission from the government to include power plant stocks as 1.2% of the holdings in a fund whose details that owner isn’t familiar with, otoh, isn’t likely to weigh the costs and benefits in the same manner.

  26. Nothing prevents joe or any eco-weenie from making investments with a Working Assets-style “ethical investing” fund. I am concerned that any plan would put the decision-making on where to place “personal accounts” funds in the hands of politicians and/or bureaucrats, rather than in those of the individual.

    Any ill effects from individual investors deciding where to put their cash based only on rate of return and risk calculations, without reference to the management decisions of the companies the fund directors pick, are dwarfed by the massively worse damage done to society by letting the federal government use SS cash-flow to enable their insane spending programs.

    Kevin

  27. “Nothing prevents…”

    Nothing prevents people from voting Republican under the existing Social Security system. The point, for “ownership society” types, is to set up a system that encourages people to think and behave in a certain manner, not merely to avoind pretenting them from doing so.

  28. That’s right, “avoind pretenting.” You gotta problem widdat?

  29. Have you considered using Spelczech?

  30. If the point is not to have elderly people living in poverty, then we can have a means tested welfare program for the elderly financed out of general revenue and be done with it.

    This makes way too much practical sense to ever have a chance of happening. The program has support as is because it allows so many people to pretend they’re not on welfare. Putting retirees on welfare and calling it such would rob them of their “dignity”… so say the SSA boosters.

    nmg

  31. Not that it should be necessary for a person to invest massively in risky investments just to have income stashed away for the future (however benificial such investment is socially). It seems it is necessary because of inflation. It is the only way to keep even with the money the government steals indirectly through inflation … And that’s part but not the whole of the dilema and it makes social security seem attractive.

    A person who works from age 18 to age 65 and puts 12% of his earnings into accounts yielding a mere 4% real return can draw down his savings over a 30-year retirement to earn a pension equal to 108% of his net paycheck.

    That that 12% is taken from that 18-year-old and sent to millionaires is simply criminal.

    Play with the numbers and get the visceral feel for what a horrible system Social Security is:

    http://www.tcalc.com/tvwww.dll?Save
    http://www.tcalc.com/tvwww.dll?Spend
    http://www.tradetrek.com/ToolBox/RetC.asp

  32. “Then in 2018 we’ll just have to raise the payroll tax.

    And we can just keep doing that until the kids catch on that they’re being soaked…”

    What difference does it make when the kids catch on so long as the largest voting bloc in the democracy wants something else? Even if every single Gen X-er and Gen Y-er disliked Social Security we’d still have to pay for it. Hell, I’d be delighted to let the government keep every single penny I’ve ever given them in Social Security and Medicare taxes for the last 20 years with no possibility of ever getting any of it back on the condition that they’d just stop taking it. But, of course, they don’t have to make that deal because not only will they keep taking it, but they’ll likely start taking more, and I still won’t get any of it back when I retire. It seems my only chance at not being bled to death by a bunch of retired vampires is to pull Bugs Bunny’s scam and saw off Florida at the panhandle. Well, maybe not, but the next time I hear about the awful conditions at some retirement home I’m going to be happy about it. Incontinence? Great! Heart disease? Osteoporosis? Cancer? All the better. Heat wave kills a whole bunch of geezers in the south? Yippie-kai-yea!

  33. …saw off Florida at the panhandle.

    Actually Fla is no longer the destination of choice of retirees. In some years more geezers leave than enter.

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